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The change in mine plan* has necessitated an increase in stripping activity during the year (more than has been experienced in the past) and includes activity from both internal and external parties. As a result, there has been a significant increase in the stripping activity. Based on the calculations performed the amount capitalised to the balance sheet for 2022 is US$141 million (2021: $59m).**
Capitalisation occurs when the strip ratio exceeds the life of mine strip ratio for that stage.
Only the costs related to the excess stripping are capitalised. In line with the accelerated stripping programme (2022-2024) we expect to be above the life of mine strip ratio, resulting in a larger quantum to be capitalised to the balance sheet.
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Note : the last Life Of Mine Plan LOM 43-101 for Sukari had an effective date of 30 June, 2015
https://www.centamin.com/media/2317/cey_sukari_43-101-technical-report-231015_final.pdf
The most recent year end presentation states that a new LOM 43-101 is scheduled to be issued the second half of 2023 , but the decision Mr Horgan made to remove a giant pile of material from the open pit was made in 2021 .
That means:
1) the decision to move the giant pile of waste in 2021 was made without an updated plan, or
2) it was made using the old 2015 plan, or
3) an updated plan exists, it just hasn't been given to stakeholders to review
If #1 is true then, bad. If #2 is true then, bad. If #3 is true then, what's in it that the market won't like that it's being withheld so long?
More importantly, the EMRA should have been given an advance opportunity to review the increased waste clearing contract based on a new LOM 43-101. The fact that it was not given that opportunity means the EMRA has every right to question the decision - and audit the decision ( retroactively refuse to allow the excess waste clearing costs to be capitalized i.e. cost recovery ) meaning Centamin shareholders could be on the hook to reimburse those costs** to the EMRA. A very, very expensive outcome for shareholders.
Can EMRA challenge the cost?
Even if they object to the capitalisation surely the expenditure would just become an operating cost & reduce their profit share accordingly?
What am I missing Cowichan?
Spoonington,
yes , the EMRA can dispute anything and everything, most importantly for Centamin shareholders would be any erroneously made deductions to THEIR share of the profit - so if the capital project (in this case stripping excess waste - over and above the historical mine plan) gets clawed back it could take years of installments to pay back. Where does that pay back $$ come from? The BEST scenario would be that it came from excess free cash flow i.e. dividends - otherwise $$ we don't have, bank debt.
some excerpts from Centamin's full year 2022 results - page 44,45 :
Any variation between payments made during the year (which are based on the Company’s estimates) and the SGM audited financial statements, may result in a balance due and payable to EMRA or advances to be offset against future distributions.
This will be reflected as an amount attributable to the non-controlling interest in SGM on the statement of financial position and statement of changes in equity.
EMRA and PGM benefit from advance distributions of profit share which are made on a weekly or fortnightly basis and proportionately in accordance with the terms of the CA.
Future distributions will consider ongoing cash flows, historical costs that are still to be recovered and any future capital expenditure. All profit share payments will be reconciled against SGM’s audited June financial statements for current and future periods.
Legal title of all operating assets of PGM will pass to EMRA when cost recovery is completed. The right of use of all fixed and movable assets remains with PGM and SGM.
page 56
Included within non-current other creditors and current other creditors and accruals is $7.3m (2021: $9.8m) and $4.9m (2021: $2.4m) respectively in relation to the remaining instalments of a $17.6m settlement agreement signed with EMRA in 2021.
By its nature, elements of the cost recovery mechanism within the Concession Agreement are subject to interpretation and ongoing audits by EMRA. It is possible that future settlement agreements may be agreed with EMRA in relation to historic items.
I suppose that shareholders have to hope this doesnt happen then.
IF Egypt want other miners to invest and start mining in Egypt then "Killing the goose that is laying the golden eggs" would not be a very good move would it?
Taking smaller percentages from more companies would be better for Egypt than trying to wring everything out of one.
Surley Egypt/Erma want the companies who bid on the parcels of land to start producing gold and profit/ profit share.
paulmetcalfe,
I agree - but we've been waiting for Egypt to get the ball rolling for years and years
So far the only progress I've seen made as far as new gold production is the gov't owned Shalateen mine pouring it's first ounces a few weeks ago - maybe the preferred way forward is to make a greater share of the production themselves ?
What I've learned being invested in Egypt for well over a decade - talk of reforming the economy to be more global & open market friendly has been just that - talk
Looking good for a rerate back to 130. Nice bit of divergence building.
