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You think you’ve got problems. Be glad you are not Centamin (LSE:CEY). This company’s headaches make a migraine feel like a pin-prick. They need an aspirin the size of the London Eye.
Just two years ago, on 10 November 2010, CEY shares were at 192.20. This afternoon the share price is at 29.64, having fallen 23.06 pence, or nearly 44%. For a company with a market cap of £576.94 million at the end of the third quarter, the drop in share price on a massive single day volume of 57,569,769 could spell disaster. Today’s trading has reduced the company’s market cap to £338.00 million.
Centamin’s first problem is that it’s Sukari flagship gold mining operation is in Egypt. If I were to choose a place not to mine for gold, Syria would be at the top of my list, but Egypt would be close behind. Of course, although Egypt is not the least-corrupt country in the world, Centamin could not have predicted back in 2005 the 2011 overthrow of the Mubarak government and the continuing political upheaval that has followed. In the gold mining business, you can’t just pick up and move to another location.
Centamin’s second problem is that it has been forced to suspend operations because it no longer has a supply of diesel fuel which its operations depend on. Their supplier has filed what Centamin calls an illegal retrospective claim for $65 million USD for delivery of fuel since 2009.
Compounding the problem is that Centamin, having received all necessary legal approvals, had prepared gold to shipment out of the county, only to have customs officials arbitrarily hold the shipment. Customs has asked for approval to ship from the Minister of Finance. If you’ve been following the news at all, you know that that office has a lot on its mind and Centamin is not its major concern. That is evident by the fact that, whilst the company has been pressing the Ministry for its approval, nothing has happened as of yet.
The third problem is that investors can do what Centamin can’t. Investors can pack up and put their money in a plethora of ventures that are much less risky. Granted, it doesn’t say much for investor loyalty, but the company’s responsibility is not to inspire loyalty. It is to inspire confidence. And none of that was evidenced in its announcement this morning.
To sum it up, Centamin has gold to ship, but it can’t. That equals no income. That have to fight a $65 million claim before they can operate to extract any more gold. That equals no product to sell. Together it all equals recurring overhead expenses without a way to pay for them, not to mention the negative impact on workers and other suppliers as the production cycle has come to a screeching halt. And it means shrinking working capital.
Obviously, investors see the situation as desperate. Only time will tell if the company can recover. Problem is, it doesn’t look like they have a lot of time either.
