© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Hello, and welcome to the Centamin Q1 financial results call. [Operator Instructions] Please note that this call is being recorded.Today, I'm pleased to present Andrew Pardey, CEO. Please begin your meeting.
Good morning to everyone for joining the call and dialing in. Joining me today on the call is Ross Jerrard, our Chief Financial Officer; and Alexandra Carse, our Investor Relations Officer.Following the release of the Q1 production results 3 weeks ago, we are pleased to announce today our full financial results for quarter 1 2018. Q1 has been an overall solid start for Centamin, but it has also not been without its challenges. In particular, as we have previously flagged, lower-than-expected grade from the open pit as we mine through the outside transitional zone, providing access to the higher-grade sulfide ore in Stage 4A, which provides the primary oil source for the coming years. Flexibility in the mine plant has allowed us to reoptimize the mine plant, which we'll discuss over the course of the call.We've also prepared a results presentation that goes with the call. This can be found on the company website, www.centamin.com. And with that, it'll be my pleasure to take you through the slides, and at the end of it, there'll be a Q&A session.Okay. With the presentation is the usual disclosures, and then quickly going through, first of all, our assets. And importantly, we forgot Sukari mine in Egypt, and during the quarter, we reached the milestone of 3 million ounces produced since we commenced commercial production in 2010. And also importantly, we've got 3 million ounces that has been produced. It's been at average cash cost of $613 per ounce. We also have our strong exploration portfolio and over 4,500 square kilometers of licensed holdings in West Africa, and we have a strong exploration development plan both in Egypt and outside in West Africa as well. All progressing well and returning very encouraging results.Obviously, also, we've had, during the quarter, the board and senior management changes. We've been very active on this side. We announced the appropriate migration from an Executive Chair to a nonexecutive Chairman, with the retirement of Josef. An active search is underway, and we look forward to announcing this in the future.Ross Jerrard is also joining me on the board as an Executive Director, and we're also delighted to welcome Alison to our board. She further strengthens the financial capital market and sector experience of our board. We've also made an appointment of Mark Morcombe as Chief Operating Officer to bulk up the technical expertise of the team. We also have in Egypt, we have strong relations with the government of Egypt where we have Youssef El-Raghy. He's established an excellent team and framework in the country, managing government relations and is supported by myself and Ross Jerrard and our finance team.Okay, moving on to the operational side of things. Obviously, Egypt is a great operating environment. We have strong government relations, and the meaning -- and they're a meaningful contributor to the country and the community. We have excellent production growth and significant development spend against some evolving political backdrop. During the quarter, we also had the reelection of President Sisi for another term as President of Egypt.And we also had strong health and safety. Again, we had a favorable improvement in the group LTIFR rate, reducing from 0.14 down to 0.12 in Q1 2018. And this downward trend continues. Sukari was slightly higher at 0.14 where we had one Lost Time Injury during the quarter with over 1.4 million hours worked.Okay. Quarterly, the operational highlights. Obviously, the strong health and safety record. We've maintained our 2018 guidance of 580,000 ounces at a $555 per ounce cash cost and an all-in sustaining cost of $770 per ounce. During the quarter, Sukari produced 124,296 ounces. The cash cost of production on gold produced was $581 per ounce and the all-in sustaining cost in gold sold was $825 per ounce.We had solid processing plant performance with increased throughput at just under 3.1 million tonnes milled during the period. We have improved recoveries, recoveries improving to 89.6%.And underground operations, we mined 312,000 tonnes at an average grade of 6.69 gram per tonne. 2018 guidance for the underground is 1.3 million tonnes at a grade of 7.7 grams per tonne.2018 open pit guidance has been updated to a total movement of 75 million tonnes, including 21 million tonnes of ore at a mine grade of 0.64 grams per tonne, which includes material going through the dump leach and stockpiles. We had record open pit mining rates during the quarter of just over 18.5 million tonnes, and there was just over 6.05 million tonnes of ore at a lower-than-expected average grade of 0.5 grams per tonne.For the quality production summary. We had record open pit material movement from the open pit when we had significant improvements in recovery through the elution circuit -- additional elution circuit coming online.Okay. On the open pit. Open pit mined grade has been lower than forecast to date, whilst mining proved the transitional zone to provide access to the higher-grade sulfide in Stage 4. The shortfall in ounces is expected to be made up from the existing operations through rescheduling of the open pit and also from the underground plus additional dump leach material. So the open pit mining rate has been increased to 75 million tonnes, of which 21 million tonnes will be ore to be mined in the overall grade of 0.64 grams per tonne with the average feed grade to the plant for the year from the open pit of 0.81 grams per tonne.The open pit mining activities are focused on Stage 4A of the north wall, which is a predominant source of ore for the next 5 years. The updated mine schedules -- we update the mine schedules, have this mining through the transitional and into the higher-grade primary ore in Q3 2018. 