© 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 all, and a warm welcome to Centamin's Q2 2022 Quarterly Report Conference Call and Webcast. My name is Lydia, and I'll be your operator today. [Operator Instructions]
It's my pleasure to now hand you over to Martin Horgan, CEO of Centamin. Please go ahead when you're ready.
Thank you, Lydia. Good morning, everybody. As mentioned, I'm Martin Horgan, Chief Executive of Centamin. I'm glad today to be joined by my colleagues Ross Jerrard, CFO; and Michael Stoner, who's our Group Corporate Manager. We intend to have a run-through of the second quarter performance, and then we'll take a look forward to the second half of the year. And of course, we'll be happy then to take any questions that you may have, which Ross and I will endeavor to answer.
Starting with safety. We continued our trend of reducing injury frequency rates across our operations but did, unfortunately, suffer one lost time injury. A full review of the incident has been carried out and revisions made to work procedures to ensure that this is not repeated. Safety remains our focus as we strive for 0 harm across all our sites.
And looking back on the operational performance of the quarter, I think the key outcome for us was compliance to plan and delivery against that plan. Production from Sukari was just under 111,000 ounces of the gold, which is a 20% increase than the first quarter. This strong and planned performance is driven by better grades from both the open pit and underground, plus an increase in underground ore tonnes quarter-on-quarter. It was also the first full quarter of owner mining in the underground, and we saw the team hit the ground running with production, productivity and cost benefits made across the operations there. Processing performed in line with plan, and we completed the schedule relining in the quarter as well.
This production was sold at a realized price of $1,863 per ounce, generating revenues of $207 million. And given the global macro inflation environment we find ourselves in, we maintained a focus on split cost control across the period. This approach, aligned with the production that we've achieved, allow us to maintain costs within our stated ranges with cash cost of $868 per ounce and all-in sustaining cost of $1,357 per ounce over the quarter.
Excellent progress is made on our capital projects with some $67.3 million invested, including importantly in both the solar and the paste fill plants. With a twin focus on reduction of cost and carbon emissions, the solar project is a key project for the second half of this year and also in the longer term for Sukari.
As this is a quarterly production update, we'd appreciate if you could hold your detailed questions on costs and CapEx for the interims, which is slated to be announced in the 4th of August.
In parallel with the strong operational delivery, we continued our work to fully optimize the mine. As was highlighted in our recent geology update, good progress was made on fully exploring the Sukari ore body in the Sukari concession. We believe this work will support life of mine extensions, add operational flexibility and potentially support production increases across the Sukari operation.
At our newly issued exploration license in the Eastern Desert of Egypt, which we refer to as EDX, we commenced operations at the Nugrus block. And in Cote d'Ivoire, we maintained momentum at Doropo as we closed our field operations to support the pre-feasibility study, which we'll deliver later this year. And as we look forward now to the rest of the year, we look at possibly maintaining our guidance of between 430,000 to 460,000 ounces of gold as we continue to meet -- continue compliance to plan and remain on track for the middle of this range with all-in sustaining costs of between $1,275 to $1,425 per ounce. Although we do note that in this current inflationary environment, we do expect costs to go towards upper part of this range. CapEx for the year remained at $225 million and exploration is set for the total year of $25 million across 2022.
We're also very much looking forward to delivering a strong pipeline of news flow over the second half of the year as a number of key initiatives and study reviews are completed. This includes the commissioning of the solar plant, initial conclusions of the underground expansion study in the third quarter, plus reporting on the Doropo PFS and, of course, the reserve update for the group in quarter 4.
I'd like to thank the team for their continued hard work over the quarter, which made us deliver this great set of results. And with that brief summary, we'd like to open up the call to questions.
[Operator Instructions] Our first question today comes from Alan Spence of Jefferies.
I've got a few, and I'll just -- I'll go through it one by one. The first one is on the open pit, the grade. Really, really strong performance in the second quarter there. What's in the mine plan for Q3, Q4? What are you expecting there?
Look, I think what we're seeing now in the open pit, Alan, is with that sort of focus on sort of rehabilitation of the open pit, sort of that stripping program that we implemented sort of really 18 months ago now, really starting to see the benefits of that starting to flow through now. And I think primarily what it's done for us is that, as you might remember, over the last year, we've focused predominantly on the sort of the stage here, sort of the north end of the open pit. And that's sort of been at sort of between 0.8 to 1 gram.
