Centamin PLC
LSE:CEY
Earnings Call Analysis
Q4-2023 Analysis
Centamin PLC
The company announced a solid operational delivery with gold production slightly above 450,000 ounces and sales of 456,000 ounces at an average price of $1,948 per ounce, leading to a revenue of $891 million. This revenue performance, paired with a disciplined cost structure, saw the company achieving a low cash cost of $895 per ounce and beating their all-in sustaining cost guidance with a $1,220 per ounce outcome. These favorable results were largely attributed to a lower-than-expected strip ratio from Stage 7 operations and cost-saving measures, including a modest average fuel price of around $0.80 to $0.81 throughout the year. Additionally, a lower capital expenditure (CapEx) due to not having to pay a deposit for a power grid connection contributed to the company’s strong financial standing, concluding the period with over $300 million in total liquidity and the implementation of an SAP system, which enhances business framework and data integrity.
Looking ahead, the company forecasted a production increase to 470,000-500,000 ounces with an all-in sustaining cost range of $1,200 to $1,350 per ounce for 2024. This projection carefully considers potential fuel price fluctuations, with diesel costs varying within a prudent estimated range of $0.75 to $0.90. The company also outlined significant CapEx plans totaling $250 million, which includes a major $45 million investment in connecting to the national grid and adjustments for operating costs. Important developments such as the Doropo feasibility study and a focus on reducing open pit volumes and associated operating costs are part of the strategic roadmap for the year. The first half of the year's production is expected to match the second half, with a slightly softer Q1 compared to the previous Q4.
In response to an inquiry about the potential impact of regional tensions on the supply chain, particularly the Red Sea situation, the company reassured that they have not experienced any disruptions so far. Leveraging lessons from COVID-19 related supply chain challenges, the company had already strengthened its supply chain resilience and identified alternative suppliers and routes for critical consumables. The executive expressed confidence that their supply chain would remain largely unaffected, as much of their consumable base is sourced from Europe, bypassing riskier routes like the Suez Canal and Red Sea.
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Good day, ladies and gentlemen, and welcome to Centamin Investor and Analyst Presentation 2024. [Operator Instructions] I would like to remind all participants that this call is being recorded.
I will now hand over to Martin Horgan, CEO, to open the presentation. Please go ahead.
Thank you, and good morning, everybody, and thanks for joining us here today as we look at the fourth quarter and then roll out full year 2023 results for Centamin. As mentioned, I'm Martin Horgan, Chief Executive Officer. I'm joined today by my colleagues, Ross Jerrard, CFO; and Alexandra Barter-Carse, Head of Corporate comms. Well, thank you for joining us. And look, very happy with the results this morning. We're able to talk through, I think, a really good strong quarter to close out the year. Very happy to see that. From an operational perspective, 128,000 ounces for the quarter, and that led us to that full year of just over 450,000 ounces and in line with the guidance. From a cost basis, the all-in sustaining costs came in the quarter for $1,172, that against to a full year of $1,220 per ounce AISC, and that's a beat of forecast. So really happy with that level of production in line and it beat all costs. And of course, that's our third year now of successive delivery in line or beating guidance as well. So very happy with that. And of course, the really pleasing point, of course. These results are delivered safely. We had a single LTI for the year, and that led us to obviously have the excellent results around our forward-looking metric -- sorry, respective metrics as well. And I've always said that from my perspective, safety is often a proxy for management and where you've got a good safety record, you generally tend to find that you've got a good management team. And I think that speaks volumes to the team at Sukari. So very, very happy for that as well. Away from Sukari, in terms of the quarter, some excellent milestones for the business as well. Obviously, we released our new life of mine plan, delighted with the outcomes of that, more gold, lower costs and carbon and albeit with a lower risk profile as well from a technical operation perspective. So we're really happy with the outcomes of that new life of mine plan. And that really does reset and reframe Sukari's at Tier 1 global asset. We know it is effective. So it's a delight to have three years of work to pull that together. And we still think there's more to come. We think from additional resource and growth and reserve conversion plus further optimization opportunities, but I think that's sort of baseline now, sending us back to that Tier 1 asset. It was a great achievement.
