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Hello, everyone, and welcome to today's Centamin Q3 Results Conference Call. My name is Emily, and I will be coordinating the call today. [Operator Instructions] I now have the pleasure of handing the call over to our host, Martin Horgan, CEO. Martin, please go ahead. .
Thank you very much. Good morning, everybody. I hope everybody is well, and thank you for taking time to dial in this morning to listen to this presentation. I'm Martin Horgan, as you know, CEO of Centamin. And on the line today I'm joined by Ross Jerrard, our CFO, and Alex Barter-Carse, Corporate Comms. I think -- today, we're delighted to please -- I'm pleased to announce another solid set of quarterly results. I'll put my feet back in, apologies. And I think it's important to the messaging as we look at this year, as we look to reinstate our operational consistency at Sukari as we're looking to sort of build back that record of delivery to restore investor confidence. I think when we look at the quarter, importantly for us, both production and costs were delivered in line with our schedule and budget. We produced 104,000 ounces at an all-in sustaining cost of $1,266 per ounce, bringing the year-to-date production for the 9 months to just about 308,000 ounces at an all-in sustaining cost of $1,197 per ounce. In terms of our full year guidance, that remains unchanged at the range of 400,000 to 430,000 ounces. And as we look into Q4, we'll be targeting the midpoint of this range at around 415,000 ounces. On the cost front, we have seen some inflationary pressures coming through. But importantly, all of these cost increases have come within sight our producing limits. Also operationally, we have mined more tonnes than planned, which is positive, but this has come at a cost. Nevertheless, we remain fairly on track to make cash costs and all-in sustaining guidance. And with our continued progress across the cost-saving initiative program, we are targeting the lower half of our 2021 guidance range, which is $800 to $900 per ounce cash cost and $1,150 to $1,250 per ounce all-in sustaining. Both free cash flow and revenue generation were ahead of budget, driven by stronger gold pricing -- gold price and higher gold sales. With Egypt coming off the red list for the U.K., but Ross and I, just spent a very productive couple of weeks on site and across in Cairo with various ministries. Operationally, alongside delivery, our focus remains on improving the mining flexibility and delivering our improved operating efficiencies and productivities across the asset. And this quarter, we've made some good progress against our stated plans. Firstly, we are always striving to create the zero harm workplace. And this quarter, we're delighted to announce there were no recorded LTIs resulting in 0 LTIFR across the group. The open pit performed well. We continue to perform -- outperformed budget. And over the quarter and year-to-date, the collective owner operating contract mining team is 17% ahead of the scheduled plan for waste stripping program. We're really pleased with the performance of our own team and fleet and the speed in which capital have ramped up to a steady state that they find themselves at now. Underground performed in line with plan, and we continue to make good progress with the independent underground contract tender process we're undertaking, and we're assessing that from both a risk and cost standpoint and also against an owner operating model. On the processing front, we saw improved feed grades, driven by an increased contribution from the high-grade Stage 4 West section of the pit. While million tonnes were down on an average quarter at 2.9. This is because we carried out scheduled relining and some maintenance works during the quarter. In terms of the capital and strategic projects, they're all moving forward as planned. You'll note the uptick in CapEx during quarter 3. This is on schedule and good progress to be made across our key projects, which include the solar plant, the paste-fill plant and TSF2, which all remain on schedule. In terms of COVID, we retain a watching brief. Our full COVID protocols remain in place, and we're pleased to report that Centamin has not experienced any material COVID-related disruptions to our production sales or supply chain. Now as we look forward, our focus remains on completing the life of asset Phase 2 work stream, the results of which we look to announce on Wednesday, the 1st of December. And that will include an updated resource and reserve statement, visibility beyond the current 3-year outlook and areas of further optimization expansion potential for us. I think as you've all have heard me say repeatedly, I generally believe Sukari is a world-class asset with an excess of a 10-year life of gold production ahead of us. The conclusion of this extensive independent work have identified areas for improvement, but importantly, provides us with a long-term base for long-term planning decisions to be made, looking to maximize the operating margins and driving free cash flow generation. And with that, I'd like to open up to any questions that you may have.
[Operator Instructions] Our first question today comes from Alan Spence from Jefferies.
