Results for the Quarter Ended 31 March 2013
15.05.2013 | Marketwired
PERTH, AUSTRALIA -- (Marketwired) -- 05/15/13 --
For immediate release 15 May 2013
Centamin plc Results for the Quarter Ended 31 March 2013
Centamin plc ("Centamin" or "the Company") (LSE: CEY, TSX: CEE) is
pleased to announce its results for the three months ended 31 March
2013.
This is not the full version of the release. To view the full document
please click here
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HIGHLIGHTS (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 49,071
Cash Costs of Production(2) (USD/oz) 556(3) 558(3) 717(4)
Average Sales Price (USD/oz) 1,604 1,697 1,683
Revenue (USD million) 138.2 138.5 87.7
EBITDA(2) (USD million) 81.7(3) 55.7(3) 55.2
Basic 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 www.centamin.com
(2) 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 record
2012 financial results, the team at Sukari have delivered a second
successive quarter of record gold production, with further improvements
across all areas of the operation. This marks a solid start to the year
and output remains on target to achieve the 2013 guidance of 320,000
ounces. With the plant running at consistently high levels of
productivity, the processing function is well placed to deliver the
next step change in throughput from the Stage 4 expansion, which
remains 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 three
numbers, approximately 10 minutes before the start of the call.
From UK: (toll free) 0800 238 0673
From Canada: (toll free) + 1866 494 9885
From rest of world: +44 1452 569 335
Participant pass code: 49424291
A live audio webcast of the call will be available on:
http://mediaserve.buchanan.uk.com/2013/centamin150513/registration.asp
A group analyst briefing will be held simultaneously at 9.00am at the
offices of Buchanan, 107 Cheapside, London, EC2V 6DN
A second call (Q&A only) will be held for North American analysts and
investors at 2.00pm (London, UK time) / 9.00am EST. Participants may
join 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 9885
From US: (toll free) +1866 655 1591
From rest of world: +44 1452 569 335
Participant pass code: 48281676
For more information please contact:
Centamin plc
Josef El-Raghy, Chairman
Andy Davidson, Head of Business Development and Investor +44 20 7569
Relations 1671
Buchanan
Bobby Morse +44 20 7466
5000
Cornelia Browne
Gabriella Clinkard
About Centamin plc
Centamin is a mining company that has been actively exploring in Egypt
since 1995. The Company's principal asset is its interest in the large
scale, low cost Sukari Gold Mine, located in the Eastern Desert of
Egypt. Sukari produced 150,000 ounces of gold in its maiden year of
production in 2010, consistently expanding thereafter to reach over
260,000 ounces in 2012. The 'Stage 4' plant expansion program
commenced in 2011 to target 450-500,000 ounces per annum production
from 2015 onward.
The Sukari Gold Mine is the first large-scale modern gold mine in
Egypt. Centamin's operating experience in Egypt gives it a significant
first-mover advantage in acquiring and developing other gold projects
in the prospective Arabian-Nubian Shield.
In 2011 the Group acquired, through Sheba Exploration Holdings Limited,
four mineral licences in Ethiopia where it is conducting further
exploration activities. In addition, Centamin currently has a 19.4%
shareholding in Nyota Minerals Ltd, which owns the Tulu Kapi advanced
exploration project in Ethiopia.
CHAIRMAN'S STATEMENT
Overview
Another record set of operating and financial results in the first
quarter highlight the potential for Sukari to generate significant cash
flows, with EBITDA of USD81.7m marking a 48% increase on the
corresponding quarter in 2012. Despite the recent gold price weakness
Centamin remains committed to its policy of being 100% exposed to the
gold price through its un-hedged position. Our focus on cost
discipline is reflected in the recent financial performance and
provides significant operating margin, such that Centamin's wholly
owned subsidiary Pharaoh Gold Mines ("PGM") remains projected to have
sufficient funding from cost recoveries to continue to fund its capex
projects, 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-sale
financial assets as at 31 March 2013.
We remain on track in 2013 for a further increase in annual production
of over 20% from 2012, as we expect to meet our unchanged full year
production guidance of 320,000 ounces at USD700 per ounce cash
operating cost. The next phase of growth towards our long-term target
of 450-500,000 ounces per annum from 2015 will be driven by the Stage 4
plant expansion (to 10Mtpa), which remains on course for the bulk of
commissioning activities to commence in the second half, with
completion before year end.