And speaking of reserves, during the quarter, obviously released our resource reserve update and very happy with that. We set ourselves a target of 3 million-ounce reserve growth back in 2020, we made that public -- sorry, early '21, delighted that with the reserve update last year, but now we've seen about 3.5 million ounces added to the sentiment portfolio over the last sort of 2.5, 3 years, which is a great sort of beat in our 3 million ounce target, slip between ounces at Doropo, but also that continued growth in Sukari as well. Sticking with geology, although we announced the results in early January, obviously, the work was completed mainly through the fourth quarter. I'm delighted with the outcomes of that said, maiden drill program at Eastern Desert Exploration. Those 2 emerging targets in close proximity to Sukari and Umm Majal. Of course, excited at Little Sukari, delighted with those very first stage homes, early in the process, we're starting to see some real potential there of good widths and grades and continue to push on those into 2024 as well. So a really strong quarter operationally and some major milestones achieved for the group as well over that period. So I'm very happy with the -- is to close out 2023 on that basis. Maybe a little bit more sort of granularity now around some of the operational metrics at Sukari. If you start at the open pit, so total material mined for the year was in line with plan. And we moved the volumes and we plan to mine in terms of ore and waste, very happy with that outcome, that compliance to plan is something of a mantra that we stuck with about 2 to 3 years to make sure that we stay online and on target with our long-term development and operational strategy. Capital Limited, obviously continue with their waste program for us. And we pushed those a little bit harder last year. They performed very well for us. They were slightly ahead of the original budget at our election. We asked them to push on. That, of course, means that they will be finishing their waste stripping program a little bit early this year and making a few savings on the business as we go forward. So we expect those guys to be finalizing it site through to the middle of the year, May and June. An excellent bit of work for us has really helped to reset the pit and give us greater operational flexibility and resilience in that pit as well. So we've seen capital move through and then we'll finish that program. And if I look back to 2020, when we announced the accelerated waste stripping program is sort of 3, 3.5 years ahead of stripping, we're now down to single months to go. So delighted with that work as well. In terms of the open pit, a slight sort of interesting point what's happened around what we call stage 7 of the Sukari hill that's north end of the pit, that sort of mountainous pinnacle that sits just to the north of the pit, that had to be mined through, and we tackled that pretty well through the fourth quarter. And what we actually saw is that it was -- given the steepness of the terrain initially, we didn't have much drill coverage within that area. So we had assumed that, that was predominantly waste. As we've mined down through that area now, we've seen quite a bit of conversion of waste into lower grade ore actually. So we've seen a nice pickup of additional tonnes and ounces, albeit lower grade, they are oxide and transitional and we'll report directly to dump leach. So that's a real positive for us. I believe, main thing, of course, that waste being reconverted to ore has had quite a sort of material impact on the stripping ratio within that area and then more broadly for the year as well. It's positive for us. We moved the volumes as planned. So very happy with that. We found more gold that we thought was there, very happy with that, and that's an adjusted strip ratio. And that's kind of flow and effect to how we look at the CapEx and OpEx for the year. And I'll leave Ross to talk about that a little bit later as well, but a very positive result around Stage 7, very happy with that. But as I say, that's a slight accounting adjustment from there which Ross will take you through.
When you think about the underground, another excellent year. Back in 2020, when I first joined, I think we did about 620,000 to 650,000 tonnes of ore from the underground using a contractor. We're now looking in 2023, we've gone fully own a mining. And actually, we achieved 1 million tonnes of ore from the underground last year.
So a really good result there. So our owners team taking that on and building back that confidence in getting up to those run rates as required as well. So I think that's a fantastic effort. And of course, when we think about our long-term new Life of Mine Plan, that sees heading towards that 1.4 million tonnes per annum from the underground, very much on track to continue our momentum for that as well. So a really good year from the underground team at sort of go on or operate it, and then hit those volumes from the underground. So that's a fantastic result.
From a processing perspective, obviously, we have those unscheduled maintenance decisions that we took in Q3 to do some preventive maintenance to protect the long-term viability of the asset. So I think that was prudent and the correct thing to do. Despite that, we still managed to process 12 million tonnes. So I think that was a great result by the team, and that to me sort of an agile response from management. It talks to me of contingency within the operating system, the open pit, underground and also processing. And we're able to sort of have this small sort of speed bump in the road, navigate it without any major issue, still bringing the processing facility on track with the year as well. So I was delighted with that outcome.
In terms of recovery, slightly ahead of where we thought we're going to be as well. So I think that's a great effort by the team. So when I look at that, I look at the operational performance in the fourth quarter and more broadly over the year, I think another great year of delivery done safely hitting those metrics, they're able to sort of deal with issues as they arise, take them in the stride, the flexibility and the plan that we've got and then still deliver the year and set us up very nicely for this year heading on to that. So maybe I'll pause there and hand over to Ross.
He will take you through a little bit of year, the cost and CapEx, and then we'll have a look at the year forward.
Thank you, Martin, and good morning, everyone. As Martin said, we're delighted in terms of the delivery, both in terms of the ops and with ounces produced of just over 450,000 and ounces sold of 456,000 ounces at average realized gold price for the year of $1,948 resulted in revenue of $891 million. It was a great result. So notwithstanding that those ounces were towards the bottom end of the range, but within guidance, we were really able to deliver a good -- and we're really pleased with our cost metrics. So together with our cost savings, and also an average fuel price, which averaged at just over $0.80 or $0.81 for the year, we saw cash costs come in at $895 an ounce and all-in sustaining cost was a beat to our guidance range, which came in at that $1,220 level. The all-in sustaining result was a great result, and it was driven by much lower-than-expected strip ratio that Martin mentioned predominantly from Stage 7, which meant that a lot less deferred waste was capitalized in the balance sheet. In fact, you'll see in the quarterly that there was a reversal in terms of that accounting adjustment. But that capitalized waste together with the new rebuild program, and not paying $12 million deposit for the tie-in to power grid meant that there was a much lower CapEx spend.
It was a great performance, both operationally and financially. And that's meant that we've closed the period with cash and liquid assets of $153 million, together with the RCF facility, which remains undrawn through the period. So our total liquidity sits at over $300 million at the end of the year.
I will say these are early quarterly results, and we wait for our full year financials, which will be released out in March. But one other mention is the implementation of the SAP system, which is our group financial accounting systems, and we've been rolling that out over 2023. In fact, we launched the project and went live within a period of 10 months.
And this is our new -- our second month of month-end close under that SAP system. So great credit to the team. We're really seeing the benefits of that system already as we implement that and produce a much stronger business framework and much more data insights and integrity. But look forward to updating with full financials in due force. But overall, a great performance, and we're very pleased with it. Thanks. Martin?
