Avoid Africa? Given the volume of bad news that flows, investors are justifiably wary! Yet it depends on how Africa is defined — geographically the continent contains a number of countries with good mining stories that are probably not thought of as African. Egypt for one!
Going against the continental trend, it is liberalising its investment rules. Result? Egypt is reviving its gold mining industry after a 2,000 year gap, with hopes of at least $10bn of new money, 10% growth in GDP and thousands of new jobs.
Gold, say all the reference books, has not been mined in Egypt since the pharaohs. A daunting thought! Something pretty major must have happened! Probably more realistic is the figure that 95% of the mining happened in the Ptolemaic era. Small scale prospectors have been chipping away since. But the sophisticated knowledge of how to extract and refine gold from Egyptian geology went as its civilisation was worn down by first Persian, then Greek and Roman overlords
Back to the 21st century! Centamin Egypt, an Australian and AIM quoted prospector, is at last getting its just rewards. It has been the unexploitable potential in Centamin’s resources that have helped change archaic laws Egypt applied to mining.
Centamin could have 15 million ounces of gold. Just one of its projects could be the largest gold deposit globally not owned by a major world producer. All of that has been sufficient for local politicians to get the legislators moving.
An end to discouraging profit-sharing laws
Egypt has signed a memorandum of understanding with the International Finance Corporation (IFC), the private arm of the World Bank. This opened up the way to rescind the profit-share treatment that discouraged foreign investors. The laws being used date back to the time of Nasser and 1950s nationalisation.
These laws were guaranteed to keep the miners away. The government received three per cent of the total value of any mineral extracted from Egyptian soil and then an additional 50% of profits. Additionally, the profit-sharing laws also dictated how companies use their finances.
"Under the current situation, we have to distribute all profit to shareholders," complained Sami El-Raghy, chairman, major shareholder and driving force behind Centamin. So, instead of getting normal corporation tax on, say, the ten huge operations that Egypt’s resources could satisfy, government is getting 51% of a very limited single operation.
All this has now being changed. Legislation and taxes are being normalised to international standards. Authority for the mines has been moved to the Ministry of Petroleum, which has more experience of international mineral markets.
Centamin’s major project, at Sukari hill near the Red Sea, is still in the exploration stage. (Why bother until now to move it forward!). This has a 160-square metre mining lease which has already been tested to confirm six million ounces of gold. There are five other hills with similar geological features. All had histories as centres in the Pharaonic gold mining industry — archaeology shows around 66 in these hills.
All systems go for production
It's all systems go for production! Centamin is hoping that not only legislation is moving in to the modern age. Its eleven years of working (on and off) in Egypt has been dogged by sagas of equipment languishing in customs, disputes with the geological officials, and a lack of finance.
Containers carrying a processing plant all the way from Bolivia have arrived and been unloaded. In all there were 200 and 80 items of break-bulk cargo. Refurbished mill motors are being brought in from the US. Other kit is being worked on around the world. All the equipment has now to be assembled. Earthmoving equipment and trucks have been lined up — there are nearly 800 trucks on site.
Even more exciting have been the clues of more gold deeper underground. Why bother when there is so much nearer the surface? Apparently it is very high quality and not hard to reach.
First gold production is now expected towards the end of next year.
Looking further ahead, Centamin has nothing if not high ambitions for its territory. Roads, water, miners’ accommodation, schools, then a whole city to house the people working on the mines, and so on. The sheer scale of what is here should make Centamin a bid candidate and take the share price through the roof. Not, however, yet!
Centamin has no problems raising money for Egypt
Centamin has had no problems raising money for is Egyptian projects in recent months. It was sitting on cash and cash equivalents of US$226m at the year end. In fact it was able to declare an interim profit of US$5.6m — interest on funds raised.
Yet these are uncertain times. With the history of Egypt, and dare one say, and Africa in the background, investors are not yet rushing in. Brokers are saying that the punters will only sniff around until Centamin has commissioned the first part of its mine for production. That is when the development risks diminish.
A smooth run (with no bad news from parliament, the customs, or the geology) to actual production of gold will also bring other miners. Once confidence that Egypt really wants to encourage mining has been fostered, they will come flocking. Egypt has numerous pockets of unexplored resource rich land.
In the meantime, Centamin is ahead of the game.
Keep mining.
Erin and Isabel.
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