But I think with that stripping now sort of coming in, it's allowed us to basically reenter both the east and west zones of the open pit as well and traditionally -- or not traditionally but geologically, I should say, is that those east and west contact zones of the porphyry, we do think to have some of the higher grades that we see in the open pit. So really, we continue to mine from Stage 5, but also now having access to Stage 4 and 5 east and west has really allowed us to push on with the open pit. And hence, the ability to mine for some of those benches allowed us to have and outperform absolutely on historical recent performance in the open pit.
As we look forward, we'll continue now to sort of open up the east and west contact zones. I think still the north end of the pit will continue to have a bit of heavy lifting across the sort of -- the next sort of 12 months or so. But certainly, we can envisage that around about sort of gram to 1.1 grams is where we expect the open pit now to be over the short to medium term as we continue to, say, mine in the north end of the pit but also start to rehabilitate and bring increasingly those east and west contact zones as well.
Okay. That's really helpful. A bit different one, the solar power plant. What internal carbon costs do you guys assume when you think about returns on that project?
So I guess in terms of the carbon costs, we've not really looked at it -- well, we didn't look at it from a carbon cost basis when we first committed to the solar plant just over a year ago. We looked at it a bit more simplistically, I guess, on an IRR/NPV sort of metric. And for us, sort of the $36 million investment, at that time, given where diesel prices is, we saw just under a 3-year payback for that and an IRR of well north of 20%. So I think in the current inflation environment with diesel prices climbing, that obviously looks even better from an NPV/IRR basis as well. So even on those sort of fairly sort of crude simplistic metrics, we believe the solar plant makes financial sense. Clearly, from a carbon emission reduction basis obviously makes sense as well. So I'll be honest with you, Alan, we -- when we committed to it, we didn't factor in those carbon costs at that time. It was more of a rudimentary sort of framework around NPV/IRR of the individual investment.
Okay. That's fine. And last one is for Ross, and maybe you'll just tell me to wait a couple of weeks. But in terms of that higher stripping ratio in the open pit and the higher amount that was capitalized as opposed to run to the P&L, can you give us a rough dollar million range of what that cost transfer was?
Yes. I will ask you to wait on the financial side of it in terms of where the additional tonnes have gone in terms of the financials. Sorry, we're not releasing our balance sheet side of it. But the additional costs in the tonnes, it's all on track in terms of tonnes that have gone through. It's the additional cost that's gone through from a fuel input side that has also added to that, I guess, the ratio that's capitalized and the costs that have gone through on the stripping program, yes.
The next question today comes from Raj Ray of BMO Capital Markets.
My first question is on your -- just a follow-up on the waste stripping in the open pit. If I'm not wrong, first half of the year, you were slightly ahead of where you expect it to be. Just wanted to get a sense of if you can give us some estimates as to how far ahead are you with your waste stripping program in the open pit. And then on the underground, it's a nice pickup in grade. That's so good to see. How much flexibility now do you have now to be able to maintain grades around what we saw around in Q2?
Okay. Raj, I hope you are well, mate. Look, I think maybe I'll take the second part first, if that makes sense. So from an underground perspective, look, I think that's one of the things that we've been working hard at. And I think from Alan's question previously, I think that does link back into this sort of -- there's been a lot of work over the last 12, 18 months of sort of improving operational flexibility. And it's not always obviously apparent when you're looking at ounces and tonnes and so on. So I think as we mentioned on the open pit, they're now starting to see the benefits, if you like, of that sort of operational flexibility now opening up sort of those new areas or rehabilitating existing areas and allow us to get back into them.
And I think it's a similar situation in the underground, Raj. I think one of the things that we've worked incredibly hard at is to make sure that we have operational flexibility in the underground, is that we've always got multiple stopes online, that we've also then got -- trying also to make sure that we've got development into areas well in advance and those areas opened up and can be quickly accessed as required. And then at similar times, we're also then, in parallel, making sure we're pushing on for that medium to long-term view as we head down to sort of Top of Horus. And Horus is a long-term trajectory as well.
So I think where we sit today in terms of great and full coverage across the underground stopes, availability of stopes, both production stopes and multiple stopes at any one time, develop sort of areas with the -- in the sort of time horizon and at long term, I think we're in a much better position as well that we're able to have some pretty reasonable operational flexibility. And I think with that in mind, that then does give us the chance to sort of roll with the punches as they occur from time to time and make sure again we get back to that compliance to plan, that we can then deliver the tonnes and grade that we want to as we go forward.
