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Executives

Andy Davidson – Head of Business Development and IR

Andrew Pardey – COO

Pierre Louw – CFO

Josef El-Raghy – Chairman

Analysts

Bruce Alway – SocGen

Cailey Barker – Numis

Jonathan Guy – RBC

David Chapman – SafeHaven

Andrew Mikitchook – GMP

Centamin Egypt Limited (OTCPK:CELTF) Q1 2013 Earnings Call May 15, 2013 4:00 AM ET

Andy Davidson

Good morning everyone and thanks for joining us. First quarter results presentation. Got the full team here again, the full management team as we’ve had before. Those on the call are Josef El-Raghy, Chairman and CEO; Pierre Louw, CFO; Andrew Pardey, the COO; and myself Andy Davidson, Head of Business Development and IR.

Okay. I will on correct on, the first slide kind of capsulate with – pertaining with where the in terms of investor sentiment overarching media driven procession, as Egypt being a very difficult, if not impossible place to do business and invest. Reality as we continue to demonstrate with record course of the results and production figures is very different. We continue to operate, its challenging. The government is clearly struggling at times and lacking in fund wanting, should we say in certain respects in their actions, but generally we get over those challenges and deliver the results.

We have two coal cases as you will know, which are more of a distraction really than anything again in terms of the perception and the overarching feeling that things to do with sentiment in Egypt. Generally are overly risky, the fuel, coal cases ongoing. We expense now and have done since the fourth quarter, the full cost of the international fuel price and that’s treated as an exceptional item and that done in the fourth quarter and in reorganization of the fact that even though we are very confident that we will win the coal case, we have a very good argument except a positive outcome. It will be very difficult in reality to reclaim cash funds from a government which is essentially broke. When we win the – if and when we win the coal case maybe other means by which we get the credit for the historical costs but on an ongoing basis, we continue to pay the full price on a cash basis and we expense now the costs as – through the P&L on the cost reserve.

The concession agreement coal case is again ongoing. We are entering the formal appeal part of the process where the supreme administrative court start to hear the merits of the appeal that will happen from the 19 of July, sorry, June. You had a clearly positive development on the 20 of March, where the Supreme Court saw the exploration lease and they agreed that it was valid and they made a statement rather fact and saying it was very likely that we will win the appeal on that basis.

And therefore, at the same time they ruled that the original judgment was suspended pending the outcome of the appeals. So, we think that’s a very clear indication of the state of mind, the feeling of those seven judges that sits on the supreme administrative call. It’s certainly a much better indication of the way we expect the things to go forward then was the advisory report that came out last week, which was more to do with the amative political arguments put forward by the complainant in the original case and less to do with the merits of the appeal.

And we think that will be seen forward it is, when the appeal is heard properly before the Supreme Court that report last week which we advised the market of his advisory and nature of the court is under no obligations to follow the recommendations of that report. And as I say the 20 of March ruling and the statement made by the court at the time is a much clear indication of why we expect things to pan out.

Okay. So that aside, and on to relevant matters of today. First quarter, was again a record quarter of production 87,000 ounces up 2% on Q4, which was a record in itself. And again, the operation really – driving really well on all fronts mining, underground open pit mining performing well in line with budget grades and tonnages and the processing plant consistently delivering high rates of productivity.

Our guidance this year is 320,000 ounces, we are maintaining that guidance, we obviously had a good quarter this quarter. And the first quarter, the operation continues to go very well. We built in an element of conservatism to that 320,000 ounces guidance, realistically, so bearing in mind the stoppages that we had last year and the challenges we had last year. It is so far so good this year but we are comfortable with that 320,000 ounces forecast at a cash cost of $700 an ounce.

The cash cost this quarter was clearly well below that level. We had a large degree of broken stocks in the open pit in the fourth quarter – at the end of the fourth quarter. And that reduced the cost of blasting in the first quarter and we also had some capitalized open pit cost that came in more in the first quarter than will be the case through the rest of the year. So, we are sticking with the $700 an ounce guidance and it will come back towards that level over the remainder of this year.

