The Globe and Mail

Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Press release from Marketwire

Results for the Quarter Ended 31 March 2013

Wednesday, May 15, 2013

Results for the Quarter Ended 31 March 2013

03:07 EDT Wednesday, May 15, 2013

PERTH, AUSTRALIA--(Marketwired - May 15, 2013) -

For immediate release 15 May 2013 Centamin plc Results for the Quarter Ended 31 March 2013Centamin plc ("Centamin" or "the Company") (LSE: CEY, TSX: CEE) ispleased to announce its results for the three months ended 31 March2013.This is not the full version of the release. To view the full documentplease click here (1) (2) (3) (4) (5)- Record quarterly earnings, with basic earnings per share 6.60 cents; up 6% on Q4 2012 and 66% on the prior year period, before exceptional charges.- Record quarterly EBITDA USD81.7 million; up 6% on Q4 2012 and 71% on the prior year period, before exceptional charges.- Record gold production 87,016 ounces, up 2% quarter-on-quarter and 77% on the prior year period.- Cash cost of production of USD556 per ounce, below 2013 full year guidance of USD700 per ounce, primarily due to reduced open pit mining costs as a result of the build-up in broken material following the temporary suspension of operations in December 2012.- Stage 4 plant expansion (to 10Mtpa) remains on track for the bulk of commissioning to commence, and be completed, in the second half of 2013. Expenditure to date is USD274.4 million of the total unchanged forecast of USD325 million, including contingency, with the remaining balance to continue to be funded from cost recoveries.- 2013 guidance maintained at 320,000 ounces at a cash cost of production of USD700 per ounce inclusive of fuel prepayments.- Centamin remains debt-free and un-hedged with cash, bullion on hand, gold sales receivables and available-for-sale financial assets of USD188.7 million as at 31 March 2013.- Drilling continued at the V-Shear porphyry and Kurdeman prospect.- Initial results in Ethiopia confirm the existence of low grade mineralisation, with drilling continuing.- Diesel Fuel Court Case and appeal in Supreme Administrative Court are ongoing. Operations continue as normal and any enforcement of the initial decision has been suspended pending the appeal ruling. Q1 2013 Q4 2012(1) Q1 2012(1)(5)Total Gold Production (oz) 87,016 85,413 49,071Cash Costs of Production(2) (USD/oz) 556(3) 558(3) 717(4)Average Sales Price (USD/oz) 1,604 1,697 1,683Revenue (USD million) 138.2 138.5 87.7EBITDA(2) (USD million) 81.7(3) 55.7(3) 55.2Basic EPS (cents) 6.60(3) 4.26(3) 4.67(1) Results and highlights for the first quarter ended 31 March 2012 and fourth quarter ended 31 December 2012 (included within the 2012 Annual Report) are available at Cash cost of Production, EBITDA and cash, bullion on hand, gold sales receivables and available-for-sale financial assets are non-GAAP measures defined on pages 21 - 22(3) Basic EPS, EBITDA, Cash Costs of Production now includes an exceptional provision against prepayments recorded in Q4 2012 and Q1 2013 to reflect the removal of fuel subsidies which occurred in January 2012 (see Note 4 of the Financial Statements for further details)(4) At full international fuel price (excluding fuel subsidy), for comparative purposes to reflect the fuel price differential had the prepayments been expensed during the period(5) Q1 2012 Cash cost of production, EBITDA and Basic EPS now reflect adoption of IFRIC 20 (refer to Note 1 of the accompanying interim condensed consolidated financial statements)Josef El-Raghy, Chairman of Centamin, said: "Following on from record2012 financial results, the team at Sukari have delivered a secondsuccessive quarter of record gold production, with further improvementsacross all areas of the operation. This marks a solid start to the yearand output remains on target to achieve the 2013 guidance of 320,000ounces. With the plant running at consistently high levels ofproductivity, the processing function is well placed to deliver thenext step change in throughput from the Stage 4 expansion, whichremains on course to complete commissioning by the end of the year."Centamin will host a conference call on Wednesday, 15 May at 9.00am(London, UK time) to update investors and analysts on its results.Participants may join the call by dialling one of the following threenumbers, approximately 10 minutes before the start of the call.From UK: (toll free) 0800 238 0673From Canada: (toll free) + 1866 494 9885From rest of world: +44 1452 569 335Participant pass code: 49424291A live audio webcast of the call will be available on: group analyst briefing will be held simultaneously at 9.00am at theoffices of Buchanan, 107 Cheapside, London, EC2V 6DNA second call (Q&A only) will be held for North American analysts andinvestors at 2.00pm (London, UK time) / 9.00am EST. Participants mayjoin the call by dialling one of the following three numbers,approximately 10 minutes before the start of the call.From Canada: (toll free) +1866 494 