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Centamin Plc - Is It A Dividend Company?

|Includes: Centamin PLC (CELTF)

Summary

Mining companies are not income plays; however, sometimes you can find a few exceptions

Last year Centamin plc paid a generous dividend

In my opinion, this year the dividend yield is going to be much lower

Precious metals mining companies are not income plays. In other words, the investors hunting for dividend-generating picks should forget about the precious metals sector.

However, there are exceptions. For example, last year Centamin plc (OTCPK:CELTF), a mining company operating in Egypt (the Sukari mine), paid a very generous dividend of 15.5 US cents per share. Keeping in mind that Centamin shares are trading at US$1.96 a share, the dividend yield stands at 7.9%.

Now, investors get accustomed to good things very quickly. I am sure that some of them hope that this year Centamin is going to pay a high dividend once again. However, I doubt it. Look at the table below:

source: Simple Digressions

The table shows the way the company calculates its dividend. Firstly, cash flow, defined as revenue less all-in sustaining cash cost of production, is calculated.

Then the EMRA profit share (briefly, it is that part of the company's profit that is attributed to the government of Egypt) and exploration expenses (related to other Centamin's properties) are deducted, resulting in the so-called free cash flow. 

Now, the point is that this year Centamin wants to pay off not less than 30% of free cash flow in the form of a dividend (last year it was around 70%) so, as the table shows, the dividend yield should stand at a mere 2.0%.

At least that is what the company stated in its 2016 Annual Report:
source: Centamin plc

If, due to some reasons, Centamin's management decides to pay a higher dividend, that is fine. For example, if the payout ratio is 70% (as last year) the yield should stand at 4.6%, which is a very nice figure. 

However, the question is: will they change their dividend policy?