Centamin plc (CELTF) Q4 2022 Earnings Call Transcript

Centamin plc (OTCPK:CELTF) Q4 2022 Earnings Conference Call January 19, 2023 3:30 AM ET

Company Participants

Martin Horgan – Chief Executive Officer

Ross Jerrard – Chief Financial Officer

Alexandra Barter-Carse – Head of Investor Relations & Head of Corporate Communications

Conference Call Participants

Raj Ray – BMO Capital Markets

Richard Hatch – Berenberg

Nour Eldin Sherif – Arqaam Capital

Marina Calero – RBC Capital Markets

Martin Horgan

Good morning, everybody. Happy New Year to you all. Hope everyone’s well and have a good rest of the holiday period. And thank you for taking the time to dial-in this morning to listen to this fourth quarter update. I am Martin Horgan, CEO of Centamin. I’m joined today by my colleagues Ross Jerrard, our CFO, who you know; and Alexandra Barter-Carse, Corporate Comms.

I hope everyone had a chance to review this morning’s announcement. I think it rather neatly encapsulates what I believe is another successful year for Centamin. We delivered against our stated plans, both operationally in terms of production and costs and also against project execution as well. Had some notable milestones in there, of course, one of the things that we’re particularly proud of is that safety record. You will have maybe noted that we have achieved just over 8 million hours of LTI free at Sukari and that’s significantly on the previous record of 5 million hour LTI free. So I’m delighted that the team has been able to achieve that. I honestly believe that a safe mine isn’t indicative of a well done mine. And I think that those targets both leading and lagging targets that we beat be for 2022 are a testament to the quality of the team there as well.

Maybe staying with the people, obviously they are key to our success. It’s people that make the business and we’ve had some great progress across 2022. Delighted to see our Employee Development Pathway program coming through. We’re looking to both identify, train and retain talent locally and also one of the things that we’re particularly pleased about was our work around gender balance at the site. There is a change in Egyptian law and we reacted to that now and starting to have female employees at Sukari and across our exploration desert work in the EDX around the Eastern Desert. I’m delighted to say that we’ve gone from one professional female employee in 2021 to now a total of 34 across those two operations in Egypt as well. And I think that’s absolutely fantastic result and a real sign of progress that we’re making, but also important that Egypt is making as well. So delighted to see that.

So I’d say operationally delivered into production just below the midpoint of guidance. I think the team did a fantastic job last year. It was a very big year for us. A number of challenges and sort of things that we faced not least of which the transition from underground contract mining to owner mining. The accelerated waste stripping program continued to move ahead at pace delivering us greater flexibility and consistency for the open pit and we’ve now got from multiple working areas from which to operate, which is fantastic.

As I mentioned, that’s a prudent planning around the underground transition and then despite sort of the interruption or potential interruption to the Q1, we navigated that and delighted that over the second half of the year, the underground team really hit their straps as well and deliver that 41,000 ounces of production, which is great to see.

And despite the sort of global inflationary environment we find ourselves in, I’m delighted to say that the cost base is managed incredibly well. Obviously diesel price was a significant component of our cost base and a significant increase over the course of 2022. But in terms of prudent cost management, in terms of our planning, in terms of delivery of some of our longer term projects, we’re able to manage those costs and keep those costs under control and deliver in line with the guidance as well. So I think that’s a particularly pleasing result and the fact that we didn’t have to re-guide during 2022. I think is a testament one to the prudent planning and to the execution capacity of the team there as well.

And away from production and cost guidance, another great year in terms of our plans to reset Sukari and return that to a steady state at 500,000 ounces, which we’re planning to do. The accelerated stripping program as I touched on continue to move forward. I’m delighted to say that that flexibility is returning now. Delivery of the solar project was a real notable high [0.4] (ph) in the second half of last year. Significant cost savings for us and also carbon emission reduction as well. So a real win-win for that project. And we’re seeing sort of a current diesel prices annualized cost savings in the region of $20 million per year as we go forward. I think there’s more potential to expand that, that’s something we’ll look at as our power generation in 2023 and beyond. But I think a real landmark and successful project for us and the sector more broadly as well.

Paste-fill plant moves forward at pace. Great to see that coming through. Obviously looking to get that commission through the first half of this year now. And that means that we can look at and maximize the extraction of the underground orebody in a safe geotechnic controlled manner as well, so that’s coming through quite nicely. As I touched on before, transition to owner mining, big cost and productivity gains to be seen there, we’re starting to see those flow through in Q4 of last year and indeed the start of this year as well. And really that’s going to be one of the key facets when we look to 2023 and improved guidance from there, what’s going to drive that underground performance is a key element of that.

And resource reserve growth, after a fantastic year in 2021 we added 1 million ounces to the reserve base, we have confidence in moving into 2022, the geological team framework we put in place and the processes we’re going to be successful. I’m delighted to say that further reserve growth and 800,000 ounces of reserves added during the year pre-depletion is a fantastic result. So over the two years of ’21 and ’22 now, nearly 2 million ounces adequate reserves pre-depletion and I think that’s absolutely superb and the value creation through that team has been phenomenal. And, of course, with that reserve growth really then it starts to support our plans for the future expansion of Sukari, not least of which is that underground expansion project which we highlighted in the fourth quarter last year as well. And with that sort of increased confidence reserve growth in the underground our ability to add up to 30% of additional production tons from the underground on a relatively low CapEx and low technical implementation basis, it’s something that we’ll look to sort of engineer through the first-half 2023 as well. So I think in terms of Sukari great delivery into production. Great cost control management in inflationary environment and fantastic sort of structural progress on a number of those projects that are really going to help to sort of maximize the value of Sukari.