So look, I think very much from an underground perspective, I think we're in a much better place now to understand where we need to be in terms of delivering against plan. And I'd say that's probably the same across the open pit as well. That's improving. The open pit is probably a little bit longer to get where we need -- really want it to be but make great strides across both of those areas of the operation.
In terms of the open-pit stripping, yes, look slightly ahead. Look, there's been a bit of improved productivity in the open pit. There's been some good operational performance by our own fleet. Delighted to see that coming through there now. There are a number of initiatives that we're focused on in terms of digging rates and lightweight truck trays and so on. And we are actually sort of starting to see our own fleet perform quite nicely. And then, of course, on the waste stripping contract, that also is moving along nicely as well. So look, I think in terms of the ratio, I think we're sort of targeting around about sort of -- that sort of 10 to 11:1 strip ratio for the year. So we're kind of slightly ahead but in line where we plan to be. And I would imagine that sort of 10 to 11:1 strip ratio should now continue to the second half of the year, Raj.
And then on the underground, you did talk about some additional optimization initiatives. Is there anything specific that you can highlight that you're still working on that could deliver further improvement?
As in the underground sort of expansion studies?
No. You do say that you're looking to optimize the operations further and then underground. So...
Yes, yes. So well, there's a couple of things there, Raj. So in the first instance, we do have a pretty full now delivery of underground equipment coming through over the second half of this year and into early next year. And that's a combination of new and refurbed equipment to come through, so as to give us a better sort of operational availability and therefore consistency around operations. So I think there's a bit of work to do around the actual equipment. And I'd say we've got a -- I think we've got nearly 20 pieces of various bits of equipment on the water or due to be delivered between now and the end of Q1 as well. So I think that trend, that will give us better availability, therefore better productivity, and then on a unit rate basis, better costs as well as we go forward.
So on one part is that kind of operational sort of improvement as we look to sort of deliver that new equipment. And then more broadly in parallel, of course, with the sort of resource extension work and success we're having as evidenced in that press release that we did a couple of weeks back is that we still got quite a bit of confidence in the future sort of growth of the underground resource, which we believe obviously will then support improved reserves, and then in parallel with that, the ability then to sort of increase production rates in the underground.
And I think sometime during the third quarter, we'll be looking to share the outcomes of that first path underground expansion work that we've been working on with an Australian group out of Perth, various sort of options that we can look at around increasing underground production rate. I think it's going to come down to a sort of a trade-off between sort of capital light for x number of tonnes or ounces increased due to some sort of heavier CapEx numbers, which might see a bit more of a [ transformatory ] approach to the underground but a significant cost and maybe some technical challenges. And I think what it will come down to is being in the sweet spot between capital versus production trade-off and then sort of technical risk to make sure that we can implement those plans on a sensible basis as well. But I think that work will come out in Q3, and that's moving along quite nicely and some interest in it is coming out as well.
So I think it's a combination of, Raj, focusing on operational sort of performance, getting back to the standards, the benchmarks we want to set in terms of equipment productivity, availability and general productivity in underground, in parallel then, those technical studies to look at how we can potentially sort of increase and expand in the underground as well.
And one last question for Ross, if I may. So looking at your capital guidance, close to 62% was spent in the first half. For the second half, of the remaining capital to be spent, is it possible to give us some idea of what the nonsustaining versus sustaining split is?
Yes. Basically, the residual, we're still targeting the remaining $225 million. And that's basically a 50-50 split across those 2 in terms of where we sit and see that unfold, Raj.
Our next question today comes from Oliver Grewcock of Berenberg.
Congrats on another good quarter, guys. Do you expect to make up the 1% drop in recovery rates versus 2021? And where are you seeing the most inflationary cost pressures at the moment?
Thanks, Oliver. We'll start maybe on the network. Look, I think the network is -- actually, some interesting work being done there now. Our new -- well, he's not that new now. He's probably been in the seat for about 6, 7 months. But our sort of relatively new general manager, Gustav, is a metallurgist by background.
