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Hello, and welcome to the Centamin Q1 2023 Results Conference Call. My name is Alex, and I’ll be coordinating the call today. [Operator Instructions] I now hand over to your host, Martin Horgan, CEO, to begin. Please go ahead.
Thank you, Alex. Good morning, everybody. As mentioned, Martin Horgan here, joined by my colleagues, as usual, Ross Jerrard, CFO; and Alex Barter-Carse, Corporate Comps. Well, thanks, everybody, for taking the time to dial in this morning, just obviously to listen about the first quarter results for Centamin. Look, I think a really good set of results. Very, very happy with where things are. A team did a fantastic job delivering in line with plan, delighted with that. In terms of the operations at Sukari themselves, open pit continues to perform very nicely, seeing good productivity in sort of performance by both our own fleet and also capital continued to push on with their accelerated waste stripping program. And we are seeing the benefits of that now in terms of that increased operational flexibility as well. So I think the open pits move along very, very nicely. Underground, another really good performance by the underground team, delighted to see both tonnes for ore and development but also development meter is coming through and seeing that pushing on in line with the plan to date that 1 million tonnes plus/minus of underground ore this year as well. Processing, a couple of bits of planned maintenance in the period, a couple of partial relines. And we also took the opportunity to do some work around the mill motor. It is something that has been sort of hanging around for a little while. I'm delighted to get that work done and put behind us, and that's now good for the next 10, 15 years plus in terms of that work as well. So I think overall, a really strong operational performance by the team. We did have that one LTI in the period, which is unfortunate, bringing to an end our sort of our streak of nearly just under 10 million hours without an LTI. If there's any sort of solid in that, it was a very benign incident and it wasn't a result of a high potential injury or accidents. It was something relatively minor in the end. Unfortunately, the gentleman that suffered the knee injury will make a full recovery and fine. But that was probably the one minor blip in the first quarter, but otherwise, a really strong performance from the Sukari operational team. Project wise, paste-fill plant is being commissioned as we speak. The team are on-sites doing that and we should expect to see first slurry and paste being produced into early part of May. TSF embankment raising work continues on that basis. A grid connection tender, documents are out. We expect qualifying bids by the end of this month. And in terms of solar expansion, that work is being assessed right now as well. So I think project-wise, the team continued to push on during the first quarter. I'm delighted to see that work progressing nicely. Outside of Sukari, staying in Egypt for now, we're getting ready to start drill testing the priority targets across the Nugrus block, which is the block ground adjacent to the Sukari mine. We've used the Ramadan and Eid period to finalize preparations and we're anticipating during May that we'll be able to get a drill rig out on to those targets and start a program to start drill testing some of those priority areas for us as well. So just getting on with that now. Pivoting across to West Africa and Doropo, I think a good solid performance there, starting to come together now in terms of the numbers. We're anticipating sort of finalizing that off over the coming weeks and obviously looking to get that out to market in terms of an update for the Doropo project as well. We've also taken the advantage of the current dry season. We've actually got quite a bit of the DFS drilling work were actually completed already. So by the time we finish the PFS, we have some really good momentum in being able to push DFS and push that forward from there as well. In terms of that performance in Q1 means that the outlook for '23 doesn't change and no change to guidance of that 450,000 to 480,000 ounces for the year, slightly weighted towards the back half of the year, retaining our cost guidance, both cash cost and AISC at $1,250 to $1,400. And in terms of CapEx, again, no change for the annual outlook. We're a little bit slow in terms of CapEx in the first quarter. That was just due to timing of when invoices dropped and things went out the door. But otherwise, we see no change adjusted to the CapEx for the full year. So really great start to the year, great operational performance in line with plan and set us up very nicely with that momentum into Q2. I'm looking forward to a number of catalysts that we can talk to you about the balance of this year, the repo coming through in the next few weeks, that life of mine plan updates and then of course, the potential exciting sort of EDX results as we go forward from there as well. So with that, I think maybe we'll pause there as an overview and very happily open it up to the floor for any questions one might have. So Alex, I'll pass back to you, and we can go to questions, please.
[Operator Instructions] Our first question for today comes from Jason Fairclough from Bank of America.
Look, just to focus a little bit on exploration. So you're setting up for the drilling at Negros. If we were to think about finding some satellite ore bodies, some higher-grade targets, how quickly could that ore end up in the Sukari mill?
