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Hello, everyone. I would like to welcome you to the Centamin Second Quarter 2021 Results Call. My name is Brika, and I'll be your moderator for today's event. [Operator Instructions] And I will now hand over to Martin Horgan, CEO, to start. So Martin, please begin when you are ready.
Thank you very much. Good morning, everybody. I hope everybody is well. I thank you for taking the time to join us this morning. I'm Martin Horgan, CEO of Centamin, and I'm joined today on the line by my colleague, Ross Jerrard, CFO; and Alex Barter-Carse, who's Corporate Comms. Looking forward to giving this update this morning. I'm really delighted to announce another solid set of quarterly results. And I think it's been a really a focused period of delivery for us both in the quarter and over the first half of the year. I think we've managed to do quite a lot in Q2 and across all our businesses, both at Sukari and West Africa and corporate. I think we've performed incredibly well, beating budgets completed -- and completing stated work streams. I think importantly, the headline where our costs and production were delivered in line with budget. We produced about 100,000 ounces, bringing full production for the first half to 204,000 ounces produced at an all-in sustaining cost of $1,186 per ounce. And that's within our guidance range, and therefore, we're maintaining our full year 2021 guidance. Operationally, we're focused on improving our mining flexibility in the pit that we've talked about and delivering improved operating efficiencies and costs. And this quarter, we made excellent progress against our stated plans. And in particular, I'd say, around the open pit. We've actually beat our open pit total material move targets of ore and waste and we're getting on the front foot around our increased waste stripping program, which is one of our key medium- to long-term goals to improve mining flexibility in the open pit, which will allow us to have consistent and better delivery. We've actually managed to move 7 million more tonnes than planned. And that actually delayed -- fantastically is 5 million tonnes more by our own fleet at Centamin and about 2 million tonnes by our contractor, Capital. And of that 7 million tonnes, there is about 1.5 million tonnes of that is actually low grade ore that has been converted from previously waste material.And I think when we look at the performance by our own fleet, the question is what's driven that 5 million tonne outperformance. And I think if we look back to our Capital Markets Day back in December, we talked about improving operating productivities, efficiencies and how we work. And I'm delighted to say that, that 5 million tonnes has really been driven by the implementation of these programs. We've had better blasting, which resulted in better fragmentation. We've got our new 60-40 diggers that are in place, giving better instantaneous dig rates, better truckloading, better truck scheduling. And when you put all those things together, we end up with better productivity, better cost base and that's allowed us to deliver that extra 5 million tonnes. As I mentioned, Capital as our waste contractor, they were able to start early and ramp up more quickly than planned, and they've delivered about 2 million tonnes ahead of their budget as well. During the first quarter, we mentioned about planning -- sorry, manpower issues that we're working through with Barminco. I'm glad to say we've resolve those largely during the second quarter and we saw an improvement across the quarter. Obviously, we'll look at it as we head into the second half of the year and continue to work with our contractor. But the underground delivered ounces and costs are as planned. And finally, on the processing, we had a beat on the recovery. Nice to see some of our initiatives coming through there and see an uptick in the metallurgical recovery rate to just under 89%, delighted to say. And given the availability of both staff and materials, we actually brought forward a scheduled shutdown that was planned for Q3 into Q2. We had about a 10-day shutdown for the swap out of a girth gear on the mill and also some remedial works on one of the crusher foundations as well. So that's particularly satisfying that when we look at those production numbers of both total ounces and costs, it did include, if you like, an unscheduled 10-day forecast shutdown, which we brought forward from Q3. And when we look across the capital and strategic projects, we're really happy as well that things are moving forward. Delighted to say that back in Q2, where we obviously, we announced the signing of our solar project, which has now started construction. I'm delighted to see that moving forward. And we're pushing forward at our paste-fill plant, which is a key for delivery for the long term of the underground, and that's on track as well. Even more exciting for us, I think, is the optionality around the Egyptian bid round, something we flagged late last year, we made an application for. And I'm delighted over the course of June, July, we were able to get the clarifications and discussions with the Egyptian government we were looking for. And that allows us now to have a route map to move forward. Now subject to finalization of legal formalities around the establishment of in-country subsidiaries, we look forward to signing those permits and get moving. And that's going to give us just over 3,000 square kilometers of highly prospective ground in the Arabian and Nubian Shield spread across 19 licenses. So delighted that we're able to do that and really look forward to starting work on this great project in