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Ladies and gentlemen, welcome to the Centamin Q2 Results Call. My name is Adam, and I'll be the coordinator for the call today. [Operator Instructions] I will now hand over to your host, Martin Horgan. Martin, please go ahead.
Thank you very much, Adam, and thank you, everyone, for taking the time to join us today to attend the call. As Adam mentioned, I'm Martin Horgan, the Chief Executive of Centamin. I recently joined the company and started work on the 6th of April. It's a pleasure to discuss our second quarter results with you for this year, which were released earlier today. Format of the call today, to answer any questions you may have following the release of our Q2 numbers, if you please note our detailed interim financial results, including an update on our interim dividend we released on the 4th of August at approximately 7 a.m. U.K. We will be hosting a presentation webcast at that time, which we'll take a look back at the first half of the year and the balance of 2020 across all of our operations. Importantly, if you can please hold your financial-related questions until then, because we'll not be able to discuss them at this time. Thank you for that patience. On the call today, I'm joined by Ross Jerrard, our Chief Financial Officer; and our Investor Relations person, Alex Carse, is online. They can answer any unasked questions that you they have following the call. Without furthering delay, I'd like to sort of comment on our second quarter results. I'd like to start to say that I think it was another excellent, solid quarter for the company. I think first and foremost in everyone's mind has been the impact of COVID. And I'd like to say that not just operationally, but I've been particularly proud of how the entire Centamin team has been able to react to this rapidly evolving challenge that we face on a global basis with COVID-19. The situation was emerging as I joined in early April. And I joined the team that was already on the front foot in terms of assessing the implications from operations and then planning around our response. I categorized the management's response as being flexible, agile and proactive in their response, which has enabled to post these results today. I'm pleased to say that as of today's date, we've had no material disruptions to either operations or gold shipments. Although we do exercise caution in that statement as we continue to actively and almost micro-manage the situation as we assess the potential future impacts of the COVID pandemic. In June, we moved to the second phase of our emergency response framework, moving from the higher-lit reactionary measures that started in February, March and April to a more proactive approach to prepare sites and our workforce for what we believe will be an undetermined but longer length of time to cases with COVID. This has included also the retention of a leading epidemiologist, and she is providing specialist advice from protecting our workforce on a comprehensive [ training ] program at the Sukari mine site. Touching on operations. In the second quarter, we produced 130,000 ounces of gold. This did exceed the 115,000 ounces that we had guided at quarter 1, and this was driven by a number of factors, primarily higher grades were milled over the period and those grades are result of higher grades realized in underground operations. This completes to say was part of improved dilution goal, not only reduced tonnes but also delivered higher grade to the ROM pad. In addition, we also rescheduled sort of the 2020 stope sequencing. We saw some high-grade stopes from the second half of the year brought forward, while some of those stopes planned to be mined in half 1 will push back into the sequence of the second half of the year. We did have additional processing time at the plant's site. It's a maintenance shutdown that was pushed into the second half of the year, and that was in response to COVID as we wanted to reduce nonessential third-party access to the site. In addition of people, we're delighted to say that Howard joined -- Howard Bills joined during the quarter as the Group Exploration Manager. And pleased to say he's hit the ground running already and has undertaken a complete review of the group exploration in the portfolio in Egypt and across West Africa. In addition, we added Hennie Faul to the Board of Directors and also the Head of the Technical Committee. I believe both Hennie and Howard bring significant experience to the company, and I'm sure they will add to our already excellent additional operational capacity as we look to map out the future direction for the company. In terms of costs and reflecting on increased production volumes, our normative cash cost was sitting at USD 625 per ounce produced, while the all-in sustaining cost of $900 per ounce sold. Further detail and breakdown will be provided with the interims in early August. Finally, I'd like to say that we remain on track to meet production, both production and cost guidance for the year. But at this halfway point in the year, we're in a good position where we can give the market a clearer production outlook on the year and we'd narrowed that range to 510,000 to 520,000 ounces. We believe this is prudent given that there remains some uncertainty around further impact from COVID outside those that have already been identified, and we've built in additional contingency to our plans accordingly. So in summary, I'd like to say it's been a solid operating quarter that generated meaningful cash flows. I think the team have done an excellent job in navigating the challenges of COVID, and we continue to actively manage the potential risks that lie ahead. We remain on track to meet production and cost guidance. We're in a strong financial position with some USD 367 million in cash and liquids and benefiting from exposure to the gold price with no debt or hedge instruments on the balance sheet. Our operating strategy remains consistent. That's to responsibly maximize free cash flow for the production of value ounces over volume. And we're looking forward to strong free cash generation for the second half of the year, having generated free cash flow of just over $102 million for the first half of the year. And with that summary, I'd like to hand over back to Adam, the operator, who will now be happy to open the floor to questions. Thank you.