Jason, yes, look, I think -- let's -- well, firstly, one of the things we did with the team during this first quarter was that the geos were asking what constitutes success. We wanted to understand what sort of targets we're looking at. So we did some work where we assumed there was an amount of CapEx to set up a satellite feed, satellite deposit away from Sukari, pre-stripping, infrastructure, small workshops, little gensets, just to have that look. So we assume we picked a number of $30 million. It could be $20 million, it could be $40 million or $50 million. I mean, but as a starting point, we said about that sort of number. We've clearly got our operating costs that we're aware of at Sukari, we can factor those up because it's probably a smaller operation. And then we looked at some sort of transportation costs. So we're really when we looked at that, we started to screen that if we've got an assumed IRR requirements for these projects, what sort of -- what constitutes success. And actually, something as little as sort of 300,000 ounces plus a sort of 1.3, 1.4 grams, that would work very nicely in terms of being quite value accretive to Sukari because of that infrastructure. And that's on a sort of 20 kilometer, 30 kilometer basis from the mill. So with that sort of thought process, it set geos, clearly, we're looking for bigger than that. But if you're finding things that are in and around that that really is kind of like the lower bench limit we're looking for. So what we believe could be constituted -- or what we believe would be successful, it's actually quite a low barrier from a geological sort of perspective as well. So I think that gives us some great encouragement. Then in terms of -- so let's say, it was 0.5 million ounces of material that's not such a -- on the assumption it's reasonable grade. That's not a huge area in terms of being able to sort of drill off and infill something. So you might take -- and of course, we don't have the seasonality in Egypt that you have in West Africa around rainy season and so on. So on the assumption you could probably drill that off in relatively quick order of sort of 12, 18-month sort of period, you could have that as a sort of reserves within a couple of years. And then in terms of the fact we've got the infrastructure at Sukari, pushing out some -- an access road, establishment of a small sort of sort of satellite, sort of operation, just purely mining operation on a modular basis. Within a 3-year window, you could probably have that ore into as part of the mine plan on that. Now if it was a bigger geological target, there was larger volumes, larger extents, longer strike, deeper sort of targets. It might take longer to sort of drill it off and bring that in. But I think fundamentally, I think that's sort of 2 to 3 years for something of reasonable moderate scale, you could have that in the mine plan.
Our next question comes from Daniel Major of UBS.
Yes, a couple of questions. Could you give us any insight on what the operating cost savings might be from the grid uplink and any indication on timing as to when you'd be able to put Sukari onto the grid?
Sure, sure. So obviously, we're out to tender now, and we're expecting those to qualify those bids to be submitted end of the month. But clearly, we have engaged with a number of these groups, as we have told them about their appetite to tender. And of course, they have sent us pitch books around sort of indicative time lines and costs and so on that they can do that. So I'll preface this by saying that we're still yet to see those tenders. And of course, we've had nice shiny pitch books and offers of commercial interest in this as well, and they're clearly going to put the best foot forward. So -- but they're fairly consistent in terms of the range. So I think in terms of speed of execution, there's kind of 2 things, really. There are certain groups that have the requisite sort of, if you like, capital equipment in their sort of within their business, transformers, switch gear and so on. And they can move incredibly quickly. We're talking of 24 kilometer, 25 kilometers sort of spur connection. So it's not a huge sort of distance. It's along an existing easement, water pipeline is there. So that's always -- that can always be an issue. But so we've got the access and easement. It's a relatively short spur, and they've got equipment on hand. And they've sort of indicated sort of 8 months from literally in commerce on the contract to being connected. Other groups have then said that they're going to go and buy the equipment, you've then got to go and source to with that switch gear and those transformers and then you've got to get yourself in the queues and wherever they're manufactured, Germany, Turkey, Europe, China, get yourself on the list. And then you're probably at the sort of mercy of supply chain for that. Once that equipment is onsite, it's a similar time line, but do they have that equipment. So I think at the aggressive end, there is -- that sort of 6 to 8 months, say, 8 months would be sort of from ink to connection. And then if we go with a group that then has to go and source that equipment, maybe it's more like 12 months plus, maybe 12 to 15 months, if we've got to go and get in the queue for that as well. So that's kind of the sort of the battery limits. And clearly, speed of execution will be a clear sort of differentiating factor when we're looking at these tenders for us. In terms of costs, so look, we -- Egypt published its tariffs for electricity. And obviously, these groups are that are connecting us to the grid, we then sort of go and engage with the Egyptian sort of power-generating authorities. And we would be an industrial off-taker clearly. And I think at this stage, it's probably around about $0.10, $0.11 per kilowatt hour is where it's sitting at in terms of the industrial sort of tariff within Egypt at this time. Currently, we're north of $0.20 -- $0.22 on the diesel genset. So it would be quite a significant saving in terms of versus diesel -- half the cost effectively of that.