And I think, obviously, there's been a lot of focus on initially the geological framework, in parallel, the sort of the mining performance in open pit and underground over the last 12, 18 months. And I think what we're seeing now is with Gustav joining, looking at -- very critically at the current operations and how can we improve, we've got a number of test work programs that are actually underway, looking at use of oxygen, looking at sort of our flotation response and use of reagents and how we can look to optimize that and even sort of potentially looking at gravity, does a gravity circuit have a role to play given the sort of the nature of the underground ore body, and even the open pit to a certain extent, if you sort of look at high-grade zones that come through there, and can we look to optimize that as well.
So I think there's quite a lot of sort of in-house test work programs that have sort of been underway in the last few months. And I think they will run over the second half of the year. And I think we can anticipate at the back of these, looking at sort of better reagent control, better productivities, looking at cost control and also alongside that potential for sort of the recovery improvements as well. So it's something we're actively looking at.
I think in terms of the performance today, it's a little behind where we'd like it to be. I do think we can get it back to where we would like it to be for the year and in line with previous performance, around that sort of 88% to 89% at this stage. And depending on how the test work close out, maybe we can even see that sort of increasing as well. But let's not front run that. Let's get the network test program done as well.
So that's on the network side. And Oliver, the second part of the question was where do we see most sort of inflationary pressure coming from a cost base perspective?
That's right.
I was going to say, Ross, do you want to -- I was happy to hand that across to you. Ross, do you want to take that one?
Yes, no problem. Yes, Oliver, yes, you're absolutely right in terms of input costs across the business. I think they're being well managed. Particularly pleasing was our cost metrics in open pits and underground. In terms of inputs and inflationary pressures, that's really those consumables and particularly the fuel price that we're a big price receiver of in terms of input. So from a processing perspective, we've seen an increase in our costs driven by that fuel price but also other consumables and reagents that we've seen impacting.
We had built-in inflationary pressures of 6.7% in terms of the budget. Egypt inflation is running higher than that circa 15% in the last quarter. So we are seeing those flow-throughs, but we're able to manage it at the moment with debt and sort of maintain those guidance ranges. But it's really the input costs on processing and particularly fuel that are the major drivers.
[Operator Instructions] We have a question from Daniel Major of UBS.
I think most of the sort of near-term operational questions have been asked, but a couple of sort of extras. If we -- well, firstly, on the solar plant commissioning, can you give us a reminder of how much that would reduce your diesel usage from? And will that kick in kind of from Q4 after the commissioning?
Sorry, I was on mute there, Dan. Apologies. So yes, at the moment, we're stating for the ramp-up as -- well, commissioning and ramp-up of solar over the third quarter. Obviously, it starts off with a sort of initial power, and then obviously, as we bring on the various sort of elements online, going full [ chat ]. So yes, you could sort of, if you like, assume that sort of from Q4, that, that will be at full capacity as we move forward.
In terms of the solar itself, I think that's about 36 megawatts. Obviously, it's got a 7-meg battery in there. And in terms of that, that gives us approximately about a 50% reduction on our fuel cost for power generation alone. Obviously, this will be a fair amount of diesel in the mobile fleet as well. Ross, in terms of our actual diesel consumption, but in terms of liters that the solar will bring onstream, just looking to see if I can get the exact number, Ross. Off the top of your head, have you got a -- can you remember the...
Daniel -- that's right. So Daniel, the easiest way is that it's circa 22 million liters of fuel that will be extracted from our current system on an annualized basis from this first phase of solar. So it's 22 million. And our total consumption across site this last year has been budgeted at 200 million liters of fuel. So it's 10% of the overall usage. It's more like a 15% of that power plant usage that we're going to be utilizing.
Got it. So it's around 10% reduction in group diesel consumption? Okay.
That's right, across all of them.
Yes. And then I guess a couple of questions and maybe slightly preempting the capital structure review in the third quarter, but I guess, yes, lower gold price environment we're seeing at the moment, inflationary kind of pressures squeezing, look-forward free cash flow. Would it be right to think that given the balance sheet position, the capital structure review in Q3 would imply that you'd support the dividend at a higher level than the free cash flow in 2022?
Look, I think in terms of -- not going to front run, but obviously, the dividend is a -- the Board, we obviously got ostensive framework, and then obviously, it's a Board level discussion. I think the sort of the capital review is really sort of slightly forward looking that is it appropriate, and can we put some gearing into the balance sheet. And that's also in terms of whether that's short-term sort of funding of individual capital projects, but more importantly then, forming a core bank group that will then give us some more flexibility as we look to things like Doropo, West Africa and then potentially down the track sort of further opportunities for inorganic growth as well. So I think that's one element of it.
