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Will Egyptian Unrest Undermine Centamin?

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Centamin plc (LSE:CEY) delivered a Q2 report that was astounding in terms of production at its Sukari gold mines.  Yet its share price tumbled this morning by 0.36% to 38.22.  Simply reading the report, one might expect the price to be ascending rather than descending.  Perhaps the fact that the Sukari project is in Egypt, a place where global news teams are currently broadcasting doom and gloom, is influencing shareholder anxiety more than any good news Centamin could possibly publish.  My question is “Will Egyptian Unrest Undermine Centamin?”  I think we can find an answer that no one else is publishing.

Q2 Production Results

The Sukari mining operation began maiden production in 2010.  In that first year, the project produced 150,000 ounces of gold.  This year its targeted production is 320,000 ounces and, according to the preliminary report, the Sukari is well on its way to meeting that goal.

Total throughput at the mine was 1,418kt, which was not only a 12% increase year-on-year, but was also a record production in and of itself, pointing to the steady growth and success of the Centamin’s operations.  The throughput was also 1% higher than in Q1.

Total gold production was also a record at 93,624, nearly 40% higher than the second quarter of 2011 and an 8% increase over Q1 2013!  (I know that exclamation points aren’t usually used in financial reports, but these numbers call for a celebration!  There, I did it again.)  The mine now has a stockpile of 1,191kt, up from 432kt at the beginning of the reporting period.

What Could Possibly Go Wrong?

Well, there’s the overthrow of the government thing.  And the Egyptian government does own a 50% interest in the Sukari project.  Whatever new government is formed, it’s Egyptian Mineral Resource Authority (EMRA) will continue to have half of the pie, so it’s unlikely that the government will do anything to adversely affect operation from which it benefits.

Then there is the mine’s geographic location.  It’s not at the end of the world, but you can see it from there.  Sukari is about 200 km from nowhere.  The drive from Cairo can take anywhere from nine to 14 hours, depending on camel traffic.  Sukari is in some very rugged desert.  On the other hand, the project is, as the crow flies only about 20 km from the growing Red Sea resort town of Marsa Alam, but it’s not likely that many crows fly up over the mountains separating the town from the project.

The resort city’s website has posted a notice that says, in part, that they “would like to assure everyone that there is no problem in Marsa Alam – it’s far from Cairo and Alexandria – and everything is peaceful and very quiet.  As you may know there are no major urban centers in the area and no reports of any disturbances.  If you are just looking for peace and tranquility you still can’t beat Marsa Alam and Egypt’s Red Sea Riviera.  And all Egyptians will be particularly happy to see you.”  Elsewhere the site reported that most Egyptians support the ouster of the Morsi Muslim Brotherhood government.

The Answer to the Question

I suggest that the answer to the question is “No”.  Hopefully, investors will not become lukewarm over Centamin’s gold mine.   The only reason to fear the impact of the most recent Egyptian revolution is if one listens to the fervor of broadcasters without taking it with a grain of salt.  Remember the old axiom, “Don’t believe everything that you read in the newspaper?”  It’s still true.  And just as true is “Don’t believe everything you read on the internet.”  Unless, of course, you are reading ADVFN.

For more financial news for Centamin see “Centamin Beats Gold Target for 2012.”

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