Centamin plc (OTCPK:CELTF) Q1 2024 Results Conference Call April 18, 2024 3:30 AM ET
Company Participants
Martin Horgan – Chief Executive Officer
Michael Stoner – Head of Corporate
Conference Call Participants
Marina Calero – RBC Capital Markets
Jason Fairclough – Bank of America
Richard Hatch – Berenberg
Daniel Major – UBS
Yuen Low – Liberum
Operator
Good day, ladies and gentlemen, and welcome to Centamin Q1 2024 Results. [Operator Instructions] I would like to remind all participants that this call is being recorded.
I will now hand over to Martin Horgan, CEO. Please go ahead.
Martin Horgan
Thank you very much, and good morning, everybody, and thank you for taking the time to join this first quarter update of Centamin’s activities. A busy quarter successfully navigated. I think as we flagged a couple of times during the quarter, a planned softer quarter than the previous Q4, but importantly setting up for the balance of the year. In terms of the open pit, we start there at Sukari, a period of mining and processing some lower-grade oxide material from the Stage 7 area of the open pit. It meant that we were slightly down on grade than usually the case.
But gladly, that’s substantially behind us now from a processing perspective, although we do anticipate mining some more lower-grade material over the balance of the year, that we’ll report to stockpiles and dump leach. An underground perspective, as you know, we’ve been signaling the expansion of the underground production all rates up to 1.4 million tonnes from 1 million tonnes that we achieved last year as part of our future life of mine expansion plans.
As part of that overall work stream, we undertook a ventilation upgrade program during the first quarter. That has largely been successfully completed. Commissioning is actually occurring this week and that significantly improves our ventilation requirements as we look to expand that production rate, as I mentioned.
Accordingly, due to the rescheduling of equipment and availability of working areas while we did this work, turns were down a little bit near the ground and great associates as well as we focus more on development ore through that period. From a milling perspective, a reline in the quarter, schedule as planned twice a year, but otherwise processing performed well in terms of throughput and recoveries and actually some nice performance from the dump leach as well.
So a busy first quarter coming in just a shade below where we had planned, we’d anticipate about a 109,000 to 110,000 ounces produced for the quarter, a little bit of that 105,000 mainly predominantly due to slightly lower-than-anticipated oxide grades in the open pit. But with that behind us now, I think the important thing for us is that with that quarter delivered guidance maintained for the year of about 470,000 to 500,000 ounces. In terms of the cost base, as you know, that’s been a real focus over the last 2 or 3 years at Sukari.
And we’ve been very successful in taking significant chunks of costs out of the business. So I’d say that continued into Q1 on a quarter-on-quarter basis compared to Q4. I’m delighted to say that we were some $9 million lower on a total basis, so the all-in sustaining cost base in the first quarter of this year. Well fortunately, from an asset perspective, we do calculate that on ounces sold. So with a timing of inventory of shipments, and we did have sales lower than the production number.
And that unfortunately made the asset look a little bit lucky on a unit rate basis. But I think importantly for us on a total dollar basis, it was a significant reduction on Q4 last year. And of course, that leads us to also reaffirm and restate our guidance for the year of $1,200 to $1,350 per ounce all-in sustaining as well. So a solid and good first quarter as regard from bridging cost basis. That work largely behind us now and sets us fair for Q2, 3 and 4, say, maintenance of that guidance, both production and costs as we go.
Probably the only negative of the first quarter in our perspective, was unfortunately a single NCI in the period, our first one in the year. As you know, I’ve said repeated and I believe that safety is a very property for management capacity and capability and obviously very regrettable to have a single incident in over 12 months. Brought to an end our sort of run of LTI hours free worked, and we have set a new site record of 12.5 billion hours before this unfortunate incident. We announced full investigation, and we’ll reset and we go again. But of course, we’ve got single incident over that period.
It means that our sort of both leading and lagging indicator rates are incredibly sort of good and heading in the right direction as well. So we maintain our focus on safety for the site. I think that was evidenced, as I mentioned at the full year results around the awarding of the ISO 45001 around OH&S systems at the site as well.
Staying in Egypt away from Sukari, a good work around EDX and first quarter with the great results that we had Little Sukari and Umm Majal, geophysics will back into field, sort of mapping and some ground-based IP work and to help us in further target delineation around that and a rig being mobilized to the area right now.
