Processing The Sukari processing plant is capable of processing oxide and sulphide ores. The 10mpta plant design comprises coarse ore stockpile, milling and CIL circuits relocated from Kori Kollo and combined with a new primary crusher, a new flotation and thickening capabilities, regrind and concentrate CIL circuit and new elution/gold room facilities for each of the CIL circuits. The original Kori Kollo processing plant was acquired in 2006 from Newmont Mining Corporation for US$11m and used to treat oxide ore and flotation tails. The new flotation, regrind and concentrate CIL circuit will treat mixed ore concentrate and sulphide ores. Stage 4 expansions effectively replicated the existing grinding and floatation circuits. 4 Stage Development Completed In February 2007 board approval was given to initiate development of the Sukari Gold Mine following a Definitive Feasibility Study (‘DFS’) investigating the development of the open pit gold mine at the site. The base case DFS provided robust economics for what is now Stage 1 and Stage 2 developments of a 4Mtpa plant producing over 200Koz of gold per annum over a 15 year mine life based on an 8.26Moz in situ resource including 3.7Moz in reserve status. The Stage 1 CIL plant was commissioned in December 2009 closely followed by Stage 2 in April 2010, which included the flotation circuit. The combined capital cost for Stage 1 and Stage 2 was US$267.5M and total capital expenditure to bring the Sukari Gold Mine into commercial production was US$450M. In Q1 2010 engineering and design of Stage 3 expansions were commenced following technical works completed in 2009 to optimise pit designs. Stage 3 expansions were commissioned in May 2011 and the secondary crusher was commissioned in Q3 2011. Total capital expenditure for Stage 3 was a further US$15.8M. Production continued to ramp up through the second half of 2011 and production above the 5Mtpa nameplate capacity was achieved during Q4 2011. The Stage 4 expansion of the Sukari mine was completed in Q1 2014 and doubled the mines processing capacity to 10mtpa and is targeting annual gold production of 450koz to 500koz. An independent scoping study was first completed by Senet Projects Limited in December 2010 and early expansion works begun in Q1 2011. Stage 4 expansions were completed at a cost of US$331.2m which came in over budget, including contingency.
Sukari Open Pit Mine The open pit operation is at the heart of the Sukari mine, producing on average 95% of the tonnes mined since 2011. Ore and waste is mined using conventional open pit mining methods. Selective mining techniques are employed to separate ore and waste. Provisions have been made for drilling and blasting all primary and oxide materials. Ore from the mine is hauled to the Run of Mine (‘ROM’) pad next to the processing plant or fed either directly into the crusher or stockpiled for future reclaim. Waste, which was initially used to construct the ROM, tailings dam, plant pad and haul roads, is sent to a single waste dump along the western and southern sides of the pit. The January 2014 Technical Report provides the pit design, which contain total rock content of 1,365Mt with 212Mt of ore at 1.10g/t. The average strip ratio is therefore 5.4:1. The geology is supportive of relatively steeply sloping walls (between 37 degrees and 40 degrees) on all sides reducing the stripping ratio. The open-pit model has dimensions of 2.6km long, 1.2km wide and has a maximum depth of 420m. Since 2010 a total of 32.9mt of ore have been mined from the pit at an average strip ratio of 2.71:1, however due to stockpiling this figure is slightly under stated. Centamin  Sukari Gold Mine In the longer term Centamin plans to operate at least two separate underground production areas. 23 July 2014 17 In the longer term Centamin plans to operate at least two separate underground production areas. The underground allow Centamin to process higher grade ore earlier than scheduled through surface mining alone. Preparations for underground mining begun in April 2009 and the portal development commenced in July 2009. The current mine plan for the Sukari Gold Project aims for one third of gold production to be from the underground mine. Although the initial objective is to fully investigate the expected ground conditions and provide access for additional drilling and geotechnical investigations. An initial underground mining rate of up to 750kt per annum at a grade of 8.5g/t gold is being targeted. However, the company indicates that underground infrastructure can support up to 1.5mtpa, we are modelling up to 1mtpa given the high volumes in recent periods. 587kt were mined in 2013 and 436kt mined in the first half of 2014 (grade remains below target levels). Before Centamin commenced underground mining, historic workings were limited to 110m depth with very little stoping development along small areas of strike. By the end of 2013 Centamin had advanced underground development to a total of 15,766m, extending down to 770m vertical depth. The Amun decline is the primary development, which is currently in an area below the current open pit in the Hapi Zone. The secondary Ptah decline, which was commenced in October 2011, will provide for haulage and ventilation to the lower level of the deposit’s northern portion below the ulti
to be paid from H2 2015E, based on production, gold price and operating expense forecasts. Advance goodwill payments totalling US$18.95m were made to EMRA in 2013; the intention was to bring forward future profit share payments. Importantly the Concession Agreement provides Centamin (through PGM), ERMA and the Operating Company with a number of cost recoveries and tax exemptions. The most notable of which include: Exemption from any duties or taxes on exports of gold and associated mineral production from the Sukari Project; Exemptions from tax and duties relating to the import of machinery, equipment and consumable items for the purpose of exploration and mining activities at the Sukari Project;
Capital cost recoveries, in particular exploration and exploitation costs including those accumulated prior to commercial production, at a rate of 33.33%; Capital cost recoveries for interest paid on up to 50% of investment borrowed at interest rate of LIBOR + 1% or below; PGM is entitled to an initial 15 year tax holiday with an option to extend for a further 15 years. The tax holiday started when commercial production commenced in 2010. The company will have the option to extend this near the end of the first period. Although the contest over the legitimacy of the company’s exploitation lease has not been resolved, both the Minister of Petroleum and EMRA continue to publicly state their full support. The EMRA lodged an appeal on the 27 November 2012 against the Administrative Court’s 30 October ruling and the Minister of Petroleum has lodged a separate appeal in support of Centamin’s appeal lodged on the 26 November 2012.