Moving away from Sukari quickly maybe, a fantastic results across the EDX project. We’re delighted with the progress there in terms of the operations and field teams established and mobilized, they’ve moved immediate to priority areas that we’ve generated through the sort of pre-development sort of the pre-field worker program from the remote sensing and the teams have been very, very busy across both the Nugrus and Um Rus blocks which are closest to it. And lots of field work in terms of blake sampling, soil sampling and mapping and the aim is to work with a number of priority drill test targets that we can then start to put some holes in during 2023 as well. So super-excited around the potential for the EDX, the ability to make commercial discoveries that then could even feed into the Sukari complex or being potentially standalone opportunities as well.

In parallel with that, steady and good progress around the negotiations with the government around the longer term exploitation terms for the mining sector in Egypt. The industry group has been formed. We’ve been engaged with governments, you may or may not picked up from the recent conference in Saudi Arabia that the Minister of Petroleum from Egypt, His Excellency Tarek El Molla had flight to an industry group from their perspective as well that he believes that we’re very close to finalizing the terms and actually stated publicly that he’d like to have everything done and dusted to enabled us to announce the final terms as part of [Edalva] (ph) Conference coming up as well.

So great and heartened to hear that the he shares our view that we’re close now, very pleased with he’s put that public timeline on the the table. Let’s see if we can hold them to that book, but no great progress around that. And if we can get those terms finalized, I think that really just transforms the sort of prospects for the Egyptian mining sector, maybe just on that, just a slight pivot away to something that you may have picked up we announced on Monday at low 32, which prevents non-third parties from challenging legally binding contracts within Egypt with declared constitutional and of course the importance of that law 32 constitutionality ruling by the Supreme Court means that the case against the Sukari concession which was ongoing for over a decade now with that law 32 being provided as constitutional.

We intend to use that ruling then to have the case against the Sukari Concession set aside as well. So something that we had a great deal of confidence around that it’s a — you win the case on its merits. But finally, with that legislative movement, we can now look to have this set aside and the legal team will be putting that motion to set aside in the immediate short-term and finally take that irritation off the table and move forward around Sukari as well that’s superb.

Pivoting to West Africa quickly. Good progress at Doropo, very happy with that. Obviously, resource updated in the fourth quarter and a complementary in terms of the overall global ounce content, delighted to see that, but I think importantly, a very nice pickup on grade of around about 20%. So that 1.5 grams average there or thereabouts. So I think that’s great for us in terms of graded king and that pickup is it will make a nice difference to the economics of the project or a nice positive improvement to the economics of the project.

And as we flagged, of course, we’ve seen an opportunity to reduce both CapEx and OpEx through the flowsheet and pursuing those down on the whole ore leach approach as well. So a slight delay to the PFS publication, but we think the opportunity around that flowsheet change is sufficiently sort of interesting that it [indiscernible] delay as well, but moving forward on Doropo and over the fourth quarter, some good work around the mine planning aspects of the newly updated resource model that we have received and obviously progressing those metallurgical opportunities that we mentioned as well.

Corporately, very busy period. I’m delighted to say that we signed our inaugural sustainability linked loan RCF facility with the consortium of leading banks. This is the Centamin’s first debt facility, it’s a $150 million revolving credit facility. Pricing does linked to a series sustainability at targets that we’ve agreed with our lenders, which is a nice feature and put some real sort of teeth and commitment into our ESG targets, because it has a direct implication on cost of pricing of the debt that we’re putting in place there as well.

I’m delighted with the bank group leading international banks BMO, HSBC, ING and Netbank and lots of mining industry experience there. I’m delighted to say, of course, that they’ve been through an incredibly detailed due diligence process the call will over the company as you’d expect lenders do and we were sufficiently comfortable and confident in both the plants and our operating capacity that they were prepared to put facility [indiscernible] as well. So I think the addition of that facility really increases our operational, sort of — sorry, our financial flexibility and capacity to look at both growth and shareholder returns and delighted that it’s a bank — consortium of leading banks that are sufficiently confident in our plans to go forward and they’re prepared to lend against that as well. That’s a great news.

So as we look forward to 2023 now, I think we’re entering with a real sense of momentum. And as I mentioned, step up in guidance again we’re now targeting the 450,000 to 480,000 ounce range. I think the main thing to think about there is that, as I talked about the improving sort of underground performance to bring that machinery and capacity up to nameplate of about 1 million tons from the underground of ore pre-expansion that is the driver, [indiscernible] from the 430, 460 last year to the 450 to 480 I think the open pit and processing will remain largely consistent with 2022 with that underground performance and what will drive that step up as well. So well on our track getting back towards that 500,000 ounce mark targeted for 2024, another step up as well.

I think within that 450 to 480 we’re going to see a split first half versus second half, slightly lower in the first half, about 45% of those ounces will come into the first half of the year, about 55% at the second half of the year. And I think interestingly for us as well is that within that first half we are planning a lower first quarter, we will be looking or we are actually currently doing some plant maintenance around the processing facility. We also are mining through a slightly lower grade area in the underground compared to the balance of the year on the open pit. So we are planning, I’d say that 45-55 H1-H2 split and then within H1 a lower first quarter, our plans to get that scheduled maintenance done that way. And then that allows to pick up through Q2, Q3 and Q4 as well and target at midpoint about 450,000 to 480,000 ounce range.