Our exploration and development strategy progressed during the quarter
as drilling continued both underground and on the regional prospects at
Sukari, as well as on our Ethiopian licences. The Company also
increased its shareholding in Nyota Minerals Ltd ("Nyota") to 17% via
participation in Nyota's capital raising in March to continue the
development of the Tulu Kapi project in western Ethiopia. This was
increased further to 19.4% in the "Tranche 2" placing which completed
shortly after period-end.
The two litigation actions, Diesel Fuel Oil and Concession Agreement,
progressed in line with our expectations during the quarter. In respect
of the latter, on 20 March the Supreme Administrative Court of Egypt
upheld our application to suspend enforcement of the initial decision
until such time as the Court is able to consider and rule on the merits
of the appeal. This provided assurance that normal operations will be
able to continue whilst the appeal process is underway. The legal
actions are described in further detail below.
Sukari Gold Mine production summary:
Q1 Q4 Q3 Q2 Q1 2012
2013 2012 2012 2012
Ore Mined - Open Pit (1) ('000t) 2,133 1,905 1,653 1,816 1,003
Ore Grade Mined - Open Pit (Au g/t) 1.00 1.15 1.00 1.07 0.83
Ore Grade Milled - Open (Au g/t)
Pit 1.33 1.56 1.34 1.19 1.21
Total Open Pit Material ('000t)
Mined 10,550 6,740 6,970 6,579 4,81
9
Strip Ratio (waste/
ore) 3.9 2.5 3.2 2.6 3.8
Ore Mined - Underground ('000t)
Development 66 63 40 53 47
Ore Mined - Underground ('000t)
Stopes 53 49 53 63 25
Ore Grade Mined - (Au g/t)
Underground 10.02 9.76 9.01 8.68 8.11
Ore Processed ('000t) 1,402 1,233 1,004 1,269 1,020
Head Grade (g/t) 2.03 2.31 2.10 1.99 1.69
Gold Recovery (%) 88.4 87.7 86.7 84.3 85.0
Gold Produced - Dump Leach (oz) 4,368 1,848 1,617 1,318 1,903
Gold Produced - Total(2) (oz) 87,016 85,413 60,922 67,422 49,071
Cash Costs of Production (USD/oz)
(3) (4) 556 558 724 729 717
Open Pit Mining (USD/oz) 148 163 243 250 203
Underground Mining (USD/oz) 36 43 36 52 53
Processing (USD/oz) 320 281 378 369 385
G&A (USD/oz) 52 71 67 58 76
Gold Sold (oz) 86,054 82,316 60,794 60,751 51,098
Average Realised Sales (USD/oz)
Price 1,604 1,697 1,680 1,599 1,683
Notes:-
(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 Review
Centamin 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 on
target to achieve the 2013 guidance of 320,000 ounces.
Open Pit
The open pit delivered total material movement of 10.6Mt for the
quarter, an increase of 56% on Q4 2012 and 119% on the prior year
period, as additional mining faces opened up with improved equipment
productivity and utilization.
Ore production from the open pit was 2.1Mt at 1.0g/t with an average
head grade to the plant of 1.33g/t. The ROM ore stockpile balance
increased by 38kt to 759kt by the end of the quarter.
Mining continued on Stage 2 and 3. The focus is still on the
development of Stage 3 Gazelle area, to expose the sulphide ore in
order to provide feed to the Plant once the Stage 2 pit is complete.
Underground Mine
Ore production from the underground mine was 119kt. The ratio of
stoping-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 equipment
availability, restricting mining of the higher grade stopes with the
teleremote 'boggers' (load haul dump (LHD) machinery). This was offset
by increased ore development. During the second half of the quarter,
improved trucking availability allowed higher grade stope material to
be hauled.
In spite of the issues with the bogging system, grades continued to be
reasonably high, with a head grade of 10.0g/t from the underground mine
in Q1. The lower grade stock work stopes on the 905 and 890 levels
were completed during the quarter. Lower grade development drives are
being mined as part of the general mine infrastructure, with
development of access to the higher grade areas on-going. Higher grade
material in the 10-12g/t range is scheduled for mining in the remaining
quarters.
