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That's giving the gold away for less than it costs to mine. Every month, to the tune of $ 80,000,000 EGP ( could be more volume per month now , those were 2022 figures ) That's heavily subsidized gold purchases to a dictator run country, courtesy of you , the Centamin shareholder. The math:
Egypt's official exchange rate 30.85 EGP = 1 USD
Unofficial exchange rate 60 to 70 EGP = 1 USD
Yes, the agreement states Egypt will pay the international price ( i.e. $2000 USD currently ) BUT since the official exchange rate used to calculate the 'local currency' Centamin gets in return, that works out to just $ 61,693.36 EGP - the CBE's an artificially mandated cap. It should cost the CBE more than twice that to buy Centamin's gold! Egypt can't buy USD on the international market for an exchange rate of 30.85 EGP , it's an absurd, make-believe rate they force only their own population to accept - and most don't. (Siko knows...)
If Centamin had never entered into the agreement to trade its gold for EGP with the Central Bank of Egypt there are MUCH cheaper alternatives to acquire EGP offshore. Specifically, one $2000 USD ounce of gold would fetch between $ 120,000.00 EGP to $140,000.00 EGP . I think every single Centamin shareholder would prefer benefitting from the weak Egyptian pound. Indeed , some think Centamin IS benefitting from the weak Egyptian pound when in fact they are not. Acquiring EGP offshore would practically cut EGP denominated expenses (salaried workers, local contractors) in half.
But, since it is locally unlawful (wink, nod) to trade at a rate other than that which is prescribed by the Central Bank of Egypt , Centamin is S.O.L. If a company is caught trading USD for EGP on the black market, they could have their business halted, their property confiscated and their license to operate in Egypt revoked. Sound familiar?
Should shareholders *hope* Centamin's CEO Martin Horgan & CFO Ross Gerrard acquiesce to losing 50% of the value of the gold they continue to sell to Egypt's Central Bank monthly rather than lose the Sukari mine for breaking the rules? That's a Catch-22.
But somebody asks, 'I'm sure Centamin is secretly getting more than 30.85 EGP as an exchange for their gold sold to Egypt, no?'
As far as Centamin keeps records, they list the CBE sales in EGP on the balance sheet but not the US$ conversion factor nor the total ounces of gold sold to the CBE, making it impossible for shareholders & auditors to confirm or deny - or object to the loss guaranteeing strategy.
Cowichan,
I understand exactly what you are saying, but are you saying that Centamin is losing because they are not selling their dollars in the black market in Egypt like some normal individuals or not getting Egyptian pounds from outside Egypt??!!
All the companies in Egypt exchange their dollars through the official channels (banks)..
You can't get many Egyptian pounds outside Egypt.. Egypt limits the max amount of cash to carry in/out of the country to 5k Egyptian pounds.. which is less than 200 dollars..
Centamin can't withdraw hundreds of thousands of dollars from the bank and sell them on the black market at night in a side street!!
Are you aware that the black market in Egypt is very very illegal and whoever gets caught is sentenced to prison charged with national security crime?
Officers stand outside banks asking people coming out of the banks carrying dollars about the reason for carrying dollars in cash..
If Centamin or any company doesn't exchange their dollars officially, the government could easily ask them where they are getting Egyptian pounds from to pay their employers and expenses, and that would be a breach of contract giving Egypt a valid reason to cancel any agreement and Centamin would not have a leg to stand on..
Yes there is a black market in Egypt, but not for this type or that level.. it's mainly for individuals.. and it's not right and damages the national economy..
Also the main reason for a country to encourage investment is to attract foreign currency, not for that company to sell the foreign currency illegally!!
Emirate has just signed a contract to invest 35 billion dollars in Egypt over the next 2 yrs, so if they thought the same, they are losing over 17 billions dollars as they could exchange that amount on the black market or abroad!!
So Egypt is paying Centamin the correct price in dollars, and the dollars are getting exchanged officially like all the other companies BP, Shell, etc.... you can't fault any side for that.
By the way, welcome back:) I don't know if you heard about the Emirate huge investment contract which was signed yesterday and is one of the biggest ever .. 150 billion dollars.. expected to help to solve Egypt's foreign currency problem for the next 4 years at least.. it's good news, isn't it?
Siko
Hi Siko,
Your updates do seems like good news for Egypt.
I am also glad to see Cowichan return and raising questions ,but also see your return and thank you for answering them, Cowichan is right to question the price Centamin is selling its gold for in Egypt as on first impressions selling gold at these prices could understandably cause some concern amongst shareholders and create unnecessary and unjustified uncertainty about the company.
But that said this forum is indeed fortunate to have you to explain that there is nothing untoward about this arrangement between the Egyptian government and Centamin who are both complying fully with Egypt's financial regulations.
Having debate on this forum and asking questions is beneficial to all concerned, so thank you once again to both of you.
Best
Tibbs
Cowichan
Centamin Egyptian mining staff are they paid official rates to USD or unofficial? Does Centamin pay for all its reagent at official or unofficial rates. Do Centamin have an official AISC cost to produce per ounce or does it get converted somewhere into unofficial Egyptian rates? Tony