In terms of AISC, $1,250 to $1,400 per ounce range for next year. Obviously, the range there is that we’re looking at both, obviously the top and the bottom end of the ounce range in terms of the denominator of that calculation. And also I think we’ve taken a prudent approach to forecasting and I think that worked well for us in 2022. We are required to re-guide like a lot of our peers. I think the same sort of thesis and approach has been taken for this year. Diesel a huge driver of our cost base, in 2021 we had a diesel price of about $0.52, we planned for a $0.60 diesel price in 2022, it actually average closer to $0.90 over the course of the year at the back of that sort of oil price increase around the Russia-Ukraine conflict as well. So rolling forward, we’re assuming $0.90 again this year. And one of the big drivers of that is our [Technical Difficulty]

And obviously looking to maintain that cost control with a number of cost initiatives that we brought in to try and manage that. But I think it’s a — a sense of prudent planning around the budgeting is important as we go forward from there. CapEx of $224 million, that obviously covers our sustaining CapEx as we normally — we normally talk about $100 million a year, that’s about $110. We’ve got some pretty interesting notwithstanding growth projects lined up for the year, gravity circuit for the processing plant, taking that forward as we look to improve gold recoveries and to maximize the value from those high grade material that we get, expansion of the dump leach and obviously looking to keep the TSF less moving so we can keep using that facility as well. And of course alongside of that is the continued acceleration of the waste stripping the open pit as we go forward.

I think as we go and we look forward to 2023, some more catalysts to come, it was obviously a very catalyst heavy second half of last year. We’re looking to maintain that momentum. We’ve got our life of mine plan update looking to now engineer that underground expansion case and look at optimization of the open pit versus underground trade off. Looking forward to bring that through the first half of this year. We are going to continue to look at the grid power connection, there’s obviously some great both cost and carbon opportunities to look at. So we’ll continue to push on with that as well. And of course we’ve got the Doropo PFS delivery as well.

So look, I think it’s a — as we look back on both the quarter and the year, I think very pleased with the progress we’ve made. I think a step change in terms of the business, in terms of delivery, in terms of consistency, and in terms of excitement that we’re generating within the team as well. I think I’d like to thank the team for all their efforts through what was another challenging year in 2022 on a global basis. I think the team has now created a fantastic platform for us. And at Centamin I’m really excited about how we’re now going to take that platform and build on it into 2023 and beyond.

I think just as a final note, I’d like to open up to questions, but I’d like everyone just to please bear in mind that our full-year 2022 financial results will be published on 16th of March. And so, well, we’ll try to answer some of your cost questions. Please keep some of those financial questions for Ross maybe until that full-year results on the 16th of March as well.

But with that, I’ll now hand back to Seb and we’ll open up the floor for questions from that for Ross and I. Thank you.

Question-and-Answer Session

Operator

Thank you, Martin. [Operator Instructions] Our first question comes from Raj Ray from BMO Capital Markets. Please go ahead.

Raj Ray

Thank you, operator. Good morning and welcome, Martin and team. Look, I mean, ’22 was a pretty strong year for the company in terms of the flexibility you developed in open pit, as well as the work you’re doing in the underground. Now, looking forward, there was some expectation that 2023 cost would be lower, but I understand the inflation impact that you’re getting at this point, I think it will be good too, if you can give some visibility. I know you’re working on the updated mine plan. So what’s the cost structure for the Sukari mine looks like? I mean, let’s say 12 months ago, you would have had some expectation of what the long-term cost would be. Do you still attest to that expectation? And also if you can talk to some of the improvement initiatives that the company is undertaking with respect to reducing cost and improving production as well?

Martin Horgan

Sure, Raj. No problem. So maybe I start off on that and maybe pass to Ross. So look, I think that’s right, Raj. Look, I think each year we use the best available information we have at our hand to plan. So as I mentioned, ’21, we had a fuel price of $0.52 diesel. So we use $0.60 for 2022 and it had been $0.90 obviously from that sort of global situation. So, obviously this year we’re rolling forward with a $0.90 impact as well.

So as best we can, we use the best available information, do some scenario planning around prudent on that — prudently sort of scenario planning to look at sort of what range this might be and then look to sort of that obviously offset that against a cost saving initiatives as well. So I think we’re always looking to make sure that we’re using the best well information to give ourselves sort of the most confidence we have in terms of cost forecasting on a sort of annualized basis as we go. So I think that’s the process and that’s what’s driven the numbers here. I think I’ll leave Ross to talk about some of the details in that.

I think more broadly on a longer term basis. Look, I think there’s a couple of things to think about. Firstly, getting back to that 500,000 ounce, whether it’s 475,000 to 510,000 type range, getting back to that sort of level is clearly key for us on that underground expansion study, as well as some of the other opportunities around that gravity and dump leach and so on, they are the drivers that are going to get us back to that sort of level as well. So when you think about sort of increasing the denominator on a unit rate basis by getting those ounces on the board.

When we then think about cost savings, clearly, the accelerated waste stripping program, it’s a necessary evil, we’ve got to get that flexibility back, it’s coming back quite nicely now. But again, an extra in our own fleet does 90 million, 92 million tons a year and we’re currently shifting sort of 120 million to 130 million, you can see there is an extra sort of 30 million to 40 million tons a year of waste stripping there, roundabout $2 a ton, you can see that there is a fair bit of additional sort of cost that has to go into rehabilitation about open pit as well. So when we see in the medium term or the next couple of three years that waste stripping returning back to sort of long run average around the life of mine average strip ratio, obviously that has a pretty substantial impact on cost as well.