1.3 million tonnes of underground ore is being scheduled to mine -- be mined from Amun/Ptah at a higher grade of 7.7 grams per tonne comprising an overall 65-35 split between stoping ore and development ore. We've also got increased development coming from Cleopatra, and the second dump leach pad is also currently being prepared at just under 500,000 tonnes of material to the north of Sukari with irrigation plan to commence in Q3 2018.On Slide 11, this is a summary diagram. It shows the pit and where the mining will be from January to December on the north wall. Our net Stage 4 cutback on the Western side, we are basically progressing the Western side of that cutback 2 benches in front of the Eastern side on the northern section of the wall, whilst, at the same time, in the second half of the year, also bringing down the western wall from July to December.Okay. Underground operations. We had a record underground mining rate of 312,000 tonnes at 6.69 grams per tonne. Production from stoping was 160,000 tonnes at 7.27 grams per tonne, and ore from development was 152,000 tonnes at 6.08 grams per tonne. The Amun/Ptah and Horus development has progressed on plan. During the last part of the quarter in March, we had an issue with long-hole drill rig availability, hence, why we didn't have as much production ore coming out as per the ratios we talked about previously of 65%, 35%. That long-hole drill rig is now back in production, and the higher-grade ore that wasn't mined during March is being mined in Q2 this year.Processing plant. The processing plant has performed very well. And our average throughput rate for the circuits are 1,509 tonnes per hour to the flow circuits from an annualized rate of 12.3 million tonnes. And improvements to the elution circuit of ore are also seeing a material improvement in the recoveries.Okay, with that, I'd like to hand over to Ross Jerrard, and Ross will give you a financial overview.
Thanks, Andrew. I'll just talk to Slide 15 and the next couple of slides from there.From a financial point of view, Centamin delivered another solid quarter with an impressive all-in sustaining cost margins of $503 per ounce sold, which sets up a strong base for the remainder of the year. Our cash costs remained well controlled at $581 an ounce. Importantly, we generated $34.5 million worth of free cash flow for the quarter, which was up from $19.6 million in the first quarter of 2017. We remain with a strong balance sheet at the end of the quarter.We're very proud of the balanced distribution with an even split [ a third ] across government of $33.6 million; our internal investment for future growth, which totaled $32.2 million; and our free cash flow generation of $34.5 million.A quick few numbers to highlight include our EBITDA, which is up at $91 million for the quarter, driven by increased gold sales and gold price. Our regular payments of profit share of 28 point -- $28 million for the quarter resulted in net profit of $36.4 million.We do have a high CapEx profile for 2018, and this is driven primarily by our planned rebuild schedule and underground development program. So although the sustaining CapEx is higher than this time last year, CapEx is well controlled and is on plan.Our exploration spend for the quarter consists of Burkina Faso, 2.7 million; Côte d'Ivoire of 4.3 million; and Cleopatra, which is the remainder of the 2.6 million spend net of 1.9 million offset gram ounces.We finished the quarter with cash and liquid assets of $426.5 million.Going on to Slide 17. We're particularly proud of our cost profile. And although mine production costs have increased from previous quarters, this has mainly been due to volume variances as well as the continued cost pressures locally, which is mainly been driven by increased fuel price. Of our sustaining CapEx, $11.8 million has been spent on underground development, and the remaining $12.6 million is largely due to the scheduled fleet rebuild program, which I've already mentioned.Our overall all-in sustaining cost for the quarter of $106.9 million are on plan. The breakdown in cost base shows that in most areas, we've been able to maintain or reduce our cost against the comparable period of the first quarter of 2017, and our mix of cost -- major cost categories is broadly consistent with the main fluctuations being fuel and also consumables.So overall, our balance sheet remain strong, clean and simple, with cash and liquid assets of $426.5 million as of the end of March 2018. We do have no debt, hedging, loans or gold streams, so it is very clean.We do flag that the cash balance of $426 million is ahead of the final dividend payment, which was made on the 6th of April amounting to $115 million. We generated the $34.5 million after profit share exploration and development capital, which lays a solid foundation for the rest of the financial year.And with that, I'll hand it back to Andrew.
