4 Min Read
* Miner says still on track to hit 2014 production target
* Hopes for dismissal of legal case over Sukari licence
* Cash costs surprisingly low - analyst (Adds analysts)
By Silvia Antonioli
LONDON, May 15 (Reuters) - Egypt-focused gold miner Centamin Plc posted a 58-percent fall in core earnings on Thursday, hurt by a fall in output at its flagship Sukari mine, but said it could still hit its 2014 production target after fixing mechanical problems.
Centamin, which also has exploration prospects in Ethiopia, said earnings before interest, tax, depreciation and amortisation (EBITDA) fell to $34.3 million for the quarter ended March 31 from $81.7 million a year earlier.
The earnings were hit by a 15 percent fall in output to 74,241 ounces in the quarter due to mechanical problems which caused a temporary reduction in the average grade at Sukari, Centamin's only operating mine.
However, the mining company said the issues had been resolved and its 2014 production target of 420,000 ounces at a cash cost of $700 per ounce remained intact as it expects output to increase while it expands capacity at its processing plant.
"We are in the process of ramping up production and smoothing out those early teething issues that you always get with commissioning," head of business development Andy Davidson said. "But we are progressively increasing production through the remainder of the year so you'll see an increase in output and earnings."
Sukari is located in the Eastern Desert, 700 kilometres from Cairo and is Egypt's first large-scale modern gold mine. It is expected to reach a maximum annual production capacity of 450,000-500,000 ounces. It has been largely unscathed by political turmoil in the country.
Cash costs for the first quarter at $744 per ounce were up five percent on the previous quarter but the company said they would fall as production increases.
"The first quarter financials we not stellar, but were not expected to be given the underground production issues and the early stage ramp-up that the operations are currently at," said Investec analysts in a note. "The cash costs were surprisingly low, highlighting a focus on cost discipline."
Gold prices have gained 8 percent so far this year after plunging 28 percent in 2013. Bullion was trading at around $1,300 an ounce on Thursday.
Centamin hopes that a law approved last month in Egypt will result in the dismissal of a legal case which has put its Sukari mine licence in jeopardy.
In 2012, an Egyptian court ruled that Centamin's right to operate its Sukari mine was invalid, the latest in a string of difficulties the company has faced in the country.
The new law prevents third parties from challenging contracts made with the government and could include Centamin, as the challenge against it was brought by a third party.
The law, long-awaited by businesses and investors, is meant to revive investment hit by political instability over the last three years.
"Our legal advisors confirm our reading that the new law should apply to us and we should benefit from that," Davidson said.
The mining company, which earlier this year completed its acquisition of Burkina Faso-focused gold explorer Ampella Mining, said it planned to continue to diversify through acquisitions in the Middle East and Africa.
Shares in Centamin were down 0.9 percent by 0801 GMT against a 0.1 percent fall in the UK-listed mining sector. (Reporting by Silvia Antonioli and Karen Rebelo; Editing by Jason Neely and Mark Potter)