9885From US: (toll free) +1866 655 1591From rest of world: +44 1452 569 335Participant pass code: 48281676For more information please contact:Centamin plcJosef El-Raghy, ChairmanAndy Davidson, Head of Business Development and Investor +44 20 7569Relations 1671BuchananBobby Morse +44 20 7466 5000Cornelia BrowneGabriella ClinkardAbout Centamin plcCentamin is a mining company that has been actively exploring in Egyptsince 1995. The Company's principal asset is its interest in the largescale, low cost Sukari Gold Mine, located in the Eastern Desert ofEgypt. Sukari produced 150,000 ounces of gold in its maiden year ofproduction in 2010, consistently expanding thereafter to reach over260,000 ounces in 2012. The 'Stage 4' plant expansion programcommenced in 2011 to target 450-500,000 ounces per annum productionfrom 2015 onward.The Sukari Gold Mine is the first large-scale modern gold mine inEgypt. Centamin's operating experience in Egypt gives it a significantfirst-mover advantage in acquiring and developing other gold projectsin the prospective Arabian-Nubian Shield.In 2011 the Group acquired, through Sheba Exploration Holdings Limited,four mineral licences in Ethiopia where it is conducting furtherexploration activities. In addition, Centamin currently has a 19.4%shareholding in Nyota Minerals Ltd, which owns the Tulu Kapi advancedexploration project in Ethiopia.CHAIRMAN'S STATEMENTOverviewAnother record set of operating and financial results in the firstquarter highlight the potential for Sukari to generate significant cashflows, with EBITDA of USD81.7m marking a 48% increase on thecorresponding quarter in 2012. Despite the recent gold price weaknessCentamin remains committed to its policy of being 100% exposed to thegold price through its un-hedged position. Our focus on costdiscipline is reflected in the recent financial performance andprovides significant operating margin, such that Centamin's whollyowned subsidiary Pharaoh Gold Mines ("PGM") remains projected to havesufficient funding from cost recoveries to continue to fund its capexprojects, including the Stage 4 expansion.Our balance sheet remains strong, with USD188.7 million in cash,bullion on hand, gold sales receivables and available-for-salefinancial assets as at 31 March 2013.We remain on track in 2013 for a further increase in annual productionof over 20% from 2012, as we expect to meet our unchanged full yearproduction guidance of 320,000 ounces at USD700 per ounce cashoperating cost. The next phase of growth towards our long-term targetof 450-500,000 ounces per annum from 2015 will be driven by the Stage 4plant expansion (to 10Mtpa), which remains on course for the bulk ofcommissioning activities to commence in the second half, withcompletion before year end.Our exploration and development strategy progressed during the quarteras drilling continued both underground and on the regional prospects atSukari, as well as on our Ethiopian licences. The Company alsoincreased its shareholding in Nyota Minerals Ltd ("Nyota") to 17% viaparticipation in Nyota's capital raising in March to continue thedevelopment of the Tulu Kapi project in western Ethiopia. This wasincreased further to 19.4% in the "Tranche 2" placing which completedshortly after period-end.The two litigation actions, Diesel Fuel Oil and Concession Agreement,progressed in line with our expectations during the quarter. In respectof the latter, on 20 March the Supreme Administrative Court of Egyptupheld our application to suspend enforcement of the initial decisionuntil such time as the Court is able to consider and rule on the meritsof the appeal. This provided assurance that normal operations will beable to continue whilst the appeal process is underway. The legalactions are described in further detail below.Sukari Gold Mine production summary: Q1 Q4 Q3 Q2 Q1 2012 2013 2012 2012 2012Ore Mined - Open Pit (1) ('000t) 2,133 1,905 1,653 1,816 1,003Ore Grade Mined - Open Pit (Au g/t) 1.00 1.15 1.00 1.07 0.83Ore Grade Milled - Open (Au g/t)Pit 1.33 1.56 1.34 1.19 1.21Total Open Pit Material ('000t)Mined 10,550 6,740 6,970 6,579 4,819Strip Ratio (waste/ ore) 3.9 2.5 3.2 2.6 3.8Ore Mined - Underground ('000t)Development 66 63 40 53 47Ore Mined - Underground ('000t)Stopes 53 49 53 63 25Ore Grade Mined - (Au g/t)Underground 10.02 9.76 9.01 8.68 8.11Ore Processed ('000t) 1,402 1,233 1,004 1,269 1,020Head Grade (g/t) 2.03 2.31 2.10 1.99 1.69Gold Recovery (%) 88.4 87.7 86.7 84.3 85.0Gold Produced - Dump Leach (oz) 4,368 1,848 1,617 1,318 1,903Gold Produced - Total(2) (oz) 87,016 85,413 60,922 67,422 49,071Cash Costs of Production (USD/oz)(3) (4) 556 558 724 729 717Open Pit Mining (USD/oz) 148 163 243 250 203Underground Mining (USD/oz) 36 43 36 52 53Processing (USD/oz) 320 281 378 369 385G&A (USD/oz) 52 71 67 58 76Gold Sold (oz) 86,054 82,316 60,794 60,751 51,098Average Realised Sales (USD/oz)Price 1,604 1,697 1,680 1,599 1,683Notes:-(1) Ore mined includes 378kt @ 0.42g/t delivered to the dump leach in Q1 2013 (0kt in Q4 2012; 11kt @ 0.48g/t in Q3 2012; 104kt @ 0.50g/t in Q2 2012 and 264kt @ 0.42g/t in Q1 2012).