Thanks, Ross. Yes, I think really well done there on the cost and the CapEx and that's a real thing. Obviously, ounces are great, but ounces are -- the right cost base drive cash flow, which is critical for us as well, so it's well done.
In terms of now pivoting to look forward to 2024 year of guidance another step-up this year now. We're moving to that 470,000 to 500,000 ounce level. From an all-in-sustaining cost basis, we're looking at $1,200 to $1,350 per ounce. A fairly wide range, but we think that's prudent because what we've done is we looked at a range of diesel prices $0.75 to $0.90. We think that we've been watching sort of the diesel price all over country over 2023. It's averaged $0.81, as Ross mentioned. In 2023, we have seen month-on-month variation as well. So we thought it was prudent to come out with a reasonable range. And of course, as the year rolls on as we sort of get that diesel price delivered, and we'll be able to narrow that down accordingly as well. And in terms of production for the year, we see that balance roughly between first half and second half of the year, it's pretty well balanced between the two halves. I would say that the first quarter this year will be slightly softer than Q4 last year, but broadly within that context, 50-50. From a CapEx perspective, as some major projects in there. Most notably the connection to the national grid infrastructure. That's one of our sort of key projects for this year, about a $45 million CapEx program. But I should say it was around about $40 million to $45 million a year in OpEx as well on an ongoing basis. So that's a real focus for us as well expanding the open pit fleet by a small number of trucks, some underground work as well.
So that brings us in total a bit of adjusted CapEx when we back out the -- those operating costs that are reallocated to CapEx around strip ratio for the open pit brings us to adjusted CapEx of $250 million for the year, and that's $112 sustaining versus $103 non-sustaining. More broadly then, within the year, had some exciting news still to come. We've got our Doropo feasibility study and ESIA ready for the middle of the year should be being able to release that, looking forward to that. As I mentioned earlier, waste contract rolling off with capital starting to see those open pit volumes reducing and therefore, reducing those operating capital costs associated with that. We've got our Eastern Desert Exploration. We're obviously going to aggressively follow up now and success we had late last year early this year around the satellite targets from Sukari, the more further northerly part in the edge. And of course, that grid connection, a lower cost, lower carbon and a significant benefit to us as we go forward from there.
So I think that means that after a pretty substantial period of three years heavy lifting around reinvestment and resetting of the assets, I think we find ourselves very well positioned now for 2024 and beyond. Very excited about where we can take this now. Some key milestones coming on for this year as well as that operational performance as well. And of course, it's all about the people. I think the team this year have done -- or last year have done another wonderful job for us. As I said, that safety record speaks for itself, getting the metrics as required despite a couple of operational sort of potholes in the road as we go through there, navigated them very well, still delivered that outcome safely, and that will bring that future upside as well. So a big thank you to our team right across the Centamin Group and our all sort of parts, stakeholders across Egypt and West Africa that allow us to do that. So I look forward with the real sense of excitement conference '24, see where we can take this business from there. So with that, I think we'll pause at that point in terms of the sort of the review of Q4 and '23 and look forward. And we're very happy now to open it up to questions that we may have that Ross and I should be able to answer for you.
Thank you. [Operator Instructions] We'll take our first question from Marina Calero from RBC Capital Markets.
I have a question about the carbon situation in the Red Sea. Have you experienced any disruptions to your supply chains? And what potential measures could you take if that were to happen?
Happy New Year to you, Marina. Hope you're well. Yes, look, obviously, we very carefully monitor the whole regional situation. And of course, the Red Sea is a part of that. Reversely, when we look back to the COVID situation starting in 2020, as a business, we did an awful lot of work at that time looking at -- with the uncertainty around just the global environment around COVID, around supply chain, resilience and alternatives. So actually, the sort of experience of COVID and posing quite a strong that we look at for all our sort of major consumables, numerous different sort of suppliers and routes into Egypt for us as well.
So actually, we have quite a strong sort of knowledge base around alternative providers of cyanide, grinding, the sort of mill liners, tires and so on. So actually, that work is sort of said and done. When we first started to see sort of the rising sort of tensions and escalations within the Red Sea and that risk -- potential risk to consumables, obviously, suppliers as we actually sort of dusted off that work and sort of did a big refresh at where we were. So we have sort of proactively looked at that. I think what that shows is what we knew, but what confirmed for us that actually we believe that sort of the current situation at Red Sea should have minimal impact on us going forward. We've certainly not had any impact to date. We've continued to operate on an instructive basis with no impact whatsoever. A lot of our consumable base actually comes from Europe, whether the cyanide, grinding media, a lot of that actually comes through there and hence comes through the Port of Alexandria on the Mediterranean and doesn't actually have to pass through Suez or the Red Sea as well. So that makes things an awful lot easier for us.
And where there are things that do, we'll use the Red Sea. So for example, mill liners, one of our suppliers is from India. We do have on hand quite a bit of working capital in terms of not only critical spares, but normal spares on hand. So we don't operate a just-in-time sort of approach to these things. So we carry sort of reasonable levels of stock for exactly these types of issues where there is a disruption to supply is that we've got enough on hand. So if we then have to reroute things around South Africa and come this way, the longer way effectively, is that it's not a critical item that's going to impact as well. So I think that sort of -- I think the short answer of having all around supply is no impact at this stage. We've got a resilient supply chain that we benefited from our COVID work. A lot of our supplier base comes from Europe, doesn't impact the Red Sea. And where there are Red Sea implications, it's on a sort of elevated stock level that we hold on hand and therefore, plenty of time to reroute things around the way with no impact from there as well.