Hi Cowichan,
Thank you for your efforts on making us aware of in the absence of some convincing explanation to to the contrary by the company regarding the possible ramifications of the announced change to the existing terms and conditions of the concession agreement that have the potential to put considerable additional costs onto shareholders for the future.
If this is the case then the management haven't explained the full consequences of the changes to the "Life of Mine" plan as clearly or openly as they could have.
I hope others will join me in writing to the company for full explanation.
Hi Bushy,
Unfortunately things rarely go that simply with Centamin!
I hope Horgan has shared the benefits of his waste stripping extravaganza with EMRA even if he considers shareholders generally too insignificant to keep informed.
The retail shareholder can do little to change his poor attitude, I did not realise just how big a stick EMRA has the potential to wield. On one side I would like them to use it to force some disclosure/accountability on the other the cost to CEY holders may be prohibitive.
Thanks for the info :)
Spoonington,
It was very good of Cowinchan to expose this unfairness or weakness n the original Sukari concession agreement which appears to give EMRA an unfair financial advantage over other shareholders .
As we are all aware the original concession agreement was negotiated by the original management including Sami El Raghy and family who were either well aware of this inbuilt advantage to EMRA or ignorant of it in their desperation to get a concession!
Knowing what we do now it it is very hard to believe that the El Raghy family were guilty of the latter and so the the previous management appear to have chosen to hide this potentially expensive inherent disadvantage of the original concession agreement by applying an irresponsible work around of high grading, this deceived the market and shareholders by amplify the guidance and profits for as long as possible,or until the inevitable near disaster, that being the crack in the open pit wall forced cessation of this irresponsible mining practice!
I am sure that most shareholders are as surprised as you at this exposure of such unfairness which does appear to give great power and advantage to EMRA!
However to be fair and face the reality of a very bad situation, the open pit had become too unstable and dangerous to work and the amount of uncleared waste made access and egress to the underground workings very difficult or hazardous.
So it seems the choices were either declare the Sukari operation no longer safe or commercially viable, or admit the errors of the past management and set about clearing the waste.
As I previously suggested why give not put your concerns in writing to Martin Horgan?
thers has nbeen some unfair critisism of Cowichan reagrding his challenging of the manement but in my view he is to be applauded, its a pity more other share holders don't follow his example, the manegment shold welcome the interest from their share holders!
Oh come on Mr T, I know you have an inexplicable desire to unfairly deride previous management but this one is drawing a pretty long bow even for you.
If we examine the situation with a less biased attitude, you have 2 parties which share in the profits of an enterprise however one party unilaterally controls the expenditures, it is only fair & reasonable that the “silent” party be protected from the controlling party making inappropriate expenditures. Rather than it being a desperate attempt to secure the concession, which did result in Sami transforming a piece of desert into a multi-billion dollar producing gold mine thus enriching many long term shareholders including myself, the ability of EMRA to question expenditures is a clause that would naturally be included in any agreement where one party gets to control expenses.
The only time EMRA’s use of this power would become an issue is if Centamin management has engaged in wasteful, inefficient or inappropriate expenditure programs without proper planning & due diligence, the responsibility for this occurrence would lie solely with the current management & even you would be hard pushed to find an excuse to blame the El Raghy family.
I am not particularly concerned as waste movement is part & parcel of gold mining & even if it is done on an unplanned & inefficient basis, i doubt it would be in EMRA’s interest to make a major issue of it. One would hope that they will have received a more detailed explanation of the stripping program than us poor mug shareholders anyway & as such, if they had a problem with it, it should have already come to light (one never can be sure however).
As for contacting Centamin management directly, I consider this to be a waste of time. If they are not prepared to make detailed public disclosures about material operational changes (which in my opinion they are obligated to do so) they are not going to provide me with any meaningful information in private correspondence (legally it would be naughty to do so).
A free piece of advice, if you are truly interested in the long term value of your Centamin investment, you would be better served concentrating on the actions of current management rather than venting your spleen on previous management. No matter how many arrows you sling you will not change what has already occurred :)
Spoonington, You haven't as yet come up with any viable alternative to the methods that Martin Horgan is employing to clear up the mess created by Sami and his team at Sukari
You may recall that Sami often claimed that they had the best people running the Sukari operation, sadly subsequent events since 2015 events have proven that wasn't the case.
Incidently EMRA must accept some responsibility for the state and the cost of clearing Sukari because as part of the T&C of the original concession contract EMRA was required to have an on site presence in a supervisory capacity since the onset of Sukari operations, so then it must be assumed that they either condoned, chose to ignore, or failed to recognise the inappropriate mining methods being employed by Andrew Pardey and the previous management.
