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Edited Transcript of CAML.L earnings conference call or presentation 16-Sep-20 8:30am GMT

Half Year 2020 Central Asia Metals PLC Earnings Call

Sep 16, 2020 (Thomson StreetEvents) -- Edited Transcript of Central Asia Metals PLC earnings conference call or presentation Wednesday, September 16, 2020 at 8:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Gavin Ronald Ferrar

Central Asia Metals plc - CFO & Director

* Nigel Francis Robinson

Central Asia Metals plc - CEO & Director

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Conference Call Participants

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* Alexander Robert Peel Pearce

BMO Capital Markets Equity Research - Research Analyst

* Fabian Graimann

* Marina Calero Ródenas

RBC Capital Markets, Research Division - Associate

* Nick Chalmers

* Oliver Fergus O'Donnell

VSA Capital Limited, Research Division - Head of Research

* Peter Mallin-Jones

Peel Hunt LLP, Research Division - Research Analyst

* Richard James Hatch

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

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Presentation

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Operator [1]

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Hello, and welcome to Central Asia Metals Interim Results Conference Call. My name is Val, and I will be your coordinator for today's event. Please note, this conference is being recorded. (Operator Instructions)

I will now hand you over to your host, Nigel Robinson, CEO of CAML, to begin today's conference. Thank you.

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Nigel Francis Robinson, Central Asia Metals plc - CEO & Director [2]

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Thank you, Val, and good morning to everybody on the call. Thanks for joining us on what is Central Asia Metals interim results for the first half of 2020.

First slide is the disclaimer. So read that, please, and understand what the instructions are on that.

If I move to the second slide. Clearly, given the unfortunate incident on Monday morning, we've started the presentation with this particular slide, just to give people on the call an update as to where we are on this incident.

So the details, as we noted at the moment are that on Monday morning at about 05:20, we suffered a leakage from the new tailings facility at Sasa mine in North Macedonia. The leakage occurred for approximately 1.5 hours in the morning before it stopped. I have to say no one was harmed in the incident, so there was no injuries at all and no facilities were damaged in terms of civil facilities, et cetera in the incident. The situation was quickly brought under control. And on Monday, throughout the day, the authorities are on-site with -- together with experts who designed the facility, our own site management team, et cetera, et cetera.

There are a couple of pictures on the slide there that you can see, which show the damage to the down hall on the western side by the steep valley that you can see line there. And as I said, all relevant North Macedonian authorities have been informed. Several of them were on-site on Monday where the initial part of the investigation took place with our site management team.

Since that point, we've flown out yesterday morning, the Chief Operating Officer of CAML, Scott Yelland; and our Sustainability Director, Nick Shirley, to site to oversee the investigation effectively and understand what repairs will be required, what went wrong, what are the root causes, what we need to do in terms of lessons to be learned from that, how to change things and also what the potential downtime may be and the financial ramifications of this unfortunate incident.

It is too early to speculate what those things are. So I won't intend on this particular call to go down that path. But as soon as we do know more on any concrete factor, we'll clearly let the media and the public know and yourselves know as to what those facts are. And suffice to say at the moment, the initial indications are that we don't expect to have an extended shutdown of the operations. They are currently ceased. But we need to ascertain exactly what the issue is. And in the near term, within the next couple of weeks, we would hope to come back to the market with an update on that.

The mine, as I say, is currently not operating -- or the mine itself on the day of the incident continued to operate, and there was some stockpiling, but both operations are now ceased, both mining and processing. And as soon as we know more, we will inform everybody.

Just moving on to Slide 3 now. In terms of the results for the first half of the year, which is a strong performance in very difficult and challenging conditions. As everybody knows, when we announced our full year results for 2019 in early April, we were encountering, the world was and still is, COVID-19 issues and the pandemic was upon us really. And therefore, we didn't announce any dividend for the full year in the sense that we were facing a lot of risks at both operations potentially for having to either shut the operations down, not being able to deliver goods across the border.

But we've come through that. And I think against that very difficult and challenging background, we've had a good performance in the first half of the year. Starting with safety, first of all, we've had no LTIs throughout that period. We've now gone significant days without an LTI both at Sasa and at Kounrad, which is something we're very proud of.

Production-wise, we had a good performance on production with no disruptions to production in that first half of the year. Copper was at 6,607 tonnes, fairly similar to the first half of 2019. Zinc production was up around about 700 tonnes in the period to 12,200 tonnes. And likewise, lead was also up by about 700 tonnes to 15,140 tonnes as you can see on the slide there.

So a good operational performance, good safety performance, and that led through to some good financial numbers despite the overhanging commodity price environment, which, for us, in terms of prices received, meant that for copper, the copper price comparable to the first half of 2019 was down 11%, and for zinc and lead, it was down 27% and 13%, respectively. So taking into consideration those factors plus an increase in treatment charges for the second quarter of 2020, up by around about 60%.

We've come up with a gross revenue of $75 million, down by $14 million from 2019, but an EBITDA of 50 -- sorry, $42.5 million and an EBITDA margin of 56%, which we believe represents a good performance of the same very difficult circumstances.

The free cash flow generated from those EBITDAs was $21.1 million. And with that cash flow, we paid down debt in line with our capital repayments with Traxys at the rate of $19.2 million for the 6 months. So $3.2 million monthly, which is our ongoing capital repayments, which demonstrates the fundamental strength of the operation despite very low commodity prices. Managed to continue the deleveraging, maintain a good EBITDA margin of 56%, and the balance sheet remains strong.

The cash at the end of the period was $44 million, which does include $10 million of overdraft that we fully drew down at the beginning of the period to give us extra flexibility. But as I say, we've managed to come through that -- the pandemic in many ways with a good performance.

We're not out of the woods, I would argue at the moment. There are COVID-19 cases in the local area at Sasa. And we currently have 4 members of staff and employees and contractors who've tested positive. We did have 7. It's now down to 4. I believe we're managing the process as best we can in terms of social distancing and the procedures we've put in place since March of this year.

And the same goes to the Kounrad, where through the period, we have 39 cases in total, but nobody at the moment is an active case, as we call it. They've all now tested negative, and there were nobody on-site at Kounrad with any symptom. So I believe we're managing that process well.

But as I said, there are still cases both in Kazakhstan and Macedonia. So I think vigilance is the key word as we move into the second half of the year on that.

And the last thing really in terms of highlights for the first half of the year, we did complete our life of mine study. I'll give some more details. But at the moment, I'll hand back over to Gavin to talk a little bit more on the financial performance.

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Gavin Ronald Ferrar, Central Asia Metals plc - CFO & Director [3]

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Thanks, Nigel. If we could turn to Slide 5, please. I mean that gives you a little bit of a backdrop to the first half of 2020. And as Nigel said, it was dominated by the COVID-19 pandemic. And the impact on the capped [lead] prices, as you all know, has been significant. And the other thing to consider is just general economic output in terms of the certain metals we've got, zinc where you've got disruptions to supply. We've had smelter utilization dropping. We've had weaker auto sales driving lead prices. And of course, copper, everybody is looking at recovery in China, the first point of recovery plus potentially some stimulus around the world. So that has been an interesting backdrop to the results.