Okay. Thank you, Ross. Just still talking about Egypt and the contributions in their operating country, supporting the host country and the local community. During the quarter, we paid $28.4 million in profit share and $5.2 million in royalties to the government of Egypt. So the total payment of profit share and royalties since we've commenced production is $308.6 million.Again, moving on to our exploration results. Sukari, we've had long-term sustainability. We had very encouraging quarter results, which continues to support our expectation of a minimum to replacing underground reserves and also potential resource expansion from Cleopatra; the Bast area, which we've previously referred to as the Gap; and Ptah Deeps.As you can see from Cleopatra, some of the results that were received: 50 meters at 5.3 grams per tonne, 11 meters at 40 grams per tonne, 1.7 meters at 52 grams per tonne, 1.15 meters at 56 grams per tonne, 2 meters at 36, 2.1 meters at 308. As you can see, there's some very, very positive results coming through from Cleopatra.And with these results coming through, we are also accelerating Cleopatra. Where we've got Cleopatra now is where we would have liked to have it last year, and we're now in a position where we're really going to start accelerating the development of Cleopatra over the remainder of this year. Work on Cleopatra with the small amount of development is done, which is predominantly drilling. We also mined just over 18,900 tonnes of development ore at a grade of 2.5 grams per tonne.In the Ptah area, again, we've had further encouraging results on the Ptah Porphyry-Keel area. We've had results, including 11 meters of 40 grams per tonne, 16 meters of 4 grams per tonne, 7 meters of 6 grams a tonne, 1.7 meters of 50 grams a tonne, 1.15 meters at 56, 2.6 meters at 35, 9 meters at 40 grams per tonne, 2.1 meters at 308 grams per tonne. Again, these results coming out of this Ptah Keel area, they're all outside of the current resources that have been reported. And also, we've had very encouraging -- further encouraging results from the Bast to Gap area between Amun and Ptah with grades that included 1 meter at 17, 1 meter at 21.4 grams per tonne, 3 meters at 5, 6 meters at 6.5, 3 meters at 6.3. Again, all with current decline development going through those areas, but development of those areas should be relatively straightforward.Again, just looking at a couple of the other slides, there's some section showing through the Ptah area looking to the north and importantly, on the context zones again, reiterating. We've had on the context zone, 2.1 meters at 300 grams per tonne; 9 meters at 40 grams per tonne; 1 meter at 21.4 grams per tonne. Again, all very, very encouraging results that are outside of the existing resources.And the next slide shows more on the Western stock work zones, including 11.4 meters at 40 grams per tonne; 16 meters at 4 grams per tonne; down in the Keel area, 5.4 meters at 4.4, 4 meters at 22.7 and overall, 50 meters at 5.3 grams per tonne. Again, further very encouraging results.Moving over to West Africa. Our greenfield exploration has delivered strong results, really demonstrating how the highly prospective nature of Côte d'Ivoire. We -- as I said, we announced an upgraded resource during the quarter of 1.35 million ounces at 1.3 grams per tonne indicated and 0.9 million ounces at 1.2 grams per tonne. We've also got the ABC Project across the western side of Côte d'Ivoire. That is again, we've had drilling going on there during the quarter. We did just over 1,200 meters of diamond drilling to get a good understanding of lithologies and structures, and we are now in the process of going back to the further RC drilling on that area.With the Doropo Resource, which I mentioned previously, all of those resources are within a 7-kilometer radius, and further drilling is continuing to show extending sewer in the Chegue section of the resource. Early metallurgical test work on the fresh material is returning recoveries of 85% to 91%, which is also encouraging and gives us the go ahead to move forward of deeper drilling to test further the fresh rock potential of those resources.Detailed oxide test work has been undertaken. We're now doing very detailed studies on that at the labs in Perth to, again, look at further growth potential from the Doropo Project.Outside of Doropo but within 35 kilometers, the team has identified further anomalies in the 15-kilometer radius from Doropo and then out on the Tehini 1 and Tehini 