the second half of the year. As you will have seen, we announced our West African review. I'm delighted the reoutcomes of that. We've obviously plotted a route to value creation now for the company. And I'm delighted to say that the pre-feasibility work at Doropo has kicked off. We anticipate to start drilling next month as we start to deliver the potential of Doropo with a PFS for schedule for the middle of next year. We've continued our geology reset at Sukari. A lot of additional drilling, relogging of additional core, reinterpretation, and that remains on track for an updated MRE second half of the year, which will underpin our life of asset, which we're still looking to deliver to the market in Q4 of this year. Of course, like for the previous year, COVID remains a watching brief for us. Again, delighted to report no material impacts on operations at this stage, but we remain alert to the issues of this and continue to plan for the worst and hope for the best in terms of the second half of the year as we go forward. And from a financial perspective, of course, our detailed H1 numbers will be out in 2 weeks' time on the 5th of August, but the quarterly performance was strong. We had a healthy revenue generation of $178 million and we had better than forecast budget free cash flow with $7 million for Q2 and $16 million for H1. That was, of course, helped by a stronger gold price, but does take into account the additional waste material that we've moved over the course of the first half of the year. And we finished the quarter, of course, in a financial robust position, $212 million of cash and liquid assets on the balance sheet and no debt and no hedging. As we look forward to the balance of the year, as I mentioned, we're maintaining guidance and also, we'll be announcing our interim dividend and our financials on the 5th of August. We've got our -- sorry, we've got already underpinned our dividend distribution for the 2021 at $105 million is our intention. We've got our geology and exploration update during September, and of course, that life of asset update during Q4 as well. So I'd like to thank the team here at Centamin for all their hard work over the first half of the year. We've really focused on delivery this first half, and I believe we've achieved that at the asset, at the project level and corporately as well. So with that now, I'd like to open up to the floor and any questions you may have for Ross and I. Thank you.
[Operator Instructions] The first question we have from the phone lines comes from Alan Spence of Jefferies.
I've got 2 questions. I'll just take them one at a time. The first one is around the updated resource estimate that's going to be underpinning the second revision of the asset later this year. If I understand it correctly, the geological relogging program won't be done for another 12 months, just do you have a sense of how much of that relogging or what portion of the mine will be relogged and kind of included in that update? Or am I not thinking about that the right way?
No, no, you are, Alan. So no, look, absolutely. So what we've done in terms of the first pass, we've taken 100-meter sections, and we've relogged those. So if you like, we've relogged the entire ore body along its entire strike length but at 100-meter sections. Now so we've done that. So in terms of the overall geological context, we now have that, if you like, completely done across the strike length into depth. What we're now doing, of course, is going back and infilling those on 25-meter sections. So if you like, we will have a full, if you like, reinterpreted the geological framework ready for this MRE. And then between now and the middle of next year, we'll infill that with that 25-meter sections as well for better granularity. So we'll certainly -- one of the key drivers for the MRE update is that adding a lot more geology into the resource estimation process. So we're delighted with the progress made, some really interesting sort of ideas coming out of that, that sort of give us a better understanding of where we are. But I think quite excitingly, can give us a lot of indication of where we can go. And new ideas and targets have been generated from that. So certainly, yes, the full ore body will be sort of included with an update so second half of the year. And then, of course, as you know, Alan, it's an interesting process, right? You're constantly relogging, constantly reinterpreting and refining and updating models. So the idea is by the middle of next year, we'll have that 25-meter section work done across the whole ore body. And I'm sure as new drilling comes in and new ideas, we'll be further refining it from there as well. So it's an ongoing process, but now to say that we will fold that first pass in the second half of this year.
Okay. That's really helpful. And the second one is maybe getting ahead of myself a little bit, but if you -- it is ultimately a producing asset out of the new bid round. Can you just remind us in the difference in the mining code that, that new potential asset would be subject to compared to Sukari?
Absolutely. So when we talk about the new bid terms now is that basically, the government's move to, if you like, a more standard industry model where you've got a royalty -- a free carry or actually, in this case, more like a net profit interest and a corporate tax regime as well. So very much the new Egyptian code looks like every other code you would see in West Africa, Australia, the Americas as well. So any new discovery that was discrete from Sukari, our stand-alone operation, would fall under that new code. And you'd be very familiar with the 5% royalty, 20%, some 28% income?