Quarterly EBITDA record and earnings obviously feeding through from the production and the cost control, strong cash position remains just under $190 million from cash in liquid assets. Stage 4, we have continued to remain on track with that as per current guidance that it will be complete by the end of the year. And on budget for $325 million expenditures we spent $274 million to-date, so roughly $50 million left to go over the remainder of this year.

Exploration growth, Andrew will talk more about this but we’ve continued to explore at Sukari and in Ethiopia indications are good from the drilling to clear Sukari with the high grade zones. But, with that I think I will hand over to Andrew.

Andrew Pardey

Thank you, Andy. Good morning. As you can see on the operational front the open pit mine has really improved from Q4 into Q1 of this year. And that’s a function of – we bought a new face shovel online last year and that’s really come into – operational guys are understanding how to operate it and we are seeing a lift in production coming out of the open pit.

The underground as well, the underground is progressing well. We did have a few minor hiccups with some of the (bogies), they are only minor issues and also a truck issue again. Again, we are on top of that, we also have some more new equipment coming in another new truck which will be on site in July.

The processing plant, we got a lot more automation going on in that area and we have been out to really lift the free put up from the previous quarter from 1.2 to 1.4 million tons. And importantly the other significant continued on that good work of – working on the recoveries to lift the recoveries from the existing operation. So at the moment we are on budget. We are increasing the throughput for the processing plant. As Andy said, for our unit of lower fiscal capitalizing doing a lot of ramp development in that – on that western way stump areas then we should see the cost – heading back towards the 700 for the second part of the year.

Gold production as you can see was 2% improvement on Q4 in 2012 and we are still on our target as we say 320,000 ounces. Okay, again, you can see on the first graph the open pit mining again, you can see the significant increase in production for the quarter so just over 10 million tons which is up 56% on Q4 and again the underground productivities coming up and I will be staying around those levels.

From the production from the underground we had the development ore was lower grade and it was a (ransom) ton and the production ore coming out of the stopes is around 13.5 gm/ton. The reason for the lower grades in development ore, we were creating some alternative access on the 875, 870 and 850 in one level, so that we can bring more of stopes on line, where the existing stopes was restricting access or you extra development in, so we can continue on with the other stopes in that area. So we will have multiple stopes operating available to operate on those levels.

Again, processing, you can see the ore tons processed, we had no disruptions in Q1 of this year, 1.4 million tons, 12% increase on Q4 2012, and we are exceeding our online pike capacity of 5 million tons per annum.

We have high productivity continuing on. We have done a lot of work in the processing plant, we now got a segment reline out to every four months. We are developing a strategy try and push them out to five months. And also, we have reduced the amount of time it now takes to complete reline. We just completed a full segment (inaudible) relines in April in 48 hours. The segment was completed in 36 hours.

So, again, you seemed the full, but we are half way along the growth curve from and production in 2012, and we are going through that growth 320,000 ounces in 2013 and our long-term plan is, lifting that production to up about 450,000 ounces.

Again, you have seen this, the growth of Sukari, is there growth around Sukari that we are working on and there is growth beyond Sukari, we are also undertaking an exploration work in Ethiopia. And the stage for expansion is going along as scheduled and as expected. And we expect to have this – bulk of this completed in the second half of the year with commissioning and the second half of the year. As I said before, the segment was in all position (inaudible) is now in place, piking there is a lot of piking work going underway, cable trays et cetera all being put in position. So it is progressing forward as we expect.

Underground again, we got the Amun decline, which is most the stopes have come out through, this area in the Amun, we also got Ptah decline progressing, the Ptah decline is now with – we have joined up the ventilation so Ptah decline is completely independent of the Amun decline, we have just commenced independent firing in that area previously we had fire holder is at same time, now we can independently fire. And the other thing we just started this month as well as the first cross cut from Ptah across to the where the ore body will be. And we expect to hit that first part of the ore body in mid-June, there is a 300-meter cross cut going and we are 50 meters in on that cross cut as we speak from the Ptah decline. So we have one full time development crew now solely working on Ptah decline.

