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Executives

Andy Davidson – Head, Business Development and IR

Andrew Pardey – COO

Pierre Louw – CFO

Analysts

Maurice Mason – Peel Hunt

Tyler Broda – Nomura Securities

Dmitry Kalachev – Canaccord Genuity

Daniel Lian – Bank of America Merrill Lynch

Jonathan Guy – RBC Capital Markets

Fletcher Tully – Goldman Sachs

Kate Craig – Liberum Capital Limited

Bart Jaworski – Haywood Securities

Centamin Egypt Limited (OTCPK:CELTF) Q2 2013 Earnings Call August 14, 2013 7:00 AM ET

Operator

Thank you for standing by, and welcome to the Q2 and Half Year Results Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. (Operator Instructions) I must advise you that this conference is being recorded today, Wednesday 14th of August 2013. I would like to hand the conference over your speaker today Mr. Andy Davidson. Please go ahead.

Andy Davidson

Thank you very much and hello everybody and thanks for joining the call. I am hope you’ve all been sent the presentation. That is on the website and you’ll get it through the link on the website.

I’ll then provide to stick through the presentation page by page; it’s a pretty straightforward set of results this quarter. I think we just flag the highlights and then go straight to the Q&A. I’ve got with me here on the line Andrew Pardey as Chief Operating Officer, and Pierre Louw, our CFO so, well placed to answer any questions you may have.

Just to go on then and cover the main highlights from the results. It’s another record quarter of production as we were flat about a month ago. We produced over 93,000 ounces in the second quarter which is an 8% increase on the first quarter, that’s three record quarters in a row net production and shows that our pricing is well on track for the long-term target.

It’s on track with budgets, the guidance and our expectation and it’s the – the key driver in there really is mining – open pit mining being in line with expectations.

The underground productivity is an increase on the first quarter and that increase is really in line with our long-term expectations now it’s hopefully producing for the long-term production rates in our forecast.

The plant is operating consistently above nameplate capacity and recovery has increased in the second quarter over the first quarter at round about 90% level and therefore, the top of the range in the second quarter for our long-term expectations on recovery. Another key driver there is good performance with the production in the quarter.

Earnings were clearly affected by the drop in the gold price and they fell in line pretty much driven by that drop in the gold price which is down 15% on the quarter. EBITDA was down 22% on Q1 to $63.7 million. Earnings per share was down 28% on Q1 to 4.75 cents.

The other thing to flag is, in line with what guided in the first quarter, there was an increase in open pit mining costs. And Q1 was exceptionally low in that respect as we stated in the first quarter due to an excessive broken stocks coming into the start of the year in the open pit and the show all this differences in Q1.

So Q2 costs has come back in line with expectations. The $690 an ounce is inline, again with our full guidance. So very much on track in terms of production and costs for the full year.

Cash bullion in equivalents, cash equivalents position was $169 million for the end of the period, that is $189 million at the end of Q1 and that just again reflects our strong balance sheet position.

In terms with page four, that’s clearly where we are reaching the stage as we’ve guided previously where we start commissioning in the second half. $300 million of the capital to total budget $325 million, $300 million of that spent to-date, so again funded of course from production and cost recovery prices and cash flows from the production and we continue to expect that commissioning, the bulk of commissioning will be complete by the end of this year.

In 2014, we will start to see the material impact from the expanded plant. On exploration and growth, we continue to push with drilling on the underground; Sukari was on the prospects around Sukari hill. That’s ongoing process and it will feed into a resource reserve update that we plan sometime in the second half.

Drilling in Ethiopia has continued and that really is an ongoing early stage exploration process. So that continues to track along. And our strategy remains to continue to grow and diversify and we’ll continue to look at projects and essential opportunities around. So of course, nothing to report on that at this stage.

In respect to the wider issues, the court case is still ongoing, no material change there. So we expect an outcome or the timing, we continue to expect that to continue through 2013. So I think, really in summary that’s all I wanted to say on the highlights. I’d like to just open it up now to questions please.