Development in mineralized areas took place between the 890 and 800
levels, totaling 951.8 metres to access additional stoping blocks that
will be mined during 2013 and 2014. Total development in all areas was
1,421.8 metres.
The Ptah Decline will take underground activity away from the pit shell
over the next two years and allow Centamin to maintain two separate
underground production sources once the Amun Decline becomes part of
the open pit. Ptah development advanced 171 metres in the period.
Phase 2 of the Ptah Ventilation Decline commenced and the zone was
linked into the existing exhaust system as a separate circuit. The
first LM90 deep exploration rig commenced drilling from the Ptah
decline late in the quarter and the first ore access drive is scheduled
to commence in May 2013.
A total of 3,292 metres of grade control BQ diamond drilling was
completed during the quarter for short-term stope definition and
underground resource development. A further 3,764 metres of HQ and NQ
drilling to test the depth extensions below the current Amun zone and
into the Horus zone was completed.
Processing
Quarterly 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. This
performance was driven by continued high levels of productivity coupled
with a reduced impact from stoppages compared with the previous
quarter.
Productivity of the processing plant was 689 tonnes per hour (tph) for
the quarter, up 1% on 686 tph in Q4 2012.
Plant metallurgical recoveries were 88.4%, which is a 1% increase on Q4
2012. Improvements to plant automation and operational strategies
continue to deliver better recoveries with further improvements to
recovery expected when the new carbon regeneration kiln is commissioned
in the second half of 2013.
The dump leach operation produced 4,368oz in Q1 2013, a 75% increase on
Q4 2012. 378kt of low grade oxide ore at 0.42g/t was delivered to the
pads in preparation for irrigation, bringing the total ore placed on
the dump leach to approximately 6.3Mt at 0.50g/t.
Fuel Costs
In light of the on-going dispute with the Egyptian Government regarding
the 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 fuel
supplier, Chevron, based on the international price for diesel. The
Company has fully provided against the prepayment of USD55.3 million as
an exceptional item, of which USD13.9 million was provided for during
Q1 2013. Refer to Note 4 of the accompanying interim condensed
consolidated financial statements for further details on the impact of
this exceptional provision on the Group's results for Q1 2013.
In addition, during the prior year, the Group received a demand from
Chevron for the repayment of fuel subsidies received in the period from
late 2009 through to January 2012, amounting to some USD60 million
(EGP403 million). No provision has been made in respect of the
historic subsidies prior to January 2012 as, based on legal advice that
it has received to date, the Company believes that the prospects of a
court finding in its favour in relation to this matter remain strong.
As disclosed previously, the Company has commenced proceedings in the
Administrative Court in Egypt in relation to this matter. The Company
remains of the view that an instant move to international fuel prices
is not a reasonable outcome and will look to recover any funds advanced
thus far at the higher rate should the court proceedings be
successfully concluded. Please refer to Note 7 to the accompanying
interim condensed consolidated financial statements and the most
recently filed Annual Information Form ('AIF') for further information.
STAGE 4 EXPANSION
Construction continued on Stage 4 of the process plant expansion, which
commenced in late 2011, which will expand Sukari nameplate capacity
from 5Mtpa to 10Mtpa. The estimated capital cost of the Stage 4
expansion, which is funded by PGM out of cost recoveries, is USD325
million including contingency, with expenditure to date of USD274.4
million. The commissioning of the plant remains on schedule to commence
in the second half of 2013 and be complete by year end.
As part of the implementation of Stage 4, the Company is in discussions
with EMRA and other government departments in relation to securing the
necessary permits to increase daily ammonium nitrate ("AN") consumption
and blasting accessories in order to increase open pit mining rates to
the required level to feed the expanded plant. As part of this process,
which is expected to be completed during the year, a new blast
accessories import permit was issued by the Ministry of Interior
shortly after period-end on the 7th April.
Main Plant
Detail engineering of the main plant is complete and 90% of the
mechanical equipment has now arrived on site. All major civil works
have been completed and the erection of structural steel and
installation of mechanical equipment and piping is in progress.