I think now with long-term plans that we have in place and with those optimization studies to come through as well as how Sukari can look back and can give a better handle on how we see the sort of the future cash flows and then with our balance sheet as well. And I think being able to sort of blend a combination of our balance sheet, forecast future cash flows, availability of potentially of a credit piece in there and then also our growth plans, it allow us to then round out what are those moving parts in the range of gold and the gold price and the commodity and OpEx inputs and then look at what through the cycle is a sensible dividend policy that we can maybe even maintain for the long term.
So really, I think that's how we're thinking about the capital structure review. It's about sort of putting those individual elements into a framework, into a matrix, sitting down as a group and working out what we believe is a long-term sustainable business model, where we believe we can deliver both growth and yield on behalf of Centamin shareholders as well. And it's understanding how do we deliver that growth, what are the costs associated with that growth from CapEx projects and so on and then what is a sustainable yield on a medium-term basis or through the cycle basis that we believe is, one, sort of maintained our sort of some robust record on dividend payments to one that's sustainable through -- on a long-term basis through the cycle as well.
So not wanting to sort of preempt that too much at this stage, Dan. But that's how we're thinking about that. of being able to pull that together and then lay that framework out for investors so they can understand how we see the business, what the constituting parts are and then people can start to understand how we're viewing those other elements of growth versus yield and how we balance those out using the combination of balance sheet and potentially debt as well.
Okay. I guess we'll wait for more clarity with the capital structure review. And yes, a final question, again perhaps preempting second half news flow, but just a follow-up on your comments around the underground expansion options and tying that in with the exploration results you recently published. Is it fair still to think about the parameters of the underground expansion sitting somewhere between what you previously disclosed, this 1.5 million tonnes in the resource -- sort of resource conversion case and 1.875 million for the expansion case. Should we still be thinking about it within those sort of parameters? Or could there be more potential upside to the sort of throughput expectations from the underground?
Yes, yes. Look, I think we're still working through the underground expansion sort of work streams with the external consultants we're using on this. Look, I think the reality, Dan, is that kind of lots of things are possible in terms of all the way at one extreme from sort of using existing infrastructure, sweating it a bit harder to come up with an increase, all the way through to sort of putting a shaft in if one has sort of lots of confidence in the underground growth, but then looking at sort of CapEx and sort of technical risk associated with that as well.
So I think what -- certainly, the way the direction travel, the study is going is going to be a range of potential, if you like, technical solutions that can increase sort of tonnage out of the underground. And of course, that tonnage might involve therefore a dropping of the cutoff grade, which means that although tonnage is going up, it's not exactly at the same grade. So it's not directly in a relationship now with the underground.
You then got to look at what's the CapEx associated with each of those, so if you do like technical solutions. And once you get a handle on the CapEx of each of those, is it kind of the technical risk, how confident are we that we can actually implement those plans and meet them. And then there's this the sort of straight economic analysis of is this something that we believe is best use of funds or what within that continuum of outcomes we believe is the best outcome for Sukari at this stage as well. So there's a number of sort of moving parts within that.
Look, from our side, look, I think currently, we've got a capacity to about 1 million tonnes of ore to surface from the underground to complement the open pit and stockpile feed. And certainly, I think we looked at a sort of 25% to 50% uplift of ore feed to come in. Now, obviously, more ore is going to mean you develop more waste as well. So I think when we'd look at those expansion studies previously, there was obviously an increase in total material move, but that then helps or helps to factor in additional waste mining to support the increased ore mining rates as well. So I think anywhere between a 25% to 50% increase on ore tonnage from underground, I think, is potentially possible. I think that will come up potentially at the upper end, slightly lowering of the cutoff grade, obviously now because you're mining more efficiently. That might have a little drop then in terms of delivered grade surface, but obviously still increase the ounces there as well.
So I think in terms of sort of -- not front running that, but I think that's the sort of increase, I think, sort of a median case sort of midway to that range of 1 million to 1.25 million, maybe as far as 1.5 million tonnes per annum could potentially be sort of -- of ore could be taken from the underground, and then recognizing it would be a commensurate sort of increase in waste mining as well as we look to sort of push additional development and thereof additional stopes to support that increase in mining.