Okay. So that will be like a roughly 50% reduction in your power costs on -- is about 75% of your volume is diesel genset now in terms of power?
That's right. Yes, I think you spot on. So the solar obviously continues to plug away during daylight hours. And then obviously, the ability on the balance, the other 75%, you could assume that about half of that would be half the cost. Interesting, we got an e-mail from the site this morning, longer sunnier days as we head into summer now, and that solar plant is performing really, really nicely. I think we've been sort of targeting 60,000 to 70,000 liters of diesel displacement a day, but that's now -- was it, Ross? 100,000 liters a day currently, the longer sunnier days that we're saving from the solar plant as well. That's going absolutely gangbusters for this, is doing really well.
Great. And yes, second question seemed quite sharp devaluation of the Egyptian pound. Is that having any impact on your business or on the inflation expectations and had any bearing on the guidance for this year and thinking into next year?
I'll pass over to my colleague, Mr. Ross Jerrard.
Yes, certainly, very -- watching that very closely, it has moved, this time last year, it was 81% and moved sharply to over 30% now, particularly from January through to now, it's gone moved to 20% type movement. From our perspective in U.S. dollars, it's really -- whilst we show that 30% is EGP, a large component of that is that fuel pricing that ultimately is priced in U.S. dollars. So there's probably about 10% or 12% that's impacted on EGP pure exposure. Watching briefly we're not seeing it go through. We're not adjusting any numbers at the moment. We've built in some of those movements in our pricing for the year. But at the moment, we're not changing any of our ranges, but we are watching it closely. It seems to have steadied at just over that 30% for the moment.
The main component, Ross is, obviously local labor. And actually, we gave 2 wage increases to the Egyptian Nationals last year, and that's about 6% of our cost base is the labor cost. So from an EGP perspective, we gave 2 increases to the workforce. But when you then back that off against the exchange rate devaluation is that in the U.S. dollar term, we're flat basically. Yes, yes. So when we think about ourselves as a dollar functional business, the inflation we've seen has been offset by the devaluation and is a relatively small part of our cost base. So yes, not impacting on us and no change to the guided levels at this stage.
Our next question comes from Yuen Low from Liberum.
Can you hear me?
Loud and clear.
Wonderful. Well, first of all, congratulations on the Q1 production results that was better than expected, in particular, the plant throughput. Could you speak more about this given -- I mean, how well has performed given the maintenance activities? And also, can we -- what can we expect in terms of the throughput going forward? Can we expect higher than the typical 12 million to 12.5 million tonne per annum run rate as a result?
Thanks, Yuen. Yes. Look, I think the -- well, not new GM, he's been in place 18 months now. But under the sort of the management team there, I think, sort of preventative maintenance and support has been a key focus. The plant has been in operation for us for 12 years now. It was a second hand when it was bought. And I think the key thing to operational stability there is being on top of that. So I think all credit to the team down there is that there's been a real focus on that. And that's seen, obviously, as you say, with the slightly ahead of expectation or process. So look, I think that 12 million, 12.5 million tonne is steady state for the plant. We think it's that sort of level. The plant has been operated at sort of north of 13 million tonne annualized run rate in the past. We don't think that on a sustainable long-term basis that you can push that plant that hard consistently and not have problems. So we think that the sort of the -- when we think about maintenance, when we think about sort of operability for the long-term, we think this sort of 12 million to 12.5 million tonne range is sustainable over the long-term and allows us to maintain the plant properly as well. So I think a good effort by the team, a real focus on operability and maintenance. That's seen as sitting out there. And we believe that, that is now sustainable over the balance of the operational life. There are opportunities, you could push it harder for short periods, but it would end up sort of biting you in terms of what you've then got to go and do in terms of fixing that up to bring it back in line. So we think this is the sustainable sensible level for long-term optimization.
