Centamin Egypt (CEY.LSE) - A Junior Gold Share

The Egyptians have some experience of gold

I know I said I was reluctant to discuss my specific gold mining shares.

Nonetheless, I am now going to cover one of my favourite and longest-held juniors, Centamin Egypt, which trades in Australia (CNT), Toronto (CEE) and on AIM in London (CEY - where I bought mine). For the full picture, check out Centamin's website.

Now, in the interests of disclosure, I should point out that I bought my holding in these shares quite a few years ago, at a mere 13.88p. I've also since sold half of them, when I first got a double, a practice that I think works well with junior explorers (so insulating you against any possible downside). Nonetheless, I am now officially adding them to the CCI portfolio at 39p, as I think that the correction of the past few days is an excellent buying opportunity.

So, why do I think that Centamin is such a good buy? Well, as juniors go, Centamin is relatively ... emm ... senior. At 39p, the market cap is some £343M, or about $500M in US dollars. For that, you get an advanced stage project at Sukari in Egypt, which is scheduled to enter production in the second quarter of this year. The total resource estimate now stands at 9.01M ounces of gold Measured and Indicated, plus a further 3.3M ounces Inferred, or 12.31M ounces total (all figures from Centamin's September 2008 quarterly report, available on their website). That's around $40 per ounce, at current prices; the company is fully-funded through to production (and debt-free), and estimates cash operating costs of $365 per ounce once in production.

It doesn't take a financial genius, therefore, to work out that at an $800+ per ounce gold price, Centamin will be immensely profitable, and should be worth much more than $500M. A current mid-range producer, sunch as IAMGOLD (IAG.NYSE), for instance has a $1.68B market cap with a resource size of only around 8M ounces. And, of course, that's without factoring in a rising gold price, or an expanded resource (exploration is ongoing) or the likelihood that an existing producer is quite likely to buy Centamin out in the near future (12.31M ounce gold resources are rare, and are the kind of find the majors need to replenish their reserves).

Of course, there's lots that could go wrong. Centamin's management could be utter rogues, but that seems unlikely, given that the resource estimates have been prepared in accordance with the Australian JORC requirements, and the project is now so very advanced. More likely is some sort of Egyptian government land grab or nationalisation; while this sort of event is on the rise, it is not necessarily a show-stopper - see the recent purchase by Kinross of the junior Aurelian Resources, despite the Ecuadorean government's revised legislation.

It should also be noted that, while Centamin will be the first Egyptian gold mining operation since the Pharaohs, British energy major BG operates gas fields in Egypt very successfully.

The bottom line is that a junior gold share like Centamin is not something to be the farm on, or even to take the sort of position size you would on an ETF like GDX or EWS. On the upside, if everything works out positively, you could get an easy double in the next twelve months.