2 projects, which are 30 kilometers away from the existing resource area. These are showing very, very strong geochem anomalies and will also be drilled out through quarter 2 and quarter 3 of this year.As I said with the ABC Project, we did just over 1,500 meters of diamond drilling, and I think I said 1,200 before. And we also did 3,000 meters auger drilling. So geological mapping is confirmed. The structure extends over 80 kilometers across the permits that we have issued and permits under application. Now if all goes to plan, as we expect, you would like to think with the drilling that's going to commence -- which is commencing now on this project, and so we're targeting a maiden resource to also come out of the ABC Project by the end of this year.Burkina Faso, which has also undertaken a program of air core drilling, mainly around the Konkera West and East areas to delineate potential strike extensions of the current resource. Both results -- some of those results have come in. The rest of those results are still outstanding.So in summary, Q1 2018, we had production of 124,000 ounces of gold at a cash cost of $581 an ounce and an all-in sustaining cost of $825 an ounce. We've had encouraging exploration results from the West African portfolio and the Sukari underground as well as underpinning long-term sustainability. We have a strong balance sheet -- we had a strong balance sheet with -- of $426.5 million, with no debt and no hedging. And ongoing for 2018, delivering on guidance, underground reserve replacement, grow the Doropo Resource and assess feasibility of a development project for Doropo, delivering a first pass resource to the ABC Project, further exploration target generation across the portfolio, progressing at Sukari as solar project feasibility study and importantly, also maintaining and returning our excess cash to our shareholders.With that, I'd like to hand back over to the operator and open the floor up to Q&A. Thank you.
[Operator Instructions] And the first question comes from the line of Tyler Broda from RBC.
Andrew, just 2 questions from my side. The first one, just with the acceleration of the development at Cleopatra that you're speaking about. When do you think that you'll be able to start expecting to get a better understanding of how much ore is going to be able to come from this? And then sort of what kind of production targets you'll be able to reach? And then secondly, just on the transitional ore, what was it that caused the miscalculation, I guess, from the plan? And then, how much transitional ore fits into the mine plan going forward as well?
Okay. Look, on Cleopatra, we've done a lot of drilling in Cleopatra, and we're starting to see some very positive results. So that's now allowed us with the results that we've seen to start to accelerate the decline development, so we can start progressing to some of these areas where we're seeing the high-grade results. In a perfect world, potentially, we could possibly see some production coming out of Cleopatra towards the end of the year. But that's in a perfect world. We still got a lot more drilling to do, and we've got to get the development in position, but Cleopatra is looking encouraging. In fact, we've got the existing underground as well. I mean, we've also got very a high grade coming out of the Ptah area and the Gap area where we currently have or very close to development as well that can also be bought online. As far as the transitional material, I mean, again, Sukari is unique. We mine a hill, so you have a point that's coming down unlike a conventional sort of open pit where you'll start with a relatively flat surface. So the drill spacing is -- on the higher areas is sort of -- is limited and restricted when you're doing the resource calculations, and the transitional area was actually -- it was actually 15 to 18 meters thicker than what we have in our models at the time. We expect to be through just about all of the transitional towards the end of this quarter, early into Q3 of this year.
And then just as follow-up, I mean, is there any other sort of expectations once you push this back and you've now got through the transitions on that, that's 4 or 5 years you were saying you'll be mining from this area?
Yes. 4 or 5 years mining sulfide but also ensuring our scheduling -- further improvements in the scheduling as well, Tyler, so that you've always got a continual supply of sulfide while developing that in the United States stage 6 and Stage 7 at the pit.