So I think the team did some really good work over the last few weeks around them, just looking at that and looking at the resilience of where we go. So I think we're well set to navigate sort of the current situation. And even if it were, it's sort of unfortunate or prolonged sort of issue or clearance by the port authority and do the checks to be able to assess or set through that route. So I think we're in a good shape around that.
Your next question comes from the line of Yuen Low from Liberum.
Can you hear me?
Yes, Yuen. Happy new year to you as well.
I have some questions regarding CapEx because back in October, you maintain guidance on the permits that you're going to be bringing forward some CapEx from 2024. So if I exclude that, and also, if I consider that you reduced the sustaining shipping expectation from $48 million, I think it was $25 million.
So if I consider all that, then it looks like you understand CapEx, about $22 million in 2023. Now in the 2024 guidance, you've increased that by $16 million versus '22 and a bit plus the stuff that you were supposed to have brought forward that makes about $50 million, understand somewhere over the two years. I was just wondering if you could go over that first. And later, I've got a question about unit cost as well.
No problem at all. Look, I'll maybe pass it off to Ross in a second. But I would say that when we look at last year's CapEx, there were sort of three major buckets that we looked at. So first and foremost, as you mentioned, was that reallocation of CapEx back into OpEx for those waste stripping costs around that sort of strip ratio performance. And that's an accounting and reallocation.
My perspective, Li, is that those tonnes were physically moved by open pit fleet. The waste has moved, the ore was exposed. In some cases, we know we have more ore than waste because of the access to that area. But the compliance to plan was correct. And the key thing, of course, is the dollars were spent. So that catches out the door. Whether it sits in an OpEx budget or whether it sits in the CapEx budget, the key thing is dollars are spent and the materials are moving as per the plan. So I think that's the first thing. We did benefit from a bit of a tailwind on the diesel price. So we did -- we were able to complete that work somewhat cheaper than planned because of a better diesel price realized than budgeted. So we did have some savings within our overall program. In terms of midlife rebuilds that are or our maintenance shaping for our open pit fleet, that's something that we looked at through 2023. We work closely with our maintenance team and Caterpillar and our main sort of dealer, Mantrac, in Egypt, and we've been able to extend the midlife rebuild in some cases as well as sort of effectively reduce the CapEx spend on rebuilds on that basis. So when I look at last year, there are two major components that reallocation of cost into OpEx from CapEx. So yes, eventually CapEx, understand, but the dollars have been spent and the material moved. We did have base of savings on diesel. We have base of savings on maintenance in terms of the mid-life rebuilds. And of course, the other final item was the grid connection. We had anticipated paying about a $12.5 million deposit in the -- late in the fourth quarter of last year around a grid connection. That didn't, eventually that's going to be paid in this first quarter now. So that sits across as well. So when we think about that sort of $12.5 million, that's just a timing issue and that accounts significantly for that $200 million becoming $215 million in terms of the 2024 budget. The major delta there is that sort of deposit on the on the grid effectively. So when we think back to last year, reallocation of costs, all our dollars spent, saving of diesels for sure, midlife rebuilds are being extended as well, so they account for the substantive sort of "underspend" of the CapEx target. And then the increase to this year resulted predominantly from that moving out of the deposit. That's my simplistic CEO understanding. But my colleague and CFO, Ross Jerrard, is the man with the real detail into the nuts and bolts. But on a high-level basis, they were the main movements. So maybe I'll pass to Ross at that point.
You're absolutely right, Martin. That's exactly what happened. And you -- in the -- I guess the key thing from a 2024 perspective is it's not a rolling position that we've taken to say, yes, whilst there's underspend, for instance, on that rebuild schedule, the '24 number is a reset. It's not as if they -- any underspend gets rolled into '24, and we start again with that. So the $44 million that you'll see in equipment rebuilds is basically zero-based budget that we started again in the 2024 and together with the CapEx, so in that non-sustaining the $58 million, we've got the grid power, and we've got the replacement strategy on that equipment, and that again is zero-based. It's not an underspend that we then roll into this year, and it's a cumulative effect. We basically challenged the teams and get it back to a zero-based starting point. But Martin is correct in terms of those movements.
I do pay attention to you, Ross, when you told me. I do listen. Sorry, sorry, your second question.
No, no. That's very helpful. Kind of on a related note before I move on to my next question. The sustaining element of open pit stripping for 2024 has given us $91 million. So that implies that your gross CapEx for 2024 is $306 million, is that right?
Yes, that's right.
Okay. Wonderful. And just looking at your cash cost guidance of $700 to, I think, sort of $850, if my memory serves, if I were to add back that $91 million of deferred stripping to the cash cost, that gives me a cash cost of $882 to $1,044 per ounce, which I believe compares with -- I'm sorry, I'm just trying to find the figure in the life of mine plan, $820 to $890 in the life of mine plan. So that is actually roughly -- well, quite a bit higher than the life of mine plan. I acknowledge that in the life of mine plan you saw $0.75 a liter diesel. But in your guidance, you also say you, I think $0.75 to $0.90 in your range. It looks like your costs have gone up.