(2) Gold produced is gold poured and does not include gold-in-circuit at period end.(3) Cash costs of Production exclude royalties, exploration and corporate administration expenditure. Cash costs of Production is a non-GAAP financial performance measure with no standard meaning under GAAP. For further information and a detailed reconciliation, please see "Non-GAAP Financial Measures" section below.(4) Historic Cash costs of Production now reflect adoption of IFRIC 20 and an an exceptional provision against prepayments recorded in Q4 2012 and Q1 2013 to reflect the removal of fuel subsidies which occurred in January 2012 (refer to Notes 1 and 4 respectively of the accompanying interim condensed consolidated financial statements for further details). The historic cash costs have been presented for comparative purposes to reflect the fuel price differential had the prepayments been expensed during the year (refer to Note 4 of the accompanying interim condensed consolidated financial statements for further details).Operational ReviewCentamin produced 87,016 ounces of gold in Q1 2013, which is a 2%increase on Q4 2012 and a 77% increase on Q1 2012. Output remains ontarget to achieve the 2013 guidance of 320,000 ounces.Open PitThe open pit delivered total material movement of 10.6Mt for thequarter, an increase of 56% on Q4 2012 and 119% on the prior yearperiod, as additional mining faces opened up with improved equipmentproductivity and utilization.Ore production from the open pit was 2.1Mt at 1.0g/t with an averagehead grade to the plant of 1.33g/t. The ROM ore stockpile balanceincreased by 38kt to 759kt by the end of the quarter.Mining continued on Stage 2 and 3. The focus is still on thedevelopment of Stage 3 Gazelle area, to expose the sulphide ore inorder to provide feed to the Plant once the Stage 2 pit is complete.Underground MineOre production from the underground mine was 119kt. The ratio ofstoping-to-development ore mined increased marginally this quarter,with 45% of stoping ore (53kt) and 55% of development ore(66kt).Production from stoping was affected by poor equipmentavailability, restricting mining of the higher grade stopes with theteleremote 'boggers' (load haul dump (LHD) machinery). This was offsetby increased ore development. During the second half of the quarter,improved trucking availability allowed higher grade stope material tobe hauled.In spite of the issues with the bogging system, grades continued to bereasonably high, with a head grade of 10.0g/t from the underground minein Q1. The lower grade stock work stopes on the 905 and 890 levelswere completed during the quarter. Lower grade development drives arebeing mined as part of the general mine infrastructure, withdevelopment of access to the higher grade areas on-going. Higher gradematerial in the 10-12g/t range is scheduled for mining in the remainingquarters.Development in mineralized areas took place between the 890 and 800levels, totaling 951.8 metres to access additional stoping blocks thatwill be mined during 2013 and 2014. Total development in all areas was1,421.8 metres.The Ptah Decline will take underground activity away from the pit shellover the next two years and allow Centamin to maintain two separateunderground production sources once the Amun Decline becomes part ofthe open pit. Ptah development advanced 171 metres in the period.Phase 2 of the Ptah Ventilation Decline commenced and the zone waslinked into the existing exhaust system as a separate circuit. Thefirst LM90 deep exploration rig commenced drilling from the Ptahdecline late in the quarter and the first ore access drive is scheduledto commence in May 2013.A total of 3,292 metres of grade control BQ diamond drilling wascompleted during the quarter for short-term stope definition andunderground resource development. A further 3,764 metres of HQ and NQdrilling to test the depth extensions below the current Amun zone andinto the Horus zone was completed.ProcessingQuarterly throughput at the Sukari process plant was a record 1,402kt,a 37% increase on the prior year period and a 14% increase on Q4 2012;exceeding the nameplate annualised rate of 5 million tonnes. Thisperformance was driven by continued high levels of productivity coupledwith a reduced impact from stoppages compared with the previousquarter.Productivity of the processing plant was 689 tonnes per hour (tph) forthe quarter, up 1% on 686 tph in Q4 2012.Plant metallurgical recoveries were 88.4%, which is a 1% increase on Q42012. Improvements to plant automation and operational strategiescontinue to deliver better recoveries with further improvements torecovery expected when the new carbon regeneration kiln is commissionedin the second half of 2013.The dump leach operation produced 4,368oz in Q1 2013, a 75% increase onQ4 2012. 