Question-and-Answer-Session

Operator

(Operator Instructions)

Your first question comes from Maurice Mason. Please ask your question.

Maurice Mason – Peel Hunt

Good morning Andy and congratulations on a very good set of results. My question is really on the new Minster of Petroleum. You made a reference on slide three that the petroleum ministry has been entirely supportive of the court case. Is that true for the administration that was appointed last month, so that we had any indications from them given since the deposition of the Morsi government.

Andy Davidson

Maurice, thanks for that. We haven’t had any indications, it’s too early to tell the change in the government, what their sense is on anything really. They haven’t engaged probably with the ministry, but we don’t expect any change in respect to the court case. We expect them to remain supportive and continue to proceed with the appeal process as they’ve lodged and indicated in the past.

Maurice Mason – Peel Hunt

Okay, thanks. And then secondly, do you expect recoveries to stay at this level or should be a little more cautious for the rest of the year?

Andy Davidson

I think, on that, Andrew answer that one.

Andrew Pardey

No, we do expect to maintain recoveries at these levels. Going forward, we will also have the new regeneration kiln coming online towards the end of the year and what that kiln will ensure is that with the – only becoming group and stays on, but we can still manage to turnover carbon a lot quicker, because we still have the same CIO circuits, that will help more capacity coming through it.

Maurice Mason – Peel Hunt

Okay, thank you.

Andy Davidson

Thanks, Maurice.

Operator

Your next question comes from Tyler Broda. Please ask your question.

Tyler Broda – Nomura Securities

Sorry, I had my phone mute. Hi guys, thanks for the call today. Just two questions, Maurice kind of asked the first one that I was going to look it, but I guess, I have a follow-on from that in terms of the change of the protocol process.

I am just wondering in terms of the court case, if we are to the down the root for whatever reason, there is a lack of overturn in the ruling. What is within – what is physically within that three kilometer lease area that you mention? This is my question. And, I guess, go with that first, that would be great.

Andy Davidson

Hi Tyler. Well, first thing is, we don’t recognized the square kilometers, we’ve not talked about it previously. We don’t factor that into our planning. So, we have a 160 square kilometer lease and we are trying to appear on that basis. So this three square kilometers really is something that’s driven as much by the media as anything else and it’s not something as I say we recognize.

Tyler Broda – Nomura Securities

Okay. And secondly, in terms of the open pit costs, over the course of the quarter, on an aggregate basis when you go back, there was a drop-off obviously in Q1, but not enough to reflect the uptick that we’ve seen in Q2.

I guess, I was just wondering if you could give a little bit more color on that increase in costs quarter-over-quarter and in terms of what we expect on – maybe on an aggregate basis in terms of the overall cash nominal cost towards the second half of the year.

Pierre Louw

Tyler, it’s Pierre. On the drop in the first quarter as explained in Q1, that was exceptionally lower quarter, lot of cost were way down because of these broken stocks we had and also of the construction work we did within the pit.

So all existences were very short, most of the material removed around the pit, that the waste material, all congested the ranch as we started building the ranch off to the waste dumps. So very short, so totally through Q1, Q2 the levels, you’ve seen at Q2, those are the levels we should be maintaining for the rest of the year. I don’t see any increases in the unit costs for the open pit in quarter three and quarter four.

Tyler Broda – Nomura Securities

Okay, thanks very much.

Andy Davidson

Thanks, Tyler.

Operator

Your next question comes from Dmitry Kalachev. Please ask your question.

Dmitry Kalachev – Canaccord Genuity

Good morning, thank you very much for the presentation. Three questions from me if I may. First on strip ratios, your strip ratio has come down somewhat in the second quarter. What should we expect for the second half?

Andy Davidson

Andrew?

