Tuesday,23 April, 2019
Current issue | Issue 1121, 8-14 November
Tuesday,23 April, 2019
Issue 1121, 8-14 November

Ahram Weekly

Gold cutoff

Work at Sukari gold mine continues despite a ruling annulling the concession the government gave to its owner 18 years ago, Sherine Abdel-Razek reports

Al-Ahram Weekly

An administrative court last week ruled that the contract of Pharos Gold Mine, wholly owned by Australia’s Centamin, to explore gold in Sukari mine is void. The ruling took all parties by surprise, including the state owned Egyptian Mineral Resources Authority (EMRA), which cooperates the mine in a 50-50 joint venture with Centamin.
While the company is not listed in the local stock market, the latter’s main index lost dearly in three sessions following the verdict, which gave investors a negative impression on the investment atmosphere in Egypt.
Shares of Centamin, listed in both the Toronto and London stock exchanges, ended the week 38 per cent lower on the back of the news, after losing 58 per cent on the day the verdict was announced.
On Monday, EMRA Chairman Fekri Youssef Mohamed told reporters the authority would appeal the decision and that operations at Sukari would continue as normal. “We don’t plan any amendments to the agreement. We must respect what was signed,” he said.
The suit was filed by Hamdi Al-Fakharani, an independent member with the previous parliament. Al-Fakharani has filed several suits against property deals finalised under the Mubarak regime.
The court said EMRA didn’t exercise enough oversight on gold extraction at the Sukari mine and should “rectify” violations. It also noted that no proper due diligence was done in order for the government to have a fair share of the mine’s income. EMRA responded by saying that the court was not presented the contract that Centamin signed in 2005 with the Ministry of Petroleum giving it operational rights in an additional 160 square kilometre area.
Commenting on the news, Beltone Financial said that the clauses of the contract between Centamin and EMRA are fair with both parties having equal profit sharing rights from the mine. “Conventionally, looking at mining royalties across the globe, contractors usually take a higher share in the assets’ ultimate earnings rather than governments,” said Beltone.
The mine’s proven production to date is valued at $875 million, of which the government’s share was only $19 million, the court said.
“The reason behind the lower payout being that Centamin, as a contractor, initially has the right to recover all the capital expenditure it has invested in the mine, as it is 100 per cent funded by Centamin, before distributing the government’s profit share,” said Beltone.
Centamin’s agreement with the Egyptian government gives the former a tax holiday in the first 15 years of operation, in addition to exemption from custom taxes and duties paid on capital imports, like machinery and mining equipment. In return, the government takes a three per cent royalty on net sales revenue from gold, in addition to 50 per cent of the profits.
“I don’t think we will ever be asked to sign another contract with better terms for the Egyptian side because the current contract is very much in its favour,” said Joseph Al-Rajhi, chairman of Centamin.
Al-Rajhi insists that with the three per cent royalty and 50 per cent of the profits, the government almost takes 60 per cent of the revenues of the mine.
Profit sharing agreements in Egypt leave many companies reluctant to invest in the local mining sector, as evident by the fact that the whole eastern desert has only one foreign company, Centamin, working in it.
“We started gold production in 2010 and we have invested around $700 million in the mine, $250 million of which was injected after the revolution. The mine employs 1,500 workers directly and we have 20 Egyptian contractors working with us,” he said.
Al-Rajhi told Al-Ahram Weekly that he has the support of the government, represented by EMRA and the Ministry of Petroleum.
“We are sure that the appeal will rule in Centamin’s favour,” Al-Rajhi said. He added his company was not approached by any state body to discuss changes in the contract, noting that if his company feels any threat to its contractual rights it would not hesitate to take legal action.
The case may be a costly gamble for Egypt, a country with between five to six international arbitration cases per year, well above average for emerging-market nations, according to Ali Shalakani, a partner at Shalakani Law Office that works on such cases.
The claims are rarely below $50 million to $60 million, he said, while “Egypt loses the majority of cases.”

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