And the construction of the small exploration camp we’ll see us back drilling both those targets now certainly in the second quarter as we hope to try and sort of further expand and delineate those targets and to their full potential and their ability to contribute to Sukari life of mine plan in due course as well.
So it’s a good progress and quite exciting progress across EDX as well. Pivoting to Doropo in West Africa feasibility is tracking along well in terms of its time line and its outcomes. I’m happy we progress there. As we know we have got plan to have that finished by the middle of this year, there’s been — I’m pleased to say that the work is tracking well. The fieldwork programs that support [indiscernible] are largely done now from drilling to geotech to hydro and so on and so forth.
That is largely complete. We’re now working through the test based consulting and engineering work as we prepare that full feasibility study for Doropo. So I hope to have that study around the midyear point, that support our license application process with government. As part of that license application process, we need our environmental compliance certificates, and I’m delighted to say that during the quarter that our ESIA was submitted to the local authorities to commence that process as well. So that’s going well.
We have [indiscernible] communities in — up in the Doropo area, and that is progressing quite nicely in terms of our sort of clearance with the environmental department and along with our feasibility study, assuming we are able to navigate that successfully, we’ll see us making our license applications in the third quarter for previously disclosed plans as well. So going well there.
So as we look forward to the second quarter now [indiscernible] to do in terms of our grid connection made very good progress, looking to finalize the contractual engagement there. So it’s an excellent progress during the course to get that documentation finalized and ready for signature. We’ve been progressing the detailed engineering work with that in parallel, assuming to see the project kick off in earnest now in the second quarter as we look to bring that online for us during this year calendar.
In terms of the Sukari as well. Capital Limited should be finishing their [indiscernible] waste-stripping campaign this quarter now that’s substantively completed over 90% done of that fixed volume contract that continues to perform very well for us, and they will be rolling off sites by the end of Q2 in respect of that. Obviously, looking forward to EDX drilling sort of updates in due course. We continue to push Little Sukari and Umm Majal. And of course, that Doropo feasibility study later in the quarter as well.
So overall, a busy first period, lots of comparative work done that sets us up for this year and the balance of future years. I’m very happy with progress at site, as a guide to maintain for the year in terms of out 470,000 to 500,000 ounces and $1,200 to $1,350 ASIC and ready to push on both Doropo and EDX as well. So with that, I’m very happy to open it up to the floor to questions. I’ll hand back to the operator, who will now enable Ross and I to take any questions you might have.
Question-and-Answer Session
Operator
[Operator Instructions] The first question comes from the line of Marina Calero from RBC Capital Markets.
Marina Calero
I have a question… [Technical Difficulty]
Martin Horgan
I’m sorry. I appear to have lost Marina there. Is that just me? I heard Marina said, I have a question and then it went blank for me. I’m not sure if that’s the same for you, operator?
Unidentified Company Representative
Us too, yes.
Operator
Marina your line is still open. Are you able to speak?
Marina Calero
Can you hear me?
Operator
We can.
Marina Calero
Okay. Thanks. Sorry about that. I have a question about the open pit. It looks like your grades and strip ratio were impacted by [indiscernible] of waste into ore. How should we think about it for the rest of the year? What are you expecting for these two viables?
Martin Horgan
Sure. Marina. So look, I think as we touched on the around that oxide material. So I think, Marina, at the north end of the open pit, we had the — what was formerly called Sukari Hill. It’s obviously less of a hill now because we’ve been busy mining it for the last year.
But as you might remember, there’s a lot of oxide and transition material on that because it’s effectively, it’s unmined previously. So we have that set of material to come through. There was historical mining in this area from the Cleopatra exploration and trial stoping that was done a number of years ago. So as we entered into this area, we’ve got rocky terrain, it’s oxide material, and we have some historical sort of voids in this area as well.
And really, the combination of that terrain and the voids meant that we weren’t able to get our usual level of sort of drilling coverage into this area ahead of production, caution areas around the voids and we couldn’t put rigs in certain areas and certain areas were difficult on the edges to access with the drill rig.
