It continues to both amaze and excite me the lack of respect various junior miners are being given by the market. While five in particular catch my eye, Centamin Egypt (OTCPK:CELTF) is the one that really stands apart.
It has the growth profile on a percentage basis similiar to the likes of Jaguar (JAG) and Red Back (OTC:RBIFF), yet one would be hard pressed for this name to come up when debating the most undervalued miners. While I'm not claiming by any means this to be the case, it isn't out of the realm of possibilities.
Though Centamin has just commenced production from their world class Sukari Mine in SE Egypt, their 2011 FY (starting in June), Sukari's ramp-up will be fast and furious to 200k. What's more encouraging, are two expansion projects, increasing production to approx 285k and 400k the following two years. But assuming gold stays above $1,000/oz a second expansion project will allow them 500k of production instead of 400k. By 2014, production will be above 600k per annum.
But as I pointed out with Red Back's Tasiast mine, which has since raised production guidance twice ( first from 500k at peak production then to 720k and recently to 1m oz per annum), Sukuri is an extremely high quality mine. Their current resource and reserve base stand at approx 13.7m oz and 7.1m oz and will likely be guided upward throughout the next several years. Like Red Back, Centamin is a rare, non-senior producer that owns an asset of this calibur.
But now for the kicker ............ no tax liability for 30 years! This is essentially equivalent to a $200-$300 increase in the gold price. Cash costs are expected to decline from approx $400/oz to approx 390 following the next fiscal year. Though I think many miners' cash costs are overly optimistic, the tax structure negates this problem and then some.
Like any miner, however, their are inherent risks including geo-political, startup/ramp up, etc. Centamin also only has one opertaing asset (albeit world class), so keep this in mind. Geo-political risks are highly debateable, for example Australia ( supposedly one of the most mining friendly countries in the world has imposed an additional tax on miners). While Eygpt is no Canada, it is also no South Africa.
Though I have written numerous articles on another favorite, Jaguar Mining, they are having mild ramp up difficulties, which has caused their stock price to stagnate despite the gold price increasing more than $200/oz. While this is frustrating for investors, the market is extremely short sighted on this matter. Cash costs will decline ( notably in 2011 and 2012) as lower grade ore is currently being mined at the C zone at Turmalina. 2010 cash costs are projected to be approx. $560/oz, but will drop to approx. $475/oz in 2011 while production jumps from 185k to 300k. Not only did Jaguar make a brilliant purchase of Gurupi, they also have the option to further increase peak production of more than 100k-150k/ year to a possible 800k by 2014. This would be accomplished through both a new processing technology as well as a central refractory ore project.
While continued patience may be required with Jaguar, the payoff will be well worth the wait as JAG is currently trading with just over an 850m market cap and a minimal amount of net debt. In the meantime, this remains a very attractive takeover target in which case shareholders would likely receive a very handsome premium. It is also worth considering the high likelihood of additional financing through a royalty company to expedite production ramp up.
While I have found many opportunistic investments in the exploration and junior mining sector, I'll save that for the next article.
Disclosure: Long CELTF.PK , JAG , RBIFF.PK