Centamin’s upgrades a ray of sunshine at Sukari

Shareholders of Egypt-focused gold miner Centamin (CEE-T) have gotten a welcome bit of good news with the the company releasing an upgraded open-pit plan for its flagship Sukari gold mine in southeastern Egypt, some 700 km south of Cairo near the Red Sea.

Centamin has had a rough ride over the past year, with its sole significant asset located in the ­politically turbulent nation. The company has been negatively affected logistically by the “Arab Spring” uprising, and it downgraded guidance numbers last year following difficulties tied to the civil protests.

Centamin met its 205,000-oz.-gold guidance for 2011 after the number was revised from a preliminary estimate of 250,000 to 290,000 oz. gold output. More recently, the company ran into problems when the Egyptian government was unable to deliver promised fuel subsidies owing to cash shortages.

Centamin shares hit a three-year low of 95¢ from January to March, and the company learned just how dissatisfied its shareholders had become when they attempted to throw out a series of management bonuses using a 63% proxy vote at an annual general meeting in London, England.

The new plan at Sukari would boosts head grades of open-pit ore to between 1.1 and 1.5 grams gold per tonne over the next five years, and reduce the waste-to-ore strip ratio in 2014 to 6.72 to 1 — down from 14.5 to 1 — after the miner improved  hill removal east of the mine. The new open-pit mine life clocks in at 30 years, with an average grade of 1.09 grams gold.

According to Centamin these improvements were made possible by the delivery of new mining equipment, along with commissioning of a US$287-million, stage-four ­expansion that would double Sukari’s annual throughput to 10 million tonnes by the end of 2013. The company has spent US$99.3 million on the expansion so far.

Rescheduled waste and ore ­deliveries would result in more consistent grades. Metallurgical ­recovery rates are expected to improve to 89% over the next few years courtesy of an automated ­reagent addition and a custom-designed, carbon-regeneration kiln.

Sukari is pegged to produce 250,000 oz. gold this year and 367,190 oz. in 2013, numbers  that would jump to 431,400 oz. in 2014 and 445,100 oz. in 2015.

Centamin produced 49,071 oz. gold over the first quarter, marking a 9% year-on-year quarterly increase at cash costs of US$637 per oz. Processing throughput rates clocked in at around 1 million tonnes during the quarter in a 38% increase over first-quarter 2011, with a record 415,600 tonnes processed in January.

 “The team at Sukari delivered a solid quarter of gold production in-line with our guidance, and we remain on track to reach our full-year production,” chairman Josef El-Raghy comments. “With our commitment to a continued capital expenditure and exploration program, the periods ahead will see sustained growth on many fronts in both Egypt and Ethiopia.”

Centamin enjoyed a rare upswing following news of the updated open-pit plan, with company shares jumping 6.2%, or 6¢ on May 30, en route to a $1.03 close. Shares have been on the downward trend since hitting a quarterly high of $1.52 in early February.

Centamin shares have plummeted 50%, or $1.02 over the past 52 weeks, as the company struggled with political turmoil in Egypt. National elections in June may provide more solid footing, but could just as easily see the country regress into more civil strife.

BMO Capital Markets analyst David Haughton maintains an “outperform” rating on the stock with a $1.75 target price.

“Analysis suggests that Centamin represents good value at these levels,” he comments in a May 30 research note. “However, the share price remains captive to geopolitical risks and uncertainty in Egypt. BMO Research remains ­confident in Sukari’s geological upside and in the company’s ability to achieve its longer-term production targets.”

Haughton explains that the re-optimized mine plan is essentially “in-line” with BMO research forecasts, and that analysts had already factored in a smoother grade and stripping profile over the 2014 and 2015 operational years.

Centamin’s unique agreement with the Egyptian government allows the company to retain 100% of its cash flow — minus a 3% revenue royalty — until it can recoup its capital expenses. Centamin is also exempt from paying taxes for 15 years, with an option agreement to extend that window to 30 years. The company had cash and liquid assets totalling US$175 million to end March.

Sukari features an underground mining component that produces higher grades of between 10 and 12 grams gold. The underground mine achieved record ore movement during the first quarter with 71,800 tonnes processed, and is production is being ramped up.

First-quarter development included 624 metres of decline progress to access stoping blocks slated for processing this year. Centamin also completed 1,800 metres of underground diamond drilling during the quarter to define short-term stope potential, and test depth extensions below its Amun zone.