I got 2, sort of take them one at a time. And the first one is, the throughput in the processing plant didn't really improve much in Q3 despite the fact that Q2 had that 10-day shutdown. You highlighted in your opening remarks some additional maintenance work that went on during the quarter. Does that effectively offset the 10-day shutdown? Or can you just speak a bit more about the plant performance during the quarter?
Sure. So Q2, that was a fairly major piece of work. That was the girth gear swap out, which has been on the books for some time and that was the sort of the extended shutdown in Q2. So that was a fairly significant piece of work as you can appreciate, that have been sort of slated to do for the last couple of 3 years. So we sort of grab the neck in Q2 and got on with the girth gear. Q3 was around the standard reline. That was the main piece of work that we did. And we've also taken the opportunity, Alan, to remove the rubberized lining at the back of the mills and replace this with a poly spray, which is better sort of long-term durability and operational performance than the rubberized back that are traditionally used in place as well. So in terms of the Q3 shutdown, that was for a slated standard sort of reline, but also with this additional poly spraying as well. Once that done now, that sets us up for the medium term as well. So again, it's about sort of putting the timing now taking a small, slight knock at this stage, but it does obviously then have significant benefit down the track as well. So look, I think in terms of the overall plant performance during the quarter outside of maintenance sort of -- or planned maintenance shutdowns, I think it was good. Lots of work being done around preoptimization to look at both increasing gold recovery and reducing cyanide consumption, look at sort of return water quality and how that can be improved to sort of improve flotation recoveries as well for some good initiatives on that basis. And also looking at some other relatives around sort of captive oxygen supply and potentially looking at that as a project on the track as well. So I think the processing plant, operationally, the guys did well, a number of sort of optimization studies and opportunities that have been investigated and continues to perform well as well. So pretty happy wet processing at this stage, Alan.
Okay. Is there anything for Q4 we should be thinking about?
No. We've got 1 reline scheduled for December, and we're looking at that. We'll obviously monitor the wear rates as well. And that may either happen in December or maybe push back into January, but that will purely be driven by how we see the wear on the plates as well. Obviously, we're not going to bring a reline forward if it's not necessary because of the work rate, the wearing is at that point as well. So that's the only thing in terms of the processing plant from a sort of we like a bit of optionality is that when will we decide to basically pull the trigger on that reline. But otherwise, it should be a fairly sort of vanilla quarter from the processing plant perspective.
Okay. And then the second one is just around the contractor tendering. Can you just remind us of the time line when you expect to have a decision around that?
Sure. So it's a process we kicked off during the first quarter this year. We put together a tender pack with the support of an independent third-party contracting expert. We went out to 3 accredited well-known international groups during the year, end of the first quarter site visits, submissions of tender offers, clarifications back and forth around that. And we anticipate putting that all together with the preferred tender and then taking that from both a sentiment, but also importantly, from our partners at EMRA, at the asset as well during the fourth quarter as well. So I would anticipate at the end of this year, early the start of next year, we'll be able to sort of lay out the route forward in terms of how we're going on the underground. And as I say, sort of the 2 options are continuation of the contractor model using an internationally recognized and respected contractor or potentially looking at moving to owner mining as well. And obviously, the implications for us are capital costs, risk allocation, execution flexibility versus sort of outsourcing as well. So we'll look at those in the whole and look at those as a trade-off and we should get that done by the end of this year, and then we'll look to update early next.
Okay. So probably not a final decision on that for December 1 then?
No, no. I think that will flow into the early part of next year as well. We've got a Board meeting to be done, Alan, sort of planned for the mid of December. And that's one of the topics there as well. We've been keeping the Board up today all the way through this last 8, 9 months as we've gone through the process. But in terms of laying out the final sort of trade-off and recommendation that will be done mid-December. So subject to that, then also discussing it with our partners, with EMRA. I could envisage sort of early part of next year, we'll be able to update the market as to which way we go.
Our next question today comes from Daniel Nature (sic) [ Major ] from UBS.
Firstly, can you give us a reminder of your energy exposure within Egypt in terms of exposure to electricity energy costs, any hedging or diesel exposure and the cost pressures you expect to face in the coming quarters from the sort of global energy squeeze?