And of course, we've had some currency influence as well with tenge, in particular, being extremely volatile through this period and trading in a range of KZT 370 to KZT 450 to the dollar. It's currently at around KZT 426, and we averaged about KZT 404 during the period against KZT 379 in the prior period in 2019.

Although the U.S. dollars have started at the end of the period at more or less in the same place, it was stronger throughout the period against all the major currencies. And that also had an impact on operation -- on the financial performance.

So please turn to Page 6, and I'll walk you through the income statement. This is, I guess, dominated by the lower revenues that we've seen period-on-period. Those are down 16% to 75.4% primarily due to commodity prices, as we've discussed. We've also have an element of treatment charge increases, which kicked in for Sasa on the 1st of April, which are embedded within that revenue line.

However, we managed to keep cost of sales flat, and I think that is a good result through the pandemic. We have instituted much tighter cost controls at both operations to ensure that we could navigate our way to the pandemic successfully. And everything you see in terms of highlights, EBITDA down 25% to $42.5 million. But that still comes out on EBITDA margin at 56%, which is a very good result, we believe, in the context of the first half macro environment.

If you split that into segments, Kounrad, we had very good performance there. EBITDA margin of 73%. And EBITDA generation on-site of $27.1 million. Sasa obviously got hit hardest with the lead and zinc prices falling. As Nigel said, zinc price, down 27%, lead 13%. And in spite of higher sales volumes, we had that price drop plus treatment charges hitting that gross revenue line.

However, EBITDA margin still strong, 51% (sic) [56%], although down from 63% on the prior period.

If we turn to Page 7, please. That will give you a waterfall chart on the development of EBITDA through -- period-on-period. And as -- repeating myself, again, it's really down to commodity prices that are falling and treatment charges that are taking us down from that $56.7 million onto $42.5 million.

Slide 8. We've got some more detail on the Kounrad C1 cash cost there. Now you will see that the cost has actually fallen slightly from $0.37 to $0.35 a pound of copper. Now as I mentioned before, that is largely tenge-driven, but we've also managed to reduce consultancy costs on-site as part of the sort of continuing cost control drive that we have at CAML. And we also had lower coal consumption versus 2019.

2019 first half was extremely cold in comparison to this year. So coal consumption sort of reduced period-on-period, and that's reflected in the reagents line going from $0.10 to $0.08, you can see there.

We still sit very firmly within that first quartile of the copper cost curve. And we're very -- that is obviously Kounrad, sort of special place in that curve there. Everyone knows that. And you can see the CAML C1 cost on that cost curve as well at just over $1 a pound, which, again, is evident of our low-cost operating business.

Slide 9. This one is a slightly more complex slide at Sasa because we calculate the C1 zinc equivalent cost on the basis of pro rating the costs, the revenue that we make from zinc against the cost that we incur on the mine. So the table on the right-hand side much so is slightly confusing picture. I'll try and talk you through it.

If you look at the bottom line, where you have on a zinc equivalent basis, you go from $0.47 a pound to $0.43 a pound. For what you are seeing in dollar terms is you going from $22.4 million to $26.3 million. Now you'll recall from the waterfall slide I showed you, $3.7 million of that is down to treatment charges. And there's about another $200,000 due to sending lead material over to China and additional sales and distribution costs.

The zinc tonnes produced effectively is one of the sort of contributors to the lower C1 cost. You can see we've gone from 9,708 tonnes of payable production to 10,273 tonnes. So we've got more units. But that is offset, as I said, by those cost basis. And when we convert that to lead effectively on price basis, that gives you that $0.43. But the table on the lower left-hand side is probably slightly more informative because what we can show you there is we've actually reduced costs period-on-period by around $1 per tonne. And if you're looking at 416,000 tonnes of material that we're producing there, that is quite a significant saving across that period.

Moving on to Slide 10. We're looking at that group, C1 costs, which I referred to on the cost curve before. This is where we convert all the lead and the zinc that we produce into copper equivalent tonnes. And you can see that copper equivalent production has gone down slightly due to the relative movements in the copper and lead and zinc prices. But we do remain in the first quarter -- in the lowest quartile of the cash cost curve.

I think we've talked through all of the reasons for this, but the tenge at Kounrad, we've got tighter cost control and more tonnes produced at -- tonnes of metal produced at Sasa. And again, that is the treatment charges that are going up and -- at the lower copper equivalent units effectively, but still a good result.

And if we turn to Page 11, I think this is, again, instructive of how we run the business, where we've managed to keep the fully inclusive cost flat period-on-period in spite of those headwinds that I've discussed on the previous slide.

Now a couple of reasons behind this. Loan interest is a lot lower because the outstanding balance that we owe Traxys is far lower than orders in H1 '19. So we got a 42% reduction in loan interest. The concession fees and MET, which are effectively the royalties that we paid to our government and the company which we operate are related to the value of the metal we've extracted, so that reflects the lower metal prices received relative to 2019.

And CapEx, we've managed to tighten up on that as well just due to increased cost control around capital expenditure, which I'll talk you through in more detail in a minute on Slide 12. So if we move to that, you can see the group CapEx of $4.3 million is more or less in line with H1 '19. The Sasa CapEx dominates clearly partly because we are midway through a fleet replacement program. You can see the 5 items of brand-new kits in the photograph there. One of which, the guys managed to sneak underground and do some work with before we photographed it. But we've got about $1.4 million spent on that. We did extensive negotiating to get what we think are very fine prices out of it for this new kit. They also offer -- that's around $300,000 of trading on the old kit, so it helps.

We do have some CapEx coming through for more replacement kit in the second half, around $700,000 that we'll expect there. We also continued with underground development in spite of -- it's a very careful controlled CapEx at Sasa, $1.3 million spent there. And we've also made some improvements to the plant at around $200,000.

CapEx at Kounrad, as we all know, is significantly lower than it is at Sasa. It's a very different operation that we did -- we are going through anode replacement program within the electrowinning house, and that's just cost us $400,000 in that first half.

So back in March and April, where all of you were asking us what we were doing about navigating through the pandemic, it was a good opportunity to really tighten the screws on CapEx and reduce that guidance for 2020 from -- we initially guided $12 million to $14 million to about $9 million to $11 million now. Long-term guidance for the business will probably remain at around $8 million to $10 million. There have been some genuine savings within that CapEx. There is some deferred CapEx that will be spreading out over 2021, 2022. And the reason we've been able to do that is, well, a, just scrutinizing all the capital expenditure, but also with the implementation of the Life of Mine study, which Nigel will talk you through. We've managed to make some savings there.