Our next question comes from Richard Hatch of Berenberg.
Congrats on a good first quarter. Just 2 questions. First one, just on the cash and cash equivalents number, it's gone down a couple of million dollars sort of quarter-on-quarter. I suspect there's probably something in there like tax or MRO or something else that's working its way through. But just in the context of general $8 million of free cash flow, like what is the driver of that? Ross, is there something else? Is there -- is it the development CapEx or anything else that's not in that cash number down Q-o-Q?
No. Not really. There's the royalty that goes through in the first quarter. So that's obviously paid by annually. We've had a few additional costs flowing through in Q1 just in terms of pure cash in terms of RCF close out, all the corporate positions and things. So from a pure cash, it's really tiding against what was accrued versus what was paid. But a lot of it has dropped in terms of timing and mismatching, I guess, cash flows against when those invoices actually drop. So nothing in particular, but I think in aggregate across the board, that's the net result, but there's no one particular point that we would raise to highlight at this stage.
Okay. All right. And then the second one is just on the production. I know it's weighted second half 45%, 55%. Could you give us any kind of granularity just a bit easier just to kind of think about like how we should think about that? Is it -- what kind of -- how much of a weight is it in that second half? What are the grade, where are you getting that better grade from, how should we think about grade progression in the open-pit underground?
Yes, yes. So look, I think when we think about the open pit for this year, that sort of 0.9 to 1 gram range is where we're going to planning to sit for the year within that range or that being too sort of specific bringing on it. So it sits in that range. So clearly, with the first quarter coming in at around about that 0.9 level 0.87, you can see that there'll be a -- we expect a bit of a pickup over the balance of the year that would then on an average basis, bring us back to that sort of 0.9 to 1 gram range as well. So I think there's a bit of a pickup in the grade as we go through the any open pit. And in the underground, is that sort of 4.5 grams, I think, is 4 grams to 4.5 grams is where we would expect to sit for the underground. So again, if we've had a first quarter sitting at 4 gram, you can expect there will be a little bit of pickup in the grade second half over the next 3 quarters to bring that average up towards that sort of 4.5 grams sort of level as well. So I think that's where we are sort of planning to be, Hatch. And yes, so you can assume that sort of on the assumption that volumes stay consistent because we're mining efficiently and processing efficiently is that there will naturally be -- have to be a little bit of an uptick in grade over the balance of the year to bring that sort of annualized average to those levels. But not -- we're not talking massive swings here. It's kind of -- it's more about sort of incremental sort of increases.
Okay. And reconciliation versus what you're expecting or what you were expecting in Q1 is your grade rate in line?
Yes, yes. No. Either mine call factor, I think we're about -- I think about 102% off the top of my head, I have -- it's a round out there. So it's within tolerance. It was a mild beat above the mine call factor. But that's fine, happy with that. If it was 90% or 110%, then obviously, we'd have something wrong. But no, we're seeing it sort of in and around that 100% with a slight upside to the mine gold factor on that basis. So no, that's -- I think the whole reconciliation piece between resource to reserve, to mine, to process. I think we're -- that something that was a key focus 3 years ago because it was 20%, 30% out in certain case, in certain periods, it was all over the shop. So what we're now seeing now is that, that sort of consistency, where we've got the constituent parts working well, and they're all joined up, and we're getting that sort of confidence that we're across that. So there's always going to be slight variances up and down. It's a nuggety ore body in the underground as we know. So there's always going to be slight variances. We're generally seeing that mine call factor sit in and around slightly under -- slightly over the 100%, which is where we want it to be, which is good.
Thank you. At this time, we have no further questions from the telephone lines. So I'll hand back to Alex for questions via the webcast.
I'm pleased to confirm that we actually don't have any questions on the webcast.
Thank you, Alex. Well, look, if there's nothing further from the floor. I'd just like to reiterate my thanks to everybody for taking the time to dial in this morning. As I say, it was happy with the performance across the group in the first quarter, tracking along nicely in line with plan and some good momentum into Q2 and a good few catalysts coming over the balance of this year, which we'll be delighted to convey at the right time. So I wish you all the very best today. And as ever, if there's any sort of follow-up questions or further thoughts, you can reach out to as Alex, myself and Ross to the usual channels and happy to pick it up with you offline from there. So thanks, everybody, and have a good day.
Thank you for joining today's call. You may now disconnect your lines.