Sure, sure. So look, from a technical perspective, we're currently wholly reliant on diesel. So we use diesel, obviously, to power the mining fleet, both open pit and underground. And also, we use diesel for power generation as well. So if you like, when we look at the energy mix today at Sukari, it's entirely linked to diesel. You're probably aware, we're building the solar plant, 36 megawatts solar plant, which will come on stream middle of next year. And that obviously will take a significant part of our power generation sort of both costs and dependency on diesel out of the equation from there as well. So at this stage, until the middle of next year, we are wholly exposed to diesel for both power generation and fleet operation as well. Ross, in terms of our annual diesel spend, in terms of the either liter or cost, Ross, maybe you want to just sort of touch on that and how we budgeted at the start of the year for sort of anticipating some cost inflation in this area.
Sure. Daniel, we spend -- well, we consume about 160 million liters of fuel across the mine on an annual basis. We have seen some uptick in the fuel price. So we started the year at about $0.44 per liter. That has been increasing. This year, we're currently sitting at about $0.54 per liter, that's a government stipulated price. So we aren't able to influence that price in terms of import costs, but it does sit within our budgeted ranges for this year. But it is a watching brief for us in terms of price increases until. But as Martin mentioned, the solar comes online next year, we've got the ability to offset some of that. So the solar plant will save us those prices in excess of $10 million a year against that fuel spend. More broadly, there are inflationary pressures. The inflation has been increasing gradually. We have built in 5% in our budget. That has been increasing in Egypt, 4.5% up to 5% and the September quarter saw 6% inflation rates. So again, cost pressures on the business. We are watching it closely, offset by our cost savings initiatives, but we are seeing some pressures come through the supply chain, but nothing that's sort of alarming us or not -- we believe we'll be able to hit those cost metrics for this year and are within those budget metrics.
And if you think about -- well, actually 2 questions, follow-ups. When you get the solar plant online, what proportion of the diesel power will that account for?
So that's...
Ross -- sorry, you can carry on, Ross. Apologies. Carry on.
Yes. So that's just a partial offset. So we'll only be able to run it for that 8-hour days. So there's no battery storage and a very limited battery storage solution. So it's basically a sort of 15% reduction that we'll see.
Any sort of sense of -- out of your 160 million liters of diesel consumption, how much of that come down by all else equal because of the solar plant?
Yes, sort of 15%. So you have 20 million to 24 million liters that will come off that 160 million, yes.
Yes. Got it. Okay. And when we look at the costs in 2022, given, I guess, the delayed transfer of some of these inflationary pressures, is it fair to assume we won't -- relative to the previous guidance, it would be towards the upper end of the range in terms of cost of 2022 as you look at it now, looking at those increase in inputs?
I think it's going to be well managed. We're currently working with our suppliers to lock in longer-term visibility on some of these costs, and that's part of these cost-saving initiatives. So there's nothing particularly out there that I'm concerned at this stage. I think the big one that we're really watching is the freight costs and transport. We've seen a big uptick in containers and the shipping costs that are coming through. So that's one to be managed. Again, probably not big on the cost base, but that's the one cost center that really we're seeing a major uptick. The longer-term supplies and things, I think we're going to be able to navigate that. So nothing that will push us from the lower quartile to top quartile, but we're certainly going to have to manage that. And that's why the cost-saving initiatives are so important across the business to be able to extract a big portion of costs out of that base.
Okay. So is it fair to assume...
Some of it helped us in terms of local supply -- sorry to cut you off there. We've been able to move a lot of the international suppliers into local supplier base, which has been good, and that's also been able to help us. But at this stage, nothing that's going to change our previously stipulated cost guidance.
Okay. So it's fair to assume certainly costs won't be rising next year, should be sequentially lower. Is that fair on an AISC or a total cash cost basis?
That's right. So together with the increasing ounce profile and the lowering cost base in absolute terms, we've -- that per ounce metric remains on track.
Our next question comes from Raj Ray from BMO Capital Markets.
My first question is on the open pit. We did see a 34% improvement quarter-over-quarter in terms of grade. Now this, you mentioned, came from contribution from the Stage 4 West. How much of that contribution you're expecting in Q4 and going into 2022? And also with respect to the open pit, can you give us indication of what your per tonne cost is, per tonne moved that you're currently tracking?