So as we see the pit coming back into compliance, we’ll expect to see the cost trending down there. The additional things like the grid connection, again, some big dollars there to be saved in terms of connecting to the grid as well. So I think like met recovery, if we can get gravity and as 1% or 2% of additional net recoveries additional ounces and so on. So we look at sort of form where we sit today, Raj, the cost base at sort of $1,250 to $1,400, how do we get that back to where we want it to be? It’s going to be increasing those ounces to get back towards that 500,000 ounce level through the underground expansion dump leach and gravity circuit at this stage. And then on top of that cost control waste stripping coming back to more normalized sustainable life of mine or back into this in line with the longer term sustainable strip ratio and initiatives like the grid connection to chase down this year. Put those two things together and that’s where we start to see on a longer term basis that 500,000 ounces at the $1,100 to $1,200 AISC that we want to be at on a sustainable basis going forward.

Now, of course, if diesel price fit to these levels, that’s fine. If diesel price doubles, clearly we’ll have to revise that. If diesel price comes off 20%, 30%, 40% as we settle down again, then obviously we can go lower. So we will do everything we can in terms of our control. We’re clearly a diesel price taker in Egypt as the government sets the price. [indiscernible] most or quite a few African jurisdictions.

We can’t hedge that, we don’t hedge that. So we are a price taker. So where we can control those inputs, where we can look at the mine plan our cost out initiatives will drive that. But note that we are diesel price taker, but moving to grid with solar and potential solar expansion being careful around how we use power. The other things that we can sort of do operations control out, but we do end up with a mobile fleet’s being a diesel price taker from there.

So that’s kind of bit of an overview, I mean, Ross, from your perspective anything to add around that to Raj in terms of, sort of the cost planning and then cost control?

Ross Jerrard

Thanks, Martin. Certainly, that’s quite a comprehensive coverage on that. I think, Raj, we’re really pleased in terms of the initiatives that have been rolled out. We’re well on target on that cost reduction stretch program with $100 million of the $150 million target. Some of those key initiatives have been delivered and we will look to see that those are actually hit the cost base as we go forward. But as Martin said, it’s ounces up and costs down.

I think the key one for us is around that grid power. We’ve made great strides on the solar side, but tying into the power line, I think makes it a huge difference. And then we — in our final year of this sort of peak stripping program, as that drops off and these other initiatives flow through, I think, we’re optimistic in terms of how that profile looks.

I’ll be honest with you, we’ve been very prudent in terms of looking at those costs. Martin spoken to that fuel price and where we sit, but we can only, I guess, plan with what we know today and that’s what we view as we exit ’22 and we use that for ’23 and will sort of continue to keep the focus on the cost base and bring that down, but we are confident that we’ll get that all in sustaining down to that $1,100, $1,200 range, which is what we’re targeting.

The one thing that hasn’t been mentioned is probably the exchange rate and we’re really watching that, you would have all seen the EGP this time last year, it was 15 to 1, this time [indiscernible] 30 to 1, and that makes a big difference in terms of the — I guess, the cost base and the local inflation versus the US-denominated numbers. So we’ve factored that all in and we believe that we’ve addressed the forecast prudently and we’ll keep the focus.

Raj Ray

Thanks, Martin and Ross. Those are pretty detailed answer. Just one follow-up on that. So the grid power, is there an update in terms of the progress, because as I understand that could have a massive impact, it’s almost 90 million liters of your 190 million annual consumption. Is that correct? Grid power and solar included.

Martin Horgan

Yes. So, I was going to say, Raj. So solar has removed roundabout about 20 million, 22 million liters a year from previous consumption and, of course, on the table is the balance of that, so it the — sold contributes about two-thirds of our power for about a third to date Eagle Pass and attractions. But, yes, so the opportunity there of course is to bring grid in, so it would be joined daylight hours, a combination of potentially solar and grid and then during the darkness then entirely grid. So that’s the price forward effectively.

So look, yes, we’ve been — in terms of process, obviously, with us having the government as our partner, obviously, we have to go through a quite correctly a tender process for all of our major contract. And that’s something that we always do. One, it’s good practice; and two, it’s a requirement with our government partners that we tend to thing. So we now are in the process of putting together a tender document, we’ve been out with just spoken to a number of potential providers that can actually do the work for us. The difference in there in terms of whether it’s a third-party that sort of does everything and sort of we bypass then through to some one performing sort of connection to grid and then we sort of self-performance in there as well.

So we’ve got a range of options, but we do have to go through a tender process because of the nature of the concession required to do that. So we’re ongoing with that. Yes, great appetite needed to support on this basis and normal recruiting stepped up to say that they can do that. I think importantly for us access to equipment and the components of the connection, switchgear and transformers and so on, that’s going to be one of the key aspects for us and then the ability to just Egyptian regulatory environment of connecting to the grid and having that permitted as well.

So we’re deep in that sort of process of developing and getting tenders out there. I think it’s a fairly short process and once we’ve done that, then we can lock-in and move for that basis. So still hopeful that we can get something done this year. I believe that is entirely possible, but just going through that sort of admin stroke concession requirements process around tendering to make sure that we can demonstrate best execution best price for that.

Raj Ray

Thanks, Martin. I’ll get back in the queue.

Martin Horgan

Thanks very much, Raj.

Operator

Our next question is from Richard Hatch from Berenberg. Please go ahead.

Richard Hatch

Yeah. Thanks, Martin and team and thanks for the call. Just a couple of questions. Firstly, can you just give us a bit of kind of granularity and guidance just on the grade progression of the open pit and the underground. So open pit grade sort of nudge down a little bit quarter-on-quarter, can you just give us a bit of a steer as to what you’re kind of expecting there? And then just on the underground as well, just sort of a modest ramp up in mine, can you just talk to us about what you’re seeing just in terms of grade progression there?

