Centamin's CEO Discusses Q3 2013 Results - Earnings Call Transcript

Nov. 7.13 | About: Centamin PLC (CELTF)

Centamin Plc (OTCPK:CELTF) Q3 2013 Earnings Call November 6, 2013 4:00 AM ET

Executives

Andy Davidson – Head, Business Development and IR

Andrew Pardey – Chief Operating Officer

Pierre Louw – Chief Financial Officer

Analysts

Tyler Broda – Nomura Securities

Brock Sailier – GMP Securities

Dimitri Kalachev – Canaccord Genuity

Maurice Mason – Peel Hunt

Cailey Barker – Numis Securities

Andy Davidson

Good morning everyone and this is Andy Davidson and I am joined by Andrew Pardey our Chief Operating Officer. And thanks for joining us on the call for the third quarter results.

I will just briefly run through the highlights and then we’ll open up for Q&A. In the highlights, another strong quarter. We produced just under 85,000 ounces, which takes us to 265,000 ounces for the year-to-date and that sets us up well to meet and potentially exceed guidance of 320,000 ounces at $700 an ounce.

The production this quarter was slightly lower than the second quarter, 9% down, the main reasons there was it was grades coming down. We had a very good second quarter on grades and that’s back in line with expected levels, both in the open pit and underground.

Also we had slightly lower recoveries versus the second quarter and that was really due to some changing effects. We had a component failure in the elution circuit which is now been sold and some transitional ore coming through which is now passed through.

So, recoveries are now back in line with expected levels again following a brief dip in the third quarter. But the highlights, really operationally for the quarter were on two fronts. Again, the underground productivity was very strong. We are now running at around about – or actually just over 600,000 tons per annum rates in the third quarter and that compares with the 500,000 ton per annum rate that we put forwarded as a forecast in our optimized mine plan last year.

So, we are ahead versus last year’s expectations on productivity for the underground and that really continues the upward steady trend that we’ve seen since the underground operation was started improving productivity quarter-on-quarter. So that’s running very well indeed and we expect that to continue to do so and track further upwards from here.

The other highlights for the quarter was plant productivity, again which was well over original expectations as we put forward last year, the nameplate 5 million tons per annum, it’s been hopefully exceeded consistently through the course of this year and we are now running in the third quarter at 6 million ton almost per annum rate, which is about 20% above nameplate of course. And that clearly bodes well for exceeding the 10 million ton per annum nameplate rates on the expanded plant in due course.

So, on that plant expansion, we are on track as we said, today continue to be expecting commissioning to start in the fourth quarter eminently obviously and then ramping up throughput through the course of 2014.

Expenditure is almost complete. We spent $318 million out of the $325 million project. So, looking forward really to delivering Stage 4 in the very near future.

The financials, cash cost this quarter were in line with the second quarter and with guidance. Another strong quarter despite the slightly lower production with still cash cost in line with Q2.

EBITDA was down 32% on the second quarter to $43.1 million. The key drivers there were a reduction in the top-line. That was a result of the slightly lower production and also 3% lower gold price against the second quarter. And also just under $12 million write-down against the investment in Nyota which we are unable to take further and hence taken that write-down.

The balance sheet remains strong. We’ve got $156 million in cash bullion and receivable at the September, which is pretty much in line with where we ended the last quarter. So still very well placed on the cash basis and looking forward to strong free cash flow generation once we’ve added this investment stage, the expansion program and into next year and beyond.

On exploration, that continues in Sukari and Ethiopia. Good indications, nothing really material to report as of this stage. In Ethiopia, against a clearly disappointing lack of a way forward with Nyota we have entered into a joint venture with Alecto who has some very prospective grand in the western and south of the country. So looking forward to pushing forward our exploration efforts in Ethiopia on those licenses.

And just to round off, we are expecting a resource and reserve update, which is ongoing at the moment. We expect them to deliver that in the fourth quarter as we’ve discussed previously. So that would be the news so, the next material news you should hear from us.

So with that, I would like to open the floor please to questions. Thanks very much.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions)

Your first question comes from Jason Stubbs [ph]. Please ask your question.

Unidentified Analyst

Hello there. You have many sort of patient and long-term shareholders is it the Board’s intention to reward that loyalty by sort of initiate in the dividends or a share buyback policy any time soon?

Andy Davidson

Thanks for that, yes, we do hope and intend to pay dividend. It is our desire to reward that patient long-term shareholders with a dividend in due course. And we will clearly be evaluating that as we go forward. We’ve made a continued major investment in the Stage 4 expansion and we are almost complete on that. And I would suggest that will remain under evaluation through next year.

Unidentified Analyst

Thank you.

Andy Davidson

Thank you.

Operator

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

Tyler Broda – Nomura Securities

Hi, Andy, hi, Andrew, thanks very much for the call. With the Stage 4 almost there, can you just give us a summary of the total CapEx you expected to spend for this year? And then potentially the underground and sustaining CapEx you would expect going forward? And then secondly, do you expect as you move through the Sukari open pit plan, do you expect to encounter further episodes of transition material and if so when?

