Gold producer Centamin saw more than a third of its stockmarket value wiped out on Tuesday before trading was suspended, after an Egyptian court said its right to operate the Sukari mine, its main asset, was invalid.
Centamin later said that operations were continuing and that the Egyptian administrative court did not have jurisidiction over its mining rights. British drilling company Capital Drilling also said in a statement that operations at Sukari were continuing as normal.
The company’s London-listed shares plunged to their lowest level for three years earlier in the day, dropping almost 60 percent before recovering some ground to last trade down 35 percent at 64 pence when trading was suspended at 1000 GMT.
Courts in Egypt have challenged a number of contracts reached during the rule of Hosni Mubarak who was ousted last year, adding to investor worries at a time when the government is trying to revive confidence in the economy.
“The court rules as invalid the contract to exploit the Sukari mine,” Judge Said al-Qusair said, adding the court also ruled that a decision by the authorities to offer a 30-year contract and to allow it to be renewed was also void.
Centamin said in its statement that to date the administrative court had only made “comments” and as yet there no final decision or written judgment was available.
The lawyer who challenged Centamin’s contract said the government should now order mining at Sukari to be stopped.
The administrative court ruling can be appealed against in a higher court. Based on cases involving other Mubarak-era contracts, this court decision may herald a tortuous legal wrangle that could take many months or longer to resolve.
“The issue is that there’s so much uncertainty around it,” said Investec analyst Hunter Hillcoat, calling the market reaction “hugely severe” and “a huge over-reaction” given the lack of clarity on the situation.
On Monday Centamin had hosted a visit by analysts to Sukari, some 25 km from the Red Sea coast and the first modern gold mine in Egypt, a country which has a history of mining bullion dating back to ancient times.
“It is likely to take some time to get to the bottom of this and in the meantime the shares are likely to continue to be weak,” said Cailey Baker, an analyst at Numis.
Lawyer Hamdy Fakharany, behind other cases that have challenged contracts selling state land to real estate companies during Mubarak’s era, filed the case against Centamin.
“The ruling brings Egypt’s gold back (home),” he told Reuters by telephone, adding that Egypt’s returns from the mine were not high enough.
Centamin said it will inform the market when further information is available.
Reuters