Procurement of electrical equipment, cables and instrumentation is
proceeding and the piping contractor is mobilising to site.
Installation of both SAG and ball mills is in progress, however late
arrival of structural steel is impacting on the schedule in this area.
Power Station
The fifth MAK engine has been installed, commissioned and is fully
operational in the existing plant. The new Wartsila plant has been
completed, load bank commissioned and is ready to operate, installation
of power cables to the new plant will commence in the second quarter.
Sea Water Pipeline
Excavation of the trench for the new pipeline has been completed.
Welding and installation of the pipe is continuing and will be
completed by the end of May 2013. Construction of the booster station
is proceeding with most of the civil work completed. Delivery of the
intake and booster pumps is scheduled to take place in May and June.
Tailings Storage Facility
Construction of the embankment is 100% complete and installation of the
HDPE liner has commenced.
New Primary Crusher
Excavation has been completed and construction of the crusher building
is 25% complete.
Capital Expenditure
A 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 million
Major 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 million
EXPLORATION UPDATE
Sukari Hill
Centamin has resources (inclusive of production since 30 September
2011) of 13.13 million ounces Measured and Indicated, and 2.3 million
ounces Inferred, and reserves (inclusive of production since 31
December 2011) of 10.1 million ounces. Drilling continued from the
underground development drives and further exploration of the Sukari
deposit will take place during 2013, predominantly from both the Amun
and Ptah declines. We aim to provide an updated resource and reserve
statement during the second half of 2013.
Regional Exploration
Drilling continued in the V-Shear and Kurdeman prospects. On-going
drilling to the south at the Kurdeman prospect offers the potential to
fast-track near surface high grade ore to supplement the existing
production. The results of the gravity surveywere receivedand
highlight potential anomalies both at depth and along strike that will
be investigated with drilling during2013.
Growth Beyond Sukari
Centamin continued exploration on its four tenements in northern
Ethiopia where drilling commenced in the first half of 2012. Results
to date have confirmed the presence of mineralisation and follow-up
drilling continues. Our strategy remains to continue to grow and
diversify our asset base through targeted acquisitions in the
Arabian-Nubian Shield region and beyond in the coming years.
FINANCIAL REVIEW
Centamin has a strong and flexible financial position with no debt, no
hedging and cash, bullion on hand, gold sales receivables and
available-for-sale financial assets of USD188.7 million at 31 March
2013, down from USD219.4 million at the end of December 2012. For
further 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 million
Sukari generated revenue of USD138.2 million in the first quarter, a 1%
decrease on the previous quarter, due to a 6% reduction in realised
gold prices offsetting a 5% increase in gold sales. Revenue reported
comprises proceeds from gold and silver sales.
Centamin's unit cash operating costs of production was USD556/oz, USD2
lower than in Q4 2012.Excluding the exceptional provision for fuel
prepayments this equated to USD409 per ounce, USD37 per ounce lower
than in Q4 2012. Unit cash costs were below the 2013 full year guidance
of USD700 per ounce, primarily due to reduced open pit mining costs
early in the quarter as a result of the build-up in broken material
following the temporary suspension of operations in December 2012.
During the remainder of the year we expect average unit costs to revert
towards the unchanged guidance of USD700 per ounce.
Operating cash costs increased quarter-on-quarter by USD0.8 million or
2% to USD48.4 million. Processing costs were 16% higher due to a 37%
increase in process plant throughput. Mining costs were down by 8% as
a result of better utilisation of equipment, lower maintenance charges
as well as the need for less drilling and blasting during the period.
EBITDA for the period was USD81.7 million, a 47% increase on the
previous 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 above
Basic Earnings per Share for the quarter was 6.60 cents, a 55% increase
on Q4 2012 and a 41% increase on the prior year period. The
quarter-on-quarter increase is mainly due to the effects noted above
and also offset by a 2% increase in depreciation and amortisation to
USD10.1 million, due to an increase in the underlying capitalised
preproduction costs and mine development properties.