378kt of low grade oxide ore at 0.42g/t was delivered to thepads in preparation for irrigation, bringing the total ore placed onthe dump leach to approximately 6.3Mt at 0.50g/t.Fuel CostsIn light of the on-going dispute with the Egyptian Government regardingthe price at which Diesel Fuel Oil is supplied to the mine at Sukari,it has been necessary since January 2012 to advance funds to our fuelsupplier, Chevron, based on the international price for diesel. TheCompany has fully provided against the prepayment of USD55.3 million asan exceptional item, of which USD13.9 million was provided for duringQ1 2013. Refer to Note 4 of the accompanying interim condensedconsolidated financial statements for further details on the impact ofthis exceptional provision on the Group's results for Q1 2013.In addition, during the prior year, the Group received a demand fromChevron for the repayment of fuel subsidies received in the period fromlate 2009 through to January 2012, amounting to some USD60 million(EGP403 million). No provision has been made in respect of thehistoric subsidies prior to January 2012 as, based on legal advice thatit has received to date, the Company believes that the prospects of acourt finding in its favour in relation to this matter remain strong.As disclosed previously, the Company has commenced proceedings in theAdministrative Court in Egypt in relation to this matter. The Companyremains of the view that an instant move to international fuel pricesis not a reasonable outcome and will look to recover any funds advancedthus far at the higher rate should the court proceedings besuccessfully concluded. Please refer to Note 7 to the accompanyinginterim condensed consolidated financial statements and the mostrecently filed Annual Information Form ('AIF') for further information.STAGE 4 EXPANSIONConstruction continued on Stage 4 of the process plant expansion, whichcommenced in late 2011, which will expand Sukari nameplate capacityfrom 5Mtpa to 10Mtpa. The estimated capital cost of the Stage 4expansion, which is funded by PGM out of cost recoveries, is USD325million including contingency, with expenditure to date of USD274.4million. The commissioning of the plant remains on schedule to commencein the second half of 2013 and be complete by year end.As part of the implementation of Stage 4, the Company is in discussionswith EMRA and other government departments in relation to securing thenecessary permits to increase daily ammonium nitrate ("AN") consumptionand blasting accessories in order to increase open pit mining rates tothe required level to feed the expanded plant. As part of this process,which is expected to be completed during the year, a new blastaccessories import permit was issued by the Ministry of Interiorshortly after period-end on the 7th April.Main PlantDetail engineering of the main plant is complete and 90% of themechanical equipment has now arrived on site. All major civil workshave been completed and the erection of structural steel andinstallation of mechanical equipment and piping is in progress.Procurement of electrical equipment, cables and instrumentation isproceeding and the piping contractor is mobilising to site.Installation of both SAG and ball mills is in progress, however latearrival of structural steel is impacting on the schedule in this area.Power StationThe fifth MAK engine has been installed, commissioned and is fullyoperational in the existing plant. The new Wartsila plant has beencompleted, load bank commissioned and is ready to operate, installationof power cables to the new plant will commence in the second quarter.Sea Water PipelineExcavation of the trench for the new pipeline has been completed.Welding and installation of the pipe is continuing and will becompleted by the end of May 2013. Construction of the booster stationis proceeding with most of the civil work completed. Delivery of theintake and booster pumps is scheduled to take place in May and June.Tailings Storage FacilityConstruction of the embankment is 100% complete and installation of theHDPE liner has commenced.New Primary CrusherExcavation has been completed and construction of the crusher buildingis 25% complete.Capital ExpenditureA breakdown of the major cost areas up to 31 March 2013 is as follows: - Mining Equipment USD 43.9 million - Processing Plant USD 142.3 million - Power Plant USD 46.9 million - Other USD 41.3 million USD 274.4 millionMajor contributors to the payments made in Q1 2013 were as follows: - Mining Equipment USD 9.0 million - Processing Plant USD 26.8 million - Power Plant USD 3.4 million - Other USD 6.7 million USD 45.9 millionEXPLORATION UPDATESukari HillCentamin has resources (inclusive of production since 30 September2011) of 13.13 million ounces Measured and Indicated, and 2.3 millionounces Inferred, and reserves (inclusive of production since 31December 2011) of 10.1 million ounces. Drilling continued from theunderground development drives and further exploration of the Sukarideposit will take place during 2013, predominantly from both the Amunand Ptah declines. We aim to