And then just also on the waste movement within the open pit. I mean, it seems like that’s running ahead of plan. If that’s the case, are there any other projects there that you kind of identified that can give you more flexibility or do you think as you sort of put it out in the previous question, once this particular slice of waste is addressed and then you can dial that back and stick to the mine plan and reduce your cash and spending on waste and turn that into free cash flow for whatever else decide to do with it? Thanks.

Martin Horgan

Yeah. Perfect. Thanks, Richard. No problem at all. So, look, I think, as I touched on very briefly before as my I sort of — my rambling preamble. Look, I think when I think about 2023 I would say that that’s sort of open pit and processing broadly consistent with 2022.

So what does that mean? So I would say that sort of open pit also ROM grade, it’s going to be sitting around that — around about that gram and I think that’s pretty consistent across the piece as well. As mine grade have been a bit lower than that because obviously we mine some of the lower grade material that goes to stockpiles or the dump leach. But when you think about sort of the tones delivered to the ROM pad from the open pit, consistent with last year, it’s going to be around about that gram level as well. So no change there. And in terms of volumes of feeding to the processing plant, that’s pretty consistent.

Similarly, with the jumping around slightly in terms of the sort of the mill feed, again, that’s sort of consistent with last year, it’s going to be just that sort of 12.25 million tones that sort of flowing through, again slightly, as I mentioned before, slightly lower in the first quarter because of that planned maintenance work that we’re looking to do around that as well, but again in terms of the total amount of the same. And in terms of net recoveries, again, consistent with last year. So I think if you think about — sort of you think about this year versus last year, yes, you can assume that this sort of open pit in terms of tones and grade delivered to the ROM are going to be consistent with last year. So that sort of 10 million, 11 million tones at roundabout a gram and that sort of 12.25 million tones at roundabout 0.88 and 0.885 sort of type net recovery as well.

So I think that the delta this year on last year versus this year is around the underground, that comes in two things. So firstly, that sort of last year we’re about 800,000 tones from the underground in terms of total ore development and stopping to surface. We want to get that back to that million tons that we know nameplate for us, so that ability to step up from 430 to 460 guidance this year to 450 to 480, the delta there is the additional underground sort of tonnage == ore tonnage to surface, there is a volume implication there that we can hit those productivity rates get to that million tons.

And then from a grade perspective, you can do the math there effectively to get that where we need it to be, we’re going to be sort of north of a sort of 5 grams for the underground is where we’re targeting for that sort of 5 grams to 5.5 grams at that million tons in the underground is what we’re planning for the underground from there. I would say that, again, I flagged a little bit earlier around that first quarter grade in the first quarter from the underground is going to be sort of slightly lower. But then we sort of pickup and get into that range that I’ve talked about their through to Q3 and Q4 from that basis as well.

So I think, that without sort of getting into too much granular detail on this call, yes, consistency ’22 to ’23 in open pit and processing, leg up from ’22, ’23 goes from underground. A volume consideration as we hit the 1 million tons of ore to surface and targeting that 5 gram to 5.5 gram type material over the year a softer Q1 sub five and then a stronger Q2. Well as planned as scheduled, that’s just where we are in the orebody and then bringing those grades back for Q2, Q3 and Q4 to bring it into the year as well. So hopefully that gives you a bit of shape as to how we see the 2023 numbers versus the 2022 performance.

Richard Hatch

Yeah. Good. Thank you.

Martin Horgan

On the waste stripping particularly, look, it’s a fixed volume contract with Capital, they are contracted to move a certain number of VCM stroke terms. They have a fixed period. Well, they have a period to do that in and, of course, they have been performing very well for us. I think working very well with our team. Some good optimization around planning and haulage and so on and they performed well in 2022. And [indiscernible] the operator there is always the kind of tension — not tension, but the balance of the trade-off between we need to move those tons to get the open pit back in compliance where we want it to be.

So those tons need to be shifted and it gives us more working areas, better operational flexibility and so on and so forth, that’s an imperative to do. Of course, that comes with a cost if you move more BCNs than you planned in the period, i.e., the calendar year, it cost you more cash. So you’ve got a trade-off, you need to move the tons to the operational mine plan, but it does come at a cost. Having said that, the short-term cost is then somewhat set off, because obviously we pay a monthly fixed fee as you do with contract process. So we’ve been able to move those tons in a shorter timeframe. It actually cost less than the overall contractual basis, because you’re doing over a short period and not paying 60 months fee. So we’re always constantly sort of trading of the sort of — having to get the work done in a shorter time as possible to basically get the operational flexibility and reduce the contract value on a fixed monthly fee basis versus compliance to plan and not burning up all the cash in the quarter, because obviously we need that cash to pay the bills effectively. So that’s where we are.

I think once we get through that work, this new life of mine sort of revision update that we do the first half of this year. It’s mainly focused on the underground expansion. But we will have a look at the open pit as well and then we’ll see where we go from there. There may be opportunities to dial back some of the stripping outside of the contract that contracted about the capital. We’re not going to touch that, but there’s opportunities there. We might find that the satellite material comes in from the concession area that helps us to level through our plans and we might sort of change how we think about sort of the geotech angles as well.

So there’s lots of work to come in. We’ll do that work over the first half of this year, but I think you can assume that once that the Capital contract is [indiscernible], that will run through. We need to do that work to get us back in compliance. Beyond that, then we’ll do some trade off work to close off this year and see where we go with the open pit.

Richard Hatch

Okay. Brilliant. Thanks for your time. Cheers.

Martin Horgan

Thanks, Richard.

Operator

Our next question is from Nour Eldin Sherif from Arqaam Capital. Please go ahead.

