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Hello, and welcome to today's Centamin Q2 2018 Preliminary Results Production Results Call. [Operator Instructions] And just to remind you, this call is being recorded. So today, I'm pleased to present Andrew Pardey, CEO. Please begin.
Okay, thank you. Good morning, ladies and gentlemen. Thank you all for taking the time to dial in. This morning, as you'll be aware, we published our Q2 preliminary production results. As you'll no doubt recall, 6 weeks ago, we needed to revise our full year guidance due to short-term challenges we've been experiencing in both the open pit as we mine through the transitional zones at Stage 4; and the underground, where we had disruption to the stoping sequence due to the damaged long haul drill rig, resulting in the Sukari underground mining more lower-grade development ore.As we highlighted at the time, Q2 would be an operationally weaker quarter than Q1. From a positive perspective, with the challenges we've experienced, no gold has been lost. It has been deferred, and the investment case at Sukari remains strongly intact. The team on site, in conjunction with Mark Morcombe, the COO, has implemented a revised mine plan to return to carry back to its steady state production profile in the longer term of the 540,000 to 560,000 ounces.Turning to this quarter's results. Sukari produced 92,803 ounces. This brings the first half production to 217,099 ounces, 7% below what we produced at this time last year. This means that the second half production profile will be significantly stronger than the first half, but does not require any record quarters from Sukari. As such, we are maintaining our guidance of 505,000 to 515,000 ounces for the year.Taking a closer look at the quarter. The open-pit mining performed in line with expectations. And specifically in June, mine grade improved but further through the transitional zoning mines. Mining rates have continued as per plan for the open pit. In the underground, the underground mining, we previously discussed disruptions experienced due to the drill rig. Stoping has improved and now the split between the stoping and development is where we would like it to be at the 60% stoping, 40% development rate ratio. But a combination of catching up the stoping sequence, low-grade porphyry dilution and mining technique has had a significant impact on grade, which blended this 4.6 grams per tonne mined, whereas we felt the grade for the quarter should have been 5.7 grams per tonne. This is disappointing, and the team on site, with direction from the COO, is addressing the dilution from the stopes, particularly in Amun, where these larger open stopes accounted for 50% of the total stoping tonnes.Importantly, going forward, the impact of these larger open stopes where we've seen the low-grade -- additional low-grade porphyry dilution has reduced significantly, and going into Q3 and Q4, these particularly stopes will only make up approximately 20% of the stope feed.On the development front, there was a total of 1,793 meters of underground development, of which 142 meters was Amun decline development and there was another 790 meters of ore drive and cross-cut development to access future ore zones in the Amun area. In Ptah, there was another 21 meters of decline development, and importantly, 797 meters of ore drive and cross-cut development. And also, for the longer term moving forward, there was 44 meters of Horus decline development going through Osiris into the upper Horus zone. So that, in total, gave 1,793 meters of underground development.The underground is obviously the core area of focus. We believe the right mine plan is in place for what we need to mine over the next few quarters, though we are continually assessing different means and ways to increase productivity and get grade back to where it should be in the underground. We have seen some -- we've had some personnel changes through the quarter in the underground and additional staff are also being added to the underground. I'll reiterate again, no gold has been lost, but it has been deferred. And the investment case remains intact.Lastly, but by no means least, we take very seriously and are very proud of our health and safety record. This quarter, we achieved a 0 harm record at Sukari as we did in the same quarter last year, which is a strong endorsement of the skill and work ethic of all the teams at Sukari. We'll be announcing our half year results from the 2nd of August, which will include a full financial and more detailed operational review and also the group exploration results.As I said, it's been a tough quarter as we've highlighted earlier on. But Sukari is moving right forward -- moving in the right direction to deliver on our guidance through the year.On that note, I would like to open it up for any questions that might be on the call.
[Operator Instructions] Our first question is over to the line of James Bell at RBC Capital Markets.
Just on the underground, are you able to give us a bit more detail on whether the lower-volume, higher-grade stopes are already open? Or -- and if not, what the timing is on getting into these? And then secondly, maybe if you could talk a little bit about what you're doing to try and improve equipment availability. I know there's an extra LHD coming at the end of the year.
Look, with the schedule, and when we reguided, we had to push back the higher-grade stopes which were coming in, in Q3 into Q4 and a lot of the Q4 stopes into Q1 next year. That schedule is still intact. And as I said, with the development that we're doing, no gold has been lost. We've just had a deferral with the delay in the mining schedule. Availabilities of equipment, the equipment availabilities are back close to where they should be. We have additional equipment on site. We approved the jumbos, shock-reading machines. And we have got the second long-haul drill rig that is on its way. But unfortunately, that won't arrive on site until Q4 because there has been an increase in delivery times of equipment with the pickup in the mining industry, particularly in Australia.
Okay. And then just one more on the plant. I mean, obviously, throughput's pretty strong, but we've seen recoveries take a dip in the quarter. Was that purely a function of the grade or is there anything related to the [ transitional data? ]
The processing plant is running extremely well and the lower recovery is purely a function of grade. The lower the grade, the lower the recovery.
Our next question is over to the line of Michael Stoner at Berenberg.
Could we start with a little bit of extra information on these kind of larger higher-dilution stopes? What kind of percentage of the mix were they previously? And how long will it take you to hit your 20% of mix target from that 50% you just mentioned?
During the quarter, the larger open stopes made up 50% of the stoping volume. Moving forward, those stopes will come down to in the vicinity of 20% to 25% of the stoping volume and there will be an increase in stoping coming through from the Ptah area.
I'm sorry, and how long will it take you to achieve that 20% to 25%?
That mix in stoping volume has already come down and is -- at this stage, is operating at 28%.
Okay, so you're pretty much there.
Yes.
Okay, perfect. And then what's the cost of holding kind of more back-up equipment, the kind of shock read, the jumbos, et cetera?
With the -- its backup equipment, basically, the equipment that we're using, we paid for. And because this is backup equipment and the lead time, the cost is going to be minimal. We'll only actually pay for it if we have to use it.
Okay. So will it -- the cost is borne by the contractor unless you use it?
Correct.
Okay. And then final one for me. In terms of the transitional ore in the open pit, how are you tracking there? You mentioned that grades are starting to improve. Is there any kind of adjustment to the timings you discussed at the -- in terms of coming out of that material that we discussed when you announced the guidance change?
Look, we're progressing through the lower areas of the transitional zone now and the grade control drilling has shown in advance, through the course of July, we'll be out of the transitional in the western side and into the sulfide material.
Okay, okay. So broadly on track with kind of the discussion on the guidance change.
Yes. And as I've said, for the second half of the year, there's no new records we have to create to meet guidance, but the challenge will be obviously underground has to deliver.
[Operator Instructions] At this stage, there are no further questions in the call. So can I please pass it back to you for any closing comments?
Great, thank you very much. Okay, well, thank you very much for your time, and importantly, your support. Sukari is a world-class asset generating meaningful cash flow throughout the cycle. We look now to delivering on the next 2 quarters' results and returning Sukari back to its steady-state operation and longer-term profile of 540,000 and 550,000 ounces. Our detailed financial results will be published on the 2nd of August including full financials and group exploration results. For any other reporting dates, please go to the website for the full 2018 calendar. If you have any follow-up questions, please be in touch with either myself or Alex Carse. Again, thank you all very much for joining in the call.
This now concludes today's call. Thank you all very much for attending, and you can now disconnect your lines.