Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
West Africa-focused gold miner Centamin (LON:CEY) (TSX:CEE) unveiled on Tuesday that the ore mining rate at its flagship Sukari gold mine in Egypt could grow by 31% if operations are expanded underground.
Based on a report by Australian consultants Entech, Sukari’s capacity has the potential to reach 1.5 million tonnes per annum (Mtpa) of total ore mined. This represents a 31% increase from the current life of mine average of 1.1Mtpa.
The upgrade, the company said, could be achieved without a change to mining methods as it would only require opening additional haulage access through the open pit.
“The expansion of the Sukari underground mining capacity is a significant step towards delivering on our commitment to consistently produce 500,000 ounces per annum from the Sukari gold mine,” chief executive Martin Horgan said in a statement.
The ability to expand the mine’s underground section, Horgan noted, is a result of Centamin’s transformed approach to mineral resource management, which delivered a doubling of the below-ground reserve in 2021.
The underground section of Sukari generated 739,000 tonnes last year, with ore grades considerably higher than the open pit operation, which produced 12.4Mt in 2021.
The expansion would require between $25 and $35 million of additional capital, and the company is expecting to reach the new output by 2025.
Centamin is now working to engineer and schedule the project by the first half of 2023.
BMO metals and mining analyst, Raj Ray, called the ongoing underground exploration at Sukari “encouraging”, but noted there still are bottlenecks that need to be addressed to understand the mine’s new potential.
“While we view the technical aspects of delivering the underground expansion as straightforward, there are quite a few variables we need visibility on including underground mineral inventory, expected mining grades, operating costs and sustaining development requirements before incorporating the expansion scenario in our valuation assumption for Centamin,” Ray wrote on Tuesday.
A fully engineered life of mine plan and mining schedule, incorporating Sukari’s 2022 mineral resource, is expected to be completed by mid-2023. Following equipment delivery and underground development, mining rates are expected to ramp up throughout 2024 and reach steady state in 2025.
Sukari, Egypt’s sole gold-exporting mine and the first large-scale modern gold operation in the North African nation, contributes up to $900 million a year to the country’s gross domestic product.
Despite bountiful reserves of the precious metal and a rich mining history that supported the making of elaborate Pharaonic jewellery, Egypt’s mineral wealth remains largely under-explored and undeveloped.
The lack of activity was due, in part, to the country’s past system of royalties and profit-sharing agreements, which made it difficult and unprofitable for miners to explore for and exploit minerals.
A legislative overhaul in 2020 eliminated the need for miners to form joint ventures with the Egyptian government. It also limited state royalties to a maximum of 20%.
The country also announced a series of gold bid rounds, which have so far attracted mining heavyweights as well as juniors.
Other than Centamin, companies that have won concessions in Egypt over the past year include Barrick Gold, B2Gold, Aton Resources, Altus Strategies’ subsidiary AKH Gold, Lotus Gold and Red Sea Resources.
