Gold stocks have been among the market’s best performers in 2020. Mid-cap miner Centamin (LSE: CEY) was among them. That was until it released an unscheduled operational update on Friday. Its shares crashed. I think the fall of 22% makes the Centamin share price highly attractive. Here’s why.
Soaring gold stocks
I’ve been bullish on gold miners for a few years, due to global debt and money-printing on an unprecedented scale. As a result of the responses of governments and central banks to the Covid-19 pandemic, debt and ‘magic money’ are now off the scale.
I think the impact of the debasement of paper currencies will run for years, or even decades. Gold is the ultimate ‘store of value’. As such, I’m not surprised many analysts are forecasting a long bull run for the yellow metal. In such an environment, I’d expect gold producers to thrive, and dole out years of bumper dividends.
The Centamin share price crash
Centamin’s operational update and share price crash have pared the FTSE 250 stock’s gains for 2020. However, it’s testament to the increasing demand for gold that, even after Friday’s 22% drop, the Centamin share price is still up for the year. Its rise of 24% compares with falls of over 20% for both the FTSE 100 and mid-cap indexes.
Centamin’s share price slumped on Friday because the company announced a suspension of open pit operations in one zone of its Sukari mine in Egypt. Its other open pit zones and underground mining are unaffected.
Nevertheless, management’s estimates of reduced fourth-quarter gold production imply full-year production of 445,000-460,000 ounces, down from previous guidance of 510,000-525,000 ounces.
Furthermore, the zone where operations have been suspended is a high-grade one. This will mean higher costs per ounce for the year than the company previously envisaged. But it’s by no means the end of the world, or of dividends, I reckon.
Why I’d take advantage of the Centamin share price crash
The news is a setback. However, it comes from an early, sensor-detected movement in a localised area of surface waste material. Operations in the zone are only deferred. The company has already commenced a “geotechnical assessment, which is focused on developing a plan to mine the impacted area.“
Furthermore, even if Centamin abandoned the zone, its 90,000 ounces of gold in situ is only a small part of the Sukari mine’s resources and reserves. As such, I think Centamin’s share price crash is overdone. It’s a good opportunity to buy the stock, in my opinion.
A small portfolio of gold stocks
I’ve often advised investors go for a small portfolio of gold stocks, rather than backing just a single company. This is precisely because of the kind of operational setback Centamin has just suffered, and which can hit any individual miner from time to time. I’ve also suggested geographical diversification to mitigate political risk.
So which miners would I be happy to buy today alongside Egypt-focused Centamin? There are plenty to choose from on the London market, but my perennial favourites look very buyable right now.
These are FTSE 100 giants Fresnillo and Polymetal, which mine in Mexico and Russia respectively, mid-cap Hochschild, whose mines are in Peru and Argentina, and FTSE AIM 50 firm Pan African, which operates in South Africa.
G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Fresnillo. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.