Yes, 28%.
Yes, 28% corporate tax and then about a 15% free carry or net profit interest, depending on how you want to determine it. So that would be a discrete stand-alone operation. Of course, what might get interesting for us is if we find a satellite deposit that potentially comes into Sukari. And look, we've flagged that with the government. And I think the feeling at this stage is that, well, let's get that success first, let's find that deposit and then we can look at how we then sort of process any sort of satellite feed through Sukari. And there's all sorts of models we've sort of preliminarily discussed around toll treating or so on and so forth. So look, I think on a stand-alone basis, it's quite straightforward. It's the new model. On a satellite basis, there's a number of ways that we could skin that cap at that time effectively. And depending on the size, the grade, the distance and so on and the economics of that, we'd work through that at that time.
[Operator Instructions] We have had no further questions registered on the phone lines. We'll hand it back to management team.
Martin?
Yes, Alex?
Sorry. We've got 1 question online. Apologies to interrupt there. We've had a question on West Africa. How do we intend to fund the potential development of another mine? And how will this impact our dividend policy?
Perfect, Alex. No problem at all. Look, I think obviously, it's an area that's generated quite a bit of interest for us. And obviously, we've got our long stated and we use the term sacrosanct dividend policy, as you know. And the question is, how do you square those 2 things off. And I think as we've discussed it internally, Alex, as far as we see at this stage, we've seen no change. So if we sort of roll back to, say, let's say, 12 months, Sukari as the producer in the business has generated the cash flow, which has funded the dividend. And as we roll forward, at this stage, no change to that. So the question then becomes, well, what about West Africa. Again, 12 months ago, the exploration budget for West Africa as a whole was about $15 million. And as we look forward for the pre-feasibility and the feasibility stage, it's going to be about $15 million. And obviously, 12 months ago, that was funded by Sukari. And as we look forward to the next, say, couple of years of study phase as well, continue to be funded by Sukari. So if we take 2019, 2020 as a sort of, let's call it, a standard year, is that as we look to '22 and '23, no change. Sukari pays the dividend, and it also funds about that $15 million expansion -- exploration stroke study phase as well. Next thing, the question comes, well, okay, fine. So you're now at 2024, for example, and we want to build a project in West Africa. The PFS DFS has been successful, how you go about doing that. Well, I think put simply, is that the model doesn't change. Sukari continues to pay the dividend as it has done. And then when we look at the project, let's assume it's a $225 million to $250 million CapEx number for the project construction. Well, I think we'd be looking at some form of asset financing yet. Sorry about that. Ross had his wallet open there. I think the alarm went off as a CFO, so apologies for that. So we were looking at, say, a $225 million to $250 million CapEx construction bill for a West African project. Look, I think project financing at the asset level for construction would work quite nicely. Obviously, that's a pretty well-trodden path. So something in the order of, say, $175 million could be applied to as a project finance. And then how do you fund the balance of that, say, $50 million to $75 million? Well, I think at that point, we'll be looking at our balance sheet. We talk about the $300 million being a rainy day fund plus our sort of war chest. Well, I think that war chest it has been sort of built up for exactly situations like this. So I would envisage or we would envisage that construction is funded in part by an asset level project financing with the equity component funded from the balance sheet strength. And through that process, Sukari continues to pay the dividend. So when we look at that is how do you maintain the dividend and develop West Africa either or. We don't see it as either or. It's actually both given the position that we're in, given the balance sheet strength we have and Sukari's cash generation. So I think that for us, as we look at that, Alex, going forward is that I'm on firmly of the belief that our ability, our financial strength and flexibility means that Sukari continues to pay the bills and the dividend and we have the ability to develop West Africa without impacting on that as well. And of course, once West Africa comes on stream, you pay your project finance back, then there's additional cash flow in the business that can then either further development costs or further dividend payment as well. So that's certainly the strategy going forward around that. It's not either or, it's actually both.
Great. Thank you for clarifying that. One quick follow-up question on West Africa is, could you detail the time line of PFS to DFS?
