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Questor: either the gold price or this miner’s share price is wrong: we say back the miner

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·4-min read
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gold graphic
gold graphic

Gold is hovering around the $1,900 an ounce mark, which means the precious metal’s price has risen by 55pc over the past five years and trades at barely 7pc below last autumn’s record high. By contrast, shares in Centamin, the gold miner, are no higher than they were in June 2016 and stand at barely half the peak reached last year.

It is therefore tempting to argue that either the gold price or the share price is “wrong” – and given the current macroeconomic backdrop this column’s inclination is to believe that the share price is too low rather than the gold price too high, even allowing for Centamin’s history of operational disappointment.

America’s Federal Reserve, the Bank of Japan, the European Central Bank and the Bank of England are showing little or no inclination to tighten monetary policy. This is despite the fact that near-zero interest rates and quantitative easing were described as emergency policies when they were introduced in the West in 2008-09 and despite signs that inflation is gathering – last month’s 4.2pc year-on-year rise in the US consumer price index was the fastest rate of advance in more than a decade.

The central banks’ view is that this surge will be temporary because it is partly the result of pent-up demand and supply-chain dislocations as lockdowns ease and partly due to the low base for comparison offered by the economic downturn of 2020.

That view may be right. But commodity prices are rising, factory gate prices are on the up and consumer price indices are surging. If wages start to rise sharply we could indeed be in a situation in which inflation is truly making its return after lying dormant for the thick end of 40 years.

Real assets – commodities and property – or paper claims on real assets via shares in miners, for example, provided portfolio protection in the 1970s as the cost of living galloped higher, so those investors who do fear the return of inflation could be forgiven for researching gold miners such as Centamin once more. That said, those who see inflation as a transitory phenomenon will be unmoved.

This column has yet to strike it rich with Centamin: the shares are showing no gain since our initial analysis more than two years ago as the firm has disappointed on production volumes and costs more than once. A development plan announced last week for its assets in Burkina Faso and Côte d’Ivoire also went down like a lead balloon with analysts.

Yet the company should be primed to capitalise if gold prices do shoot higher, especially as a first-quarter update in April reaffirmed 2021 goals to produce between 400,000 and 430,000 ounces of gold at an “all-in sustained cost” of between $1,150 and $1,250 an ounce.

Admittedly, that means production will be lower and costs will be higher than in 2020. But the targets still underpin management’s aim of paying out at least $105m in dividends. That is the equivalent of at least $0.09 a share, enough for a yield of 5.8pc, and the higher the gold price goes, the more chance for higher profit, cash flow and dividend forecasts.

Centamin could yet regain its lustre.

Questor says: hold

Ticker: CEY

Share price at close: 109.7p

Update: TI Fluid Systems

A trading update last month suggested that business was turning up at TI Fluid Systems, the car components supplier.

Revenue growth yet again outpaced the increase in global car production, a trend that should help lay to rest any fears that demand for the company’s vehicle fuel systems will suffer as the world transitions away from the internal combustion engine. In fact, more than half of last year’s contract wins were for electric vehicles.

The sale of a combined 10pc stake by the main private equity backer and the outgoing chief executive, Bill Kozyra, do not seem to be knocking the shares off their stride, which is a good sign as it suggests there is plenty of appetite for the paper. That said, the “lock-up” period is only 60 days and investors will not want to see more blocks of stock coming their way in quick-fire fashion.

TI Fluid systems could still deliver some pleasant surprises.

Questor says: hold

Ticker: TIFS

Share price at close: 306p

Russ Mould is investment director at AJ Bell, the stockbroker.

Read the latest Questor column on telegraph.co.uk every Sunday, Tuesday, Wednesday, Thursday and Friday from 5am.

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