FTSE 250 miner
On Thursday, Centamin announced Egypt's national oil company had abruptly cut off the supply of diesel fuel to the mine and wouldn't allow the taps to be turned back on until Centamin paid $65m (£41m) in back payments. But, by Friday, Centamin claimed the government had reversed its position, allowing diesel supply to resume, and furthermore said no retrospective payment is currently due. The bewildering dispute centres around fuel supplied to the mine under a subsidy arrangement with the previous government between late 2009 and early 2012.
Centamin also says customs officials have delayed the company's export shipments of gold by handing in "an unforeseen and arbitrary request" for prior approval by the Minister of Finance, who has not yet granted it.
Without the fuel necessary to produce gold, and with no way to sell it anyway, Centamin was left with little choice but to place the mine on care and maintenance while it tries to resolve the issues. It hopes to resume production shortly.
Mining analyst John Meyer, of SP Angel, expressed his dismay at the recent events in a note to clients: "The situation highlights the commercial chaos into which Egypt is descending and the political vacuum which has led to the [mine's] shutdown." He added: "The Egyptians have effectively just made the country a no-go area for mining companies through their actions."
The latest problems come fast on the heels of a previous run-in with Egyptian authorities. In October, an administrative court in the country annulled Centamin's mining licence, sending the company's shares down by a third. Its lawyers later appealed the ruling, but not before gold exports were suspended.
The company has thus been unable to generate cash flow from its gold production for weeks and as a result now has a shortfall in working capital in Egypt. Centamin says the retrospective payment claim is "illegal" and that it continues to have the full support of Egypt's Mineral Resources Authority.
The company had cash and cash equivalents at end-September 2012 of $125m.
IC VIEW
Sure, it's possible for Centamin to get itself out of this mess. But these issues emphasise just how vulnerable the company is to Egypt's increasingly unstable authorities, and outright nationalisation of Centamin's previously lucrative Sukari mine is no longer looking so far-fetched. To that end, SP Angel suggests management could ensure that the mine can't be easily restarted without some critical components, making it difficult to restart if taken over by Egyptian forces. We're not so sure. Yes, there is value to be had here. But why bother retaining such terribly high risk - the situation is likely to get worse rather than better, in our opinion. At 33p, sell.
Last IC view: Hold, 64p, 31 Oct 2012
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