Nour Eldin Sherif

Yes. Thank you for the call. Hi, Martin and Ross. So just a question on CapEx and the increased guidance. Don’t you think it’s quite sizable 30%, almost 30% increase? Honestly, I was expecting normalizing CapEx to some extent in 2023. So can you give us some color if anything was added to the non-sustaining CapEx and how would you generally look at free cash flow picture into 2023?

Martin Horgan

Yeah. So maybe I’ll take the first bit around the CapEx and the plans and then Ross you can maybe talk about sort of the planning for that free cash. So look, to my mind it’s sort of three buckets within that CapEx is our, ongoing sustaining CapEx, the midlife rebuilds, underground development, all those usual cost, and we normally historically said between $90 million to $100 million. I think it’s more like $110 million this year, simply because of inflationary impact on some of those inputs to that as well. So our sort of ongoing sustaining CapEx, that’s pretty flat and I think that’s consistent with previous year. So we can kind of bank that as being sort of consistent, no significant change.

In terms of projects, obviously last year we did some pretty heavy-lifting, solar, paste-fill, a number of the previous years, we’ve looked at TSF 2 combination and so on. So this year, that sort of that [indiscernible] of growth projects or sustaining projects that’s markedly down now to that sort of in the order of about $40 million there, that’s focusing on gravity TSF further lift for continued use of the TSF and obviously the dump leach extension. We continue to mine sort of above cut off low to medium grade material and we can access that through the dump leach pads as well. So that’s obviously going to add ounces to the production profile and early monetize some of that stockpile material as well.

So again, when I think about that, that’s kind of those two buckets sort of we’re seeing those major sort of CapEx, non-sustaining development projects, whatever you call them, we are seeing a pretty big step down in those. Of course, the main difference is around that waste stripping as we touched on there and how that reports too to how we report CapEx and of course, within that element of the waste stripping a significant component of that is fuel. We’ve got to move an extra sort of 30 million to 40 million tons a year to meet our stripping requirements with the security program, that’s call it plus, minus a couple of bucks. It’s coming, round numbers. And with that diesel obviously the large component of that, you do moving within the pit as well.

So I think the sort of the — a portion of that has come from that waste stripping program, we’re significantly through now, but still got to finish off and then the diesel component of that. So I think when we think about the project spend year-on-year, we are going to reduce spend now in terms of those projects, but still some projects that we believe will have medium to long term value to our sustaining CapEx. And then of course that element of the waste stripping as well physically.

But Ross do you maybe want to sort of just touch on that and maybe and sort of how that flows through to how we think about that this year?

Ross Jerrard

Yeah. Thanks, Martin. No, that’s exactly right. In terms of our sustaining number, it has gone up from the traditional 100 million. So there’s a 10 million number in there. That’s again reflecting current prices. The cost of mid-life and a full life rebuild has moved up significantly this last year and we’ve used our exit point for ’22 again. So we’re consistent with that. So that profile has slightly increased. As Martin mentioned, the non-sustaining side, there’s basically three discrete projects there that remain, that’s TSF, paste and the dump leach that make up those numbers. And then it’s the waste stripping that sits within those numbers.

So, yes, those numbers are higher than previously flagged, but they’re not unreasonable in terms of where we sit. And with regards to free cash flow, I think, we’re coming back into the stage where that profile is reducing. It’s obviously all subject to gold price in terms of where we sit, but we are optimistic that we are on track in terms of being able to generate those returns.

I think we’ve also got to highlight and we will have a more fulsome discussion with the full-year financials. But in terms of free cash flow, we’ve continued to pay profit share out of Sukari as we’ve gone through. So we’ve been able to finance and I guess go through this CapEx profile. But we also distributing to both partners as we go through this reset. So I don’t think from a free cash flow perspective and now that we’ve got our sort of corporate facilities in place. I don’t think we feel overly harassed that I think we’ve been cautious with our approach and with the gold price, where we are, we’re going to generate some good returns.

Nour Eldin Sherif

Yes. Very clear. Thank you.

Operator

Our next question is from Marina Calero from RBC Capital Markets. Please go ahead.

Marina Calero

Good morning. Thanks for the call. I have a couple of questions. The first one is on your CapEx guidance. It seems that you are including some CapEx for the development of the gravity circuit that would — could potentially increase the recoveries at the processing plant. Can you give us bit more details about this project? Why is the total project — the total period CapEx to be? What are the timelines and what are the internal rates of return that you will get from this project with the current gold prices?

Martin Horgan

Perfect. Hi, Marina. Yes, sure. No problem at all. So where we are right now is in the sort of test work at paste-fill and so we did quite a bit of test work second half of last year, sorry. And we’re now moving through sort of some more refined and detailed testing. There is some work actually going on in the Perth Australia right now around that.

So off the back of that test work, we would hope that by the middle of this year to have a, if you like, a sort of a finalize design for — well, one proof of the sort of the applicability of gravity that’s out there, that it actually makes sense and then it is a project that has its correct sort of rate return and NPV whatever you want to call it, whichever metric you want to use. But we have a viable project that makes sense. So we’ll have that work sort of finalized through middle of this year.

And off the back of that sort of feasibility work around that, then obviously we look to then have an engineering design basis and obviously associated capital cost estimate for that. So I think by heading into sort of mid-year into Q3, we’ll be at the point whereby we’ve got effectively like a mini internal feasibility on it and an accurate CapEx and sort of execution count for that.

Gravity circuit aren’t particularly complicated pieces of equipment. So then, in terms of securing the underlying concentrators and then the various parts of steel work and concrete and tying into the existing processing facility that obviously that’s something we’ll execute over second half of ’23 and I would hope that assuming that everything lines up is the background circuit would come in during 2024. So that’s a bit of an overview.