So I would say just to be clear, when we give the asset guidance for 2024, we obviously have our sort of our OpEx and CapEx that applies to AISC, and we have a total dollar number. We then flex that between $0.75 and $0.90 diesel, and that flexes a range of total dollars from the $0.75 to $0.90. We've got an upper and a lower total dollar limit. We then divide those numbers by either 470,000 or 500,000 ounces to give that AISC range as well. So that's how we think about the AISC range using a $0.75 to $0.90 sort of diesel price. When we look at the CapEx budget, this is a slight sort of inconsistency in approach here. But we just used $0.90 for the CapEx because if we started to then sort of flex the CapEx up and down for $0.75, well, that element of CapEx that has a diesel component we just picked $0.90. So we've been slightly more prudent on the CapEx estimate using the $0.90. But when we give you the AISC range, we're using that on a range of diesel prices from there as well. So there was just a slight inconsistency there. So if you were to apply the $0.75, the bottom end, you would see some of that CapEx reduce because of that diesel price. But it all ends up becoming horrendously complicated in terms of ranges of AISC, ranges of CapEx and so on.
So we've taken this approach, which we think is prudent, which we think is the right way to go. But there is just to understand that little sort of misalignment between the two approaches on CapEx versus AISC, but we're happy that it's the right side of prudent on that basis. So I mean that's just to explain on that basis. So there will be an element of diesel in there that will relate to that change effectively on that basis. Sorry, on the second point of your question, it was around sort of the fact that our costs are a little bit higher...
Yes, that actually explains why your costs might be higher because you're actually using -- when I add back the sustaining stripping to the cash cost, you're actually using that on a higher fuel price basis. So that probably accounts for difference.
To be honest with you, we had a bit of a philosophical debate inside as we were sort of looking at this as well. And you end up with putting ranges around everything, right, and you end up -- those ranges compound on each other. So you end up -- so we thought, okay, look, let's fix this on a prudent basis for the CapEx and then let's get the range on the OpEx and sort of mix about the two as well. And we just thought for prudence and simplicity of explanation, but that -- so there is -- yes, you're exactly right. You picked up on that, and that's just where we've ended up.
That's great. One final question, sorry for taking so long. The strip ratio, what are you expecting the strip ratio to be in 2024 because the size of the sustaining stripping is much larger than expected it would be?
It's about between 5 and 5.5 for the year.
5 to 5.5 for the year. Well, why is the sustaining stripping so large then because you are supposed to only be capitalizing if it's above the average...
Well, you've now asked the magic question that I ask every time that Ross and I sit down as well. I'll let my good colleague, Mr. Jerrard, explain the joys of accounting treatment on a stage-by-stage basis, not a total pit basically. Ross, you are good to...
No. I can say that, but it is just quite a lot -- quite a big variance for the year.
Yes. It depends on the zones that we -- or the stages. So we've got our split. And you're absolutely right, in terms of the strip ratio and on the total, in terms of that overall strip ratio. But if we use this year as an example, we're mining across four different stages of the pit. Some of those had -- were basically entirely an ore. Others were totally in waste and others had strip ratio anywhere between 3 and 15:1 strip ratio. Depending on the areas that we're mining and those particular strip ratios, anything that is above the life of mine strip ratio gets capitalized and then unwind as that always produced and others go through OpEx depending where it sits. So we've got a very large range when you look at the individual zones within the pit in terms of those strip ratios and that distorts it. And that's why in the strip ratio, we do it monthly, quarterly and it's the year-end reconciliation where we threw it all up, but it's very hard with these peaks and troughs and depending on where the mining fleet is actually working in terms of that particular strip ratio that is accounted for on a stage-by-stage basis rather than as one whole global unit in terms of the overall strip ratio.
So the simplest way to think about it, Yuen and Ross, I believe you and I've also asked the question. So if you think about it, is that -- so when you think about the pit, on the east side of the pit wall, that is the wall that moves to allow the pit to go deeper. The west wall is fairly fixed, the north wall moves, but the south and the east walls are the walls that affect -- sorry, the north and the east walls are the ones that move as the pit gets deeper. So in terms of the ore exposed at the bottom of the pit, we've now got the large area of ore exposed in the current bottom of stage 5. So therefore, in terms of our sort of focus of waste stripping, that waste stripping will be on the east side of the pit and the north end of the pit. And with stripping waste there that is effectively sort of going to benefit from gold production towards the back end of this decade, so we're moving ore now -- sorry, we're moving waste now that will have an impact on the life of mine plan -- sorry, that will deliver ore to the life of mine plan 6, 7, 8, 9 years from now. So that waste there almost has no ore element to it from a strip ratio basis. So when we look at that, that ore all has to be capitalized because on an individual stage by stage basis, that's almost pure stripping because there is no gold associated with that in this period. So that will all reports the capitalized waste stripping element of it as well. So when you look at the average for the year, the sort of between 5 to 5.5, that's great. But when we then -- the accounting rules force us to basically allocate waste tonnes to the gold associated with that waste, where we're focusing now on the stage 6 -- sorry, the stage 6 east pushback, that is life of mine -- sort of end-of-life almost gold production, and all that waste will have no gold for a number of years associated with it, and therefore, it gets capitalized as well. So Yuen, again, you picked up on the right question. I've asked it, and it's not on a pit-by-pit basis, year-to-year. It's a stage-by-stage basis, where that waste is being stripped, when do those ounces report to that stripping that you're doing now, what we're looking at next year, is a lot of waste being stripped from the life of mine plan schedule that the ore will only come out a number of years from now and hence it all gets capitalized.