provide an updated resource and reservestatement during the second half of 2013.Regional ExplorationDrilling continued in the V-Shear and Kurdeman prospects. On-goingdrilling to the south at the Kurdeman prospect offers the potential tofast-track near surface high grade ore to supplement the existingproduction. The results of the gravity surveywere receivedandhighlight potential anomalies both at depth and along strike that willbe investigated with drilling during2013.Growth Beyond SukariCentamin continued exploration on its four tenements in northernEthiopia where drilling commenced in the first half of 2012. Resultsto date have confirmed the presence of mineralisation and follow-updrilling continues. Our strategy remains to continue to grow anddiversify our asset base through targeted acquisitions in theArabian-Nubian Shield region and beyond in the coming years.FINANCIAL REVIEWCentamin has a strong and flexible financial position with no debt, nohedging and cash, bullion on hand, gold sales receivables andavailable-for-sale financial assets of USD188.7 million at 31 March2013, down from USD219.4 million at the end of December 2012. Forfurther information, please see the "Non-GAAP Financial Measures"section in the Management's Discussion and Analysis. - Cash at Bank USD 132.3 million - Gold Sales Receivable USD 26.6 million - Available-for-sale financial assets USD 3.5 million - Bullion on hand USD 26.3 millionSukari generated revenue of USD138.2 million in the first quarter, a 1%decrease on the previous quarter, due to a 6% reduction in realisedgold prices offsetting a 5% increase in gold sales. Revenue reportedcomprises proceeds from gold and silver sales.Centamin's unit cash operating costs of production was USD556/oz, USD2lower than in Q4 2012.Excluding the exceptional provision for fuelprepayments this equated to USD409 per ounce, USD37 per ounce lowerthan in Q4 2012. Unit cash costs were below the 2013 full year guidanceof USD700 per ounce, primarily due to reduced open pit mining costsearly in the quarter as a result of the build-up in broken materialfollowing the temporary suspension of operations in December 2012.During the remainder of the year we expect average unit costs to reverttowards the unchanged guidance of USD700 per ounce.Operating cash costs increased quarter-on-quarter by USD0.8 million or2% to USD48.4 million. Processing costs were 16% higher due to a 37%increase in process plant throughput. Mining costs were down by 8% asa result of better utilisation of equipment, lower maintenance chargesas well as the need for less drilling and blasting during the period.EBITDA for the period was USD81.7 million, a 47% increase on theprevious quarter. The key contributing factors were: (a) a decrease in the unit cash costs of production, as described above; (b) a USD27.1 million component of the exceptional provision recognised in Q4 2012 relating to the fuel prepayments for the period Q1 through to Q3 2012; (c) a USD0.5 million increase in inventory movement; and (d) a 64% decrease in corporate costs to USD6.1 million, offset by (e) a slight decrease in revenue, as described aboveBasic Earnings per Share for the quarter was 6.60 cents, a 55% increaseon Q4 2012 and a 41% increase on the prior year period. Thequarter-on-quarter increase is mainly due to the effects noted aboveand also offset by a 2% increase in depreciation and amortisation toUSD10.1 million, due to an increase in the underlying capitalisedpreproduction costs and mine development properties.CORPORATE UPDATEChief Executive Officer Appointment Process and Allocation ofresponsibilitiesThe Board continues on an on-going basis to assess the options forensuring that the Company has the right leadership to best further itsfuture development and at present the Board believes that there is nourgent requirement to fill the CEO position. In arriving at thisdecision the Board has taken into account the degree and breadth ofexperience brought to the senior management team by Chief OperatingOfficer, Andrew Pardey, Chief Financial Officer, Pierre Louw and Headof Business Development and Investor Relations, Andy Davidson, as wellas the requirements of the UK Corporate Governance Code. In relation tothe Code, the Board believes the interests of shareholders are bestserved by the current arrangement and that the Company is not at riskfrom an undue concentration of decision-making authority by thetemporary combination of the Chairman and Chief Executive Officerroles. In reaching this conclusion, the Board has taken intoconsideration the strong presence of highly experienced independentnon-executive directors on the Board and the structure of the BoardCommittees designed to devolve away from the Chairman theresponsibility and control of certain key areas of Boardresponsibility. Furthermore, for so long as the roles remainedcombined, certain corporate governance functions undertaken by JosefEl-Raghy in his capacity as Chairman will be delegated to the