Egyptian gold-miner Centamin considers debt facilities for acquisitions, says CEO

By David Whitehouse

Posted on Friday, 8 April 2022 06:00
Centamin's Sukari mine in Egypt. Photo supplied.
Centamin's Sukari mine in Egypt. Photo supplied.

Centamin, which operates Egypt’s only gold mine, is reviewing its capital structure with a view to creating flexibility for possible acquisitions, CEO Martin Horgan tells The Africa Report.

Setting up credit facilities would allow Centamin to take an “opportunistic” approach to buying assets, Horgan says. The company would be able to bid with a combination of unused debt and shares if a target became available. “It’s far quicker if you have the banking relationships” already in place.

Centamin is currently debt free and had $257m of cash on the balance sheet at the end of 2021. The company, which is listed on the London and Toronto stock exchanges, is currently evaluating debt options with its banking advisers with the aim of creating a “more optimal capital structure”, Horgan says.

His personal view is that the buffer needed for a “rainy day” as well as maintaining the company’s dividend policy could be provided by a combination of cash and credit facilities, rather than by cash alone. The company will give an update on its capital structure review in July or August.

Buying an already producing asset would be ideal, but such assets are hard to find, Horgan says. The company’s team is expert enough to allow consideration of any type of operation from early stage exploration, he adds.

  • The company might consider acquisitions in Africa or Europe in countries with political and investment stability and good geological potential, he says.
  • Centamin is and will remain a gold company, but “a combination of gold with copper could  be justified.”

Cost shock

Centamin’s Sukari gold mine, near the Red Sea in the south-east of the country, is a joint venture with the Egyptian government that accounts for nearly all of the country’s annual gold output. The company has been grappling with higher costs for raw materials and logistics as a result of the Russia-Ukraine war. It has been able to contain the impact  because the process of diversifying supply chains had already begun as a result of Covid-19, Horgan says.

The company had already increased its levels of working capital and inventory, and moved away from a “just-in-time” delivery system. That carries a financial cost, but the costs of not producing for a single-commodity company are much higher, Horgan says.

  • It’s “prudent” to assume that higher prices for inputs such as explosives and reagents will last for “quite some time,” he adds.
  • The company to date has delivered about $60m of its $150m cost savings programme.

Solar plans

Horgan plans to start using renewable energy at Sukari with the commissioning of a 36 MW solar plant planned early in the third quarter. The first stage of the solar plant will provide about 22% of the company’s current consumption of diesel fuel in Egypt for its mine and trucks, Horgan says. Adding battery storage at a later stage will raise that share further.

The Sukari mine has a remaining projected life of 12 years. Favourable mining legislation and tax terms introduced in 2020 means that the hunt for new assets in Egypt is on. Egypt is trying to revive its mining industry with the aim of increasing the sector’s contribution to GDP tenfold by 2026. Centamin is among 11 companies which signed contracts with the Egyptian Mineral Resources Authority (EMRA) late last year for 75 gold exploration blocks in the Eastern Desert.

  • Horgan is confident that the country is “on the cusp of a gold exploration boom. There is a lot of political will” behind the exploration push, Horgan says. There is no way that Sukari is the country’s only significant gold deposit, he adds.
  • “No modern exploration techniques have been deployed in Egypt,” Horgan says. “The geological potential is undeniable. It’s one of the unexplored gold terrains of the world.”

The company also has assets in West Africa.

  • In Côte d’Ivoire, Centamin plans to deliver a pre-feasibility study for its Doropo project in the second half of this year. Assuming a positive outcome, the plan is to produce a full feasibility study in 2023, Horgan says.
  • In Burkina Faso, the company is still trying to sell its Batie West project, which the company has decided does not meet its scale criteria. That task has been made more difficult but the military coup in January. “Political instability has made things a bit more difficult,” Horgan says.

Bottom line

Horgan wants the flexibility to be able to move fast when opportunities arise.

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