Thank you very much, Martin.
Enjoy the county, Yuen. All you need to know is that from a life of mine compliance basis, we're moving the right tonnes at the right time in line with the overall life of mine plan. So that's kind of the operational sense of it. So we get that, we spend the money, we move the tonnes out, that's fine. And then fortunately, Ross and the team then have to sort of start allocating waste tonnes to ounces and capitalizing as well. It all becomes an accounting exercise. But from an operational perspective, it's in line with the life of mine plan.
And there are no further questions on the conference line. I will now hand over to Alex, Head of Corporate Communications, to address written questions submitted via the webcast page.
Thank you, Pauli. Hi, Martin and Ross. So first question, somewhat in keeping with what we've been discussing. But do you expect to see similar levels of the waste to ore conversion into 2024 and has this been factored into the CapEx guidance?
Thanks, Alex. So I think in short, the answer is no. We don't expect that sort of variance to continue. And I think it was -- why did that happen? I mean that's the question. Why did we have this waste to ore conversion, which is positive, but you'd like to know what you're going to do and had that planned out. So the top end or the north end of the pit is what was called Sukari hill stage 7. That's pretty steep mountainous terrain and the ability to effectively put drill rigs, any drill rig, exploration, the ability to put drill rigs, we have limited drill data in that area. So as we sort of plan to work our way through it, we made the assumption, again, prudently that, that will be predominantly waste. And then we knew that once we're taking the top of that hill and started to mine down, we would eventually start sort of getting mineralization. So in terms of the year, it's impossible to get a drill rig up there to get some good coverage. We made the prudent assumption it was waste and we started mining. Once we got into the mining, once we established those platforms, we were able to put drill rigs to drill control and blast hold control ahead of actually mining that. So what we realized, of course, is actually there was a lot more ore there that had been sort of prudently assumed to be waste. And then as we sort of created a mining platform, that space for the -- machines to operate, we've been able to advance drill and get out ahead of that. So we're now -- we've got a much better understanding of what sits beneath those benches as you move down and take that hill down effectively as well. So that was kind of the last area within the open pit footprint where we had limited drill data because of its porphyry. Now as we look forward, we're back to our normal case of being able to drill and advance some production and then much more actively predict what we believe will be the ore and waste sort of schedules for the year. That's also been aligned to the fact that we created -- or we did next iteration of our resource model that we use for -- the geological resource model used for reserve conversion and mine planning. There's been a further iteration of that last year. We think that now even further refined and accurately reflects the likely sort of and calculated geology that we'll encounter as we go forward. So now, look, I think that was the last artifact if you like of that sort of topography and lack of sort of forward information because of that. We're through that now, and should be back to again more accurately and confidently predict ore to waste ratios because of that access to drilling and the model we can do on that as well. So I'm not anticipating that to go forward from this point.
And then with the increase in low-grade material, does this accelerate your plans to expand the dump leach?
No, no, it wouldn't accelerate. We've already got our foot to the floor on that. And the old dump leach is firmly under expansion at one of our projects on the available dates. We track that quite carefully. The good news is that because we have got those -- because we do have those dump leach cells ready to go, as we got this increased volume of ore from stage 7, we were able to place that straight away on to the dump leach and start to hopefully bring that through this year in terms of it contributing to production levels as well.
So it was a nice thing that -- we're glad we're ahead of the dump leach. We had that prepared. The cells were being built out. We were ready and as for geos and the pit regards, this is more low grade here. We didn't have to really hand it. Just take it straight from stage 7 and then place it straight on the dump leach and then we'll start spraying out and bring those ounces through as well. So no need to accelerate, but it was good that we were ahead of that and had the cells ready. So we didn't have to do a double handling of that material, which obviously starts to kill you a little bit from a margin perspective.
Thank you. With the delay in grid, when do you expect to connect to the grid and benefit from the carbon and cost savings?
So grid connection, we're seeing in calendar 2024, that's the current strategy dealing with that, working with our sort of implementation partner. And so that is the plan for the physical connection. So we're in the process of contract finalization now into procurement and then execution. Not a technically complex project, to be blunt, and it's been done multiple times in Egypt by this particular contractor before. So it's permitting and execution from there as well. So we're hopeful that, that can be completed this calendar, most likely sort of Q4 and sort of into Q4, not at the start of Q4. So I think we did want it to be prudent. You could assume 1st of January 2025 would be a reasonable assumption to take forward this stage of grid connection. So we can get that forward a little bit, a few weeks that might come in late '24. If there's any slight delays, it might move into early Q1 2025, but a reasonable assumption would be 1st of January 2025.
Great. A rem question. Is executive pay linked to share price performance? And if so, over what time period?
So the simple answer is yes, it is. In terms of our sort -- we got a very standard from the London perspective, remuneration structure, that's been put together with the help of Korn Ferry, who's the international consulting group. They've worked with the remuneration committee and the broader Board to design a remuneration structure for the management team, in terms of its architecture and then importantly, benchmark that as well to market as well. So I think it's quite a rigorous process around how that is more constructed and then to benchmark that as well. So that's kind of the first point. And within that, there's the usual elements of base pay, short-term incentive programs, which effectively is annual cash bonuses. And then we have the LTIP, the long-term incentive plan, which is equity award. So the short-term sort of program, the annual bonus, that's based on sort of company performance, in terms of physical metrics of gold production, cash costs, cash flow generation, safety, obviously, as well and there are obviously a number of personal objectives. That then calculates the annual bonus on company performance within the year. On the longer-term basis, the LTIP, that is where we have an element of share price performance element in that as well. And I'm going to ask Ross here, but off the top of my head, 50% of the share price performance is linked to -- sorry, 50% of the share award potential is linked to share price performance on that basis. And to be clear, that's on a 3-year rolling basis, so awarded shares within the period. And then on the third anniversary of that award, the share price performance of the business is then assessed against some total on a relative basis, and then a portion of those potential shares could vest depend on that performance as well. And I think that construct is there to sort of lock in sort of management and be aligned with the shareholders on a long-term basis. We're not looking for short-term wins. It's about long-term basis, and it's about sort of the relative and total performance as well.