[Operator Instructions] We have our first question. This one is from Alan Spence of Jefferies.
I have 3 questions, so I'll take them one at a time. And the first one is around that sequencing engendered round. Could you just share with us maybe this information? What was the catalyst that made you ultimately want to change that sequencing?
Sure. No problem at all. I think the sequencing was a response to -- there are 2 or 3 different aspects to it. In one of the stoping areas, we decided to collect some more geotechnical information before finalizing the stope design and mining process. We felt from a safety perspective better just to confirm some of our initial thoughts. That stope was suspended or pushed back while we continued the geotechnical investigation. Another particular area, we'd identified a higher grade zone that hadn't previously been caught by drilling. And also, again, to make sure that we maximize extraction from that particular stope, we basically suspended production there, but we undertook some further grade control infill drilling to fully map out that higher grade zone and then sort of plan for mining later down the track. That again was also pushed back into the second half. In some of the upper stock works in the Ptah zone, one particular area was particularly closed for the interaction between the ultimate final open pit and the underground. And again, some further work was warranted while we investigated that interaction to make sure that we're properly sort of not cannibalizing our future production capacity, as you know, underground. So those are sort of 3 areas, if you like, where we've decided to take deferrals for a good operating reason. And then in the second part of that question then is that we then looked at what stopes were available and could be accessed in the first half of the year and decided to bring those forward into the first half, as I mentioned. So to my mind, with any sort of operational senses, that plans are laid out for the year, with the operational management on the ground, we're assessing the situation on a day-by-day basis and make those changes based on best information in real time. I think the thing for me, though, that's most pleasing was that once we've identified to defer those stopes for the various reasons that we had operational flexibility, that we had the ability to pull in these additional stopes and bring them forward while we defer those of the stopes in there as well. I think operational flexibility is key to making any underground operation where one can react in real time, change your sequence for good reason and still maintain production as well. So I think that was particularly pleasing from that perspective. So really, in terms of the sequencing, all down to operational factors are all for good reason. But we're able to basically change that sequence around and maintain production for the quarter.
Okay. That's really helpful. The second one regarding COVID. You mentioned production and shipments are not impacted. Can you just speak a little bit around the supply chain? Do you think you have the necessary inventory balances around consumables and other necessary items? Or is there any risk around that starting to fall short in the next quarter or 2?
Sure, sure. Well, look, as I say, I think the key word is materially impacted. Certainly, COVID has impacted us like it has everybody else. We've responded with extended rosters for staff. I use a chartered flights to rotate people in and out of Egypt during the trip -- the international travel ban and so on. Extended sort of salary bonus schemes in terms of the lengthened sort of rosters as well around this as well. So certainly, we have seen some impact, but certainly nonmaterial at this stage and I think we've done well to manage them. And of course, key in that is the supply chain. We have a daily supply chain e-mail. So we're actively managing that on a daily basis, the GM and the supply team on-site are on that case. We're looking at building up inventory, alternate suppliers as well. And I think that is something that we've played -- almost micro-manage that in terms of our response to that as well. So certainly, as we sit here today, having looked at the latest numbers, which came in over the weekend is that we're maintaining -- we did ramp up our consumable holdings at Sinai, grinding, media and so on. And we're now sitting at those additional levels. I think, no change from the quarter 1 update that in terms of visibility on a rolling sort of 3-month to 4-month basis is that we're comfortable that we've got, one, the correct stocks; and two, the correct access to replace those consumables as well. So at this stage, no change from quarter 1, but it is something that, as I say, almost micro-managing on a daily basis to make sure that we stay on the front foot around reagent and consumable resupply.