CORPORATE UPDATE
Chief Executive Officer Appointment Process and Allocation of
responsibilities
The Board continues on an on-going basis to assess the options for
ensuring that the Company has the right leadership to best further its
future development and at present the Board believes that there is no
urgent requirement to fill the CEO position. In arriving at this
decision the Board has taken into account the degree and breadth of
experience brought to the senior management team by Chief Operating
Officer, Andrew Pardey, Chief Financial Officer, Pierre Louw and Head
of Business Development and Investor Relations, Andy Davidson, as well
as the requirements of the UK Corporate Governance Code. In relation to
the Code, the Board believes the interests of shareholders are best
served by the current arrangement and that the Company is not at risk
from an undue concentration of decision-making authority by the
temporary combination of the Chairman and Chief Executive Officer
roles. In reaching this conclusion, the Board has taken into
consideration the strong presence of highly experienced independent
non-executive directors on the Board and the structure of the Board
Committees designed to devolve away from the Chairman the
responsibility and control of certain key areas of Board
responsibility. Furthermore, for so long as the roles remained
combined, certain corporate governance functions undertaken by Josef
El-Raghy in his capacity as Chairman will be delegated to the Senior
Independent Director. These functions include chairing the board
meetings, ensuring that the Board receives timely information and
ensuring the efficient organization and conduct of the Board's
functioning.
LEGAL ACTIONS
Concession Agreement Court Case
On 30 October 2012, the Administrative Court in Egypt handed down a
judgment in relation to a claim brought by, amongst others, an
independent member of the previous parliament, in which he argued for
the nullification of the agreement that confers on the Group rights to
operate in Egypt. This agreement, the Concession Agreement, was entered
into between the Arab Republic of Egypt, the Egyptian Mineral Resources
Authority ("EMRA") and Centamin's wholly owned subsidiary Pharaoh Gold
Mines ("PGM"), and was approved by the People's Assembly as Law 222 of
1994.
In summary that judgment states that, although the Concession Agreement
itself remains valid and in force, sufficient evidence had not been
submitted to Court in order to demonstrate that the 160km2"exploitation
lease" between PGM and EMRA had received approval from
the relevant Minister as required by the terms of the Concession
Agreement. Accordingly, the Court found that the exploitation lease in
respect of the area of 160km2 was not valid although it stated that
there was in existence such a lease in respect of an area of 3km2.
Centamin, however, is in possession of the executed original lease
documentation which clearly shows that the 160km2 exploitation lease
was approved by the Minister of Petroleum and Mineral Resources. It
appears that an executed original document was not supplied to the
Court.
Upon notification of the judgment the Group took various steps to
protect its ability to continue to operate the mine at Sukari. These
included both lodging a formal appeal before the Supreme Administrative
Court ("SAC") on 26 November 2012 and, in the first instance, lodging
an "Objection to Enforcement" of the original ruling with the Civil
Court on 31 October 2012, which had the effect of "staying"
(postponing) implementation for an initial period. In conjunction with
the formal appeal the Group applied to the SAC to suspend the initial
decision until such time as the SAC is able to consider and rule on the
merits of the appeal. As part of this process the SAC was supplied
with a copy of the exploitation lease. On 20 March 2013, the 7 judges
of the SAC unanimously upheld this application and on this basis normal
operations will continue during the appeal process. In its ruling the
SAC held that, "on the basis of the copy of the exploitation lease
executed by the Minister of Petroleum presented to SAC, the annulment
of such lease by the Administrative Court was likely to be cancelled
upon the issuance of a judgment on the merits of the case".
On 10 May 2013 the Company announced that the Egyptian State
Commissioner's Office had, prior to the first hearing in the appeal
scheduled for 19 June 2013, produced a report containing non-binding
recommendations for the SAC. Whilst these recommendations are not
positive, the Company does not believe that they address the
substantive merits of Centamin's appeal and as such the Company's
grounds of appeal remain unchanged upon the initial review of the State
Commissioners report.
EMRA lodged its own appeal on 27 November 2012, the day after the
Company's appeal was lodged. Furthermore, in late December 2012, the
Minister of Petroleum lodged a supporting appeal and shortly thereafter
publicly indicated that, in his view, the terms of the Concession
Agreement were fair and that the exploitation lease was valid. The
Minister of Petroleum also expressed support for the investment and
expertise that Centamin brings to the country. We believe this
demonstrates the government's commitment to our investment at Sukari
and the desire to stimulate further investment in the Egyptian mining
industry.