SeniorIndependent Director. These functions include chairing the boardmeetings, ensuring that the Board receives timely information andensuring the efficient organization and conduct of the Board'sfunctioning.LEGAL ACTIONSConcession Agreement Court CaseOn 30 October 2012, the Administrative Court in Egypt handed down ajudgment in relation to a claim brought by, amongst others, anindependent member of the previous parliament, in which he argued forthe nullification of the agreement that confers on the Group rights tooperate in Egypt. This agreement, the Concession Agreement, was enteredinto between the Arab Republic of Egypt, the Egyptian Mineral ResourcesAuthority ("EMRA") and Centamin's wholly owned subsidiary Pharaoh GoldMines ("PGM"), and was approved by the People's Assembly as Law 222 of1994.In summary that judgment states that, although the Concession Agreementitself remains valid and in force, sufficient evidence had not beensubmitted to Court in order to demonstrate that the 160km2"exploitationlease" between PGM and EMRA had received approval fromthe relevant Minister as required by the terms of the ConcessionAgreement. Accordingly, the Court found that the exploitation lease inrespect of the area of 160km2 was not valid although it stated thatthere was in existence such a lease in respect of an area of 3km2.Centamin, however, is in possession of the executed original leasedocumentation which clearly shows that the 160km2 exploitation leasewas approved by the Minister of Petroleum and Mineral Resources. Itappears that an executed original document was not supplied to theCourt.Upon notification of the judgment the Group took various steps toprotect its ability to continue to operate the mine at Sukari. Theseincluded both lodging a formal appeal before the Supreme AdministrativeCourt ("SAC") on 26 November 2012 and, in the first instance, lodgingan "Objection to Enforcement" of the original ruling with the CivilCourt on 31 October 2012, which had the effect of "staying"(postponing) implementation for an initial period. In conjunction withthe formal appeal the Group applied to the SAC to suspend the initialdecision until such time as the SAC is able to consider and rule on themerits of the appeal. As part of this process the SAC was suppliedwith a copy of the exploitation lease. On 20 March 2013, the 7 judgesof the SAC unanimously upheld this application and on this basis normaloperations will continue during the appeal process. In its ruling theSAC held that, "on the basis of the copy of the exploitation leaseexecuted by the Minister of Petroleum presented to SAC, the annulmentof such lease by the Administrative Court was likely to be cancelledupon the issuance of a judgment on the merits of the case".On 10 May 2013 the Company announced that the Egyptian StateCommissioner's Office had, prior to the first hearing in the appealscheduled for 19 June 2013, produced a report containing non-bindingrecommendations for the SAC. Whilst these recommendations are notpositive, the Company does not believe that they address thesubstantive merits of Centamin's appeal and as such the Company'sgrounds of appeal remain unchanged upon the initial review of the StateCommissioners report.EMRA lodged its own appeal on 27 November 2012, the day after theCompany's appeal was lodged. Furthermore, in late December 2012, theMinister of Petroleum lodged a supporting appeal and shortly thereafterpublicly indicated that, in his view, the terms of the ConcessionAgreement were fair and that the exploitation lease was valid. TheMinister of Petroleum also expressed support for the investment andexpertise that Centamin brings to the country. We believe thisdemonstrates the government's commitment to our investment at Sukariand the desire to stimulate further investment in the Egyptian miningindustry.We do not yet know when the appeal will conclude, although are aware ofthe potential for the process in Egypt to be lengthy. The Company hastaken extensive legal advice on the merits of its appeal from twoleading Egyptian law firms who have confirmed that the proper stepswere followed with regard to the grant of the 160km2 exploitationlease. We therefore remain of the view that the appeal is based onstrong legal grounds and will ultimately be successful. In the eventthat the appellate court fails to be persuaded of the merits of thecase put forward by the Group, the operations at Sukari may beadversely effected to the extent that the Company's operation exceededthe exploitation lease area of 3 km2 referred to in the original courtdecision.The Company remains confident that normal operations at Sukari will bemaintained whilst the appeal process is underway.Diesel Fuel Court CaseIn January 2012, the Group received a letter from Chevron to the effectthat Chevron would only be able to supply Diesel Fuel Oil ("DFO") tothe mine at Sukari at international prices rather than at localsubsidised prices, which had the effect of adding approximately USD150per ounce