If we go to Page 13, please, a quick run through the balance sheet. It remains a really strong balance sheet. We've managed to repay $19.2 million of the amortizing Traxys debt during the period. That takes the balance down to $89 million at the end of June. We continue to repay that at a rate of $3.2 million per month. What we've also done though is we've enhanced our liquidity position by taking our 2 $5 million overdraft facilities with North Macedonian banks. These are very competitive terms.

And we've drawn those facilities to provide ourselves with a little bit of a liquidity safety net through the 2019 pandemic, and we continue to have that cash on our balance sheet. So the cash balance that you see of $44 million there includes $10 million of drawn overdraft. The net debt number of $58.8 million is well within our covenant levels as you can imagine, and we'll continue to reduce that balance going forward.

We also announced to reduce the interest rate. We have on the Traxys facility from 475 basis points to 400 that kicked in on the 1st of April. And as you all know, the debt repayments over the next -- well, every year is about $38.4 million. So we expect to spend another $19.2 million in half 2.

Strong commodity prices, obviously -- since these numbers have been published, so that additional cash, we were looking to allocate back towards shareholders. But as Nigel said, with the unfortunate incident on Monday morning, we are withholding that for now.

So let's move on to Page 14, just to show you the cash flow development from the 1st of January 1 when we started out with $32.6 million in the bank. We generated $34.3 million from operations, which, given the challenges that we faced with COVID-19 and sort of rejigging our working practices to keep everybody safe, that is a pretty good result.

And then going through the sort of interest, income tax and CapEx payments, the drawdown of that overall facility and repayment borrowings, we end the period with $44 million in the bank. If you look at the repayment of borrowings and the CapEx that we spent in announcing the project, you could argue that that's about $23.5 million going towards shareholder value that we achieved, I think, in a very challenging environment.

So on that note, I'm going to hand back to Nigel. Thank you very much.

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Nigel Francis Robinson, Central Asia Metals plc - CEO & Director [4]

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Thank you, Gavin. So just moving on to slide, well, 15, for the picture, but Slide 16. But just before I do, just -- I think the key message really coming from this presentation is the fact that we have had a good first half to the year in terms of operations and finance, as Gavin has explained. And it's simply the fact that the unfortunate incident of Monday morning, until we get better clarity on that, the decision on the dividend has been deferred by the Board.

We have every intention of reinstating the dividend, every intention of reinstating the dividend, but it's being deferred whilst we get some clarity. And we hope to have that in the near-term in the next few weeks to come back to the market with an update on that. So just moving over to sustainability, which is a big focus of the business.

Slide 16. The 5 pillars of our sustainability strategy, if you like, is to deliver value through stewardship, maintain health and safety of all our people on-site and in the London offices, focus on developing people, managing people and making sure they have a good experience once they work with CAML.

Caring for the environment and -- after the unfortunate incident on Monday, that is a key goal of ours. Looking after, we've got a good track record, and we intend to maintain and restore our reputation from what happened on Monday. So I have to be clear with everybody on this call that, that is still obviously clearly the intention, caring for the environment and unlocking value for the communities, which I'll touch on in a little bit more detail as to what we've done to help the local communities of ours through the first half of the year through the COVID-19 pandemic really.

We've created some sustainability targets. We put out our sustainability report earlier this year in April. And we've now affirmed a few targets for the management team moving beyond and into future years to do with health and safety, 0 fatalities and a reduction ongoing of our LTIFR numbers. In terms of the environment, managing what we do at Kounrad and at Sasa, 0 severe or major environmental incidents. Obviously, unfortunate of what happened on Monday, but we'll address that. How we deal with that incident will, I will say, maintain our reputation in the marketplace and how we deal with it openly, transparently and the way we intend to deal with it.

We will complete a Kounrad scoping study to potential for the generation of wind and solar power in Kazakhstan. That is ongoing. We hope to have some information on that in the second half of this year. Working closely with the community and having minimal incidents or complaints in the community. That's a key goal.

As I mentioned people before, we've taken on a people manager. In April, he joined us. A key recruit for us in terms of dealing with all the people issues. We now employ over 1,000 people, as you know, across the group and governance, a key factor in terms of our reputation in the marketplace for how we manage the business and govern the business both in terms of supply chains to all stakeholders and corporate governance.

Health and safety. I won't labor this. Sorry, I'm on to Slide 18, by the way, now. I've moved up to Slide 18. Health and Safety. A good performance in the first half of the year as already mentioned. In terms of those targets as I mentioned before, from a group level, our LTIFR, you can see on the table there for the first half of the year is 0, and our what we call TRIFR, that's total recordable incidents, because we had 1 employee with a broken finger in January, is 0.87.

Moving on to Slide 19. COVID-19 update, those of you who follow the marketplace will know that we have had incidences of COVID-19 both in Kazakhstan and North Macedonia. Nationally in Kazakhstan, there's well over 100,000 cases. The recent spike in cases that experienced probably about 4, 5 weeks ago, now seems to have ameliorated. And they've now, I think, appear to be more or less on top of it. But obviously, we're coming into the winter months, and there's obviously a case of vigilance. It's the keyword really on that one.

We did have 39 cases as I mentioned before on site. We currently have 0. And I think our proceed is in place, have worked out to protect the employees and make sure that we don't hopefully suffer anymore. But likewise in North Macedonia, not as many cases, smaller country, but they've had nationally 15,000 cases over there. And it has increased recently, I have to say into the local area of Delcevo and [Kamenica] where we operate, we have about in excess of 100 cases in that local area. Clearly, we're monitoring it closely. And at the moment, we have 4 employees on-site tested -- not on site, sorry, of our employees who've tested positive, who are currently in isolation.

But in both cases, we've had no disruption to our production and managed to maintain -- the wealth for our employees is a priority, but also maintain production and the operations throughout that. We have contributed quite significantly to both communities, about $150,000 in North Macedonia for various bits of equipments and also support for hospitals, donations to the local Ministry of Health Fund.

And likewise, in Kazakhstan, we've purchased a PCR machine for a local hospital. And we've also helped on the electricity supply into that hospital in various cases of donating food and hygiene products out to the local community. And that's Slide 20.

Moving over the page and on to Slide 22, just a little bit more on the Sasa lead and zinc mine. Most of you on the call will probably be aware of this mine and what it is. We have reserves and resources up to 2038. And it's a mechanized underground mine. The picture there showing you the various 3 ore bodies, the one currently operating in is the Svinja Reka orebody. And most of the ore is trucked to the surface, so either truck 30% of it or hoist it to the surface through the Golema Reka shaft, which you can see on the diagram. As part of the Life of Mine study, we are looking at potentially putting a 4.5 meter x 4.5 meter decline in there, which would negate the requirement for the Golema Reka shaft, but that's under discussion at the moment and has not yet been approved by the Board.