In terms of CapEx, as you can probably see that we’re in the process of doing that. We’ve done some internal work at this stage, you might consider it to be a scoping study PEI type level fairly broad ranges of CapEx within that. So what I’d like to probably do, Marina, is wait until we get a bit more detail around this next stage of test work and sharpen those numbers before we went public with what that might look like in terms of CapEx cost for that to fully install the [indiscernible]. So I would hope that maybe during the Q1 update sort of later on in April that we could probably have a bit more clarity around the numbers there, so I’ll just hold back on that, I don’t want to put some numbers out there, but then sort of get this approval test work and we have to roll back for now, but the process is underway.

And of course as you’d expect, once we’ve got those numbers in place, then we can start understanding sort of the IRR return on that investment as well. So that’s where we are in terms of the gravity circuit, both timing process from here to install it and then obviously the sort of the returns of that metric as well.

Marina Calero

That’s very clear. And I have another question on cost. Can you remind us what is the current diesel price in Egypt? And apart from the solar plant, what other cost savings have you factored into your cost guidance?

Martin Horgan

So in terms of diesel it’s set on a monthly basis by government and it’s set in EGP and then so we have to back it out against the exchange rate. But as we sit here today and if I could look at Ross, we are virtually separately [indiscernible] I’m in London. But if I could look across the desk, I would look at Ross, and I’m going to say, we’re sort of high-80s, just under $0.90 a liter at the current price for diesel. Is that correct, Ross. Don’t embarrass me now, Ross, but is that correct?

Ross Jerrard

That’s right. So I mean exited year [Multiple Speakers] $0.89, we’ve budgeted $0.90, we’re sitting just on sort of just $0.75, it’s EGP21.23 per liter. So, depending on which — how that exchange rate moves in EGP and US, but basically that number. And that’s key question in terms of where we sit, Marina, it’s just how that fuel price moves in EGP in relation to the EGP-US dollar exchange rate, because that’s been moving very quickly over this last year.

Marina Calero

Okay. That’s clear. And then what other cash — what other cost savings have you factored in your guidance apart from the solar plant?

Martin Horgan

Well, Ross, do you want to – Sorry, Ross, you crack on some of it.

Ross Jerrard

Yeah. So we factored in that full impact of a number of those initiatives that have come through our cost savings program. So the full impact of the truck trays, the impact of the solar plant, the decrease in the usage or utilization of a number of our processing cost and consumptions in terms of volumes. However, that has been offset in terms of some of the exit prices in terms of — from a price perspective, so cyanide, caustic soda, grinding media, et cetera, et cetera. We’ve used that lower usages in terms of a number of those projects in the processing plant. But from a pricing perspective, we’ve used the December exit price that’s gone through.

And then going forward, it’s obviously the grid power and a number of these other initiatives that we’re allocating CapEx and cost and things that we’ve got to build those into future profiles. But that’s more at end of ’23, ’24 type timing.

Marina Calero

Okay. That’s all from me. Thank you.

Operator

At this moment, there are no other questions on the telephone lines. So we will pause for any webcast questions.

Alexandra Barter-Carse

Thank you, Seb. Not — only two questions at the moment for you, Martin and Ross. First one is, you speak about striving to be a multi-asset producer. When do you think the company will diversify and bring online a second mine?

Martin Horgan

So in terms of our in-house opportunities, obviously, in reverse order, EDX in Egypt is probably sort of the earliest stage. So I think anything stand-alone that we discovered in Egypt would be seven to nine years away. I do think there is opportunity to find satellite feed that would come into Sukari on a much more timely basis, maybe a three to five year basis and obviously that doesn’t sort of strictly give us sort of country diversification or asset diversification, but we had another orebody that we can process. I’d argue slightly there is some diversification away from the Sukari pit.

But Doropo clearly is at this stage the most advanced opportunity we have within the portfolio and timelines remain the same. So we’ve got until mid-September 2024 to deliver a feasibility study at Doropo. We remain on track to do that. And on the assumption that all lines up and is positive and a decision is made to go forward in mid-’24, that puts you towards the end of ’25 for that to come through as first gold.

So look, I think, that’s where we sit on the current asset base that we have and that we can do have Doropo would be 25 a hub-and-spoke type satellite type opportunity within Sukari could be a sort of three year to five year window. And of course the longer-term opportunity, but that’s a seven-year to nine-year type window within Egypt as well.

I would say though that sort of with us having created this platform now having sort of got a sort of confidence in Sukari, confidence in West Africa, sort of a share price that has started to reflect confidence in the company again and obviously benefiting from gold price strength as well is that I think we’re now in a position that we could consider inorganic sort of opportunities to grow. I would caution that they’re incredibly hard to: one, find things that make sense; and then two, if you do find something also incredibly hard to execute in a sensible way as well. So, I don’t think anyone needs to worry that we’re about to rush out on a spending spree with the company credit card, but I do think that we remain opportunistically looking across the market for things that might make sense for us, but they are very few and far between things that are good tend to be sort of good and expensive because they are good. But I do think we now are in good position that if we were able to identify some of the opportunistically then we could react to try and for sure that’s a multi-asset, multi-jurisdictional approach in there.

Alexandra Barter-Carse

Great. Thank you. So, unfortunately, a couple of other questions have come through since. So, one, which I think you have answered already, but you need to speak to the 1% to 2% potential upside in the recovery. When do you think that to be realized?

Martin Horgan

2024 on the assumption that all flows through. I think with the work streams and with the programs we’re looking and the construction timeline, that feels that it would come online in 2024.

