Centamin brings industrial-scale gold production back to Egypt

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The Egyptian Museum in the northern Italian city of Turin is considered one of the finest museums of its kind outside of Egypt. Among its marvels is the Turin Papyrus Map, one of the earliest known maps.

It is a must-see for anyone interested in the history of gold. According to scholars, it was made about 1150 BC and was prepared for a quarrying expedition for King Ramses IV in the eastern desert. The map, which is almost three metres long, shows a gold mine, a gold mining settlement and gold-bearing quartz veins.

The Egyptian pharaohs adored gold. It was believed to be the flesh of the sun god Ra and was evidently produced at near-industrial scale. Three millenniums later, industrial-scale gold production is back in Egypt's eastern desert, thanks to a gold company called Centamin PLC, with listings in both Toronto and London.

Not only has Centamin put Egypt back on the gold mining maps, it is one of the few gold companies of any size to have climbed in one of the nastiest markets seen by gold producers in decades. In the last year, its shares are up 18 per cent, giving it a market value of almost £800-million ($1.6-billion Canadian). Last week, Centamin picked up another buy recommendation, this time from Goldman Sachs, which hailed its low production costs, potential for growth and absence of debt, giving it strategic flexibility in an industry studded with For Sale signs. "Best in class growth with low costs," concluded Goldman's gold analysts.

Centamin is now taking advantage of the bullish reports to lure back the investors who got spooked during the Arab Spring, when Egypt went from dictatorship to democracy to military coup within two years. The exodus saw the shareholder register drained of North American investors, while British investors, who are typically more tolerant of risk, largely stayed put. As a result, most of Centamin's trading now takes place in London, not Toronto, even though the company relied on the Toronto market to raise most of the $490-million (U.S.) it used to build the Egyptian mine, which has been in production since 2010.

"Canadian and American investors pulled out during the revolution," Andrew Pardey, 50, the Australian geologist who became Centamin's CEO in February, said in an interview in London. "What they may not realize is that Egypt is one of the least explored gold areas in the world and has huge potential for mines. With Sukari we have a world-class deposit."

Sukari is the name of Centamin's mine, the only commercial gold mine in Egypt. In Egyptian, sukari means "sugar hill," though it pops up as "diabetes" in online translators. The mine is located in the arid, hilly desert 700 kilometres south of Cairo, and 25 kilometres east of the Red Sea, in a geological area known as the Arabian-Nubian Shield. There is virtually no infrastructure in the area. The partly refined gold is flown to Johnson Matthey's precious metals refinery near Toronto.

The discovery of stone grinding wheels and clay pots leave no doubt that Sukari was mined in the pharaohs' era, though the Egyptians were only able to hack away at the surface. Sukari's enormous open pit and underground drifts have 8.8 million ounces of reserves and a potential resource of 14 million ounces. Production of 430,000 to 440,000 ounces is expected this year, rising to about 500,000 ounces in 2017 at an all-in sustaining cost of $950 an ounce. Gold closed Friday at $1,164, meaning gold would have to drop more by more than $200 before Sukari turns into a loser.

The modern Sukari and its 1,200 jobs owe their existence to an Egyptian geologist, Sami El-Raghy who went to Australia after Gamal Abdel Nasser chucked out the foreign mining companies when he was president in the 1950s, smothering the industry. In Australia, Mr. El-Raghy set up Central Australian Mines – Centamin for short. Mr. El-Raghy – whose son, Josef, is Centamin's chairman – returned to Egypt in the 1980s, pored over old maps and figured out the Sukari region had big potential. In the mid-1990s, he obtained exploration concessions to 5,500 square kilometres, no mean feat in a country with no mining code or mining ministry.

In spite of the low costs and ample reserves, Sukari, whose investment has reached $1.1-billion, is far from risk-free. The shares got clobbered in 2012, when an independent member of the previous parliament launched legal action aimed at stripping Centamin of its Sukari rights. An Egyptian court has since ruled that the concessions are valid. In another blow, fuel supplier Chevron is demanding that Centamin pay international rates for diesel, not locally subsidized rates. Falling fuel prices have offset the blow.

As Centamin puts Egypt back on the gold mining map, the company is using its strong cash flow to explore for gold in Ethiopia, Ivory Coast and Burkina Faso. Egypt may be a more a more romantic development spot for Centamin, but the company wants to be known as a growth story, not a one-mine wonder.