Again, just spoken about this but Ptah is going well and Amun is going well. And we also continue to work on Sukari hill at the northern areas and we got the regional exploration going on out of (inaudible) area, which is coming up with some interesting geology at this stage.

The other thing I should have mentioned is, Ptah we now have four of the bid drilled rigs underground or drilling out the depth extensions of the Sukari for free, the for free discommenced last week. So we got the great control rigs, we got long haul rig and we have now got four out of 90 rigs drilling that deeper exploration and increasing the – working on the life of mine to the underground, outside of the Sukari open pit.

Growth beyond Sukari as well. We are working on our northern blocks in Ethiopia, most of the first quarter we spent drilling around Shahagni and we just moved onto the (inaudible) license. We are still waiting for results to come in. The geology showing interesting geology still waiting on se what sort of grades coming through, as you rolled away. We also have increased our interest in Nyota and we are taking a very close interest in what’s going on in that part of that county as well.

Okay. I will now hand over to Pierre for the financials.

Pierre Louw

Good morning, everyone. I guess there is nothing much I can add to what both Andy and Andrew said. They have gone through the numbers already in the headlines but I think to complete this, let’s go through that.

Revenue at $138 million 58% on Q1 that was a 6% increase on the loss, 1% increase on the last quarter, difference coming in production plus 5%, gold price less 6%.

Next item I would like just, quickly discuss over the year, which both of them have touched on the cash cost for Q1. But, they have mentioned that we had a lot of broken stocks in December which we played through December obviously. It ended up us having a January month where we basically had free dig-in. So a lot step happened during that period. While we add that 3 dig, we also decided that there is a lot of infrastructure for the year that was budgeted will put that in place.

So the guys did that. So some of our cost would capitalize in (REMS) for instance, ring around the pit and so our holes with the issue as well. We also put a little bit of tons on the tiling storage facility. This is not sustainable for the rest of the year, our cost would go up and we will be running between 720 to 750 for the year and ending at about $700 an ounce as we said previously.

Just continuing record EBITDA 81.7, profit before tax 71.9, earnings per share up to $0.66, so quite a good quarter from earnings point, cash cost per ounce I just discussed, I think for the remainder for the year as I said, we will remain at 720 to 750 number bringing us almost about $700 an ounce.

You can also see a bit of a breakdown of the dollars per ounce on the right hand side in the graph, open pit morning 148, G&A 52, processing 320 and mining normally takes up the lion share, this is quota as I said it was really light.

Our margins remained quite healthy at the moment our cash margins remain around $1,000 an ounce. So, we remain unhedged and we do not have any debt on the balance sheet and we don’t see that changing at the moment. We continue to protect ourselves against the weaker gold price by reducing our cost. So, we have a very big cost drive onsite.

Cash and bullion gold sales so, we ended up with $188 million down from $220 million at the end of the year. Most of that money was spend on Stage 4. Cash flow for the year in Stage 4 this quarter was $51 million and which as you can understand that – there is a quite a big chunk out of our cash. We’ll continue to fund Stage 4 out of our profit – our cost recoveries from government and with the gold prices as they are at the moment there is kind to be no need for us to take additional funds into Egypt.

Cash generated from operations $78.9 million, and Stage 4 total expenditure as Andrew explained further earlier $274 million. We are looking at about $325 million including all contingencies at this point. We’ve just done another exercise. The number have not changed since the end of the year. So, we are getting a lot of comfort on that number now is doesn’t look like any surprises coming on way. Andy?