And the next question is from the line of Dan Shaw from Morgan Stanley.
Just one for me, actually. On the grade guidance that you've given in the release today, you're basically saying, if I understand correctly, that the open pit grade delivered to the mill is going to be approximately in line with where we were last year, and the underground grade of 7.7 grams is actually going to be a bit lower than where we were last year. So of course, you've got a step-up in production in terms of your guidance, 580,000 versus was it 545,000 that you did last year, I think. Can you just walk me through how you're going to bridge that gap? I know that there are some small increase in overall tonnes through the mill, but yes, if you can just help me bridge the gap between last year and this year, given the grade guidance you've given today.
Okay. Look, additional production was a second dump leach pad coming on in Q3 2018, which we previously didn't have, also increased -- with the increased developments coming out of Cleopatra, there'll be further -- potentially further development ore tonnes coming through there and looking at optimizing further the grade from the existing underground.
Okay. And just -- so just on the dump leach, what's your best guess that, that could potentially contribute to sort of in the second half of this year, the second one?
We'll start irrigation in Q3, so dump leach is likely to provide -- what -- should provide an extra 6,000 ounces.
Okay. So just about gets you to the 580,000. I guess, the potential upside comes from if you can put some development ore from Cleopatra through, which is not included within your 1.3 million tonnes of underground. Or is that correct?
That's correct. Anything from Cleopatra is extra.
And next question is from the line of Alan Spence from Jefferies.
Two questions for me. Just firstly around cost guidance. How comfortable are you that $555 per ounce target, just in terms of the revised plan for 2018, looks to be including about an additional 5 million tonnes in material mine in the open pit? And on the open pit, the guidance, can you past quantify what we should be expecting in Q2 and then in Q3, once you're fully into that higher-grade primary ore?
It's Ross. I'll take the cost question. Obviously, costs are key, and we're keeping a watching brief on that. We believe that we can maintain our cost profile in terms of quantum. The key feature there is obviously the fuel price where we have seen 2 lots of fuel increases over the last 2 quarters. We do believe that we can offset an increase in that against other cost savings, but it will be tied to that. That's going to be based on the delivery of those ounces. But overall, a quantum of cost, I think, is certainly manageable.
Okay. And Jeffrey (sic) [ Alan ], on the open pit grade for Q2, we're expecting to see similar grades to the mill. We're expecting to see a grade of approximately 0.71 to the mill from the open pit. That grade then lifting into Q3 and Q4 up to around 0.95 to 1 gram per ton in the latter part of the year with that mill feed from the open pit.
Next question is from the line of Andrew Breichmanas from BMO Capital Markets.
I think just going back to the first question, really, on Cleopatra. Based on the drilling that you've done to date, you mentioned that you've got positive results and sort of defined the orebody a bit. Has your thinking on development and mining at Cleopatra changed at all as a result of the drilling you said today?
Look, Andrew, as you do further drilling, because it's development exploration phase that the planning is always changing. But with some of the results coming through, it looks like there could be some potential for further development of potential stoping coming out of Cleopatra late in the year or early next year.
Okay. And is it too early to really put out some thinking in terms of the tonnes and grade that you might expect to be mining at Cleopatra, just in order to try and kind of reconcile what your mining versus the expectation there?
It's still too early. The engineers -- the mining team has to do their work on development and compiling all the numbers before we can put anything out, anything firmly up. But results are looking more positive than -- the development is where we wanted it to be last year. And with that development, results is looking more encouraging.
So when do you think you'll be in a position to provide a bit more detail based on that engineering work that you're doing now?
Well, the way I'm pushing them, I would like to think by the end of this current quarter.
[Operator Instructions] And there are currently no further questions registered. So I'll hand the call back over to the speakers. Please go ahead.
Okay. As we reiterated, Q1 was a solid quarter for Centamin, not without its challenges, which we've flagged previously. I'd like to say thank you to all of you for joining us on this call this morning, and we're also available after this call to answer any -- should you have any further questions. Okay. Thank you very much.
And this now concludes the conference call. Thank you all for attending. You may now disconnect your lines.