Without external shareholders investment then Samii and EMRA wouldn't have been able to developer the mine in any reasonable timescale, if at all!
The previous managements irresponsible mining methods at Sukari is directly responsible for creating the huge pile of uncleared waste that Martin Horgan and his team are now clearing away in order to make it possible to mine Sukari safely and cost effectively.
In two separate articles of 2015 & 2018 mining analyst Kees Dekker flagged up cancers about the inappropriate mining methods being used at Sukari to gloss over the poor open pit grades by high grading and also the importance of the underground operations to support the commercial viability of the Sukari operation.
Subsequently and unfortunately for share holders the Kees Dekker concerns of 2015 & 2018 raised have been proven to be very valid!
However it should come as some considerable reassurance to share holders that Kees Dekker is now of the opinion that the methods being practised by Martin Horgan are the best and fastest way to turn Sukari around for the future!
Despite being asked several times and considering your claimed superior mining practice knowledge you haven't as yet offered any alternative or more cost effective methods to those already being employed by Martin Horgan's team at Sukari, possibly this explains your reluctance to write or contact him?
Tibbs, quick correction Sami retired years ago should be Josef not Sami.
Point taken Dasut, but that said Sami and Josef must have discussed issues at Sukari and either Josef didn't understand as much as he should have done to be in post or if he did he was less than honest about it !
Youssef ceratinlly should never have been in post !
Tibbs, Sami got the Pharoah mine started based on his expertise related to the Geology and he built the initial team to be led by his son Josef who wasn't a miner and the team including Trevor Schultz did an excellent job in setting up the mine and many of the initial team I knew quite well and they were a very experienced bunch of mine start up people.
This is what they were the start up team and to be honest they did an excellent job in the early years and Harry Michaels joined them from Geita a then young General Manager who I am sure would if not for his untimely death under the guidance of Trevor Schultz gone on to be CEO.
This is when in my opinion things started to go off track because Josef had to go out to the market to find alternative people and the rest is history.
Don't disagree about uncle Youssef who was as I see it very much a political appointment who may well have been involved in the very early years with Sami to guide the way through the political complexities. Sami was away from Egypt for many years building his reputation in the Australian mining sector.
Yes Dasut ,Sami cannot be blamed, his age must be late eighties or early 90 s.
He has probably not visted Sukari in years.
Come to that many others not
hi Dasut,
You may recall this sounds to be a bit of a fiasco!
https://www.glasslewis.com/musical-chairs-centamin-director-voted-off-board-reappointed-immediately/
As to Youssef he wasn't a mining manager his appointment is open to suspicions of family nepotism and considering he was formally an Egyptian police capstan I fail to see how that experience is any way related to such an important role as Sukari general manager which should be a suitably qualified person appointed based on their mining qualifications and experience.
I take the point about a political PR person who again should appointed on their qualifications and experience, a former Egyptian police captain and family member may well leave the company open to accusations of corrupt practice as we well know.
CAIRO — The record of police violations is extensive, ranging from murder to extortion and illegal bribes. While some claim these are individual incidents and that the situation should not be generalized, tedious accounts of numerous violations reveal the dysfunctional role of police in daily Egyptian life.
There is also a widespread fear of physical assault when it comes to dealing with police. Assault and abuse have been common features of the Egyptian police code. Indeed, a large section of society perceives physical abuse necessary to keep the lower classes in their place.
The detainee "needs a few slaps, so he can come to his senses and realize where he’s going!
https://worldcrunch.com/opinion-analysis/corrupt-and-violent-egyptian-police-immune-to-all-revolutions
https://carnegie-mec.org/2016/03/27/civil-service-reform-in-egypt-between-efficiency-and-social-peace-pub-63442
We are where we are because the company had the wrong people in very senior roles for the wrong reasons.
Some good points Mr Bond,
From the huge pile of crap we are now paying to clear I doubt many of the Jersey BOD ever interrupted their seagull watching to visit Sukari!
At he end of the day though all these people all share some responsibility for allowing Sukari to became almost unworkable with the near ruination of the company
Tibbs yes total nonsense and Trevor got stuck in the middle, I thought at the time what a total waste of his experience getting him involved with HR and remuneration. He was/is one of the most respected people in the mining industry and guarantee when he was onboard he would have been a major asset to the company. Unfortunately in time retirement comes to us all.
Hi Dasut,
Absolutely agree the stupidity of this move which was recognised at the time and as you say such a mistake and so detrimental to the operation of the mine, which likely wouldn't have been allowed to descend to be be near on unworkable!
It was case if excluding the experienced to bring in the clowns !