Just moving over to Slide 23. A bit of an update for the first half of the year. I think Gavin has touched on some of the numbers already, but a good performance there both in terms of zinc in concentrate and lead in concentrate, up on comparable period in 2019. And you can see the chart there, which shows a fairly consistent output.

The guidance, as we say on the slide there, on Slide 23, was 23,000 to 25,000 tonnes of zinc in concentrate and 30,000 to 32,000 tonnes of lead in concentrate. I'd say, well, simply because we need to understand the ramifications of the incidents on Monday.

We've made improvements over the course of the past year or so in terms of underground work. We've purchased the new Epiroc mining fleet of 6 new vehicles at least. In the first half of this year, we had a new boomer delivered to site, as Gavin mentioned, and 3 loaders. And as part of that package of 6 vehicles, we've got another boomer due and another truck which will be delivered or have been delivered in the past few months. And then we've got future fleet replacements in terms of an ongoing replacement plan for the equipment we need both for sub-level caving and the transition to cut and fill.

We have installed monitoring software on each -- on 11 of the machines, and we intend by the end of the year to install that in all 17 of our machines, which will -- and hence, the information we get on what those machines are doing, the utilization, the availability and the number of cycles that they're actually operating from. So better information on the efficiency of the equipment underground.

And line of sight loading. We've also fitted 2 of our loaders with line of sight remote loading systems to improve our safety underground.

Just moving to Slide 25. As Gavin mentioned, the Life of Mine study has now come to completion. The Board approved in principle last December to move to cuts and fill, and we've now formally taken the decision to actually action that. And just to remind those of you on the call who want to work, cut and fill is generally accepted as a safer and more accurate mining method than sub-level caving. We believe this is definitely the right way to go for the mine at Sasa, and in particular, the Svinja Reka orebody that we're currently mining. In terms of being able to access more of the orebody as we go lower down due to geotechnical stresses and also on a day-to-day mining, it's more accurate in terms of lower dilution and higher recoveries.

The other benefit of cut and fill is that in excess of 40% -- at the moment, we estimate around about 45% of the tailings will no longer be stored in a traditional tailings dam, but will be put back underground, which obviously is a more environmentally way of dealing with the tailings. About 30% will be put into TSF 4 once that's back up and running. And about 25% of the balance will be ideally on dry-stack tailings facility and infrastructure, which is still undergoing work to design and also determine the location of that on the mine footprint effectively.

And as I mentioned before, proposed development of new decline for easier access for both the ventilation, easier access to the reticulation and limit the amount of double handling which will occur as we go below the 830 level where the main haulage level is for the current movement of ore back to the surface. But I would say that is under discussion and still has not been fully approved by the Board.

Life of Mine tailings, obviously a very key point on this presentation. Just to emphasize, there are 5 downstream tailings facilities at Sasa, 4 of which are dormant, that's TSF 1, 2, 3.1, 3.2. At TSF 4 with the new facility, and clearly, as we've mentioned before, I'm sure there will be questions and answers on it later, we had an incident with minor leakage on Monday morning.

But in terms of the facilities themselves, I have to say we have got Full Church of England Pension Board disclosure on that. We're ascertaining the work streams that will be required from the Global Tailings Standard that was announced on the 5th of August this year and how that applies to our downstream facility and how we can implement and make sure that we're compliant with the requirements of that Global Industry Standard. And obviously, any learning points in the investigation currently underway at TSF 4 will be implemented to actually make sure that we do comply with those standards, whatever we determine them to be.

And future tailings storage, I've already mentioned through the Life of Mine study, we're looking at 30% in TSF 4 in the future. Currently, it's 100% because we don't have the other facilities at the moment. But in future, once we've got the cut and fill background up and running, approximately 40% to 45% of those tailings will be stored underground. We are advancing the studies on dry-stack tailings as I mentioned.

Just few numbers. I've moved to Slide 27 for the Life of Mine study. I suppose if you look in the top right-hand corner at the moment. In terms of the production profile, what we're planning on, and we've started already having been given the [green light] by the Board to move to cut and fill, is a construction period that will be between next year and the following year, so completing in Q4 of 2022.

We intend to maintain our production guidance throughout those 2 years and between 825,000 tonnes and 850,000 tonnes, which is similar to the guidance we had for this year, but I must reemphasize again, obviously, that is currently under review, as I've stated a couple of times.

Beyond then, 2023, 2024, there'll be a ramp-up period getting production up to around 900,000 per tonnes with some minor modifications to the flotation plant to facilitate that and with the Life of Mine beyond -- sorry, up to 2025 onwards (inaudible) Life of Mine, maintaining that kind of production profile, 900,000 tonnes.

We have taken the time out as part of the Life of Mine study to update the reserves and the resources, and you'll see that there. And about a 20% increase in our reserves to a probable 10.7 million tonnes, similar grades. Lead and zinc, combined grade of 7%. And we've also updated the resource statement.

And the other thing that we've done, which has never been done before at Sasa is we've digitized. So we've now got the resources and reserves on digital models and taken the opportunity to get that into this century, so to speak.

Operating cost-wise. In December when we said we had in principle decided to go to cut and fill, we weren't in a position then to give any real indication of what the cost implications may be of this. And we've now had a chance to look at that in detail. And we estimate that the operational costs possibly will increase by 5% with the need for operating a backfill plant in reticulation.

That's 5% effectively on what Gavin mentioned before, the run-of-mine unit costs, which we announced at 2019 of around about $39 to $40. So a 5% potential increase from that point. And in terms of capital expenditure to deliver this over the next couple of years, we're looking at around $18 million to $19 million, of which, $13 million is on the paste plant. And in terms of profiling, about $5 million next year and the balance of that $14 million in 2022.

Above and beyond that, we will still maintain, as Gavin mentioned before, an underlying sustaining capital -- for capital development, new equipment, et cetera, of around about the magnitude of $8 million to $10 million.

Just moving on to Kounrad. Kounrad, Slide 29, most people have seen this slide, I'm sure, several times. Just the remaining recoverable resources we estimated -- we estimate at this point in time is around about 155,000 tonnes of recoverable copper.

And then Slide 30 is an update on the production profile. I mentioned several times, it's seasonal. But you can see there a good performance in line with what we plan to do. And we've produced in the first half of the year 6,607 tonnes. And our guidance remains this year at 12,500 to 13,500 tonnes. And we would hope as we sit here today with that production and what we know for almost the first 3 months of the second half of the year that we'll be aiming towards the higher end of that production guidance.

75% is coming from the western dumps. As we always said, we transition to complete production from the western dumps. We've got the details there that we've reiterated several times in terms of recovery, east 45% to 50% and west 35% to 42%.