Andy Davidson

Hi, Tyler, maybe I’ll do with the first and then Andrew deal with the second part of that. In terms of CapEx, we’ve clearly only got about $7 million left to spend versus the budget. So we are almost there on Stage 4 and there is an ongoing build-up of the open pit mining fleet that will continue into next year.

The total budget for that fleet is round about $135 million of which $55 million is in the Stage 4 expansion. So, we do – well, so the balance there is round about $80 million for the fleet build up beyond Stage 4 – be almost incorporated in Stage 4. We have broken out in the MD&A you will see the break-out of how the CapEx this year is a portion between those – well, between all the major capital expenses.

So you get the split between Stage 4 open pit fleet, the underground development, the open pit development, which is essentially zero this quarter and sustaining CapEx. I think, in this quarter it was round about $4 million. So, I think, just looking forward, we would expect the underground development cost to be between round about $25 million, maybe at the $30 million per annum in the short-term.

And then sustaining CapEx, roundabout at similar levels, maybe a little bit higher in the shorter term, but coming down to round about $30 million per annum, $30 million to $35 million per annum, that kind of order. And those are the two major ongoing CapEx expenses if you like – expenses on an ongoing basis once we complete Stage 4 in this fleet expansion.

Tyler Broda – Nomura Securities

Perfect.

Andy Davidson

Okay. Andrew, on the other one?

Andrew Pardey

Okay, Tyler, in regards with transitional material with the current mine schedules, we mine through the transitional area in July and that was at the same period of time we got hit with a component failure which is the outside elution circuit. So, we took a double whammy in that area as a result of that. The next other transition we had very little that’s got on transitional in Sukari and the next part of transitional that will be coming through within late 2014, early 2015 when the Stage 4 CapEx starts coming down.

Tyler Broda – Nomura Securities

All right, thank you.

Andy Davidson

Thanks, Tyler.

Operator

Your next question comes from Brock Sailier. Please ask your question.

Brock Sailier – GMP Securities

Morning Andy, just two questions on the throughput of the plant. You flagged today you expect a small dip as you sort drove from the 5 million ton per annum nameplate to 10 million ton per annum, are you able to give any guidance on the expected dip total throughput in the fourth quarter?

I mean, are we are looking at perhaps the 20% dip Q-on-Q or is that too much? And a second question, as you mentioned just on that your expecting ramp up to occur throughout 2014, any idea at this point in time which quarter you would like to – say fourth quarter at nameplate next year?

Andy Davidson

Hi, Brock. Just – I’ll just deal briefly with what we’ve guided and then Andrew can give you a bit more color. The extent really to which we see any effects in the fourth quarter from – in the Stage 4 commissioning activity, this really depends on the extent to which we can manage the process and obviously we’ve got – we are facing our pricing on the ground to minimize the impact.

So it is a difficult thing to quantify on put forward guidance. I think, that was one why we’ve remained conservative with the guidance and factoring in some contingency for unexpected stoppages or stoppages from tie-ins and projected there is a downtime that can happen. It is a technically high risk period.

So, it’s difficult to quantify and I think the guys on the ground will manage that well and minimize that impact. Andrew may provide more color on the other aspects of your question.

Andrew Pardey

Okay, it’s ramping up on Stage 4, our expectation in the second half of next year, we should have Stage 4 running up at capacity.

Brock Sailier – GMP Securities

Perfect, thank you very much. And just, looking beyond next year, you’ve got the declines between declines in the long-term when do you expect the decline other than sort of just – when do you expect the underground production to effectively I guess, double once you enter both the Julius Zone as well as the Southern Happy [Ph] Zone?

Andrew Pardey

We are working, as we speak, we are working on expanding the underground and lifting up production out of the underground. We’ve already – we’ve got two areas now. Qatar is just into circuit periphery in the last month and a half.

So we are doing development in those areas to open that up and we are rapidly expanding and next year we will be lifting the output from the underground. We’ve got an additional truck on site, additional bogger on site all is in place to keep lifting that production rate up.

Brock Sailier – GMP Securities

Great, thanks very much.

Andy Davidson

Thanks, Brock.

Operator

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

Dimitri Kalachev – Canaccord Genuity

Hello, thanks for the presentation. Just a question regarding the permits for the daily use of ammonium nitrate, if you can just remind us when it becomes critical for you to have this permit in place?

Andy Davidson

Hi, Dimitri. It becomes critical next year. It’s in the final stages of approval and as we’ve guided previously we expect to have those submissions very shortly. So, we are not foreseeing an issue with that.

Dimitri Kalachev – Canaccord Genuity

Okay and next year starting from sort of Q1, is there any way or is there is a bit of room in this regard?

Andy Davidson

Sorry, Dimitri, I think I answered the question. It is in the final stages of approval.

Dimitri Kalachev – Canaccord Genuity

Okay, thanks.

Andy Davidson

Yes, thanks.

