Centamin rejigs Sukari production, reserves

VANCOUVER — Several complications have forced Centamin Egypt (CEE-T, CEY-L) to revise the production estimate for its Sukari open-pit gold mine.

The company now expects Egypt’s only major gold mine, located in the Eastern Desert some 25 km from the Red Sea coast, to produce between 160,000 and 170,000 oz. gold in its first full year of production, down from 200,000 oz.

Only days after the revision, however, Centamin published an updated reserve estimate that added 28% in contained ounces, helping to restore the market’s faith. The company maintains that it is still on track to achieve production of 500,000 oz. gold per year by 2012.

The company attributed the drop in production to problems with the semi-autogenous grinding mill liner and lifter, lower grades and slower improvements in metallurgical recoveries than expected. Company chairman Josef El-Raghy said in a statement that the issues are well understood and being dealt with.

El-Raghy went on to explain in a conference call that the mill went down several times because the polymetallic liners were punctured a few times. Shipping delays for the replacement steel liners then further delayed repairs. The company expects the new liners to be in place in October.

The gold grades have not quite matched the initial reserve estimate, but the newly released estimate takes that into account while still containing more ounces. The new reserve estimate incorporated a US$900 per oz. gold price versus US$700 per oz. in the old estimate, allowing for a slightly lower cutoff grade.

Reserves now stand at 245.4 million tonnes grading 1.15 grams gold per tonne for 9.1 million contained oz. gold, a 2 million oz. increase. The new reserve used a cutoff grade as low as 0.3 gram gold, compared with 0.4 gram gold cutoff previously.

Using the new resource model but at US$700 per oz. gold yields a gain of 370,000 oz. but at an average grade of 1.32 grams gold compared with 1.39 grams gold. The company reports that the new model has a negligible impact on the long-term economics of the mine.

As to effects on the cost-per-oz., company president Harry Michael said in a conference call that the resource revision should not have a long-term effect.

“I’m certainly not concerned about the US$400 an ounce long-term cash cost being threatened at all by this minor change on the reserve grade,” said Michael.

The company continues to explore underground at Sukari to complete a reserve estimate and a mine plan sometime around mid-2011. Centamin believes the Sukari orebody is open to the north and at depth.

The deposit is hosted by a large porphyry body on a regional shear zone. The mine sits 700 km south of Cairo and 23 km west of the coastal town of Marsa Alam.

Construction of the mine started in 2007 while Centamin poured the first gold bar in mid-2009 and declared commercial production on April 1, 2010.

Centamin owns 50% of the mine while the Egyptian Mineral Resource Authority holds a 50% carried interest. Sukari is subject to a 3% net sales revenue royalty to Egypt, but Centamin is exempt from taxes for 15 years.

After dropping 35¢ or 13.8% in two days on the lowered production, Centamin’s stock price regained 33¢ or 13.4% in the following two days on the reserve update to end at $2.88.

More than 14 million shares were traded over the four days. The company has 1.03 billion shares outstanding.