Alexandra Barter-Carse

Okay. Thank you. Then on the 2023 CapEx slide, you mentioned the dividend policy and 30% of free cash flow. Can you just clarify that a bit more, how the policy works?

Martin Horgan

Absolutely. Ross, do you want to take this one?

Ross Jerrard

Yes, no problem. So our dividend policy is a function of free cash flow. It’s a two-pronged policy. So the first 30% of any free cash flow generated gets allocated against the dividend part, and then we reassess and look at both growth opportunities and requirements for the business and allocating any portion outside of that from a free cash flow perspective against that dividend policy.

So as part of the signing up of RCF and also as we announced in terms of the capital allocation a review that will complete Q1 and announced that will certainly before the half year, we’ll be looking at and announcing our capital allocation and also looking at the dividend policy in conjunction with that to provide appropriate balance between both growth and dividends, and make sure that that balance is well met. But the dividend policy remains the same. And sorry, we pre flagged the ’22 dividend, but there is no change in the policy as we stand today.

Alexandra Barter-Carse

Thank you. And then in view of the success, the company has had been the underground operations in house increasing productivity and lowering cost, would you consider doing the same for the waste stripping operation?

Martin Horgan

Look, we sort of 12 to 18 — well 12 to 18 months to go on that project. The sort of the capital expenditures, sort of, you know to acquire that fleet and bring it in house versus and having excess fleet available around the site, it doesn’t feel to me — look, I mean, it doesn’t feel to me that that would be a particularly good use of funds to do that. There are other opportunities where we can I think use fund to do that. So certainly not something we contemplating this stage, I think we brought that the contract in on a capital efficiency basis we acknowledge that it was a slightly higher OpEx sort of cost in doing ore mining actually not that much more, given the fact that we were asking capital to do large scale bulk mining of waste and with a relatively short haul to dedicated dump. So it’s not that much more expensive than our sort of our own use rates of course they go much deeper in the pit and hauling further to waste dumps.

But we rapidly we acknowledge that there was an OpEx sort of increase for that, but when we balance that off about the sort of the capital cost of buying the equipment we need to buy to bring that into operate it at the trade-off show quite clearly that higher OpEx for a relatively short period of three-year short period of time was a better return on capital and buying additional fleet with only use for a limited period effectively as well. So that was a decision that we tendered and when we done back in 2020 and we have successfully through that project right now.

I think without reading the numbers, but I would feel intuitively that it’s the same because it make sense now to bring that in house. What is now effectively a minor end of the call. So without the thin end of the contract in terms of winning that off it.

Alexandra Barter-Carse

And against an average life of piece of care of seven, eight years?

Martin Horgan

Yeah, look at. Yeah, it’s a bit like triggers [indiscernible] only horses these trucks, they tend to sort of it’s a four engine three truck trays and two chassis. So it’s the same truck, but it’s been rebuilt multiple times, but you would argue that that’s a sort of seven to eight year window would be a reasonable assumption. Some have lots we’re hours and that because I said have been built as suppliers, but yes. So a three year stricter requirements with an eight year piece of kit obviously what you do that the four to five years. And of course we’ve got to be cognizant impact of once you buy a piece of equipment, it belongs to Sukari because it belongs to Centamin and at the end of that equipment usable life we can’t sell that equipment that equipment then is transfered to Emirate, the Egyptian states as well.

So if we were — if we had a under our terms of our concession, we were working in Senegal or Ghana for example we could buy a bit of equipment use it and then we could sell it and we keep some of the residual on that. Here, of course, we buy a piece of equipment, we use it for three years, and then we don’t have the right to sell it. We then have to transfer it to Emirate as well. So I think people just need to think about that when they’re looking at that contract and looking at how we do that please bear in mind that the assets are transfered to Egyptian state after their useful life at Sukari as well.

So we wouldn’t get that sort of, you know, we bought something for $3 million use it for three years, we couldn’t then sell it to $2 million, we buy it for $3 million, use it for three years and have to give it to Egypt. And then obviously doesn’t make sense for the business.

Alexandra Barter-Carse

And I guess one last thing I would add to that is just kind of perhaps misconception that actually the sentiment owner operator fleet is doing two-thirds of the material moved that is —

Martin Horgan

Yeah, with our own fleet is kind of got slightly massive and our own fleet is now operating at its highest ever level of material moved 92 million, 93 million tons and that is a record — when I joined in 2020 we were moving around about 70 million tons. With the same equipment and same operators, we’re now up to like 90 million tons as well. So our own fleet before we brilliantly through planning maintenance sort of optimization of haul routes, those are high capacity lightweight truck trays, all those things, these are our own fleet itself absolutely humming along and actually a bit of healthy competition between our own fleet and capital guys [indiscernible] as well, it’s quite nice to see that, but our guys are absolutely flying along as well.

Alexandra Barter-Carse

Wonderful. That is all the questions from me.

Martin Horgan

Thank you very much. Well, look, in that case then, I would just like to thank everybody for joining us this morning. As I say, probably 2023 with a good momentum, quite a bit of excitement and confidence as we head into this next year. And I think, looking forward to another year of kicking off those milestones as we won’t deliver Sukari back to 500,000 ounces at competitive all in sustaining develop the full potential within our portfolio both in Egypt and West Africa. And then look to those opportunities become a multi-asset multi-jurisdictional producer and in doing all that continues to position ourselves as offering both growth and returns for our shareholders as well. So I want to say thank you to everybody Happy New Year again and look forward to continue to update you about 2023. Thank you very much.

Operator

This concludes today’s conference call. Thank you for joining. You may now disconnect your lines.