Yes, yes. So in terms of Stage 4 West, Raj, obviously, we've accessed some of that during Q3, and we'll continue to access some of the -- that materially into Q4 as well. In terms of an area itself is that obviously, that's part of a larger sequence as we push back the West wall and cut back from there as well. So as we look at that, I don't think we're going to basically sort of fully deplete the Stage 4 West area by the end of this year. We'll take some in this current quarter as well. And then as we sort of push back that West wall as well and expose more of that West wall structure, that will come in through to '22 as well. Look, I still think you should just note that predominantly the Stage 5 North area will still be making up a significant portion of the tonnes next year as the main mining area with an ability to sort of [ dug ] around Stage 4 West as we push the wall back and as we then sort of bring density down in this area as well. So it will sort of -- the Stage 5 North area will continue to do the heavy lifting this year and into next year. But obviously, as we push that West wall back, expose the Stage 4 -- well, ultimately Stage 5 West area, as we do the same on the east area, start to bring some of that high-grade material back in and expose that with the stripping, that will come in through '22 into '23, but really for the balance of this year and next, that Stage 5 North still represents sort of the significant portion of the -- in terms of volume in tonnes will come from that area as well. In terms of cost per tonne, Ross, I mean, I think you'll take that one. But in my head, it's about $2 for the contractor per tonne and it's probably around about $1.50, $1.60 for our own fleet. But Ross, you're probably a little more accurate than I am in terms of my sort of the slightly bigger arm waving CEO...
That's right. So the long-term rate, Raj, is $2 a tonne. We're currently running at about, I think, it's $2.40. Initially, with the ramp-up costs, we are up at $3, but that was during the ramp-up stage. So that cost per tonne number is dropping, but long-term rate is $2. We're currently sitting at about $2.40.
Okay. Okay. And then my next question is on underground. Ore tonnes mined and the grade decreased slightly quarter-over-quarter. Can you talk to the underground development, give us some visibility on that? And when do you expect any pickup in ore tonnes mined and grade?
Yes, yes. No, look, I think in terms of the underground sequence, look, that remains on track and in line with plan as we look to this. And I guess the balance for us, Raj, is sort of stoping tonnes now versus development to be able to sort of develop additional headings and given that operational flexibility as we go forward as well. So it's always a balancing act for us as we look to that. Also, going to recognize sort of where we are in terms of contractor performance, which you then just sort of stay on top of that and work closely with the guys to make sure we can push on improving there as well. And I think we discussed the life of asset 2 in December where that's taken us on a medium- to long-term basis, we'll be able to lay that out for you as well. So look, I think Q3 in line with where we thought we'd be at this stage, and it's as much about doing what we need to do in the current period, but also looking forward to sort of the medium to longer term to make sure that we continue to push that out and start looking sort of on a 6-month basis and start making sure we've got that sort of 3- to 5-year view ahead of us as well.
Okay. And Martin, lastly, with respect to your recovery, it was a very slight decrease quarter-over-quarter, but your rates were up almost 10%, the process grade. You mentioned that you are undertaking recovery improvement initiatives. What's the target you expect -- that you have in mind at this point?
Look, I think from my understanding of the very early test work done back in the distant past is that, that sort of 89% recovery is the sort of where this thing should be operating at. And I think if we can get back to that sort of steady state of 89% recovery with the current flow sheet that we have, I think that will be the sort of target. Now as we continue to look at that and when we look at sort of the ore body and on a ground basis quite nuggety. Is there an opportunity to put gravity in there? How do we look at this in terms of backing up sort of mining more selected mining versus bulk mining in certain areas of the pit and how will that impacts the grade. Things like suppression of cyanide in the water, return water from the decant obviously has a suppressing impact on the flotation cells as well. So I think there's a number of initiatives that we believe that we can look at that's going to give us, one, a potential to increase and get us to that steady state 89% sort of tight recovery, but also then to reduce the input costs around things like reagents and their consumable use as well. So I think there's a number of areas that we can tweak to look at that as we go forward as well. But I think that sort of 89% number is what we should be targeting on the current configuration and then see what we can do from there.
Okay. Yes, that's it from me. It's really good to see that your waste stripping program is well ahead of schedule, that's very important as you continue to build flexibility within the mine.
Look, absolutely, Raj. Thank you very much. Yes, I appreciate the comments. Thank you.
[Operator Instructions] At this time, we have no further telephone questions. So I'll now hand back to Alex for any written questions.