It's about 50%, is that right, Ross, off the top of my head?
That's right, 50% TSR production and cash flow for up to '23. And then the new metrics going forward, we've included an ESG component on the more recent awards and metrics measurements.
Yes. So hopefully, that comprehensively sort of -- obviously, all is in the annual report as usual. But I think it's a robust process that the Board and the rem com go through with external expert advice and benchmarking and go from there.
Great. Interestingly, we have two questions asking for an update on the Sukari solar plant expansion.
Okay. No problem at all. So at this stage, we are in the technical evaluation phase. So we're looking at, firstly, physically where can we put that solar plants, those that are installed at the Sukari site. You can go and check it out on Google Earth, is that it's slightly dense -- it's slightly populated. It's not a high population density. So there's not enough people where they have to move, it's not exactly too much sort of in the way of vegetation or wildlife. So in one sense, that's easy. The actual reality on the ground, though, is it's fairly rocky sort of hilly terrain in and around the Sukari footprint. Obviously, we're competing for sort of floor space, waste dumps, infrastructure, access to roads and so on. So one of the things we're looking at now is where can we place that. We've identified a number of areas adjacent to the existing solar plant. So we're looking at sort of just working through that, where can they go? Just things have to be -- do things have to be relocated, I should say? What cut and fill requires to sort of level of the areas? So we're looking at that right now, that sort of the evaluation. We're looking there at the sort of technical specification of how we then expand the footprint, how we tie into the existing solar infrastructure. That's relatively straightforward, to be honest with you. Then we're looking at things like battery. At the moment, we've got a 7.5 meg battery that acts as sort of a buffer or a damper between the processing -- sorry, the power draw in the infrastructure and then the solar generation. So if the cloud cover comes across, it allows us to fire up the diesel engines. And then of course, if the build was to stop turning certainly and expectedly somewhere for the power being generated to actually go as well. So we're looking at that requirement. And of course, that now been further sort of work needs to be looked at because now we're bringing the drill into the situation. We now need to look at how that solar, that battery works in conjunction with both grid connection and backup diesel as well. So I guess long story short is that the technical evaluation is underway. We're harmonizing that with grid and sort of back up diesel generation. Let's get the grid sort of finalized and bottomed out, and we can go from there. So it's actively under an evaluation and investigation. I imagine that during 2024, we will come up with a plan, effectively a feasibility for that, and then we'll get on with implementation. And I think in reality is that by the time we've got grid connection in during this year, that's next cad off the rank is then to finalize that solar expansion. And of course, the plan then is to have effectively 100% solar during daylight hours for the operations. That's about 50 megawatts they see and then outside of sunshine hours reliance on grid from the local infrastructure. And then within that mix as well, retention of our diesel gen sets, so it can be back up or say a fallback system as well. So we'll harmonize after '24. I don't think that solo will kick in, in terms of the expansion project through early '25.
Another quick question on projects. So is there any progress on the gravity circuit construction? And when will that be complete?
So at this stage, we're still in the engineering phase. So in terms of the preliminary test work or the test work, I should say, that's largely done now. We're now in the phase of engineering. So that kind of engineering for strips, engineering design, then we'll look at procurement and implementation changes as well. So I think we're now into a detailed space on that. Again, I suspect that by the time that we've kind of run through the engineering and implementation, that will sort of be a -- construction will kick off, and that could be procurement and so on sort of late this year. And I think that will plan to come on stream sort of early 2025 at this stage.
Great. And can you tell us any more about Little Sukari. The drill results look excellent. You mentioned in a previous presentation that you're looking for satellite deposits with potential to deliver perhaps 300,000 ounces. Do you think Little Sukari and Umm Majal fall into this category?
So I think in previous presentations, what we've said is that when we've done some sort of guests of the economic analysis, and this was to help the exploration geos focus on commercial potential targets, is that we think that something in the order of 300,000 ounces at about sort of 1.2, 1.3 grams. In a target at that sort of scale, we think then that would be economic to develop a satellite in the mining operation and then ship that ore into the Sukari mill. So that was our kind of sort of internal sort of modeling that we did to help guide the exploration geos as they were filtering out opportunities, what should we pursue, what should we drop. We given them those parameters. So that's what we're working to as a sort of an indicator or the hurdle barrier, sort of geological sort of exploration success. So still very much stand behind those numbers. So that's what we're sort of targeting. In terms of these two deposits, as they were found through the exploration phase, the team has done a great work to do that. Look, it's very early stage at this point. We've done -- we worked at the sort of the drill targets through soil, stacking and so on. We've drilled an RC rig out there. So we've got -- that's another diamond core, it's an RC rig. And we've poked in some sort of very few holes admittedly, fairly sort of wide space on the fences and then along the fence as well. And it's really that kind of -- initial scout program is that is there something here of interest? A good interest. Clearly, we're also very happy as the first drilling program goes to scout holds. I think they sort of exceeded sort of hope or expectation as to what could be there. So very happy with that. In terms of Little Sukari, it's a granodiorite, so in that sense, the sort of the placement of the mineralization looks similar, and I stress, looks similar to main Sukari ore body on this basis. I would stress then again, it's RC, it's not core. So we're working on rough examples and assays at this point. The next stage, of course, we'll involve some core drilling and we'll get a much better idea around structure, around lithologies of that, and we'll be able to do some proper met test work and some sort of mineral identification and some section work and so and gold deportment. So the next phase will really give us a good sort of a much better understanding of what Little Sukari's target in terms of sort of host rocks, minerals and so on.