Okay. Great. And the last one for me, and the answer might just be that I need to wait a few weeks, but in terms of narrowing that production guidance downwards, but keeping costs flat leads to the assumption that you think you're doing a little bit better on costs. Just broadly, can you tell us if that is better-than-expected performance you achieved in H1? Or is it more forward-looking that you think maybe you can be a little more efficient in the second half than initially guided?
Sure, sure. Well, look, I think you are right that we'll have a fuller discussion and explanation at the interims. But I would just say 2 things, and I think this is flat during the Q1 is that Ross and the team from the CFO side, and I apologize for talking across Ross here, is that an identification of cost reduction program was already sort of flagged for this year irrespective of COVID. So that, that work had already started before COVID started to emerge around, looking for opportunities to take cost from the supply chain, take costs out of the business. So there will be -- we've seen some benefits from that. And as you say, there will be some cost of being on the COVID and I touched on that before as well. So as I say, more detail to come in the interims, but more broadly, that we are seeing costs coming out through a proactive management basis and some costs coming up there from COVID. Ross, anything in particular you want to add do you think on that particular topic?
No, Martin. You're spot on with that. It's all that part of that $50 million that we had identified as the team on the ground have been very active on, and they've made some good strides on that, both negotiating it and we're expecting a lot of those numbers to actually drop in the second half. But we'll be able to give more color and be able to discuss it further at the interims.
We have another question. This one is from James Bell of RBC Capital Markets.
Martin, one for you just to start. I guess, you've been in the seat a few months now. And obviously, Centamin's been relatively well prepared for what's happened with COVID-19. I wondered if it was possible to talk about any productivity impacts you're seeing on site, particularly maybe around the underground with the sort of social distancing and other measures around COVID-19. And then a second one, just on deferrals. So obviously, moving the plant maintenance a quarter, we've seen the solar plant move into next year. Is there anything else we should be thinking about in the second half that could be deferred that might have some impact on your numbers?
Sure. Thanks, James. Look, I think the efficiency productivity one's an interesting one, actually, is that as you'd expect, we are sort of looking at social distancing. We are looking at sort of numbers people available to work in areas. So naturally, one could potentially be hit by sort of productivity reduction, if you like. I'm really pleased to say, though, that from what we've seen during the second quarter, the move to our planning approach, the use of backfill has really resulted in much better dilution control as well. So I think off the top of my head is that in terms of underground tonnes is that we're just shy of 10% tonnes less haul because of that dilution control, and we've seen a commensurate pickup in Gray as well. So I think if there were any, sort of an underground perspective, sort of impacts of COVID, they've more than been dealt with by the sort of the improved dilution control that allowed us to, almost with fewer staff and fewer machines, actually pulled more tonnes or more valuable tonnes out of the underground from that perspective as well. And that's something that -- we had a good quarter on it. And that's a real theme that we want to maintain and keep going in terms of how we control that to really make sure that they're mining sort of smarter, and that -- back to the mantra of value over volume there to really get on top of the underground. So I think certainly, from the second quarter, any impact that have been occurring have been offset by those productivity gains that we've seen through to dilution control. In terms of the second part of your discussion, look, I think where we sit in terms of the tank maintenance, it was a bit of refurbishment work on the CIL tanks. Nothing that's particularly sort of time critical, and that will move back into the second half of the year. Solar, we have flagged. Having said that, solar, we continue to progress in terms of documentation preparation, fairly sort of complex-type construction and operational contracts. So that's actually ongoing in the background, some basic engine oxide engineering as well. So although sort of physical work on the ground has been deferred, and we are just all sort of pushing that project forward such that we can take it to board and final approvals and implementation once we take that fall from there as well. So the solar project is moving ahead, but not just physically on site. Aside from that, no, I don't think there's anything else that we should be noting that will be deferred that hasn't already been discussed. And I think in terms of that sort of the outlook for the second half of the year, I think we're across that, subject to, of course, any further escalation or material changes in sort of COVID, for example, that might sort of alter that. But for now, no. You're seeing nothing changing at this stage.
Okay. That's great. And I just wondered, can you remind us of your testing policy around site. When you have workers coming to site -- do you have quarantine in place as well as testing? Just to -- just on...