Sure, sure. So generally on that, we have planned by the middle of next year to have the PFS ready. That's about a 70,000-meter drill program we're looking at. That will be completed through the Q1 next year. And obviously, as that flows through, resource update, mine planning and so on and so forth, we'll go from there. In parallel, of course, will kick off the ESIA baseline work as well. So the plan is to have the PFS ready by the middle of next year. Philosophically, we'll probably do more work at the PFS stage, if you like, the optionality work where we look at different layouts, configurations, different flow sheets and so on. And the idea being that once we sort of have a preferred project configuration, then the DFS will be a case of buttoning down that configuration. So the idea is to do more of the optionality trade-off work at PFS and then seek just to engineer a DFS case from there. So if it's a 12-month process for the PFS, we might be sort of 9, 10, 11 months for a DFS, a slightly shorter DFS. So we sort of put those 2 things together, and we can envisage that sort of mid-'22 plus minus for the PFS. And, let's say, sort of conservatively mid-'23 for a DFS moving into engineering. One of the things, of course, we do is that if we're confident and comfortable that the DFS is moving the right way, we can also bring forward some of that detailed engineering into the sort of end of DFS phase and trying to force shorten this sort of gap between completing DFS and heading into construction as well. So there's a few little tricks that we've got there that sort of from previous experience where we can force shorten the development time line to get to breaking ground and moving towards first gold quicker.
Great. And apologies, the West Africa questions keep coming. So we're very real time here, so we've just had another one in. Just wanted to understand a little bit more about our thoughts on Batie West and where we feel that, that doesn't quite fit our investment criteria or bandwidth?
Sure. Sure. No problem at all. So look, I think it's a truism in the sector that whether you're building an asset producing 100,000 ounces a year or an asset producing 200,000 ounces a year, it's about the same sort of work. Ignoring to say capital implications, manpower, bandwidth sort of all those various specialties of that. It's the same amount of work, if you like, to do that. Obviously, one might have a higher CapEx build. But in terms of a management team's ability to execute, it's hard. And I think if you look at even the sort of the -- even the bigger companies out there, a multi-asset companies, very, very few companies take on construction opportunities concurrently. I think it's a lot of focus to deliver those correctly, efficiently, cost-effectively and then work effectively. So really, when we think about that, we've got to recognize the capacity in Centamin. And look, we've got a number of people in the business now, that have got a significant West African development track record. So I feel very comfortable that we can execute and deliver this project and its potential. And the question then becomes, when we look to the opportunities across West Africa, we were ranking them -- well, the first pass was to sort of understand what's their absolute value, is there a project there. So that was the first sort of stage gate. And then the second stage gate was well, looking to prioritize our own sort of management time, our own capital allocation, what's the best return for Centamin shareholders. So when we look at that, we then look at things like country risk analysis and security as well as that we put all that through that matrix. So we've got 3 opportunities between Batie, Doropo and ABC. That's in terms of their stand-alone absolute value. We then look at them through a Centamin sort of lens, if you like, and look at, as I say, where do we want to go with it. And looking at that basis is that we believe that Doropo is the superior project from a Centamin perspective. It's got the scale, the longevity, the production profile, we believe, makes sense for us. And although we believe there's a project at Batie, we believe that technically, there's a project there -- there's economically a project there that can be developed. We just don't think that from our ability to commit to it, our own resources and also the sort of the return that would make for an already sort of 500,000 ounce producer, we believe that it doesn't quite fit with our profile. Now that's not to denigrate the Batie project far from it. That could sit very nicely with a company with a lower ounce profile or currently potentially is in Burkina or wants to expand into West Africa. So on that basis then, from where we are, we decided to back Doropo as the horse in this race for us and we'll find an alternative solution for Batie from there. I think that could make a very nice project in someone else's portfolio. It just doesn't quite meet our investment criteria at this stage.
All right. Well, that is -- that's all from the questions online. Thank you very much.
No problem at all. Well, look, thank you, everybody, and thanks for taking the time to dial in. Look, any questions or further comments, please feel free to get in touch with us by the usual routes. Alex is available, obviously, for discussion. I look forward to updating you in a couple of weeks' time. We've got our interims and dividend. Obviously, later in the year, we've got our geology update in September. And obviously, Q3 results and heading into that Life of Asset Update later this year as well. So again, thank you, everybody. Please have a good day, enjoy yourselves, and I look forward to speaking soon. Bye for now.
Ladies and gentlemen, this does conclude today's call. Thank you all again for joining. You may disconnect your lines.