Andrew Pardey

Just to wrap-up with a few slides, it just follows on really what Pierre was saying a strong cash generation $79 million of cash obviously in Q1 that really just indicates that we will continue to fund and complete Stage 4 funded out of the cost recovery process from cash flows from the operation with about $50 million left to spend through the rest of this year. So, we are really broken the back of Stage 4. We’ve now got to deliver the commissioning process that would be complete by the end of the year.

Cash balance still remained strong just under $200 million and $190 million at the end of the quarter remained debt free and hedge-free and really I think the next slide actually indicates where we are getting to, as we are coming out of this investment phase where we funded or the growth from operational cash flows Stage 3, Stage 4 and through the course of the remainder of this year and into next, we really tail off our CapEx commitment to a long-term steady level in the region of $50 million to $70 million per annum.

At the same time is ramping our productions about 450,000 to 500,000 ounces per annum, long-term for 20 EMI. So all in cash cost basis which are now is what people like to think about these days. We think that guess is around about $800 to $850 ounce all in long-term, once we have Stage 4 out of the way and that is clearly very competitive against the payer group that average around about 1,200 at best probably more.

So, we’ve got a very healthy margin even in low – much lower gold prices and we even have now and obviously makes us robust from an operational point of view and starting to be recognized in some of the commentary we are seeing and very competitive against our peer group. None of the I will say from the operational side even if the gold price fall substantially from here there is nothing we need to change in terms of mine planning research in the reserve – the loss reserve calculation was done it $1,100 gold, a $10.1 million ounces and so that’s not going to be change even if we have another significant drop from here.

So, a very robust operation, very robust earnings reflected in good returns on invested capital much better than the peer group almost doubled the average of the peer group through the overseas numbers, thanks to them for this and it’s obviously a function of that healthy long-term cash margin.

So, in summary again, you’re seeing this before near-term delivery of Stage 4 continue to ramp up the underground open pit activities and build on easy IPO as I know some objectives and get towards the 450,000 to 500,000 ounce level over the next couple of years, the same time look at selective M&A opportunities, we continue to looking the Arabian and European shield, the region for option opportunities as lot of as you would know junior companies struggling for funding development stage, companies struggling for funding. We continue to look at those opportunities, potential opportunities this other coming months, not ready to do anything aggressive right now but it’s something that we, we consider for the medium term.

Again, and then in conjunction with pushing our exploration activities in Egypt and Ethiopia. So, this is a summary, summary slide, this basically says we’re all about production growth cash margins reserves growth potential from the exploration at Sukari and beyond and a strong financial position plus cash on the balance sheet, not need to pick into that for funding the remaining minor, amounts of remaining expansion CapEx that we need to do over the remainder of this year.

I think would that, we would close and open it up for questions.

Question-and-Answer Session

Unidentified Analyst

Congrats. Just one quick one, I think you’re originally had the profit share starting at kind of June this year or somewhere around your guidance towards and then the results you’re guiding of during FY 2014. Sorry kind of from June, I guess that July next year, July to June, any further clarity on the timing of that kind of in terms of how it falls within that year?

Andy Davidson

(inaudible).

Pierre Louw

I’ll make, our measuring time is normally June every year and, and we do have six months in measure as well. And with the gold prices coming off, it’s becoming very marginal whether they will be anything before 2014, if the gold prices remain at the levels that are for, for this month basically up to end of June, I cannot see of having any share at June this year. If you don’t go backup little then they could be something, something that, it is, you know it is, it is a very large model with every arms coming up and the cash has being spent the operating cash that’s being expensive.

Andy Davidson

Maybe Youssef wants to say something on the reasoning for the advance.

Josef El-Raghy

We might voluntary preplan during the quarter to put to get a big ahead of where we were last year which was being criticized in some circles within Egypt for three years of production with no profit share. So, we took a model into the Mineral Resource Authority where we elected to defer voluntarily, some options are fatigues for the covered area and the like to that in order to have a figure of $8.5 million that we could pay and we did pay because we had a value cash in the operating company in Egypt. So, it was in no-way renegotiation of terms of the concession as voluntary and proactive and we might do it again mid-year as well because it also helps with us managing treasury.