Moving on to Slide 32. Delivering value for shareholders. The 3 legs of our capital allocation program, which Gavin's already mentioned, strong performance in the first half of the year in terms of maintaining our capital repayments to the Traxys facility or loan repayment, should I say, of $19.2 million. We have the intention of reinstating the dividend. We still have that intention subject to the implications and the timing and everything of the incident on Monday at TSF 4 at Sasa. We'll update the market further on that in due course. But if you look at our track record there on dividend, it's pretty good, having paid 98p out since almost 10 years ago, listing on the alternative investment market in London here and strong EBITDA margins as we've mentioned several times.

Moving on to Slide 33. There's just a good waterfall chart there. We acquired Sasa, as many of you know, at the back end of 2017. At the time we acquired Sasa, we took on debt for the first time as a company at a magnitude of about $194 million. And we're now down to a gross debt outstanding of $89 million on the Traxys facility and another $10 million of flexible financing to manage ourselves and give us extra liquidity through the to the COVID-19 crisis.

So a good rate of deleveraging there. If we continue on that basis, we'd have fully paid the debt off by Q4 2022. And in terms of capital allocation, obviously, our key priorities are to do that, return the share -- return back to a dividend -- back to shareholders, which I've already mentioned.

And finally, capital allocation for the growth of Sasa or the development of Sasa, we've looked at our numbers in terms of metal prices looking forward and a company that we can achieve all 3 of those aspects, including the financing of the Sasa Life of Mine capital requirements.

We do continue to look for growth opportunities, but I have to say this year, the focus has been very much on maintaining operations through the first half of the year through the COVID crisis. And now our priority will be very much to fix the problem that occurred at Sasa on TSF 4 on Monday, that will be a key priority. But we are looking for growth opportunities above and beyond that to grow the business and move from our current position.

So in summary, Slide 34, just outlook, before we open it up for questions. A strong performance in the first half of the year, low cost production, good financial numbers, good production numbers, good safety numbers, capital allocation priorities in terms of returning back to paying shareholder dividend remained important to the Board. And pending some more details on what happened on Monday, we'll come back to that decision that's simply being deferred. We continue to deleverage on the debt, and we do look for growth opportunities. And I must emphasize our #1 priority at the moment since Monday morning is to deal with the issue at TSF 4.

On that note, I think that's the end of the formal presentation, which I'll hand back to Val to open it up to any questions from the floor.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first one comes from the line of Richard Hatch from Berenberg.

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Richard James Hatch, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [2]

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A few questions. First one, I imagine you won't be able to answer it. But just on the potential financial penalties, is the expectation that if you're unable to give clarity now, then you might be able to give a range of any form of financial penalties on Sasa when you are able to provide an update? And just on Sasa and a couple of other ones. Firstly, what's your working expectation for when you potentially could bring the mining plant back online? And also can you just clarify what you're currently spending in terms of TSF maintenance and what this potentially goes to after this event?

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Nigel Francis Robinson, Central Asia Metals plc - CEO & Director [3]

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There's 3 parts to that question, I guess, isn't it Richard? So if I deal with the first one, first of all, the number that's out there in the media because it came from a meeting on-site immediately after this happened on Monday with the authorities, it's kind of a statutory penalty of EUR 100,000. I think we have said that in many ways. We think that's quite minor in some ways. But we don't believe that necessarily will be an all-income penalty. So we're open-minded about that, and we will just deal with the authorities in the right and proper manner to ensure that whatever is payable, we resolve in an open and transparent manner.

So I wouldn't like to just say that's the end of it because I think that will be the wrong thing to conclude personally. I think we just have to work with the authorities, get through this, understand what has caused the incident in the first place, what would it need to repair the facility, what is needed to learn any lessons from it so we don't operate the facility until we've understood those lessons. And we are in a position to say as confident as we can that this will not happen again because of whatever the reasons are. So I cannot speculate on that at the moment.

And in terms of other financial ramifications aside from penalties, Richard, our working expectation at the moment from the initial investigation that's been ongoing on-site is that we don't expect this to be an extended delay to the production facility. And by that, I probably mean a month, say. We would hope to update the market in the next week or 2 weeks effectively.

Those kind of figures, I wouldn't like to be held to that, but I think that's our working assumption at the moment. The plant has stopped, as you know, at the moment until we can get some comfort that we can restart it with the repairs done and the learning points. And we'll update the market once we have a concrete plan and some more concrete evidence as to what's actually happened there. Until that, I wouldn't really like to speculate any further.

In terms of TSF maintenance, I'm not 100% sure what you mean by the question other than -- I mean, clearly, we have standard operating procedures by which we manage those facilities and always have managed those facilities. We have a processing team on site, the mine and floatation plant and are responsible for managing the tailings facilities.

And there's been -- I'm sure I can say hand on heart that they've managed it to their standard operating procedures. But if there are lessons to be learned, we'll take those lessons on board, and we'll learn from them and move forward in a positive and open and transparent manner with the authorities and the experts. I don't know if that answered your questions.

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Richard James Hatch, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [4]

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Yes. Sorry, forgive me if I wasn't being clear in any way, shape or form. You're suggesting that the (inaudible) the job. It was just a question that the -- just on the cost of how much you spend just on an annual basis in terms of sort of maintaining the TSFs and if you expect that to have to increase [back] of it.

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Gavin Ronald Ferrar, Central Asia Metals plc - CFO & Director [5]

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I think, Richard, the sort of cost of maintaining the facility is embedded within our processing costs. And as you'll see from the presentation, we spent $4.1 million on that. Now I don't have that fine-grade answer for you now. Should there be any additional -- well, I think to start, as Nigel said, I mean, we believe we were monitoring every aspect of that facility appropriately and within the parameter set up by the people who designed and constructed it. So -- and this is the fifth, as Nigel said, fifth TSF that we've operated. So I think we have extensive experience in operating these things. Should those lessons be learned, and we need to implement some more, I don't think those costs will be significant in terms of monitoring.

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Nigel Francis Robinson, Central Asia Metals plc - CEO & Director [6]

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Yes. I think the one thing I'd add to that, Richard, is -- as we said, there's 5 TSF. There's 4 of them, TSF 1, 2, 3.1, 3.2, that have all been in operation in the past 20, 25 years, whatever, really. They're designed by the same people, the in-house -- the experts within Macedonia who we've used to design our TSF 4, the one that we're talking about here. The only difference between those 5 facilities, this one's got aligning down the side and very steep walls down the valley side. That's the only difference. Now I'm not speculating that's an issue with it. But I think it's fair to say that is the only difference. And then the experts on site, the in-country experts, together with our own experts, are looking into that at the moment. And we spent $16 million, as many of you know, building that facility over a period of 2, 3 years. So it's been built to the highest of standards, and we just need to understand what's gone on and learn the lessons from it and deal with that.

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Richard James Hatch, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [7]

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I appreciate that clarity. And just one more before I turn over. Is there anything to stop you from declaring an intra-period dividend, say, on the assumption that you do reach a conclusion and you're comfortable with the financial impact of it and the mining plant come back online? Is there anything to stop you say at that certain point in time before the year-end to make the operation (inaudible)?