Andrew Pardey

The strip ratio is, we are in beginning stage pretty down at the moment. As we come down, we are going to be getting into more raw materials that you should see those strip ratios going into similar sort of level for the net positive this quarter.

Dmitry Kalachev – Canaccord Genuity

So seamless with Q2 levels around three?

Andrew Pardey

That’s correct.

Dmitry Kalachev – Canaccord Genuity

Okay. Thank you. And also in terms of – in Q1, you have made advances to the government of around $8 million. Would you be looking to sort of make a further advancement going forward and to what extent do you think that the decision might be influenced by political sort of stationing at the moment?

Andy Davidson

Yeah, we made that advance payment as a sign of goodwill. Obviously the gold prices change quite a lot and then changes the dynamics of the cost recovery and profit sharing and timing. But we are not in any talks at the moment with regard to balance payments, we haven’t made one in this period which is seen in these results. If we do, we will make an announcement. It’s something we talked about in the past and we may well make another advance payment. There is no decision that’s been made in that respect.

Dmitry Kalachev – Canaccord Genuity

Okay. Thanks, and also in terms of your CapEx I mean, comparing your CapEx projections, you have moved some of the CapEx from 2014 into 2013, I was just wondering whether you can give us a bit more color on that?

Andy Davidson

There is a bit more color in the presentation Dmitry, I think, just on one of the slides, slide 16, you’ll see a breakdown in the CapEx between Q1 and Q2, between the various cost centers. So, hopefully that will help your modeling. But look, I think the overall totals remain.

We still, the budget for stage four is $325 million. The budget for the open pit mining fleet above that is as we talked about in the past, the order of $65 million. And then you’ve got also in the – on slide 17, you’ve got the expectations for the full year. So I think, hopefully, we’ve given you enough color in that to flush out the model.

Dmitry Kalachev – Canaccord Genuity

Okay, I was wondering more, if you were to compare, let’s say, Q1 presentation to Q2, I mean, you moved somewhat the CapEx from 2014 to 2013, I was wondering what sort of the key reasons for that?

Andy Davidson

Which CapEx for which cost center which CapEx that we moved forward?

Dmitry Kalachev – Canaccord Genuity

I think, in 2013 it was somewhat close to sort of 20-ish and obviously some of that has been moved to 2013.

Andy Davidson

I think, we’ll have to talk about this after the call Dmitry, because I am struggling to understand the question.

Dmitry Kalachev – Canaccord Genuity

Thanks.

Andy Davidson

Thanks, Dmitry.

Operator

Your next question comes from Daniel Lian. Please ask your question.

Daniel Lian – Bank of America Merrill Lynch

Yeah, hi, morning guys and I was just wondering on the stage four expansion other than the ammonium nitrate permit which I think you said it’s was in the final stages of approval. Are there any outstanding permits before commissioning – the full commissioning of stage four?

And then second question, so you are going to spend most of the CapEx for stage four now, still got a very strong balance sheet with a lot of cash. I just want to get your thoughts at this stage in terms of dividend, M&A kind of for the plants or whether you’d be planning to allocate some capital going forward?

Andy Davidson

Hi, Daniel, thanks for that. Just in terms of permit, you are right, maybe understanding, one is in the final stages of approvals and we expect as we said before to get that during the course of the second half. On use of the proceeds, we said in the past, we’d like to be in a position to pay dividends.

We are not in a position yet clearly, we haven’t made this decision. Clearing through stage three and stage four delivery at stage four and making further inroads towards profit share of being the case.

To add on this, I thought one other better words to get in that position, we will obviously get there over the next 12, 18 months. So at some point that decision will be made, but I can’t preamp that now, it’s not the decision that’s been made by the Board at this particular point in time.

With regard to M&A, yeah there is clearly a lot opportunity there. Lot of junior explorer developers that are struggling to raise finance and looking for partners. We’ve certainly seen an increase in the number of those potential opportunities in the last 12 months. It’s been widely broadcast and it’s well understood, budgeted every plan in the gold markets.