But yes, so it's quite a new instant balance trade-off between these various CapEx versus operating versus technical implementation risk. With other opportunities, could we go electric on the underground, that's got some quite interesting sort of implications around sort of productivity, ventilation inputs, cost inputs. You're then looking at increasing depth as we get down to sort of Top of Horus as well as and thus the geotechnical implications for how we work underground. Clearly constructing the paste fill plant right now, that's going to serve capacity as well. So it's a bit of 3D chess effectively.
But I think without sort of front running the news out, I think we definitely see the opportunity to increase the underground, their production rate. We think the resource and reserve are there to support that. We think we can sort of do that in a sensible CapEx framework and deliver a balanced technical risk associated on that. And the question is where will that continue, do we want to position ourselves of those sort of trade-offs as well. So yes, the work will progress. And I think that's certainly a bit of an early guide as to where we're sort of thinking around that way on how the underground expansion could look.
Thank you. We have no further questions on the conference call, so I would like to turn the call to Michael Stoner for any webcast questions.
Thank you very much. So there's been some questions on the solar power plant, I think we've now covered off. So there were maybe the revised guidance on all-in sustaining costs coming in at the upper end of the previous range. How significant is the oil price in this revision? And does this make connection to the grid of kind of a favored option for reducing energy costs?
I'll probably pass this one to Ross. I would say -- this is not to embarrass Ross. I think Ross, when he and the team sit down and put the budget together for the year, I think put together a -- I think at that time it was released in December, it seemed to sort of catch a few people by surprise. And I think through January as other people put out cost guidance, I think the market woke up to the reality of inflation. So I think Ross and the team, not to embarrass him, did a very good job of looking at a very sensible and realistic budget back in December, January of this year.
And I think that sort of within those scenarios, we saw obviously a number of potential moving parts. I think they were considered as part of that sort of guidance that we set. So I think it's testament, one, to sort of Ross and the team in terms of setting out genuine, realistic and honest, credible sort of guidance. And then I think it's a credit to the team at site to be able to perform, remain cost-conscious inside of this sort of macro inflationary impact to try and sort of maintain more on the ounce production and then also the cost control in absolute terms to make sure that we can meet that as well.
So that's just -- from my seat, that's looking at sort of both sides, to be honest. But maybe, Ross, from your side, maybe to answer Michael's question.
Yes. Thanks, Martin, and thanks for those comments. Certainly, the rise in oil price is a big factor on those costs that have gone through. As we put the budget together, we had used $0.60 a liter in pulling those metrics together. Our average realized price for this half is closer to 80 -- or just over $0.80 per liter. So there's an additional $20 million that's spent on fuel that's flowing through. We have seen the oil price rise during the period, and we're looking at it and thinking that it's sort of peaked and starting to set. Also, as we navigate this next 6 months or the second half of the year, that's going to be key in terms of how we navigate that.
So we've done our modeling going forward on it, and we still believe that we'll be within the range but we will be towards the top end of that range if the sort of current oil prices persist. And that's a major chunk of that -- those cost metrics that go into. Solar coming onboard will partially offset it and absolutely tie into power. And grid power going forward will certainly be key in terms of longer-term offset of those -- that diesel usage and power cost.
I think that's right, Ross. And look, I think just as a bit of a macro commentary, Egypt itself was actually in a power deficit back in 2014. And the government then at that time basically set -- the Minister of Electricity, Dr. Shaker, an ambitious target to basically get Egypt out of this rolling sort of blackout phase. And I've got to say, absolutely astonishing. Over the course of 8 years, Egypt has come from being in deficit actually now to being in surplus. They've built 3 of the world's largest gas sort of power generation turbines with Siemens, each one about 4 gig and they've built it concurrently and delivered that.
And of course, Egypt then has a significant sort of natural resource as well around solar, standing wind from the Red Sea and, obviously, the hydro from the Nile as well. So Egypt not only has sort of managed to go from the deficit to a surplus of power. I think the target is by 2030, I'm going to say, is that some 40% of that is targeted to be power generation from renewables to complement the gas generation that they have from their own domestic gas supply as well. So look, I think there's been a big push on from power generation in Egypt. They actually supply now to Saudi Arabia. There's a talk of them putting into -- connecting into Europe as well. So obviously, power generation has been a big focus for the Egyptians.