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Nigel Francis Robinson, Central Asia Metals plc - CEO & Director [8]

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No. I think I can answer that fairly clearly, hopefully. The decision we took was not to delay the announcement of the results, because in many ways, everybody knows, those are factual. It's a factual that's what happened in the first half of the year. The only inference of it is it will be unwise of us as a Board without knowing the full ramifications of this incident that happened literally only 48 hours ago to announce a dividend of any sort to shareholders.

The intention is very much to come back to that decision once we've got some clarity on this issue. And once we have -- as you've seen from the results announced this morning, we had a good performance, metal prices have been improving, so we're seeing an improving environment in which we'd be comfortable as a Board to pay a dividend. Now we just need that kind of time to actually assess the implications of this before making that decision. So we have every intention of simply defer the dividend decision and every intention of revisiting that once we have more concrete facts.

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Operator [9]

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The next question comes from the line of Marina Calero from RBC Capital Markets.

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Marina Calero Ródenas, RBC Capital Markets, Research Division - Associate [10]

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I have a quick one. How long could operations at Sasa be at stop without impacting your ability to service debt repayments or meet financial covenants? And as expansion of that, what would you say working capital will be currently for a plant given that mining operations are still ongoing? Is there a point where you can see their stop in mining operations as well?

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Nigel Francis Robinson, Central Asia Metals plc - CEO & Director [11]

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Marina, so I'll answer the first part of that question. Yes. I think if you look at Note 3 of the accounts that went out today, we had a quite extensive going-concern analysis and obviously have to revisit that in light of the incident on Monday. Now what that -- the Board is very comfortable that all of the sensitivities we ran for the auditors on the going concern, which included shutdowns at Sasa, shutdowns at (inaudible) industry, but that's also -- that we are comfortably within the debt covenant sort of the headroom on those.

So clearly, there's sort of -- one aspect of the debt covenant is called the debt service cover ratio, which looks at sort of 3 months hence, and we'd have to effectively shut down for 2 months in order to get to any kind of -- to close the breach on that.

Just to give you a little bit of comfort, there's also something called the loan life cover ratio. So how banks generally operate here is one breach of a DSCR is always looked at in light of what the loan life cover ratio is, and we've got a lot of headroom there. So I don't expect that even the 2-month shutdown and a potential breach of that DSCR would result in any kind of default.

Does that answer that question?

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Gavin Ronald Ferrar, Central Asia Metals plc - CFO & Director [12]

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There was a second part, Marina, to the question, I think, which is operations. On Monday, when the incident happened, the process -- the floatation plant closed down immediately. Mining did still continue, and it's just effectively an orderly shutdown of the plant. We did have some space on-site whereby we can continue mining and store the ore. But the processing plant has been shut down. The mining continued. We've only got limited storage, so we will, in an orderly fashion, stop the mining as well until we have clarity over the way forward for all of this.

So that's, I think, important to understand. But I must emphasize again that our initial indications are that this will not be an extended shutdown. We believe we'll be able to put in the account of repairs and also the kind of remediation that we need to within a reasonable period of time.

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Marina Calero Ródenas, RBC Capital Markets, Research Division - Associate [13]

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Okay. One last question from me.

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Gavin Ronald Ferrar, Central Asia Metals plc - CFO & Director [14]

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Does that answer your question, Marina?

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Marina Calero Ródenas, RBC Capital Markets, Research Division - Associate [15]

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Yes. Correct. Is there -- do you have any insurance policy in place that could potentially cover the damages of the leakage?

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Gavin Ronald Ferrar, Central Asia Metals plc - CFO & Director [16]

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So insurance segment. Yes, we are covered for property damage and business interruption. And the insurance have been informed of the incident. We have not yet, I think -- as Nigel said, ascertain the exact and precise cost of this incident before we sort of make any claim something under the terms of the facility. We believe it is an insurable event, but we have not yet ascertain the value, and therefore, have made a plan.

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Operator [17]

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The next question comes from the line of Alexander Pearce from BMO Capital Markets.

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Alexander Robert Peel Pearce, BMO Capital Markets Equity Research - Research Analyst [18]

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As you pointed out on the call, one of the most attractive attributes of moving to cut and fill is the ability to store some of these tailings underground and reduce the surface footprint. Given the Life of Mine study was completed before the incident earlier this week, I just wondered have you thought about -- or is there potential for bringing forward -- implementing the new mining method earlier and also maybe the -- at least the dry-stack tailings part of it even if it does impact the near-term or medium-term production profile?

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Nigel Francis Robinson, Central Asia Metals plc - CEO & Director [19]

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I have to be honest with you, Alex. There isn't really. I mean it takes a period of time for making a decision to investing in building the backfill plans, and the reticulation process is required to put. Firstly, the tailings on the ground, that's going to take us the plan that we've planned, which is 2 years. We did in -- and we do still fully intend to use TSF 4 up until that point. And then the volume going into TSF 4 will be significant less on an annual basis. There's not really an opportunity without the facilities having been built to stop. As you well know, probably better than I do, Alex, when you've got a processing plant like that, you need to have somewhere all the time to put your tailings or else the processing plant stops.

At the moment, that only opportunity, the only facility we have is TSF 4 other than potentially if there was any capacity, should I say, left available in one of the dams that we just closed, which is 3.2, which was effectively decommissioned back in April when this one started.

So no, not really. We will move as quickly as possible to implement the cut and fill processes and the backfill plant and everything else. But really, we have -- I don't see we'll be able to cut any corners on that other than what we currently plan to do and the time line that we've got.

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Operator [20]

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The next question comes from the line of Peter Mallin-Jones from Peel Hunt.

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Peter Mallin-Jones, Peel Hunt LLP, Research Division - Research Analyst [21]

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Congrats on the results. The 3 sort of probably multi-part questions I had. The first was around the COVID-19 shift patterns that you changed to when -- at Balkhash and the local town in Macedonia started to see rising infection counts. Are you getting to the point where you feel you can sort of go back to more normal shift patterns? Or do you think you're going to be on this sort of through the winter and perhaps until vaccines and so on and so forth are available?

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Nigel Francis Robinson, Central Asia Metals plc - CEO & Director [22]

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Well, the first thing to say, Mallin, it hasn't necessarily affected our production, as you've seen from the results. I suspect -- I mean, we also got quite a lot of people working from home from a G&A sense, overheads and others in that kind of sense. But from a production point of view, we will intend to maintain that kind of that kind of shift partner that we've had in place. It's worked well for us. It's up to the site managers to manage the people and rotate them well. But I think we'd be learning to change it as we come into the winter season, and potentially, we have another uptick in it so.