to the cost of production. It is understood that the reasonthat this letter was issued was that Chevron had received a letterinstructing it to do so from the Egyptian General Petroleum Corporation("EGPC"). It is further understood that EGPC itself issued thisinstruction because it had received legal advice from the Legal AdviceDepartment of the Council of State (an internal government advisorydepartment) that the companies operating in the gold mining sector inEgypt were not entitled to such subsidies. In November, the Groupreceived a further demand from Chevron for the repayment of fuelsubsidies received during the period from late 2009 through to January2012, amounting to EGP403 million (approximately USD60 million atcurrent exchange rates).The Group has taken detailed legal advice on this matter (and, inparticular, on the opinion given by Legal Advice Department of theCouncil of State) and in June 2012 lodged an appeal against EGPC'sdecision in the Administrative Courts. Again, the Group believes thatits grounds for appeal are strong and that there is a good prospect ofsuccess. However, as a practical matter, and in order to ensure thecontinuation of supply whilst the matter is resolved, the Group hassince January advanced funds to our fuel supplier, Chevron, based onthe international price for fuel.No decision had been taken by the courts regarding this matter. TheGroup remains of the view that an instant move to international fuelprices is not a reasonable outcome and will look to recover fundsadvanced thus far should the court proceeding be successfullyconcluded. However, Management recognises the practical difficultiesassociated with re-claiming funds from the government and for thisreason have fully provided against the prepayment of USD55.3 million,as an exceptional item, of which USD13.9 million was provided forduring Q1 2013. Refer to Note 4 of the accompanying interim condensedconsolidated financial Statements for further details on the impact ofthis exceptional provision on the Group's results for 2012.No provision has been made in respect of the historic subsidies priorto January 2012 as, based on legal advice, the Company believes thatthe prospects of a court finding in its favour on this matter remainvery strong.COST RECOVERY AND PROFIT SHAREBased on current gold prices, production forecasts and operatingexpenses, it is expected that there will be a net production surplus(revenue in excess of production royalty and cost recoveries) availablefor sharing between EMRA and PGM for the SGM financial year ending 30June 2014 (SGM's accounting period is 1 July to 30 June). Anydisruption to operations or reduction in gold price realised will delaythis profit sharing. This expected profit sharing takes into accountthe costs incurred on paying for fuel at international prices. Anyrecovery of these prepayments, discussed above, will result in furtheramounts to be shared between EMRA and PGM.Following discussions with EMRA, and with a view to demonstratinggoodwill toward the Egyptian government, during Q1, an advance paymentwas made in relation to this likely 2014 profit share to the value ofUSD8.2 million and this advance payment will be netted off against anyfuture profit share that becomes payable.OUTLOOKCentamin remains focused on advancing all three pillars of our growthstrategy. At Sukari, we are committed to delivering on our full yearproduction guidance of 320,000 ounces, a 22% increase in productionfrom 2012, at a cash operating cost of USD700 per ounce. Despite therecent gold price weakness, the operation remains relatively low costand PGM (Centamin's 100% owned subsidiary) remains in a strong positionto be able to fund Sukari's 2013 capex out of cash flow received fromcost recoveries. We remain on track to further consolidate ourposition as a significant mid-tier gold producer, with thecommissioning of the Stage 4 expansion to be complete by the end of theyear, thus driving the on-going ramp-up towards 450-500,000 ouncesproduction per annum from 2015.Our exploration activities both from underground and from surfacewithin the 160km2 Sukari tenement continue to provide encouragement forfurther potential resource and reserve growth over the coming years.The results of the recent gravity survey highlight potential anomaliesboth at depth and along strike that will be investigated with drillingduring 2013. We aim to provide an updated resource and reservestatement during the second half of 2013.Josef El-RaghyChairman15 May 2013CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTSThis document contains "forward-looking information" which may include,but is not limited to, statements with respect to the future financialor operating performance of Centamin plc ('Centamin' or 'the Company'),its subsidiaries (together 'the Group'), affiliated companies, itsprojects, the future price of gold, the estimation of mineral reservesand mineral resources, the realization of mineral reserve and resourceestimates, the