And of course, where does it go? I mean, we've kind of -- have we found a smallish plug of interest in mineralization that sits there or that's one end of the spectrum or either end of the spectrum is have we nicked the top of a larger system that they're going to have legs to get to the long stripe in there as well. We've got no idea at this stage, but we find inside target plus it's calculating the RC rig and it's certainly given us some encouragement around the widths and grades that we're seeing on that basis as well. So look, we're very keen to follow it now. If it's 200,000 ounces at 1.2, 1.3 grams, it's great, it's going to be accretive to the mine plan, and we'll take it on from there. If it's bigger than that, then even better. So we'll see where we go to. But yes, look, in real sense, and for us, it's kind of a proof of concept. We push to get involve with these desert exploration. We've long talked about the potential of what's outside of Sukari, is there potential within the Eastern Desert. We've put a team in place in Marsa Alam. They've gone out. They've done the basic work in the field, made -- they did 1,000 drill targets, they drilled them and made some pretty interesting intercepts. So it's kind of proof of concept of the potential of the Eastern Desert and our team to operate in that as well. So nothing else. I'm delighted with the process and the validation of that. And of course, the scale of potential opportunity will eventuate as we go forward. So that's on that. Umm Majal, slightly different to Little Sukari, same sort of structural setting in terms of it sits within a belt, slightly different sort of geology but again no less interesting in terms of some of the widths and grades that have been identified there. So next stage is to aggressively follow up. We'll need some more detailed mapping around that, maybe do some ground-based IP and gravity survey work to try and find a bit more about the structure and then get a rig out there to do a combination of RC and core to really start to push that forward and see where that takes us from there. So it's a pretty exciting time, really delighted there as well. Very happy.
Great. And the last question is, with the DFS near complet at Doropo, are there any plans to start building infrastructure to get the time line ahead?
Very good question. Look, absolutely, there's always the time. Time kills you, it's what we said to you a little time ago. And then I'm going to say that, I mean, with projects when you got a fixed overhead of the project team and an operations team and so on, the more time you ask the system, the more expensive things are as well. So if you can get things done in a timely manner, you can actually save quite a bit of cost in terms of CapEx for project development. So we're very aware about that. So that's an approach that we've sort of as a management team employ successfully elsewhere in West Africa. So really, we'll get our feasibility done with ESIA. We will get our applications into government for our permits, our mining license and so on. And then the question to -- from the management team and then ultimately to the Board is, what's our risk appetite to put dollars on the table ahead of having, say, a formal license decision by the government, ahead of having a fully finalized sort of funding package? How are we going to take the project forward? And ultimately, that's Board sanctioned FID that, yes, we're going to build this project. So there will be a period of a number of months while we pursue licenses from the package and ultimately it's that FID. And that could be 3, 4, 5, 6 months. What we've recognized, of course, is that works done during that period can have a hugely beneficial impact on the future sort of development, their time line. Putting in a deposit down on the long [indiscernible] mill, for example. Getting yourself in the queue by putting relatively small dollars down as a deposit, that saves you weeks, if not months, down the track. Pushing infrastructure, in some access roads, some cofferdams, preparing a construction count in terms of people, all those sorts of things are relatively low cost in terms of single-digit millions in total, including that risk as you still haven't got your license, you haven't got your financial package in place, you haven't got your Board and FID to go forward.
But even be prepared to put a little bit of risk money on the table, it can save us weeks if not months in terms of the overall production schedule and really sort of help to bring that CapEx in as well. So it's something that we discussed at the Board in December. The Board are aware and are supportive of this type of approach. It's been very successful in the years before elsewhere in the companies. And I think that's an engagement we'll have with the company or as a group, as a management team with the Board about our ability to put some risk dollars upfront, recognizing that we're taking a little bit of risk in terms of not full sanction for the project, but could lead to significant savings down the track as well. So it's always a trade-off, right, about how hard you want to go early with risk dollars versus the benefits down the track.
Great. That's all for me. So back to you to close the call.
Thank you, Alex. Well, look, thank you, everybody. Look, as I say, just to retell, I won't bore too much, but a great Q4, leading to a great delivery for '23. Some real excitement about what '24 can bring as we're through that sort of -- significantly through that reinvestment phase heading back to that 500,000 ounce level of good costs, cash flow generation. Lots of excitement to come at Doropo, at EDX and a real sense of momentum across the business as well. So I'd like to thank everybody for taking the time to listening in today. As ever, if you have follow-up questions or thoughts, feel free to reach out through the usual channels. I'm looking forward to seeing you all in 2024. So thank you again on behalf of the company, and look forward to speaking to you soon. Thank you.