Centamin comments on advisory report ahead of appeal hearing

Centamin (CEE-T, CEY-L) fell 18% after it updated the market on its legal troubles surrounding its Sukari gold mine in Egypt’s Eastern Desert.

Located 700 km from Cairo, Sukari started production in 2009 and is the only major gold mine in Egypt. But following the country’s revolution and administration change, which included reviewing contracts made under the previous regime, the fate of the mine has been clouded by uncertainty.

The company, which is appealing the annulment of its mine lease, said the State Commissioner’s Office produced a recent report containing unfavourable, non-binding recommendations for the Supreme Administrative Court ahead of Centamin’s first appeal hearing on June 19.

“Whilst these recommendations are not positive, the company does not believe that they address the substantive merits of Centamin’s appeal, and as such the company’s grounds of appeal remain unchanged upon the initial review of the State Commissioner’s report,” it said in a statement.

Andy Davidson, Centamin’s head of business development and investor relations, says the company has decided not to publish the 88-page report, calling it “distracting, irrelevant and misleading.”

Without elaborating on the recommendations, Davidson says the report questioned the fairness of the 30-year concession agreement that the company and its partner, Egyptian Mineral Resources Authority, signed with the government, which came into effect in 1995.

On Oct. 30 the administrative court ruled that the concession agreement was valid, but noted it didn’t have documentation showing that Centamin and its fifty-fifty partner had received approval for the 160 sq. km exploitation lease, as required under the concession agreement. For that reason, it called for the lease to be cancelled.

A day later, the company filed an “objection to enforcement” notice delaying the annulment until after an appeal hearing, contesting that it had the original lease documentation signed by the Minister of Petroleum.  

Davidson argues that the recent report from the advisory panel should have focused on the validity of the exploitation lease and not on the fairness of the concession agreement, which was already declared to be valid by the court.

“Our expectation was that it wouldn’t be rushed and that it would be a sober and considerate appraisal of the material facts, and that doesn’t seem to be the case,” he says.

However, Davidson stresses the Supreme Court is “under no obligation to follow the recommendation of the subcommittee.” The report will be just another submission in the appeal process, which is set to be heard by a panel of seven judges in June, he says.

Centamin lost 23% in the days following the news to close May 14 at 55¢. The next day its shares rebounded on better-than-anticipated first-quarter earnings of US7¢ per share, beating the consensus of US5¢.

The debt-free company is maintaining its 2013 guidance of 320,000 oz. gold at cash costs of US$700 per oz.