One penny share I added to my holdings some time ago is Centamin (LSE: CEY). At the time, I felt it was an opportunity not to be missed. I still feel the same way. Here’s why.
Gold miner
Centamin is a mineral exploration, development, and mining business. Its primary asset is the Sukari Gold Mine in southern Egypt. It also mines ore minerals and processes it at its own on-site plant. Furthermore, it owns potentially lucrative exploration and development assets in Burkina Faso and Cote d’Ivoire.
It is worth remembering that a penny share is one that trades for less than £1. So what’s happening with Centamin shares currently? Well, as I write, they’re trading for 91p. At this time last year, they were trading for 94p, which is a 3% drop over a 12-month period. The shares reached 122p back in April, but macroeconomic issues have pulled the markets and many shares back in recent months.
Why I bought Centamin shares and would buy more
During times of economic crisis, like now, due to soaring inflation and rising interest rates, safe-haven metals like gold offer protection in an investment portfolio as the prices of these commodities rise. This can boost performance and returns for firms like Centamin.
I’m not one to invest for short-term gains. With that in mind, I’m buoyed by Centamin’s long-term growth aspirations. In its recent updates, Centamin confirmed that it is on track to produce half a million ounces of gold in 2024, its highest amount. In addition to this, there are positive signs coming from its exploratory assets, especially the one in Burkina Faso. All these things could boost future earnings and investor returns.
Moving on to the fundamentals, Centamin shares possess a dividend yield of 4%. This yield is above-average for a penny share. However, I do understand that dividends are never guaranteed. In respect of the dividends I’ve received to date, I plan on reinvesting these to buy more Centamin, or other UK shares to boost my holdings.
Next, Centamin’s valuation still looks decent to me on a price-to-earnings ratio of 16. This could tempt me to add some further shares to my holdings.
A penny share with risks but potentially lots of rewards
Despite holding Centamin shares, I am wary of some issues that could impact my investment and the business. To start with, Centamin shares and performance could be adversely impacted if gold prices were to fall. I’m not too worried about this personally as I believe that due to the current economic outlook, gold prices could continue to rise towards record highs.
The other issue Centamin could face is that exploratory assets may not end up yielding anything of note. This would be a big blow that would most definitely impact performance as well as investor sentiment and returns.
Overall, I like the look of Centamin shares and my investment is currently up close to 20%. The fact that it is trading at a penny share level with an enticing yield is positive for me, as I’m going to buy some further shares for my holdings.