So, our policy is to continue to review those opportunities and if we come across something that we believe adds value to the shareholders and makes sense on the M&A front then we will announce appropriately. But at the moment, there is nothing on that front that we have in the pipeline.

Daniel Lian – Bank of America Merrill Lynch

Okay, thank you.

Operator

Your next question comes from Jonathan Guy. Please ask your question.

Jonathan Guy – RBC Capital Markets

Hi guys. Two questions. First off, just around the ammonium nitrate consumption permit, how long do you expect that to take and what’s the date by which you would need it to be going to buy and second, just in terms of working capital, what should we be thinking of in terms of changes there as you are go into the expansion or as you ramp up the expansion?

Andy Davidson

Maybe – hi, Jonathan, sorry, on the first one, it is in the final stages, the final stage is ministerial approval. We do expect it to come in the next six months. We need it for the next year. So we can’t say exactly when it’s going to be approved. We don’t have any clear indications, so we don’t expect any delays in that respect to any impact on operations at this stage. But as I said, just stressed, it is in the final stages of approval.

On working capital maybe Pierre will answer that one.

Pierre Louw

We have our commissioning stage on the sites. At the moment we have increased or in the process of increasing al the reagents that’s required. We kick-off stage four and the start-up of stage four.

Operating cost obviously would then go up, but unit cost should be coming down and so I don’t foresee any problems as we’ll be funding these stocks in the space over the last six months already.

Jonathan Guy – RBC Capital Markets

Thank you.

Operator

Your next question comes from Fletcher Tully. Please ask your question.

Fletcher Tully – Goldman Sachs

Yes, that’s fine guys. My guys that I was planning on asking as already been answered. Thanks very much.

Andy Davidson

Thanks Fletch.

Operator

Your next question comes from Kate Craig. Please ask your question.

Kate Craig – Liberum Capital Limited

Hello guys. I just wanted to put this follow-up question on recoveries, 90% of it fits into that life of mine plan and with the inclusion of carbon new regeneration kiln could we expect recoveries up to maybe 92% 93%, am I just being a bit optimistic?

Andrew Pardey

I think you are being a bit optimistically maintaining them around – it will be nice to get to as we said, but not at the level with where we should be looking at.

Kate Craig – Liberum Capital Limited

So how much does the carbon regeneration kiln actually add or is that that you’ll getting into slightly more similar material or?

Andrew Pardey

Basically the carbon regeneration kiln will show that we can manage – we don’t see an increase in solutions losses which we think previously, because we are going to have straightforward going to double the amount of gold that’s going through the existing CIO circuit. So we need to be how to tune that carbon, and regenerate it effectively and efficiently and that’s where the new kiln comes in.

Kate Craig – Liberum Capital Limited

Okay, thanks very much.

Operator

Your next question comes from (Barry Legg). Please ask your question.

Unidentified Analyst

Good morning. Andy, congratulations on the production figures and the cash control was very good. Just looking at the cash position, you ran $170 million, with only $25 million left on the stage four and you are generating cash flow of about $60 million a quarter. I think any normal company would now be paying a dividend. Can we take it that will be within payments until the court case is sorted?

Andy Davidson

I don’t think the court case is factoring into the equation or no on this – as I say, as the decision on the dividend is one the Board will take once its comfortable – solely comfortable that stage four has been cleared and delivered.

But in terms of the capital cost and the operational aspects, and also that we have – it was efficiently closed, there is no profit sharing with the government in order to ensure that we treat both government and our shareholders equally and equitably as we’ve always said we would.

Unidentified Analyst

Yeah, but profit share with the government is probably quite a long way down the road now for the gold price, we are probably looking several years out. So, that doesn’t bode too well for the dividend.