So as we’ve mined through this area, what we found is an assistant waste or conversion, which is positive, clearly, we’re finding more gold. So we’ve seen that come through. It is at the margin. So it’s that lower grade material sitting at around about 0.5 gram. So certainly, I think in the first quarter this year, there’s about 1.5 million to 2 million tonnes of additional sort of material that was waste that was reclassified to all sitting at that low grade to the half brand-type bauxite material as well.
So that’s going to do two things. It’s going to skew the strip ratio over the period. And of course, it’s going to drag the overall grade down in terms of the ex pit grade, and that’s obviously quite different from the process grade as well. So largely now in terms of that area as we continue to mine through that zone now, is that we still anticipate there should be some further potential sort of waste or ore conversion to occur. We will continue to get more of that oxide, so that lower-grade material coming through.
I think importantly for us from a processing perspective, that material should now start reporting to the stockpiles or our dump leach facility as well. And from a processing perspective that material should now — as of now should be back to normal, shall we say, in around 1 gram open pit material to come through to the processing schedule.
So when we take that back to the sort of the full year look forward basis, we had planned to mine about 16 million tonnes of ore this year as part of our life of mine plan. We think that probably more towards 20 million tonnes, and that’s to do with that ore — sort of that waste-to-ore conversion. So there will be more ore mine this year than planned, but that’s positive with that conversion ratio.
I think importantly, from a processing perspective, which we still will be getting that 11 million tonnes at right about 1 gram to go for the process at feed as well. So when we think about what reports at the mill, that 11 million tonnes at around 1 gram is still what we see for the balance of the year.
And about that material, plus/minus 8 million, 9 million tonnes, we’ll be going to stockpiles and oxides as well. So I think the overall picture is that we can assume that from the open pit, 11 million tonnes at round about 1 gram will be the plan for the year on a processing basis. There will be about another 8 million to 9 million tonnes will come from the open pit, which is more than we planned by a couple of 3 million tonnes but that will be reporting to both dump leach and — sorry, and stockpiles from there as well.
So does that obviously quite a lot to digest there, but I think the key thing for me is the processing, the value chain for [indiscernible] is unchanged. It’s more about that additional tonnes of oxide material and it reported it dump leach and stockpiles for the balance of the year.
Operator
Your next question comes from the line of Jason Fairclough from Bank of America.
Jason Fairclough
Martin, happy birthday again. Just a quick question on the underground. A couple of people just sort of pushing me a little bit on why the underground grade was low just in this first quarter. Is it only down to the fan installations? Or is there something else going on there that’s meant that those grades have been lower?
Martin Horgan
Jason, and thank you again for the birthday wishes. So look, in terms of the period, we recognize that obviously, we going to have the fans or I guess the propriety work for the fans to get them in great fan chambers and have that work. But that meant some of the equipment that we would have been using for production was diverted into this sort of project work as well. So we have a reallocation of equipment away from the normal production and development duties as a focus on that. Also then recognizing that as we sort of upgrading the fans surface and underground ore being swapped out as well.
Certain areas of the operation we’re looking to replaced also restricted [indiscernible] duties while we did this work as well. So in terms of an actual physical activities on the underground basis, is that there were some restrictions effectively about what we were able to do while both equipment and working areas were impacted by this capital sort of project that we put in place as well. And that’s why you’ve seen a reduction in total tonnes from the underground. Going through for the period.
In terms of grade, obviously, again, where we can work, what’s available to us at that particular time. We have to be cognizant of that. We have to, of course, keep pushing on development. To be able to lead that step in future months around the — sorry, future periods [indiscernible] 1.4 million-tonne a year rate as well. So we’ve got to think about balancing out stone production versus development within the overall context of further expansion as well.
And that also impacts on where we’re able to mine from a grade perspective as well. So in terms of the putting the fans in, it’s impacted on what we could — where we could work and what we’re actually mining in the period, stoping versus development and those areas and also taking some capacity out of the production as well.
So in terms of that, from our perspective, I don’t think — we’re not concerned that we’re having some of particular issues within the underground at this stage. And with that work now largely done, say that the fans are being commissioned actually this week as well. We see ourselves returning back to that normal run rate certainly in terms of tonnes produced from the underground.