So, we will not get a $50 million, $60 million hit at somewhere next year, we already taken into it. If we were to do it again, even though as that says it’s marginal, there was nothing to share in June. That would be in that sort of range as well or would be. We would also like to pay mid-year and that’s being a set, it’s not supposed to be an annual payment, so in order to try and get the year off to a good start which I think we did.

Unidentified Analyst

(inaudible). You’re holding quite a significant cash balance in the balance sheet, do you think there would be any returns and is that cash out in Egypt or is it out in more western country?

Andrew Pardey

About 130 million outside of Egypt and returns by our dividend, that’s what you got. Dividend or buyback we’re looking both as we said earlier in the year, we’re pretty keen to get a bit further into Stage 4, I’m not sure I had a good handle on cost to complete before paying money away. And we’re getting pretty close to that point now. So, I think, it’s a lot discussion or something we’d like to in background at these sort of levels, we become a fairly compelling you who want to do it without sacrificing any of that longer term exploration development and production goals which I think we can do it looking up what we put ahead of us for the next three to five years.

Bruce Alway – SocGen

Bruce Alway from SocGen. Just are there any outstanding permitting issues with the growth to the expansion Stage 4?

Andrew Pardey

When we went into Stage 4, we permitted all the construction, the one thing we might note up in the quarterly is increasing the amount of – amount not that we use on a daily basis. But that’s underway in terms of – it’s more of an explaining what we need to use it for. So it’s not an import permit or anything like that. And I don’t see that being an issue to well progressed, we had another visit on site from the military guys, administrative production and at the endorsement of the Minister of Petroleum after his visit, he went and spoke to them administrative military production, so which will be in place by mid-year apart from that nothing.

Bruce Alway – SocGen

Thanks.

Cailey Barker – Numis

Okay. Cailey from Numis. Just a couple of minor questions, one just on the Dump Leach, I know its small but it was doubled what you did in previous quarters, is that a trend you expect to continue?

Andy Davidson

Cailey, it’s been a function of working on improving the recoveries as a result of the thing other improve as recoveries, we have been able to pump more of Dump Leach solution back into the plant. With the current sales of (inaudible) coming towards the end, so it is going to be a bit of reduction and then the new sales would come onto irrigation. So, we will see for the next quarter, we will see a reduction in Dump Leach ounces.

Cailey Barker – Numis

Okay, excellent. And then just a sort of six weeks into the next quarter, I just wondering how operations are going so far great and safer?

Andy Davidson

Operations are going well with production from the open pit is on budget, the underground is on budget, processing is slightly above budget even with a complete reline having taken place and the operation is performing well.

Cailey Barker – Numis

Okay, thanks.

Jonathan Guy – RBC

Jonathan from RBC, could you just give us your thoughts on now Nyota and how you see the strategy planning out in terms of your 19% holding at the moment and what’s your view is on Tulu Kapi as a project?

Andy Davidson

Well, because Andrew said, we liked the region, we like what’s in Ethiopia seems very perspective. So, it’s good project so far but it’s not ready to go. It’s not at the stage where the baton can be pushed and getting to development phase. So, we think it needs another couple of years of exploration to prove up what surrounded and where the high grades are, whether controls on mineralization and a little bit more work on geology, understanding the geology during a bit more drilling. As of now, with shareholders, we continue to represent that with our shareholders and we’ll see how things pan out.

Unidentified Analyst

Good morning guys, congrats on your best results yet. Just a question on stockpiles given that the gold price has fallen during April, do you expect to take a write down on stockpiles in Q2?

Pierre Louw

We do that continuously. With every quarter, we revalue the stockpiles. So, we would have taken a hit already in Q2 on stockpiles and if gold price keeps going down, we would try to submit in Q2.