timing and amount of estimated future production,revenues, margins, costs of production, estimates of initial capital,sustaining capital, operating and exploration expenditures, costs andtiming of the development of new deposits, costs and timing of futureexploration, requirements for additional capital, foreign exchangerisks, governmental regulation of mining operations and explorationoperations, timing and receipt of approvals, consents and permits underapplicable mineral legislation, environmental risks, title disputes orclaims, limitations of insurance coverage and regulatory matters.Often, but not always, forward-looking statements can be identified bythe use of words such as "plans", "expects", "is expected","budget","scheduled", "estimates", "forecasts", "intends", "targets","aims","anticipates" or "believes" or variations (including negativevariations) of such words and phrases, or may be identified bystatements to the effect that certain actions, events or results"may","could", "would", "should", "might" or "will" be taken, occur or beachieved.Forward-looking statements involve known and unknown risks,uncertainties and a variety of material factors, many of which arebeyond the Company's control which may cause the actual results,performance or achievements of Centamin, its subsidiaries andaffiliated companies to be materially different from any futureresults, performance or achievements expressed or implied by theforward-looking statements. Readers are cautioned that forward-lookingstatements may not be appropriate for other purposes than outlined inthis document. Such factors include, among others, future price ofgold; general business, economic, competitive, political and socialuncertainties; the actual results of current exploration anddevelopment activities; conclusions of economic evaluations andstudies; fluctuations in the value of the U.S. dollar relative to thelocal currencies in the jurisdictions of the Company's key projects;changes in project parameters as plans continue to be refined; possiblevariations of ore grade or projected recovery rates; accidents, labourdisputes or slow-downs and other risks of the mining industry; climaticconditions; political instability, insurrection or war, civil unrest orarmed assault; labour force availability and turnover; delays inobtaining financing or governmental approvals or in the completion ofexploration and development activities; as well as those factorsreferred to in the section entitled "Risks and Uncertainties" sectionof the Management discussion & analysis. The reader is also cautionedthat the foregoing list of factors is not exhausted of the factors thatmay affect the Company's forward-looking statements.Although the Company has attempted to identify important factors thatcould cause actual actions, events or results to differ materially fromthose described in forward-looking statements, there may be otherfactors that cause actions, events or results to differ from thoseanticipated, estimated or intended. Forward-looking statementscontained herein are made as of the date of this document and, exceptas required by applicable law, the Company disclaims any obligation toupdate any forward-looking statements, whether as a result of newinformation, future events or results or otherwise. There can be noassurance that forward-looking statements will prove to be accurate, asactual results and future events could differ materially from thoseanticipated in such statements. Accordingly, readers should not placeundue reliance on forward-looking statements.QUALIFIED PERSON AND QUALITY CONTROLInformation of a scientific or technical nature in this document wasprepared under the supervision of Andrew Pardey, BSc. Geology, ChiefOperating Officer of Centamin plc and a qualified person under theCanadian National Instrument 43-101.Refer to the technical report entitled "Mineral Resource and ReserveEstimate for the Sukari Gold Project, Egypt" dated 14 March 2012 andfiled on SEDAR at, for further discussion of the extentto which the estimate of mineral resources/reserves may be materiallyaffected by any known environmental, permitting, legal, title,taxation, socio-political, or other relevant issues. This information is provided by RNS The company news service from the London Stock ExchangeEND


Contact Information:

  • The Globe and Mail Newspaper

    Newspaper delivered to your doorstep. subscribe

  • Globe Unlimited

    Digital all access pass across devices. subscribe

  • The Globe and Mail App

    The New Globe and Mail App for iPhone®, iPad® and Apple Watch download

  • Globe2Go

    The digital replica of our newspaper. subscribe

  • Globe eBooks

    A collection of articles by the Globe. subscribe

See all Globe Products

Advertise with us

Your number one partner for reaching Canada's Influential Achievers. learn more

The Globe at your Workplace
Our Company
Secure Service
Customer Service
Advertising Privacy
Globe Recognition
Mobile Apps
Other Sections