LONDON: Gold producer Centamin Egypt has cut its output forecast for 2011 after announcing lower than expected production in the second quarter due to local restrictions on blasting pushed its shares down as much as 25 percent.
The company said it is confident that the blast issues will be resolved in the third quarter.
However, along with a supply disruption in the first quarter the company has been forced to reduce its 2011 production guidance to 200,000-210,000 ounces from 250,000-290,000 ounces and to raise its average cash cost forecast to about $550 an ounce from $450.
"Whilst imports and deliveries of blast products have returned to normal and sufficient quantities exist … daily restrictions imposed by local blast inspectors drastically curtailed mine production activities during the quarter," the company said.
The shares were down 22 percent at 0755 GMT, with the announcement wiping over LE 300 million ($488 million) from the company’s value.
The stock, which has dropped 65 percent in 2011 as production issues added to concerns about the political unrest in Egypt earlier this year, is at its lowest level since October 2009.
"Results are disappointing and are below our estimates due to continuing logistic issues with the blasting products as well as daily restrictions imposed by the local blasting inspectors," said analysts at Canaccord Genuity.
Centamin produced 47,991 ounces in the second quarter from its sole producing mine, the Sukari project in Egypt, taking half-year output to just over 93,000 ounces.
Still, second-quarter operating profit rose to $48.2 million from $19.1 million in the year-earlier quarter on higher production and gold prices.
Centamin — alongside rivals Randgold Resources, African Barrick Gold and Petropavlovsk — all encountered production problems last year, resulting in the top four biggest pure gold producers in London reducing their 2010 targets.
"Given that we have now had production downgrades for both years since production start-up, we believe it is prudent to assume more conservative production estimates for the medium term," said analysts at Bank of America Merrill Lynch.