Unidentified Analyst

Thanks. And second question is about your reserve update in the midyear, can you just give a little bit more details as to what is going to go in as Ptah decline exploration going to go in there or not?

Andrew Pardey

All the exploration will be going into resource update and then obviously after resource update is completed, laid in pit in underground and we have to go on work on our reserve update.

Andy Davidson

Well, I think it’s fair to say that with the development increasing and the amount of data obviously we collecting from the drilling increasing with that development and more meaningful increases from that component of the resource from underground is going to come next year and subsequent years. That seems really, withstanding development getting access and everybody drilling it and that’s an ongoing process and understood in the relatively early stages of that.

Unidentified Analyst

Good morning. (inaudible). You mentioned in this morning’s announcement, your interest in the Arabian-Nubian Shield and beyond, I was wondering if it’s a pointed statement or if you can give any more color on what sort of acquisitions you’d like or to look at that you find interesting?

Andy Davidson

We don’t stretch ourselves geographically. We are going to go looking, move to South America or way outside of the area where we are currently operating, believe in West Africa is too far in that point of view. We just keep our eyes open in the region. The Arabian-Nubian Shield is our area of immediate interest. There are fairly limited opportunities there because it is an early stage region in terms of development at the mining industry. So, we just continue to evaluate other potential opportunities in the region, don’t want to get into specifics of countries but we don’t want to stretch that too far.

Okay, okay. So, are there any calls from the line?

Operator

(Operator Instructions) Your first question comes from David Chapman (SafeHaven). Please ask your question.

David Chapman – SafeHaven

Good morning. Could you talk a bit about the new Minister of Petroleum who was recently appointed that the prior incumbent who gave you opportunity to be on TV and on the press supporting sentiment, as the new Minister taking any such positive steps from your view?

Josef El-Raghy

We haven’t met with the new Minister he was only appointed last week. And we didn’t meet with him in this previous post at AGPC because he was only been there a few months as well, I can’t say until his induction. There haven’t been any comments about the mining sector that we are aware of.

David Chapman – SafeHaven

He doesn’t have a bad reputation though.

Josef El-Raghy

No.

David Chapman – SafeHaven

Thank you.

Operator

(Operator Instructions) Now your next question comes from Andrew Mikitchook from GMP. Please ask you question.

Andrew Mikitchook – GMP

Good morning. I think a lot of the questions have been asked but maybe Andrew if you just comment on the recovery obviously very strong in the quarter and so what degree is that maintainable? And then would you still expect an increase when the new (bills) comes on line?

Andrew Pardey

Andrew, we’ve done a lot of work on automation of the processing plant. We’ve also done a lot of improvement in the illusion circuit with new valves that can handle much higher pressures and temperatures. So, we are now going to increase the number of strips that we can do in a period of time and obviously increasing the number of strips reduces the carbon 12 time in the circuit and so as a result of that, you can increase your absorption of gold onto the carbon and turn it around. So, we feel that is sustainable and the important thing now for the new carbon regeneration kiln is, when Stage 4 comes online, we have the same circuits, we have the same CIL circuits that we’re going to have double the volume going through that circuit and that’s where the regeneration kiln is really going to come into its own.

So, we are going to have a lot more gold going through in the same circuit there is no expansion on the CIL side of the plant. So, it’s going to be very important that we can turn that carbon at the same rate and at the higher temperatures. So, we can sustain that recovery.

Andrew Mikitchook – GMP

Okay. See, you’re comfortable in sustaining numbers like what prepared in this quarter and last quarter which were kind of better than previous and all of being equal, we shouldn’t expect a significant increase when the account comes on, as you start, the stability to handle larger volumes?

Andrew Pardey

That’s, that’s correct, Andrew.

Andrew Mikitchook – GMP

Thank you.

Operator

(Operator Instructions) There are no further questions. Please continue.

Andy Davidson

Okay. That’s great. Well, thanks everyone for coming any time, we will have it post. Thank you.

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