And last year, it was about 1 million tonnes brought to surface and we’re targeting just about 1.1 million tonnes this year. On that trajectory back to sort of up towards 1.4 million by 2026. And we expect that the grade to recover from this low in this first period, which is a function of available working areas and what we are focusing on and that should bring us in just below 4 grams for the year, so you can probably work out there sort of straight matter, a lower terms and low grade in this first quarter.
We’re anticipating better tonnes and better grades in quarters 2, 3 and 4, to bring us in for that total of just under 4 for the year on a rate basis. So look, from our perspective, No, not concerned as planned, as scheduled.
And the work done now, and that’s a nice piece of work that sets us up for the next few years as we look to do that underground expansion there as well.
Operator
Your next question comes from the line of Richard Hatch from Berenberg.
Richard Hatch
Just a question on the Doropo. It lovely to see the gold price where it is. But when the gold price gets this high, you tend to find that certain governments look to try and increase their share of cash flows from assets and push up royalty rates. We’ve seen it in the past. Just wondering if you’re sort of hearing anything on that in Cote d’Ivoire or any concerns on that?
And perhaps just talk through any kind of sensitivities if you do see the royalty rate increase?
Martin Horgan
Short answer is no. I haven’t heard anything sort of oscillated around Cote d’Ivoire government looking to change things. Look, I think my sort of view regarding Cote d’Ivoire is obviously quite a mature mining jurisdiction. It’s been very successful in terms of its ability to sort of nurture a very successful gold sector over the last 10 to 15 years, a number of developments, as we know, sort of coming through in terms of new builds, I think — so dealing with a mature government that understands and actually is [indiscernible] aware that sort of the code in Cote d’Ivoire was changed not too long ago. As, for example, those tax incentives that we’re getting to companies, where we’re getting the set to go in as it removed.
And as part of that, to my understanding as well is that we have a sliding royalty scale in Cote d’Ivoire already anyway. So naturally, of course, Cote d’Ivoire government has access to — has a sliding royalty scale, we should therefore to take a balance job of higher gold prices, which mines should be able to absorb in those environments as well. So I think we’re dealing with a mature jurisdiction that understands mining that’s pro mining. It’s very successfully nurtured the industry. It already has that sliding scale royalty in place at this stage.
And I certainly haven’t heard anything to the country that Cote d’Ivoire would look to revisit in this environment as well.
Richard Hatch
All right. Cool. That’s very helpful. And then just — can I just ask a bit on CapEx. Q1 generally is a bit soft, right?
But it came in quite light. And I’m just interested to hear what the pathway is for the rest of the year just in terms of CapEx, CapEx spend.
Martin Horgan
Yes. Sure. So look, again, CapEx as per plan from our perspective, obviously, our ongoing sustaining CapEx sits in the background there, rebuilds and development and so on. So that is fairly be consistent through the period in terms of that growth CapEx and some non-sustaining CapEx that we think about. Then obviously, projects as and when they drop.
So we’ve got obviously some new equipment coming through and some drop later in the year. We’ve got our tailings embankment raising that will come through as that work is done. And of course, substantial part of that CapEx is around a great connection and which we expect to kick off in Q2 and set us at least to work with that CapEx in Q2, 3 and 4 as well. So I think in terms of the — how we see the CapEx dropping Q1 was where we thought it would be. No change to lead in the quantum or the timing of that, and we expect to see some of those major projects that are expect to come through to start dropping in Q2 to import as well.
So no change to the year. And no change from a timing perspective from our end at least in terms of how we expect that to drop. So all on track, on plan…
Operator
Your next question comes from the line of Daniel Major from UBS.
Daniel Major
Great. Can you hear me, okay?
Martin Horgan
Yes.
Daniel Major
Yes, I think most of my key questions on the operational side in terms of the trajectory for the rest of the year were answered. But just one — just quick one on the open pit. So you would expect the grade to be north of 1 gram per tonne for the remainder of the year, resulting in an average of just under. Is that the guide?
Martin Horgan
So the way to think about it is what comes out of that pit down. So all the total autumns that come out sort of above cutoff grade from the pit and then they’re kind of, if you like, simplistically, they kind of split 1 or 2 ways, either they go to the wrong patent processing or they go to dump leach or stockpile depending on that.
So if we think about the total material that’s going to come out of the pit this year, we had planned for about 16 million tonnes. I think that’s going to be more towards 20 million because of some of that waste-to-ore conversion that we’re seeing up in Stage 7 as well. So total coming out of the pit will be more like 20 million.