Thank you, Emily. [ Martin Tyler ] at RBC had a similar question to Raj's on the underground performance. But taking it one step further, he just wanted to understand how to expect the underground grade and tonne profile will evolve, particularly in the context of our better ore body understanding as we detailed at the Capital Markets Day.
If Tyler can be just a little bit more patient, just a few more weeks, Tyler. It's a bit like sort of heading into Christmas and looking at the Christmas tree, the presents isn't really there as well. Look, I think at the -- on the 1st of December, when we look at the life of asset 2 update, I think that's the best opportunity to be able to sort of look at how we see the underground today, where we see the evolving to and what potential upside is from there as well. So if -- Tyler, if I could beg, just a little bit more patience from you as I think we'll be best placed to sort of go into some detail around that from there.
Great. And I'll -- sorry, would we consider hedging against the gold price?
Hopefully. A very pertinent question. Look, I think the company has -- we have a policy of no hedging and have had for some considerable time now. And look, as we look at the business today with an asset that we're looking to push at the bottom end of the cost curve with a pretty robust balance sheet at this stage as well. I think at this stage, we feel that we've got sufficient sort of operational and financial robustness that -- but it's not necessary. The only caveat I would add to that is that as we look forward to something like Doropo, if that comes on stream, and we put a piece of debt, again, say, for example, Doropo construction period is at personally, I would, at that point, be motivating the Board, it's something to consider in respect to a specific piece of debt against the development opportunity like Doropo. If you've got construction ramp-up, commissioning risk, all those other types of things that you have around the project construction, when you put your maximum leverage out there, then certainly a hedging program against a specific piece like that would be something, I think, could be considered as part of a risk mitigation strategy. So I think outside of that sort of very defined and very specific use, I think Ross and I have chatted about it and we've discussed it at Board level as you'd expect these types of sort of risk mitigation strategies. But I think the feeling is that we're sufficiently robust and comfortable as we are today, but it's not something we consider corporately outside of all those defined uses.
Great. And then just stepping back to the solar project. We've had a question saying, assuming a successful commissioning, is there scope to expand?
Yes, absolutely. These things are scaler or scalable, I should say. And look, once that's commissioned middle of next year and integrated and working is that the ability to expand the footprint and look at that, I think, is something that we can certainly consider once we got through the commissioning phase next year. And also, there are other alternatives within Egypt as well as we look at that, can we connect to the grid? Can we look at the use of gas as well for power generation? So there's a number of opportunities that we can chase down. But certainly, from a solar perspective, is that, yes, both scale and the potential introduction of battery is something that we've built sort of -- we build them into the system that we can bolt those in or bolt those on at a future date, if necessary.
Great. And actually, there's one last question, which I think might be for me to answer, strangely, is that would we consider future analyst visits? And in short, yes, just respecting safety measures around COVID, but we would hope to maybe resume visits next year.
Look, absolutely. We'd love to host a group down there as and when it's appropriate, as you say, from a travel perspective. Look, Egypt is off the red list now. As I say, Ross and I spent the last couple of weeks down in both site and into Cairo. And it would be great to get people down there and sort of come and have an eyeball of the place and to see what we're doing, where we're going with it, understand in sort of real time as to the potential and where we're taking the asset as well. It's always a very useful exercise if we can organize that.
Great. That's all the questions I've got from online.
Okay. Well, thank you, Alex, and thank you, everybody, for taking the time this morning to dial in. I really appreciate you listening. And look, just to reiterate, as I say, I think it's been another quarter of delivery against stated plans, which I think is very important for us. We reflag that as an important aspect to 2021, so I'm delighted that another good quarter put away. And a good look to Q4 with that sort of midpoint of guidance. Project is progressing well. The Egyptian bid round is now inked, we did in Cairo last week and looking forward to start on that basis. And the West African project moving forward nicely in terms of the stated plans around the TSF, Doropo and the continued exploration at ABC as well. So yes, look, I think a satisfactory quarter from our perspective, lots more to come. I'm really looking forward to engaging with everybody on the 1st of December around the life of asset 2 update as we look to the longer term as well. So thank you again. And as ever, any further questions or follow-up, please feel free to reach out to myself or Alex or Ross. I'm happy to take it from there as well. So just wish you all a very good day, and thank you, once again.
Thank you, everyone, for joining us today. This now concludes our conference call, and you may now disconnect your lines.