So I hope that answers your question. I mean, I know at one stage, one thing we did do is go to only essential maintenance, for example. We have addressed that, and obviously, we're back to a normal routine on maintenance. So that was a specific issue we suffered at Kounrad at the time. But we're not on any kind of shift pattern, which is going to give us any problems from a maintenance point of view or the ongoing operation effectively. But we feel we can manage it with the current shift partners that we've got in place.

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Gavin Ronald Ferrar, Central Asia Metals plc - CFO & Director [23]

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Yes. Pete, I think just looking at some numbers, I think we've got 13% of the complement there are currently off-site.

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Peter Mallin-Jones, Peel Hunt LLP, Research Division - Research Analyst [24]

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Okay, okay. And then at Sasa, obviously, with the plant shut, I presume that there's relatively limited inventory that you have on hand that you can ship out to the smelters. Is that the case? Or do you have the ability to buffer some of the shutdown through being able to sort of clear out the sheds?

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Nigel Francis Robinson, Central Asia Metals plc - CEO & Director [25]

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Well, look, there's limited space to store concentrate. We did actually build some storage capacity in anticipation of potential COVID-related shutdowns. So we had a small amount of zinc stored on site. And we've got limited sort of ore storage capacity. So it's really about, again, the tailings up and running again, Pete. So what we've done is we've shipped the last -- I think it's about 13 or 14 trucks today off to the smelters in Bulgaria and Poland. But we also have a part of our materials sitting at a port in Bulgaria that's about to be shipped to China.

So in terms of that sort of working capital, we'll get that money in. But yes, there's not going to be any shipments until we can reinstate production fully. We have been in discussion since Monday morning with our, I would say, counterparty at Traxys to return -- we've been talking to the smelters to -- so that they can prepare for -- prepare their feed stocks effectively to take into account the disruption that we're suffering.

Yes. There's no talk of any kind of force majeure or anything like that yet, and we're just in constant discussion with these guys. I think we have good relationships with the smelters and Traxys, and we'll work together to get through this.

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Peter Mallin-Jones, Peel Hunt LLP, Research Division - Research Analyst [26]

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Okay. Understood. And my final question was just on the leach curve that you put up on Kounrad. It looks like it's running a little slower or taking a little longer to get the sort of recoveries that you've sort of anticipated perhaps from test work and so on. I was wondering, is there an understanding at sight as to what's causing that? Or is it just almost sort of one of those things, just a sort of natural variation of the material in those dumps?

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Nigel Francis Robinson, Central Asia Metals plc - CEO & Director [27]

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I think it's the last 2 if I'm honest with, Pete. It's just natural variation. We've got, as you see, the leach application right now has come down a little bit from 3 liters per square meter down to 2.5 liters per square meter. I mean, as you know, this is not an exact science. We've used that phrase many times, and we do tinker with it a little bit, but I don't think there's anything untoward in that leach curve. It actually shows it catching up, but it's something we manage on a day-to-day basis to get the levels of production that we've historically got. So no, I don't think there's anything sinister in looking at that.

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Operator [28]

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The next question comes from the line of Oliver O'Donnell from VSA Capital.

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Oliver Fergus O'Donnell, VSA Capital Limited, Research Division - Head of Research [29]

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Two on Sasa, if I may. With the change of the mining method, are you able to give a steer as to the benefit to dilution? I think you've reported running at about sort of 20% historically. And so how much will the switch benefit that?

And secondly, in H2, will the ramp in silver prices leave you exposed at all with your -- given the way you settle your silver stream?

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Nigel Francis Robinson, Central Asia Metals plc - CEO & Director [30]

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Well, in answer to the first part, in round numbers, the sublevel cave, we planned on, say, 22%, that kind of level of dilution. And with cut and fill, it's more like 10% dilution. So there's kind of a 100% improvement in some ways in terms of the accuracy of the mining method as well as better recoveries.

And in terms of the second part of the question, we always assume the net $5 per ounce that we got on silver stream . So regardless of the movements in silver prices or indeed, the volume of silver that's in the ore resource, that may increase or decrease, whatever. The liability is all been committed to in many ways. And so our only benefit is ever going to be $5 per ounce from that silver.

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Gavin Ronald Ferrar, Central Asia Metals plc - CFO & Director [31]

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And just to round that off, Oli, the cost doesn't -- we don't suffer any greater cost because they're receiving that greater price anyway from the smelters. So as Nigel said, if we received $10, we get $5. If we received $25, we get $5, and we just pay the balance to Osisko.

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Oliver Fergus O'Donnell, VSA Capital Limited, Research Division - Head of Research [32]

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Yes. Okay. But there's no timing difference from having to buy some [physical] to offset to the smelters.

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Nigel Francis Robinson, Central Asia Metals plc - CEO & Director [33]

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No. In fact, we actually...

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Oliver Fergus O'Donnell, VSA Capital Limited, Research Division - Head of Research [34]

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(inaudible) timing volatility?

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Nigel Francis Robinson, Central Asia Metals plc - CEO & Director [35]

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No. No, it's not. We actually -- I mean, without boring you with the details here, we do forecast the sort of production and Osisko what we're going to do and then we buy silver effectively on weekly basis to -- under the terms there. So it's pretty marginal. There's no exposure. There's no timing exposed on it.

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Operator [36]

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The next question comes from the line of Nick Chalmers from Alternative Resource Capital.

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Nick Chalmers, [37]

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Just following up on one of the earlier questions. Have you been able to determine yet what, if any, tailings capacity may be available at the older facilities, which you can then perhaps use in the short term while any remedial work is carried out at TSF 4?

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Nigel Francis Robinson, Central Asia Metals plc - CEO & Director [38]

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It's good question. And the answer, I'm afraid at the moment, is no. It's an ongoing review that Scott who flew out yesterday morning with Nick is looking into with the site management team. In theory, it's 0 because we decommissioned it, but we'd have to work with the authorities and have a look at it very carefully and to see whether or not that was possible. If it was, we'd only do it if it was the right thing to do, as I say, with the authorities and didn't put any undue stress on anything else within the area. So we'll look at it. You're right, it's a potential opportunity, I guess, to maintain some level of production throughout this. But it's something we are looking at. I haven't got an answer to it at the moment as we speak.

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Nick Chalmers, [39]

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Okay. And just a couple of questions , if I may, on CapEx. 2020 guidance has been lowered by $3 million. To what extent is that savings identified? And to what extent is that deferrals into later periods? And then looking at the longer-term CapEx guidance for Sasa of $19 million, does that include all plant modifications that might be required to get the increased 50,000 tonnes throughput capacity? And will any additional underground mining equipment be required for that transition to cut and fill beyond what you've already budgeted in sustaining CapEx?

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Nigel Francis Robinson, Central Asia Metals plc - CEO & Director [40]

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Well, in answer to the first question in terms of deferral or savings, I've got a percentage to give you, Nick, to be honest with you, but quite a bit of it is a deferral issue in the sense that what we've moved over into 2021 was tighter controls over some of the CapEx because of the issues we faced earlier in the year.

