A subsidiary of minerals drilling solutions provider Capital Limited has entered into a conditional 120-million-tonne openpit waste mining services contract and an expanded drilling contract at LSE-listed Centamin’s Sukari gold mine in Egypt, as part of Centamin’s operational reset.

The four-year contract will start in January.

Centamin has announced that it has taken the proactive measure to partially integrate contract-mining into the openpit medium-term mine plan at Sukari.

This cost-effective and time efficient solution enables the company to accelerate the increased waste stripping programme and improve overall operational flexibility in the openpit, it states.

"With the focus on improving operational flexibility at Sukari, introducing contract-mining over the next few years for waste stripping in the openpit is cost and time effective.

"Capital is a trusted contractor to the company, with a strong understanding of Sukari and the operating environment, including the employment of local workforce and established training programmes, consistent with Centamin's approach to local workforce development," says Centamin CEO Martin Horgan.

As part of the increased openpit waste stripping programme, Centamin continues to use its existing owner operator fleet, which has capacity to move 80-million to 90-million tonnes a year of ore and waste.

The company, however, conducted an independent contract-mining tender process to assess incremental contract-waste stripping costs, and capacity, against the cost to expand the current owner-operator mining fleet.

It was concluded that the optimal integration of contract-mining was to isolate the waste stripping workstream on the east wall of the openpit, thereby limiting the day-to-day interaction with the operations and simplifying operational oversight and planning from a health, safety and logistical standpoint.

The east wall waste stripping programme will move material to a dedicated waste dump.

Following a competitive tender process, the company has awarded Capital Egypt the conditional openpit waste mining services contract for the East wall and has also expanded and extended its existing drilling contract at Sukari.

Capital Egypt will provide load and haul and ancillary services.

This deal is the largest in Capital’s history and will be significantly accretive to the company’s bottom line, increasing revenue by over 40% over the duration of the contract, the company points out.

"The winning of the tender for the Sukari openpit waste mining contract is a significant milestone for Capital − it is the largest contract win for the group since inception, adds substantial scale to our mining services division, as well as providing revenue diversification from our drilling services business.

"We are also pleased to have increased the scope and scale of our existing drilling contract. Having operated at the Sukari mine since 2005 . . . Capital is pleased to be deepening further its strong client relationship with Centamin in assisting with the generation of significant value to Centamin over the medium and longer term as the Sukari mine enters its next phase of gold production," comments Capital executive chairperson Jamie Boyton.

Moreover, it will cement the company’s position as one of the premier mining service providers in Africa as it continues to increase its yellow fleet service, Capital enthuses.

The existing drilling contract at Sukari has been extended to December 31, 2024, from September 30, 2023, and expanded by nine additional rigs, bringing the rigs operating at Sukari to 24 in total.

Collectively, the Sukari contract and the amended Sukari drilling contract are expected to deliver incremental revenues of $235-million to $260-million a year based on Sukari’s mine plan at the point of tender submission.

Both contracts are expected to be revenue and earnings accretive in 2021.

The new business awards at Sukari build on Capital’s longstanding customer relationship with Centamin and represent a strong endorsement of the company’s offering, Capital acclaims.

To date, the company has spent $23.4-million towards procuring equipment and has made strong progress with early works, key personnel hiring and advanced operational planning, it says.

A proposed placing to raise about £22-million before expenses is to be launched with immediate effect, the net proceeds of which will be used to buy equipment to fulfil obligations under the Sukari contract and amended Sukari drilling contract and for general corporate purposes.

Capital was selected as the preferred contract-miner based on an assessment matrix of cost, speed of implementation, local content and training commitments and ability to execute the contract given the local conditions.

Under the terms of the capital waste contract, Capital is using mining equipment consistent with Sukari's current fleet.

Centamin has the contractual right to buy the capital mining equipment at the end of the contract period.

This provides a number of synergies in respect of fleet maintenance during the contract term and provides flexibility for Sukari's fleet replacement strategy and life-of-mine planning.

To fulfil its anticipated obligations under the Sukari contract and the amended Sukari drilling contract, Capital Egypt is investing in further mining fleet, drilling rigs and ancillary equipment.

The incremental capital expenditure (capex) required by the group to service both is estimated at about $41-million.

The purchase of this equipment will be financed through a combination of the net proceeds of the placing, group cashflow and drawdown under the company's existing debt facility, original equipment manufacturer (OEM) finance facilities and asset-backed loan facilities, some of which are subject to negotiation. 

At December 2, an OEM facility with Sandvik for $8.5-million has been agreed and is committed and an OEM facility with Epiroc is awaiting final credit approval with documentation in near final form.

Moreover, the company is currently in advanced discussions with respect to further asset-backed facilities and nonbinding commercial indications have been received from two debt providers.

RESHAPING

Centamin says it is reshaping the business by having the right people undertake the right processes and by investing for operating stability and consistency.

There is an enhanced focus on cash flow generation. The company is targeting a $100-million reduction in the gross yearly base cost by 2024.

It is positioning Sukari to reliably produce 450 000 to 500 000 oz/y of gold, at an all-in sustaining cost (AISC) below $900/oz sold from 2024.

Centamin is making a commitment to shareholder returns with the intention to distribute at least $100-million in total dividends for each of the 2020 and 2021 financial years.

The company is also progressing the active pipeline of existing growth opportunities within the business.

Centamin has completed Phase 1 of the two-phase life-of-asset (LoA) at Sukari. The company's objective is to deliver a reliable and consistent operating performance, identify opportunities and potential challenges over the mine life and to move from a short-term planning cycle to a long term, life-of-mine (LoM) plan.

Phase 1 of the LoA is the basis to align the asset to industry standards, resulting in a robust three-year mine plan. This new plan will deliver production growth in the medium term and underpin levels of production that will deliver strong, sustainable cash flows from Sukari over the longer term.

Phase 2 of the LoA is actively under way evaluating additional opportunities to further improve operating costs and productivity. This work will result in an updated LoM plan to be disclosed in quarter four 2021.

It is the board's intention to recommend, subject to final approvals, $35-million as the 2020 final dividend, bringing the 2020 total dividend to $104-million; and a minimum of $105-million as the 2021 total dividend – distributed as an interim and final dividend.

Centamin maintains a strong balance sheet, has clear visibility on the near and medium capex requirements and expects to generate significant cash flow at market consensus gold prices, the company says.