[Update] Centamin gains on fuel news, but Sukari still remains shut

The outlook for Egypt’s largest gold producer, Centamin (CEE-T, CEY-L), still seems uncertain as a shortage of diesel and working capital forced it to recently close the Sukari gold mine, located near the Red Sea, causing its shares to plunge.

Following the mine suspension, Centamin tumbled 50% to close Dec. 13 at 45.5¢, the lowest since the company listed on the TSX in 2007.

But a day later, Centamin delivered some good news to the market, reporting that the Egyptian General Petroleum Corp. (EGPC) would resume the supply of diesel to the Sukari mine and that no retrospective fuel payment was currently required, erasing some of the company’s earlier losses.

Those losses came after it said that EGPC would cut off future fuel supplies to the mine until Centamin paid a retrospective claim of roughly US$65 million for diesel supplied from December 2009 to January 2012.

At that time, the miner said the retrospective claim was “illegal” and that the company along with its joint-venture partner, the state-owned Egyptian Mineral Resources Authority or EMRA, would work to restore supplies, cautioning that diesel levels at the mine were dangerously low.

But on Dec.14, Centamin updated the market, noting it would not have to pay that amount yet and that the hike in diesel prices that it experienced at the start of the year was currently before the courts, adding that this case would also address any retrospective claim.

Despite the good news, operations at Sukari still remain offline as the troubled miner is trying to restart gold exports, which were halted recently after Centamin resumed the process.

After receiving all the required permissions from EMRA, the company was ready to export, but then customs officials stopped shipments requesting prior approval by the country’s finance minister.

Centamin said the request was “unforeseen” and “arbitrary,” adding it had been having difficulty obtaining approval.  

This is the second time in recent months that Centamin has faced legal difficulties at its flagship gold operation in south-eastern Egypt.

On October 30, Centamin stated Egypt’s administrative court annulled its 18-year-old concession agreement at Sukari with the government. The next day the company filed an “objection to enforcement” notice, delaying the implementation of any judicial decision until a hearing, which is expected to occur by mid-February 2013.

Both Centamin and its fifty-fifty partner are appealing the lower court’s decision. The company still has to obtain a hearing date for the appeal.  

The producer states it will continue to defend its rights to mine and export gold from the Sukari mine. 

Centamin still has to update the market on how the closure would affect Sukari’s 2012 production guidance of 250,000 oz. gold and expected cash costs of US$500 per oz. at subsidized fuel prices or US$700 per oz. including fuel repayments.

During late afternoon, Centamin gained 24% and was trading at 54¢.