We do not yet know when the appeal will conclude, although are aware of
the potential for the process in Egypt to be lengthy. The Company has
taken extensive legal advice on the merits of its appeal from two
leading Egyptian law firms who have confirmed that the proper steps
were followed with regard to the grant of the 160km2 exploitation
lease. We therefore remain of the view that the appeal is based on
strong legal grounds and will ultimately be successful. In the event
that the appellate court fails to be persuaded of the merits of the
case put forward by the Group, the operations at Sukari may be
adversely effected to the extent that the Company's operation exceeded
the exploitation lease area of 3 km2 referred to in the original court
decision.
The Company remains confident that normal operations at Sukari will be
maintained whilst the appeal process is underway.
Diesel Fuel Court Case
In January 2012, the Group received a letter from Chevron to the effect
that Chevron would only be able to supply Diesel Fuel Oil ("DFO") to
the mine at Sukari at international prices rather than at local
subsidised prices, which had the effect of adding approximately USD150
per ounce to the cost of production. It is understood that the reason
that this letter was issued was that Chevron had received a letter
instructing it to do so from the Egyptian General Petroleum Corporation
("EGPC"). It is further understood that EGPC itself issued this
instruction because it had received legal advice from the Legal Advice
Department of the Council of State (an internal government advisory
department) that the companies operating in the gold mining sector in
Egypt were not entitled to such subsidies. In November, the Group
received a further demand from Chevron for the repayment of fuel
subsidies received during the period from late 2009 through to January
2012, amounting to EGP403 million (approximately USD60 million at
current exchange rates).
The Group has taken detailed legal advice on this matter (and, in
particular, on the opinion given by Legal Advice Department of the
Council of State) and in June 2012 lodged an appeal against EGPC's
decision in the Administrative Courts. Again, the Group believes that
its grounds for appeal are strong and that there is a good prospect of
success. However, as a practical matter, and in order to ensure the
continuation of supply whilst the matter is resolved, the Group has
since January advanced funds to our fuel supplier, Chevron, based on
the international price for fuel.
No decision had been taken by the courts regarding this matter. The
Group remains of the view that an instant move to international fuel
prices is not a reasonable outcome and will look to recover funds
advanced thus far should the court proceeding be successfully
concluded. However, Management recognises the practical difficulties
associated with re-claiming funds from the government and for this
reason have fully provided against the prepayment of USD55.3 million,
as an exceptional item, of which USD13.9 million was provided for
during Q1 2013. Refer to Note 4 of the accompanying interim condensed
consolidated financial Statements for further details on the impact of
this exceptional provision on the Group's results for 2012.
No provision has been made in respect of the historic subsidies prior
to January 2012 as, based on legal advice, the Company believes that
the prospects of a court finding in its favour on this matter remain
very strong.
COST RECOVERY AND PROFIT SHARE
Based on current gold prices, production forecasts and operating
expenses, it is expected that there will be a net production surplus
(revenue in excess of production royalty and cost recoveries) available
for sharing between EMRA and PGM for the SGM financial year ending 30
June 2014 (SGM's accounting period is 1 July to 30 June). Any
disruption to operations or reduction in gold price realised will delay
this profit sharing. This expected profit sharing takes into account
the costs incurred on paying for fuel at international prices. Any
recovery of these prepayments, discussed above, will result in further
amounts to be shared between EMRA and PGM.
Following discussions with EMRA, and with a view to demonstrating
goodwill toward the Egyptian government, during Q1, an advance payment
was made in relation to this likely 2014 profit share to the value of
USD8.2 million and this advance payment will be netted off against any
future profit share that becomes payable.
OUTLOOK
Centamin remains focused on advancing all three pillars of our growth
strategy. At Sukari, we are committed to delivering on our full year
production guidance of 320,000 ounces, a 22% increase in production
from 2012, at a cash operating cost of USD700 per ounce. Despite the
recent gold price weakness, the operation remains relatively low cost
and PGM (Centamin's 100% owned subsidiary) remains in a strong position
to be able to fund Sukari's 2013 capex out of cash flow received from
cost recoveries. We remain on track to further consolidate our
position as a significant mid-tier gold producer, with the
commissioning of the Stage 4 expansion to be complete by the end of the
year, thus driving the on-going ramp-up towards 450-500,000 ounces
production per annum from 2015.