Operator

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

Maurice Mason – Peel Hunt

Good morning gents. Can you just give a little more detail on the Nyota write-off of $12 million in the context of the carrying value that you have with Chevron?

Andy Davidson

It’s fairly- good morning Maurice, sorry, it’s fairly de minimus, now the carrying value of that. We’ve obviously taken the write-down on the whole holding on the basis that we are not taking for the investment. So, just – yes, I think the write-down is 0.98 something like that, the carrying value, of course the current share price.

Maurice Mason – Peel Hunt

Okay, thanks.

Andy Davidson

Sorry, sorry, Maurice, there is very little more color I can put on the Nyota decision. We are under a confidentiality agreement with them. So we are pretty limited really and what we can say on that.

Maurice Mason – Peel Hunt

I see, okay, thank you.

Andy Davidson

Thanks, so much.

Operator

Your next question comes from Richard Hatch [Ph]. Please ask your question.

Unidentified Analyst

Thanks very much. Morning guys, thanks very much for holding the call. And just following on from the previous one. I suspect you won’t be able to also – just that, perhaps you could give a view on your remaining holdings in Nyota and then also, is there an update or any guidance from the timing of your Chevron dispute in the course? And then finally, your exploration expenditures for the year, what can we expect? Thanks.

Andy Davidson

Yes, thanks for that. No, I mean, we can’t really give you any indication on what would be material with our investment going forward with that decision on an ongoing basis. With the TFO timing, we are not – as with the appeal case on the concession agreement, we don’t get a timetable in these matters, but we would expect that TFO case to go on for some time. We don’t have an indication of when that would be concluded in this stage. And sorry, your third question, what was…

Unidentified Analyst

Just with regards to your exploration expenditures this year and are you able to provide any guidance for what you are expecting this year and perhaps some guidance for next?

Andy Davidson

Our exploration expenditures will be somewhere north of $15 million I think this year and a similar figure next year, round about $15 million. Obviously, it’s results dependent and it will go up if we find something in Ethiopia for example. And should obviously hope to do so, but that’s the current framework of that thinking for budget.

Unidentified Analyst

Great, thanks. Good luck.

Andy Davidson

Thank you. Cheers.

Operator

Your next question comes from Cailey Barker. Please ask your question.

Cailey Barker – Numis Securities

Good morning. I think most of my questions have gone. Just one question on grades in terms of the open pit grade coming down and the underground coming down a little bit. Is that especially on the open pit – is that falling into the mine plan and where do you see the grade coming on this quarter and through into next year?

Andrew Pardey

Cailey, as we’ve been saying a little long, we always said in the second half that we would have lower grades and it’s come down as expected and as we planned – that – to the mine plan.

Cailey Barker – Numis Securities

Okay, and I think – so you had planned about one and a – 1.12 or something next year. So you are still on track for that?

Andrew Pardey

That's correct.

Cailey Barker – Numis Securities

Okay good. I was just checking. And then just one other question which you may or may not be able to give some color, just on the concession agreement. Is there anymore color you can give us in terms of the way the appeal hearing is progressing?

Andy Davidson

Not really, Cailey, I mean we had some progress with the last hearing. It’s moved forward into the Merit Circuit at the Supreme Court – Supreme Administrative Court. That is the circuit the division as the core if you like that that will hear on the final will pass a ruling, make judgment on the final appeal decision. So, we are making progress.

We are probably near the end of the process than we are the beginning, but as usual, we don’t had a timetable, but, we are confident we are making progress and particularly with the ruling that we got in March which – and that gave us strong indication of where the court sits with the statement they’ve seen the exploration – exploitation leads on that basis.

We would likely to win the appeal and they’ve suspended the last year’s ruling. Now all these things I think through the course of this year we’ve made good progress with the appeal. However it’s a bureaucracy process and we don’t have a timetable.

Cailey Barker – Numis Securities

Okay, good stuff. Thanks very much guys.

Andy Davidson

See you.

Operator

Your next question comes from. Ehab Khalifa [ph]. Please ask your question.

Unidentified Analyst

Hi, I just want to ask about the dividend or buyback. From my calculation, on the future of the profits in the company, I think share buyback like 10% every year and it will be very good for shareholders – share price is undervalued and I think it’s much better than the cash dividend. Can you elaborate about this issue? Thank you.

Andy Davidson

Thanks for that. Yes, as I said, the – I think the first question, the dividend and the buyback policies as and when that policy will come and the timing and what the policy is, it’s under review, it’s under constant review.

We would hope to look at that very carefully during the course of the next year as we get something in place. So I can’t preamp to the moment what that’s going to be, what it’s going to look like and when it will come.

So, dividends versus buyback, yes, we understand the arguments for both. And we will take a decision as and when it’s appropriate on what the return of capital to shareholders will look like.

Unidentified Analyst

Thank you.

Andy Davidson

Thank you very much.

Operator

There are no further questions at this time. Please continue.

Andy Davidson

Okay, thanks very much everybody for being on the call and listening and for taking the questions to as we did. Thanks again, and we look forward to speaking to you next time. Thanks very much.

Operator

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

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