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Centamin’s Q1 financial performance weakens as output slows

Sukari, Egypt.

Sukari, Egypt.

Photo by Centamin

15th May 2014

By: Henry Lazenby

Creamer Media Deputy Editor: North America

  

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TORONTO (miningweekly.com) – Egypt-focused gold producer Centamin recorded a weaker year-on-year financial performance for the three months ended March 31, as output slumped owing to lower grades caused by mining fleet unavailability.

The Perth, Australia-based miner, which operates the Sukari mine in the south-easterly region of the Eastern Desert of Egypt, about 700 km from Cairo and 25 km from the Red Sea, reported that earnings before interest, tax, depreciation and amortisation (Ebitda) fell to $34.3-million, down 58% from $81.7-million a year earlier.

The lower Ebitda, a common metric used to evaluate a company’s profitability, was mainly attributable to a 15% decrease in gold output to 74 241 oz during the quarter, reflecting lower grades delivered from the openpit, which was in line with the mine plan, and reduced mining fleet availability within the high-grade stoping areas of the underground mine, which reduced the average mined grade to below planned levels.

The miner said the mechanical issues were rectified within the quarter and it still expected to achieve its full-year guidance of 420 000 oz at a cash operating cost of $700/oz.

During the first quarter, the Sukari mine produced gold at a consolidated cash cost of $744/oz, 34% higher year-on-year, impacted on by the removal of State-sponsored fuel subsidies.

Revenue for the quarter declined 26% to $102.7-million, impacted by 8% lower sales at 78 957 oz of gold and a lower average realised gold price of $1 298/oz, down 19% over the same quarter of 2013.

Despite challenges during the quarter, the underground mine achieved record ore movement of 206 000 t for the quarter, operating slightly above the forecast 800 000 t rate for the full year.

The process plant also delivered a record quarter, chalking up throughput of 1.5-million tonnes without material impact from the new Stage 4 plant – representing a level of 19% above the five-million-tonne nameplate capacity of the existing plant.

The Stage 4 plant expansion was currently undergoing the initial stages of commissioning and is expected to contribute to rising output over subsequent quarters, expecting to lift output to between 450 000 0z/y and 500 000 oz/y from 2015 onwards.

Centamin, which also has exploration prospects in Ethiopia, earlier this year acquired Burkina Faso-focused explorer Ampella Mining, and said that it planned to continue to diversify through acquisitions in the Middle East and Africa.

LEGAL MATTERS

The TSX- and LSE-listed miner said that the two litigation actions regarding the validity of its concession agreement with the government and diesel fuel oil subsidies progressed “in line with expectations” during the quarter.

Centamin said that it expected to benefit from a new Egyptian investment law that came into force in April, which restricts the capacity for third parties to challenge any contractual agreement between the Egyptian government and an investor.

Centamin said that it is hoping that the ongoing court appeal process regarding the original claim to the Sukari concession agreement, which was brought by a third party and in 2012 and resulted in an Egyptian court ruling that Centamin's right to operate its Sukari mine was invalid, might be dismissed under the provisions of the new law.

The company is also embroiled in an ongoing dispute with the Egyptian government regarding the price at which diesel fuel oil is supplied to the Sukari mine.

Since January 2012, the company had been forced to advance funds to its fuel supplier Chevron, based on the international price for diesel, after government withdrew subsidies for fuel to certain industrial operations.

Edited by Creamer Media Reporter

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