Centamin Plc (CEY) will continue to invest in Egypt to increase gold production as the company appeals a preliminary court verdict last week that annulled its 18-year- old concession agreement with the government.
Centamin will invest $150 million in the Sukari gold mine in 2013 in the final part of a four-phase investment program, the company’s chairman Josef El-Raghy said in a telephone interview today. It produced 202,968 ounces of gold in 2011 and expects production to increase to 250,000 ounces by the end of 2012, he said.
The company’s London-listed shares plunged as much as 59 percent on Oct. 30 when the verdict came out, the most on record. It recovered after Centamin and its joint venture partner, the state-owned Egyptian Mineral Resources Authority, said they would appeal the decision. The case is one of several legal challenges attempting to overturn asset sales by the government of ousted President Hosni Mubarak.
“The message is we are continuing to invest in Egypt at a time when foreign direct investment has fallen in the post- revolution period,” Raghy said. “We have created an industry in the desert where there was nothing.” The company directly employs 1,200 people, he said.
Egypt’s share of profits from the 50-50 joint venture will begin next year, when Centamin will have recovered the $1 billion of investment it has put into the mine since 1994, Raghy said. The government has so far earned its share of production through a 3 percent annual royalty fee, payroll tax, income tax and national insurance contributions. Its earnings were $20 million at the end of 2011. As costs are recovered by the second half of 2013, its 50 percent share of profits is expected to reach $150-200 million per year, Raghy said.
The annulment verdict said the EMRA didn’t exercise enough oversight on gold extraction at the mine and that the state authority should “rectify” the violations, which include receiving too low a share of profits and fuel subsidies. Raghy said the company stopped receiving fuel subsidies in February 2012, adding $40 million to its operating costs.
Hamdy El Fakharany, a lawmaker in the now-dissolved parliament, filed the case on the grounds that the concession was not approved by parliament. Centamin says the agreement was approved, and that the court didn’t receive a copy of a 2005 contract signed with the then-oil minister giving it operational rights in an additional 160-square-kilometer area. The EMRA and Centamin will present this document in the appeal, Egypt’s Oil Minister Osama Kamal said in an interview last week.
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