Andy Davidson

Well, the gold price obviously has an impact on the timing of the profit share, but we made an advance payment to generate it well – we made an advance payment in Q1. And I think we’ve already covered – we have not made the decision yet but it’s constantly under review that whether we continue to do that and the lead up to formal profit sharing commencing.

So, it’s something that we are conscious and the reason for the advance payment was to help us essentially smooth out the timing of when profit sharing comes in. And provide contribution to the government ahead of when they would otherwise be due. So, as I said, that’s constantly under review as is the dividend policy.

Unidentified Analyst

Okay, secondly there is a note to the accounts this morning saying that if the court case is not successful, the operations at Sukari may be adversely affected to the extent that the company’s operations exceed the original lease area of three square kilometers. Can you tell me to what extent does the company’s operations exceed that original area of three square kilometers?

Andy Davidson

I just have to read that fully in context, but I don’t think that it’s anything different to what we said in the annual report. That’s referring to the court decision that was made in October 30. And it’s something that is – essentially stating that if the appeal process does not conclude as we expect it to, then we’ll have to look at the circumstances and the details of that ruling at that time.

So that’s essentially a statement to that effect, but as we said at the moment, we don’t recognize as I say the three square kilometer area but this is something that has obviously been talked about in context of the court case.

Unidentified Analyst

So do you know the extent to which your current operations at…

Andy Davidson

If and when we get to that position, as we’ve pointed out in that statement, then we will consider that position when we get the details. So, there are too many unknowns really at this stage to talk about that in any detail.

Unidentified Analyst

But the original three square kilometers was unknown?

Andy Davidson

Okay, I am not going to get into the details, it’s something as I said, it’s not – they are not nine – that’s exactly what I said, so it’s just a statement says if that situation occurs and we will have to consider the details at that time.

Unidentified Analyst

Okay, thanks a lot, Andy.

Andy Davidson

Thank you.

Operator

Your next question comes from Bart Jaworski. Please ask your question.

Bart Jaworski – Haywood Securities

Good morning there guys. I just had a quick question on something on page, there you mentioned about the steel and some mechanical equipment that has yet to be delivered. Just to be clear, is that a slight delay or is that something that you weren’t expecting to be delayed until later on in the year?

Andy Davidson

Andrew?

Andrew Pardey

I think some slight delays on some of the likely those structures still which has slowed a few areas down, but that material has now arrived on site. The majority of that material is now on site and we are expecting to have it’s all completed during the second half of this year.

Bart Jaworski – Haywood Securities

Okay, so it’s already on site post at the end of the second quarter?

Andrew Pardey

Yes, correct.

Bart Jaworski – Haywood Securities

Okay, gotcha. And just more of a general question, with the change in government, have you guys seen any change in the lower levels of government in terms of the regulators or even the judiciary or are all those people that you sort of deal with on a day-to-day basis is still very much in place?

Andy Davidson

It’s very much in that, I mean, the people that we deal with on a day-to-day basis are the same people that we have been dealing with some time now. And so, in terms of the normal operations, it is – situation is normal.

Bart Jaworski – Haywood Securities

Okay, great. And the – sorry the next appeal court date, is that still September 24-ish?

Andy Davidson

Correct, yeah, we are not expecting a judgment on that date.

Bart Jaworski – Haywood Securities

Right.

Andy Davidson

Let’s say we will expect the court process to continue through this year. So we are in expectation at the moment.

Bart Jaworski – Haywood Securities

Clear, no further timetable details on the meeting after the September 24 meeting?

Andy Davidson

No we’ve never had a timetable in this appeal process. So, we are going to go along with regard to timing of the hearing.

Bart Jaworski – Haywood Securities

Okay, perfect, thanks very much.

Andy Davidson

Thank you, Bart.

Operator

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

Andy Davidson

Okay, thank you very much. Thanks all for joining the call and we look forward to speaking to you next time. Thank you.

Operator

That does conclude our conference for today. Thank you all for participating. You may all disconnect.

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