And then, of course, with that as well, they've also invested significantly in the distribution network as well. There's been a significant increase in the power distribution network within Egypt, and hence, this ability now that -- relatively close to the mine itself, along the Red Sea Coast, there is now a high-voltage power line in place that has capacity as well. So early days yet, but with that line now being commissioned and with that surplus within the grid, we've just started, very recently engaged with the government around potential to connect Sukari to the grid.
So one can envisage with solar coming on, the sort of future potential solar expansion, but also a connection to the grid will be significantly cheaper than diesel and away from the cost basis as well, given the makeup of both gas but also renewables in the Egyptian sort of generation network as well, a significant reduction in overall carbon emissions as well. So early stages yet, interesting and promising discussions, and something that we'll update on in future calls as well. But we think there's some big sort of both cost and carbon implications of being able to do that.
So we've had an immediate follow-up question on that on rough time line and cost for grid connection. It might be a bit too early for us to answer this. But can you...
Yes, look, I think that's right. Well, look, look, far too early to tell about sort of time lines and costs at this stage. We are just sort of negotiating, and we get -- well, starting to have the first initial discussions, not even negotiating it, with government around this. All I would say is that sort of Egypt has gone through this significant expansion of the grid infrastructure and therefore is very sort of tooled up and experienced in developing sort of power lines sort of within Egypt itself. They're very well set up in terms of doing that. So it's not like it's run-of-the-mill business for them on that basis.
And if you think geographically where we are, we're some 20, 30 kilometers from the coast. So it won't be a particularly long -- any connection if we're able to negotiate it, it's -- we're talking in the order of a few tens of kilometers of connection into the existing high-voltage line and potentially with a counterparty that has just built a new order of several hundred kilometers of high-voltage power lines. And of course, we have an existing easement with our water traction pipeline from the Red Sea to site as well where we've got that pipeline.
So to my mind, with my engineering hat on, it's not particularly far with an existing easement that we run a pipeline down and with a counterparty that's just doing 700 kilometers of this type of work. It doesn't feel at this stage to be technically particularly challenging. I don't think that's going to come down to sort of negotiation with them about when we can start, how long it will take in the task. But it doesn't feel like it's a particularly challenging sort of project to execute.
Thank you. So still on cost-saving initiatives. Away from power, what other initiatives are we working on to try and offset the inflation we're seeing?
Well, obviously, I think COVID -- and I'll pass it to Ross. I think interestingly, COVID, I think set us up, and one sense of this is that during the initial sort of outbreak of COVID, then looking at multiple suppliers, multiple different sort of chains and so on. So I think there's a bit of work around sort of looking for -- or to diversify the supply chain. I think things like productivity shouldn't be underestimated. Can we sweat the existing fixed cost and variable costs that we have and get better productivity out of our equipment, and therefore on a unit tonne basis sort of look to improve on that basis as well. And then some of these bigger ticket sort of items as well, solar expansion, grid connection, improvements in the processing circuit and so on as well.
So I think it's a multipronged attack. I don't think it's any one silver bullet going to come through there. But I think it's going to be a combination of focusing on those input costs, careful use of any sort of reagents, consumables and then productivity gains are going to be the general sort of suite of inputs.
But Ross, from your side in terms of the -- sort of some of those drivers, those cost drivers we're looking at.
That's right. And we'll be able to give more color on it with the full year half, but -- and sort of debrief on the cost reduction strategies. But you mentioned that it's a focus on those key drivers, particularly in the processing and supply chain in terms of all the consumables, input, freight, et cetera, and negotiations with suppliers on that front. A lot of the productivity investments have been made. The lightweight truck trays are largely installed now. We will be completing that program. But we'll be able to give a more fulsome update at the half year and provide some insights in terms of those costs.
Needless to say, they're numerous initiatives and the guys on the site of across the board are on those efficiencies. And they're all adding up to help offset some of these headwinds that we're seeing with inflationary pressures. So I think we're well set with it. And a large number, the larger projects, we've actually invested in and now it's seeing the benefits come through.
Thank you. Okay. Off cost inflation now. We've got a question on how the airborne exploration survey has been going and when we can expect...
Great. So -- sorry, Michael. Look, it went well. It was finalized through April, May. And the helicopter and the team have demobilized away from site as well. So obviously, we focused on the initial sort of 160 square kilometers of the Sukari mining concession. So the physical work in terms of flying the area, checking that data for quality, QA/QC approvals, that was all completed through April, May. And then through June and the first half of July, it's been a combination then of effectively sort of post data gathering, processing, interpretation of results as well. So we're hopeful through the balance of July, we should then start to receive as a company the sort of the process results from that and then really start to try and interpret it and understand what information is given us and what the implications are from Sukari.