Our exploration activities both from underground and from surface
within the 160km2 Sukari tenement continue to provide encouragement for
further potential resource and reserve growth over the coming years.
The results of the recent gravity survey highlight potential anomalies
both at depth and along strike that will be investigated with drilling
during 2013. We aim to provide an updated resource and reserve
statement during the second half of 2013.
Josef El-Raghy
Chairman
15 May 2013
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
This document contains "forward-looking information" which may include,
but is not limited to, statements with respect to the future financial
or operating performance of Centamin plc ('Centamin' or 'the Company'),
its subsidiaries (together 'the Group'), affiliated companies, its
projects, the future price of gold, the estimation of mineral reserves
and mineral resources, the realization of mineral reserve and resource
estimates, the timing and amount of estimated future production,
revenues, margins, costs of production, estimates of initial capital,
sustaining capital, operating and exploration expenditures, costs and
timing of the development of new deposits, costs and timing of future
exploration, requirements for additional capital, foreign exchange
risks, governmental regulation of mining operations and exploration
operations, timing and receipt of approvals, consents and permits under
applicable mineral legislation, environmental risks, title disputes or
claims, limitations of insurance coverage and regulatory matters.
Often, but not always, forward-looking statements can be identified by
the use of words such as "plans", "expects", "is expected",
"budget","scheduled", "estimates", "forecasts", "intends", "targets",
"aims","anticipates" or "believes" or variations (including negative
variations) of such words and phrases, or may be identified by
statements to the effect that certain actions, events or results
"may","could", "would", "should", "might" or "will" be taken, occur or be
achieved.
Forward-looking statements involve known and unknown risks,
uncertainties and a variety of material factors, many of which are
beyond the Company's control which may cause the actual results,
performance or achievements of Centamin, its subsidiaries and
affiliated companies to be materially different from any future
results, performance or achievements expressed or implied by the
forward-looking statements. Readers are cautioned that forward-looking
statements may not be appropriate for other purposes than outlined in
this document. Such factors include, among others, future price of
gold; general business, economic, competitive, political and social
uncertainties; the actual results of current exploration and
development activities; conclusions of economic evaluations and
studies; fluctuations in the value of the U.S. dollar relative to the
local currencies in the jurisdictions of the Company's key projects;
changes in project parameters as plans continue to be refined; possible
variations of ore grade or projected recovery rates; accidents, labour
disputes or slow-downs and other risks of the mining industry; climatic
conditions; political instability, insurrection or war, civil unrest or
armed assault; labour force availability and turnover; delays in
obtaining financing or governmental approvals or in the completion of
exploration and development activities; as well as those factors
referred to in the section entitled "Risks and Uncertainties" section
of the Management discussion & analysis. The reader is also cautioned
that the foregoing list of factors is not exhausted of the factors that
may affect the Company's forward-looking statements.
Although the Company has attempted to identify important factors that
could cause actual actions, events or results to differ materially from
those described in forward-looking statements, there may be other
factors that cause actions, events or results to differ from those
anticipated, estimated or intended. Forward-looking statements
contained herein are made as of the date of this document and, except
as required by applicable law, the Company disclaims any obligation to
update any forward-looking statements, whether as a result of new
information, future events or results or otherwise. There can be no
assurance that forward-looking statements will prove to be accurate, as
actual results and future events could differ materially from those
anticipated in such statements. Accordingly, readers should not place
undue reliance on forward-looking statements.
QUALIFIED PERSON AND QUALITY CONTROL
Information of a scientific or technical nature in this document was
prepared under the supervision of Andrew Pardey, BSc. Geology, Chief
Operating Officer of Centamin plc and a qualified person under the
Canadian National Instrument 43-101.
Refer to the technical report entitled "Mineral Resource and Reserve
Estimate for the Sukari Gold Project, Egypt" dated 14 March 2012 and
filed on SEDAR at www.sedar.com, for further discussion of the extent
to which the estimate of mineral resources/reserves may be materially
affected 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 Exchange
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