Yes, so that's right. So the first thing we did was to establish a quarantine protocol for all staff, even before we started the testing, and we immediately looked to put a quarantine in place. So that quarantine protocol had already been in place since April. And that's where we were looking for at least 7 to 10 days of quarantine for both national and international staff returning to site as well. We've got a quarantine area where we're housing individuals to do that. We have a doctor on-site to monitor us while we're in quarantine and we go from there. The second phase, then, of course, is that actually, I'm retaining an epidemiologist support that's looking at testing. And really, the intention there was that clearly, if we can test individuals, it might be able to sort of get them back into the workplace more quickly than the 7 to 10 day quarantine period as required as well. So we are -- we have maintained a fairly comprehensive testing approach as well. And that really, I guess, we sort of call it pre-screening approach by the company, and that's been in place now for just over a month, 6 weeks, and that's been working there particularly well as well. So I think we feel that long term, the ability to sort of protect Sukari is by having mapped out the workforce, having almost like a protected bubble around the site. It also clearly has -- the #1 consideration's protection and the health of our staff. And by doing that, of course, we're helping to protect site and then more broadly, the Egyptian community that we work within Marsa Alam and more broadly in Egypt itself as well. So I think -- we think that that's a fairly comprehensive approach between testing, quarantine, isolation and medical support. And it's certainly served us so far, so well, and we'll continue to review those protocols, I mean, to be blunt, as the science evolves. And you know, we're dealing with doctor duplicity. And, well, look, she's learning more on the -- actually, the international is learning more about the actual nature of the pandemic. And we'll keep on top of reviewing those protocols as the science emerges, as the advice changes develop. But certainly, we feel it's been working well to date.
We have another question. This one is from Raj Ray of BMO Capital Markets.
The first question, just following up on James' question on the processing side of things. With respect to your Q2 tonnage that you processed, it was lower than Q1. Just wanted to see what the reason for that was. And secondly, how much of impact do you expect from the planned maintenance in Q3 on the processing tonnage?
Look, in terms of looking forward to the second half of the year, look, this is planned maintenance around just sort of refurbishment of the CIL tax as well. So it's -- I would categorize it as routine, nothing out of the ordinary in terms of that. Just sort of good regular sort of maintenance that goes on a periodic basis as well. So we're not particularly looking at any sort of significant work. And I think in terms of the sort of the rebalancing, as we noted of the production between the sort of first and second half of the year that that's fully baked in there. I can't give you today an exact tonne number for that. I could dig that out for you. But needless to say that, that sort of maintenance will be rolled through sort of quarter 3, quarter 4, second half of the year as planned. In terms of the first half versus second half -- sorry, did you say first quarter versus second quarter?
That's correct, yes.
I think you'll have to bear with me one second. I must confess that sort of with me jumping on board in the year, the thing that -- what do I do Raj, and that's okay is that I'm happy to take that offline with you and walk you through that once I've got the numbers to my hand and take you through that as well. But fundamentally, as I say, it's going to be a function of ire hardness. So what we're putting through the plant in terms of where we're working through various parts of the underground or the open pit. Things like, for example, when we hit sort of tough material as well from the underground as well as availability of runtime as well. So I'm not going to give you an answer now for one, I might be giving you an incorrect answer. And I'll just check what was the overall blend and therefore, what -- the runout is based on that in terms of our anticipated throughput between first and second quarter on a look forward basis as well.
That's fine, Martin. And then second question is open pit, I mean, for this first half of the year, a month ago, I was coming from the Stage 4. Looking in the second half, is that -- is Stage 4 going to be the primary source for the open pit? Or do you have some coming from Stage 5 as well?
So there was a little bit of taken out of stage 5 in the second quarter. We're starting to move into that zone now. And as we look forward to the second half of the year, that's going to be a combination of pushing stage 4 as well as stage 5 as we move into the sort of 2021 and beyond as well. So what we saw in Q2 will continue through the second half of the year of both Stage 4 and Stage 5 being mined concurrently.
Okay. And then lastly, on the underground, you speak about better dilution control, one of them was for backfill. At the beginning of the year, you guys had mentioned something about gradual introduction of bottom-up mining method. Has that been gradually introduced? And is that also contributing to a better dilution control?