So with that work due to be completed sort of over the course of next month, I would imagine that over the balance of this quarter, we'll be able to update more broadly how that's going and what it sounds. And I think, obviously, the implications for the Sukari mine itself, has any new targets emerged, but I think also, it gives us a really interesting data set to understand what is the signature response or the fingerprint of the Sukari deposit, what does that tell us more broadly about sort of gold sort the formation -- the gold deposit formation in this area and what are the implications for a broader exploration portfolio across the data well. So yes, that works live right now coming in sort of in real-time. And I would expect over the balance of the quarter, we'll be able to have a bit more update on that work stream.
Thank you, Martin. So final question from the webcast. Are we able to discuss capital allocation and expectations from here. Probably flag the capital structure review which will be coming through in the second half of this year, that might be a bit too early to dive into this. But, Martin, maybe if you could mention a quick word on growth and kind of returns?
Yes. Look, I think as I mentioned to Dan's question earlier around that, I think there's a lot of moving parts within that. And they're all linked strategically what you want to do. And we talked about delivering both growth and yield, so what are the requirements for the growth aspect of the business, what do we need to spend, what do we need to invest in order to deliver that growth. Then you've got the sort of cash flow from operations, and we're looking to further optimize and maximize the value of those cash flows. How do we get a long-term sustainable confident sense of cash flows from production and cost control, that's one element to it as well.
We've then got our balance sheet strength that sits at this stage. And then this sort of concept of can we form a bank group, that then gives us a strategic relationship with a group of core bankers exactly as well. And once we understand those parts of the sort of the equation, as I say, we can then look at sort of understanding what is our -- what are the opportunities we can look at and what's the framework with which we'll screen the opportunities and how does that sort of growth piece trade off against the yield piece going forward, and as I mentioned before, what we believe is a sustainable yield on a through-the-cycle basis given the long-term plans that we have for Sukari, given those growth aspirations that you have within the portfolio at this stage and not solely relying on cash flows and balance sheet to be able to deliver that. Can we do that a little bit more smartly and effectively as well?
So that's the kind of framework we're thinking around. I think it's clear that there's not going to be any rollback or step away from the dividend. I think that's obviously been a core piece of the Centamin story and the success of Centamin. I think that remains very much of the Board's view at this stage. And the question is how do we frame those sort of opportunities around that sort of commitment to the dividend as well. So I think more will come later in the half, as you say, Michael. But that's the sort of framework we're thinking around as we go forward.
That's it for the Q&A. But if I could just loop back and hand over to Ross to clarify one point on the 2022 dividend relating to Dan's question.
Thanks, Michael. Yes. Just to clarify on Dan's question. That $0.05 dividend, that's the minimum dividend that we had flagged for the year. So appreciating we can still go through the capital allocation review, looking at dividend policy and how that all unfolds and acknowledging it's a heavy year of investment in terms of where we are with the free cash flow position. We flagged to $0.05 as a minimum dividend for the year and we'll see how that unfolds whilst we roll out the RCF facility, the capital allocation review and this balance across dividend growth.
Okay. Thank you. That's it from the webcast.
Well, thank you, Michael and Ross, and thank you, everybody, for listening in today. And maybe just to conclude then, look, I think a very good quarter rounding out a good first half of the business. I think the key metrics of operational delivery and compliance to plan with the watchwords at Sukari. And more of the same, please, in the second half of the year from the team, which I am every confident we'll be able to deliver. And hence, allowing us to maintain that both production and cost guidance as stated.
And I think finally, I can say that sort of with that operational consistency at Sukari coming through now and underpinning the business and sort of 12 months of some pretty interesting work in the background, really looking forward to a really strong sort of pipeline of what I believe will be a "news flow" in the second half of this year as some of these key initiatives drop, which allows us to look at sort of future production growth and longevity, in light of strict cost control which will drive those cash flows and then form part of that loader framework around diversification and also growth in the year as well.
So I think a good finish to the half, good momentum into Q3 and very much looking forward to the balance of the second half of the year as we continue to push on that sentiment. So thank you, everybody, for your time today. And with that, I'll hand back to the operator. Thank you, everybody.
This concludes today's call. Thank you for joining. You may now disconnect your lines.