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Centamin: Production Recommences

Contributed by Fox-Davies Capital

Centamin has advised that the operations at Sukai resumed on the 20th December 2012. This followed the resumption of gold exports on Sunday the 16th December 2012.

This followed a press release on the 17th December stating that a day after Centamin announced the halt of operations at Sukari, that EGPC has notified Sukari's fuel supplier Chevron Corp, that diesel supplies could resume and that no retrospective payment was currently due.

Centamin then said in the same RNS that it expects both fuel and normal operations at Sukari to resume once payment for the latest gold shipment has been received and working capital has subsequently been replenished.

Despite the perceived calm, all is not well. It remains the belief of many Egyptians the Centamin pays no tax. Technically this is true currently, but really it is no different to tax arrangements in West Africa. The operating company has a June year end, and once the accounts are audited, it is expected that profit sharing will commence. However, this assumes that the earlier claim of $65M for the repayment of oil subsidies in 2010 and 2011 is not paid. We also understand that gold exports have again been suspended. The mine requires between three and five oil shipments per day to operate and aims to maintain around three weeks stock in inventory. So far, about one week's inventory has been built up. Operating costs average around $32m per quarter, so shipments need to be resumed soon or a rerun of the situation just before Christmas will occur.

We have adjusted the model for the lack of production and the fluctuations in gold sales, plus inserted the actual gold price for the December quarter.

The exchange rate used to derive a sterling target price has also increased since we last ran the model.