Because we’re getting more of that low pit material than we’d anticipated, that means that’s obviously going to dilute the grade down. So I think you can think about sort of 20 million tonnes plus/minus coming from the open pit, and that’s probably going to sit in the 0.7 to 0.8 grams per tonne to come out of the open pit. So that’s what we will leave the pit. When then we think about what goes where, we’re still planning to have about 11 million tonnes at around about 1 gram. So that subset of that 20 million, say, 0.7 to 0.8, 11 million of that at around about 1 gram, 0.95 to 1, that will go to processing and fill the mill.
And then the balance of that, which will be around about 0.5 gram, that will then go to stockpile or dump leach through that as well. So yes, total ex pits all of our cutoff will be 20 million between 0.7 and 0.8, and then about 11 million tonnes at 0.95 to 1 that’s processing, and the balance we’re going to stockpile or dump leach. That’s on a total basis. That’s not from here as that’s on the year as a whole.
Daniel Major
Yes, got it. So process. What goes through the mill will be back above a gram for the remainder of the year?
Martin Horgan
Yes, yes. About a gram. Yes. About a gram for the process mill feed, that’s right there.
Daniel Major
Okay, cool. And then just again on the FX inflation situation when you’re predominantly dollarized business, but any comments on kind of any disturbances in the cost base in Q1. Obviously, the unit costs were impacted by the lower volumes, but as a consequence of the devaluation of the currency or anything.
Martin Horgan
No. So look, I think as we touched on in the past is that we’ve been very lucky to largely escape almost unimpacted by the Egypt currency issues as that dollarized business, as you rightly say, Dan, gold sales offshore, dollars back on shore, by the local currency to pay local costs and then sort of everything else is in U.S. dollars, including the profit share repatriation back to [indiscernible] . So that’s not impacted us. Probably the main impact is when we had to buy EGP to pay local costs.
We bought it at the official government rate that is about 30 EGP to the dollar. Of course, now with the floating currency, sitting at saying, mid-40s, we’re now buying at EGP at that rate into that. But I think it’s important to understand the total performance of our cost base that sits in EGP. So in salaries and then the next — well, one of these [indiscernible] is field costs as well as [indiscernible] as well. So on that basis, no significant impact in Q1 from the floating exchange rate to that. It’s a relatively minor component of the overall cost base to us as well.
Operator
Your next question comes from the line of Tim Huff from Canaccord. [Operator Instructions] And your next question comes from the line of Yuen Low from Liberum.
Yuen Low
I have just one question left. That’s not been answered, and that’s to do with the recoveries this time around. I was wondering whether they were impacted by the transition material.
Martin Horgan
A little bit. So we’re targeting it around about that 88% to 89% for the year. So we’re just a little bit below the 88% for the first quarter. So there was a minor impact. As you’re probably aware, recoveries actually work on a fixed tail basis.
So the lower material grade that goes in, not impacting your recovery because there’s a fixed tail relationship as well. So naturally with some of that low-grade material going into the processing during the first quarter with a fixed tail relationship, it will naturally drag down the recovery a little bit as well.
But as we transition back to, shall we say, more normal milled grades going through the mill, we expect that obviously to get back towards that 88% to 89% as well. So yes, a little bit of an impact on that due to the fixed tail relationship and processing as well. But as I say, not anticipated, we will be mining more of that low-grade material in the balance of the year, but it will be reporting significantly to the processing facility. So we expect that to be recovering and back in line where we expect or wanted it to be.
Operator
And there are no further questions on the phone lines. I would now like to hand over to Michael to address written questions submitted via the webcast page.
Michael Stoner
Thank you. Okay. So we’ve got a couple of questions on kind of exposure to the gold price and hedging with the rising gold price, kind of how do we expect that to flow through to revenues given the put options?
And then are we expecting — are there any plans to increase hedging through purchase and put options or other products given current gold prices? Or could we expect to see no further purchases going forward?
Martin Horgan
Thanks, Michael. Well, maybe we start with the current protection program. So they are — they protect us to the downside. But obviously, do not limit any of the upside exposure as well. So in terms of those programs, we bought [indiscernible] that were absent in the middle of this year.