Look, absolutely. Look, absolutely. In terms of -- I talked about sort of operational or stope design, stope planning is that what we're looking to do is to move to a system where we've got sort of good -- as best predictability as we can. So one against the stope height, previously 10 meters then to move to 20-meter interval between accesses give ourselves better control in terms of our sort of stope design in terms of backing that up to a kind of combination of sort of cut-off grade, mineralization continuity and then stope designing around that. Use of backfill in terms of localized support as well. So putting all those things together is sort of -- no one silver bullet to cracking the dilution. It's a number of factors that we're bringing together here to be able to sort of mine more efficiently and make sure we focus on sort of mining ounces rather than sort of tonnes and being able to push you on that basis as well.
We currently have no further questions. [Operator Instructions] We have another question from Alan Spence of Jefferies.
On open pit strip ratios, that came in better than I had expected. And I think in the past, what we've kind of talked about that medium-term number being. Can you just remind us if kind of 5 to 5.5 is the right number on a medium-term basis? But also kind of on a near term, maybe where that number will work out to Q3 or Q4?
Sure, sure. So look, I think one of the things that we are sort of -- not we, I'm understanding, I suppose, is that historically, during the initial sort of drill off on the resource on the preproduction phase, the topography was obviously quite challenging, quite expensive and difficult to drill there. So once the main zone of mineralization was identified, that was the focus on. But in terms of the lower-grade zones that may be sitting a hanging wall is that they weren't a focus from the exploration drilling from surface. And I understood that the view was that, look, if that's expensive and difficult to drill right now, what we'll look to do is that as we mine the sequence through there, grade control will pick up these lower grade zones and hanging more and they will be then sort of converted to sort of dump leach and low-grade stockpile at that time as well. So what I understand that has been happening is a consistent sort of theme where as we get deeper in the pit, as the sort of the hanging wall has been pushed back in the open pit, is that we are encountering these zones of 0.5 gram type material. And then that, obviously, you're looking to change the strip ratio ore as material that's previously classified as waste is now reclassified as ore and obviously that changes your ratio. And to me, the important thing to look at is the spatial compliance, to make sure that the volume that we needed to push back in any one period, have been pushed back and moved and whether that classified as waste or waste that's low-grade, is that as long total volume is correct, then we're not overly concerned around that or from a stripping perspective in there as well. So that's something that's on my list to look at, to understand what it means today, what it means -- what it means for the longer term, this is going to be an increasing sort of feature that we're going to have to understand. What does that say to our ultimate strip ratio? What does that say to ours open pit economics? What does that say to our processing capacity about these sort of stockpiles? So it's a really interesting piece of work that's emerging from my perspective now; one that we're going to have to sort of face and take it on from there as well. But long story short, yes, I think that's sort of the ratios you flagged there. I think our average life of mine, sort of medium-term ratios. And I think they were able to sort of project forward on a short to medium-term basis.
We have another question. This one is from [ Charles Appert ], a private investor.
I may have missed something over the years, but what happened about that court case that I think it was an Egyptian TV personality drilled against the deal that we -- that the company has with the Egyptian government. Is that certain? Or is that still ongoing?
Charles, thanks for the question. I must confess, in terms of the -- obviously, for the 12 weeks in, I've read a DD file and so on and so forth around this. And so you'll have to bear with me as well. Look, I'm sure it's one that certainly, Alex and the IR can pick up offline to add a bit more detail with this. But from my sort of basic understanding at this stage is that, that's actually a case between the government and this individual. We're not actually a party to that at this stage, where -- but I understand that, that is yet still pending and hasn't yet had its day in court effectively. But I stand to be corrected by Ross possibly who has been around the company a lot longer than I have. But I'm sure we can give you a lot more sort of chapter and verse offline. But Ross, as I understand it, we're not a party to the case, but it still remains outstanding on the Egyptian courts at this stage.
Okay. Does it have any bearing on the share price, do you think?
I don't believe so. I don't believe so at this stage.Well, that takes us up to 1:00. So that's, sorry -- that takes us to 1:00 and I think that's the sort of 30 minutes. It sounded like we are sort of winding up to questions there, Adam. And so, with no further questions. I just like to thank you everybody for taking the time to listen in today. And note that, as I say, we will be looking to put our interims out on the 4th of August and look forward to providing more detail and a fuller description of engagement at that time as well. So thank you very much for your time today. And if you have any further follow-up questions, please feel free to contact us through the usual methods. And we'll look to get back to you as quickly as possible. Thank you very much.
Ladies and gentlemen, this does conclude today's call. Thank you for joining, and you may now disconnect your lines.