Operational risk Centamin has completed construction of the Sukari project Stage 4 upgrades and is in the process of commissioning the new circuit and ramping up production from 2014. Operational and technical risks are elevated during the commissioning of new plant and equipment. To date Centamin has shown competence in commissioning earlier stages of the project and maintains a strong management team, which partly mitigate this risk. Gold price Centamin maintains a zero hedging policy and as a result company revenue is exposed to fluctuations in the gold price. Any movement in the gold price has the potential to impact on Centamin’s profitability into the future. Sukari concession agreement PGM the wholly owned subsidiary of Centamin was awarded an exploitation lease in 2005, which covers an area of 160km2. Centamin holds a 160km2 exploitation lease over the Sukari Gold Project. This lease was issued in 2005 under the existing Concession Agreement signed with EMRA and Egyptian Ministry of Petroleum in June 1995. The exploration lease provides the company with the right to mine and export gold from the Sukari Gold Mine for 30 years with the option for a further 30 years. Under the Concession Agreement Centamin holds 100% operating interest of the Sukari mine under a 50% profit share agreement with ERMA. In addition, the Arab Republic of Egypt will receive a 3% royalty on net sales revenue from Sukari. Under the profit share EMRA will receive between 40% and 50% of “operating surplus” from the Sukari Project. 40% will be paid to EMRA in the first two years with positive net operating income followed by 45% in years three and four before increasing to 50% thereafter. First profit share payments are expected
Import, export and delivery restrictions. During 2011 restrictions were placed on the import of blasting supplies in the aftermath of Egypt’s political upheaval. Local blast inspectors have also imposed daily blast restrictions in recent years curtailing mine production. In 2012 fuel supplies to the Sukari Mine were suspended and restrictions were placed on gold exports, which led to a week-long shut down at the mine. Existing daily blast restrictions that have no impact on operations are expected to remain in place for the foreseeable future. Centamin is however, currently awaiting approval to have its daily ammonium nitrate usage limit increased to 40tpd from 25tpd as part of the Stage 4 expansion, for which we expect approval to be given within a timely manner. Future government instability may lead to adverse future outcomes relating to import, export and delivery of goods and services. Egyptian court proceedings Centamin is engaged in a number of court cases, the outcomes of which could have a significant impact on the operational and financial health of the company. Court proceedings were brought in 2010, which challenge the legality of the Sukari 30 year exploitation license issued in May 2005, underpinned by a Concessional Agreement established under Egyptian Law 222 of 1994. The license permits mining within the 160km2 lease area of Sukari gold mine. The Administrative Court handed down decision in October 2012, which was later suspended in March 2013 by the Supreme Administration Court. This allows operations at the Sukari Gold Project to continue. Appeals have been lodged and court proceedings are underway. Centamin remains in a dispute over the removal of petroleum subsidies since December 2012. The matter came about in December 2012 when the Egyptian General Petroleum Corporation (‘EGPC’) announced the removal of fuel subsidies for high grade fuels. As a result Centamin began paying an international price for diesel in accordance with the Ministry of Petroleum Egypt’s decision to remove fuel subsidies, generating additional mine production costs of US$36.65M in 2012 (US$139/oz). The decision by the government also incorporated a retrospective claim for subsidy entitlements between late 2009 and January 2012. The retrospective payment amounted to ~US$60M pertaining to oil supplied. There remains a risk that part or all of this retrospective payment may need to be paid; however, we see this as unlikely. An outcome is more likely to be in favour of Centamin to either receive back a percentage of the subsidies not realised since December 2012 or that the matter is settled with no further payment made.
RISKS Although political risks have been reduced, geopolitical issues continue to weigh heavily on Egypt, which has generated sustained periods of overhang in Centamin’s stock since 2011. The political turmoil that has followed the overthrow of Hosni Mubarak in 2011 has paralysed government efforts to address economic issues and brought to bear new issues. For Centamin, an on-going court case first brought in 2010, in respect of the Sukari Concession Agreement established under the Mubarak, remains a key risk. Developments in the case suggest that a positive result will be achieved for Centamin. However a unfavourable decision remains a risk. Egypt geopolitical risk Egypt’s economy remains weak and its political sentiment remains poor. High population growth, limited arable land and high unemployment rates are among the issues that are limiting the growth outlook for the nation. Political turmoil since 2011 has paralysed government efforts to address many problems. The election of former Amy Chief, Abdul Fattah al-Sisi in May 2014 could bring about some stability. However, as policy makers look to stimulate growth there is a risk that policy developments could negatively impact Centamin. The removal of fuel subsidies in December 2012 is one example. Other areas of concern may include: Changes to foreign ownership laws. Future changes to mineral exploitation laws could require proportional government ownership in Egyptian resource assets. However, signals by the government for a desire to boost foreign investment in this industry and lessons learnt in countries such as Zimbabwe mean this outcome is unlikely. Furthermore, the Sukari Concession Agreement is an Act of Parliament, established under Egyptian Law 222 of 1994. As a result it can only be amended by another Act, further reducing the potential risk to Centamin.
Changes to tax and royalty systems. Financial obligations increase the risk of adverse policy changes in light of the current Egyptian geopolitical and economic situation. Under tighter fiscal management we see policy makers addressing corporate tax and mining act reforms. Therefore the risk of adverse policy changes increases with the pressure to restore growth, reduce the budget deficit and meet financial obligations under current and future aid from Gulf nations and the IMF. As the tax and royalty rates charged to Centamin are laid out in the Concession Agreement, these risks are also significantly reduced.
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