So they are going to find [indiscernible] in June of this year, pretty much given the gold price performance and strength, those puts have effectively to date expired out of the money and have not been utilized. So the company obviously retain full exposure to the rising gold prices as we go.
And given where the gold price is today, we’ve got April, May, June to pretty much go, it would be surprising if those $1,900 [indiscernible] actually ever came into play between now and the end of their expiry or [indiscernible] program by middle of this year as well. So I think that’s kind of the first point to note is that kind of downside insurance policy has effectively as sort of rolled off — continue roll off an exercise with no impact or drag on the revenues received by the company.
In terms of doing anticipate putting any more in. I think from a Sukari perspective, no, I think that protection program was a response to what was still a heavy CapEx program, through last year and going forward. And I’m saying [indiscernible] what we believe there was a robust gold price and the ability to navigate reinvestments from cash flows without having to drawing the RCF. I think we’re substantively through the CapEx program.
Obviously, grid to come later this year, but that leaves us [indiscernible] be there navigate that reinvestment significantly from cash flow and without drawing down the RCF as well. So it leaves us in a very strong position from a liquidity perspective between the balance sheet and undrawn RCF availability, and that CapEx rolling off after 2024.
So I don’t envisage that there’s a company in the normal course of business around some Sukari operations that would be able to do any more hedging at this stage. Certainly, I think that will be a conversation with the board and quite a big decision to be made. But I don’t feel that, that would be — we’ll be able to see that any time soon. Where, of course, things might differ is as we take Doropo forward to a development decision. And of course, depending on how we look to fund the construction of Doropo.
If we had some forward of debt financing in Doropo’s construction, which, let’s be honest, is highly likely. Then I think the ability to protect some of the early-stage cash flows out of Doropo as part of any loan repayment period would be something that we’d look at with our potential funding counterparties as well. I think in just sort of proper risk management and I think about hedging as risk management, not as a sort of revenue gain, taking some gold price risk off the table during the early years of the project sort of ramp up in development, where we’ve got debt repayment against it, I think is prudent. So I think it goes to be sort of hedging conversations within the company going forward, they’ve been — actually to sort of Doropo financing construction decisions [indiscernible].
Michael Stoner
Okay. Final question from the webcast. Considering the CapEx for the open pit, what equipment is needed. Is any of this to increase in-house capacity as the contractor capacity rolls off.
Martin Horgan
Thanks, Michael. So we do have some new trucks arriving later this year. And basically on deck joining us in the third quarter. We — will allow us to — currently as the total material moving capacity is about 95 million tonnes per annum from the open pits. The life of mine plan requires us to be a bit above that for a couple of years, not statically so.
So we’ve got a few units arriving in the third quarter of this year. That will allow us to move a little bit more material during 2025, 2026. But then importantly, when the material moves back down towards the 90 million tonne per annum requirement past that initial to sort of period as those trucks can be blended into the fleet and some old units retired. And of course, by doing that it means that we don’t need a significant extra 40 million-tonne a year capacity, [ capital grows ] as well. So yes, we do have some new equipment arriving in Q3.
It will allow us to sort of incrementally marginally increase our material movement capacity for a relatively short period without the requirement for use of a third-party contractor. And ultimately, on an overall life of mine fleet management strategy allow us to retire some very old units later on in the period and bring those units in and see us through to the end of mine life with our current 785 Caterpillar fleet.
Michael Stoner
That’s it from the webcast.
Martin Horgan
Thank you. Well, maybe to wrap up then, I just like to thank everybody for taking the time to join us this morning. As I say, a busy quarter. Lots of heavy lifting done that sets us up for the balance of this year and beyond into ’25 and so on. Look, I think the key message for me is that sort a planned lower quarter delivered.
And importantly, delivered to enable us to maintain guidance both in terms of costs and ounces for the balance of 2024. Exciting development of EDX hopefully coming through as we continue to push on there and that set Doropo work coming through the middle of the year as well. So lots of good momentum and looking forward to updating you all over quarter 2 at the half year point as we push on through 2024.
So thank you for the time. I wish you all a very good day. And as ever, if there’s follow-up questions or comments, you can get us through the usual channels of the company, and we’d be happy to take those offline to you and perhaps this call as well. Thank you very much.