So we haven't yet budgeted for next year exactly what we're going to spend on. Some of it may fall by the way and so I think we may decide it's not relevant now to do it because it may have been superseded by the Life of Mine study. We've got to do that detailed work on it to be honest with you.

In terms of the CapEx guidance for future years and the increase of the floatation capacity, if you like, to get up to $900,000 from $850,000, we've allowed within our numbers around about a $2 million change to the setup and configuration of the processing plant with maybe another mill or maybe some additional cells for floatation. That's work still to be undertaken by Barrie O'Connell who works for us in terms of that. And that will be ongoing as part of the study. Does that answer the question, Nick?

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Nick Chalmers, [41]

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Yes. Great. And then just any additional underground mining equipment, is that captured in your -- is that captured in your sustaining CapEx numbers?

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Nigel Francis Robinson, Central Asia Metals plc - CEO & Director [42]

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Effectively, yes. Because the numbers of vehicles we think we need moving forward is very similar to what we would have needed on for sublevel caving. And we've been through that exercise of reviewing the lives of each of these vehicles, replacing some of the older ones already with the program we've done with these 6 purchases this year. And that will be ongoing. And we'll -- we expect a similar kind of number of vehicles underground. Now if we build the decline, and obviously it's still under discussion, we probably have to look at some bigger vehicles and bigger trucks and what have you to accommodate that. That will be a separate capital allocation. But it is within that $18 million to $19 million in terms of what we're potentially looking at. We're potentially looking at maybe 2 points -- I think it's $2.5 million to $3 million, that kind of level of expenditure ready to construct that.

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Operator [43]

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And the last question comes from the line of Fabian Graimann from Pictet.

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Fabian Graimann, [44]

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I have a question on sort of the ongoing costs while Sasa production and processing is stopped. So if I take $35 million policy here of cash cost, let's say, run rate of $3 million a month, should we see any reduction here or -- while the operation is sort of halted?

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Nigel Francis Robinson, Central Asia Metals plc - CEO & Director [45]

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In terms of reduction, Fabian, I would say no because -- as I said before, a couple of times now, the initial indications that this will not be a long-term closure of the plant, and therefore, we would not intend to lay anybody off in that shape or form. You may get some variable savings. Undoubtedly, we will get some variable savings in terms of electricity in the process plant. But we wouldn't expect those to be significant, really.

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Gavin Ronald Ferrar, Central Asia Metals plc - CFO & Director [46]

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Yes. On one area we will save specifically on treatment charges. Obviously, because we're not sending anything to the smelters. But I think when we looked at the burn rates back in sort of March, April, we were coming out at around $4 million to $5 million a month at Sasa, and that is without pulling any (inaudible) that we can look at reducing the variable element of that.

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Fabian Graimann, [47]

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Got it. And then on repairs, can you point to any other dam incident globally where an issue that was similar was fixed in a month or 2? And clearly, what comes to mind here for me is the incident at Veles and just kind of how things took years, obviously, at a much bigger scale, but can we -- do we have any pressure there?

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Nigel Francis Robinson, Central Asia Metals plc - CEO & Director [48]

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I certainly can't think of one, Fabian, if I'm honest with you. I think what we have to do, if I'm honest with you, is just deal with what's in front of us and manage it in the right manner and do it -- we'll take our time to make sure we do it correctly, but I can't think of a precedent, and I'm not sure how that would advise me anyway. We -- as I say, the investigation is ongoing, and I just really wouldn't, at the moment, like to speculate other than our initial indications are that it will be a long-term shutdown of the plant.

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Fabian Graimann, [49]

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And who was the contractor who built the dam? And do they have, them or the designers, is there a liability there?

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Nigel Francis Robinson, Central Asia Metals plc - CEO & Director [50]

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No. I don't think there's any liability on them to be honest with you. The design of it was by local experts, Macedonian from the University of (inaudible), the professors there. They're on site, and we're dealing with them. We've already spoken to them. So we are dealing with the relevant experts on this to find out exactly what went wrong.

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Fabian Graimann, [51]

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And sorry to ask another question. But looking at the pictures, could you just describe what am I exactly seeing and what happened here? And maybe also a case signaling question. I thought this dam was just commissioned and is practically still -- it's just starting to be filled. In the picture, it looks pretty full.

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Nigel Francis Robinson, Central Asia Metals plc - CEO & Director [52]

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No. It's not. I mean the way tailings dams work, it might look for at the moment that it's in early stages. It's commissioned in April, so it's very junior in that sense. And what you find is that the lagoon, as they call it, which is upstream, and if you look on the picture on the slides that we've got, the bottom picture to the right-hand side of that and upstream is what you call the lagoon.

Now as the dam builds in capacity over the next 3, 4, 5, 6, 7 years, it will move up that slope, and it will look a lot bigger, obviously, from that, if you're to look upstream. The picture don't easily show it. But it's certainly not in fall, it's in its early stages. And what you'll see on the right-hand side, which is quite a steep valley is aligning there. And we believe there's some kind of issue maybe happened there with the lining potentially and where the dam is.

But as I say, I'm very [load] to speculate exactly what's happened. But you can see the only impact on it is very close to the valley side and quite a relatively small area. The actual structural integrity of the dam itself, and we've been assured this by the professor, is still intact. So it's some kind of leakage, it would appear, just on the valley side that's then impacted on the downstream [Sandy] dam , they call it, and call the issue.

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Fabian Graimann, [53]

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And why did it stop automatically after -- well, why does it stop after that?

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Nigel Francis Robinson, Central Asia Metals plc - CEO & Director [54]

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Yes. Again, Fabian, and I hate to do this, but you are pushing it. I wish -- I don't want to really speculate. But you have to look at it and say, maybe it's just an overflowing of some of the water there if there was cold water, and then that's just stopped naturally as it's kind of exhausted itself effectively.

But again, let's leave it to the experts. Let's find the facts out. Once we know that facts, let's understand what the repair time will be, what we need to do to repair it, and most importantly, what we need put in place to ensure that this doesn't ever happen again on what is rightly pointed out as a new tailings dam facility, which is very similar to all the previous ones, only this one was lined on the side of it as you can see from the diagram there in the picture.

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Fabian Graimann, [55]

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Got it. And last question on the dividend. So should be this issue be fixed in the next month or 2? Should we then -- and assuming everything is ongoing as it is today, should we then assume a reinstatement of the dividend?

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Nigel Francis Robinson, Central Asia Metals plc - CEO & Director [56]

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Well, as I've said, I'm pained to say the dividend decision was simply deferred whilst we get some clarity on this. Once we've got some clarity on this, then we will come back to the market. I'm not instating, not committing to it, but I think that's -- the inference is that we had every intention of repaying a dividend based on a good performance during difficult circumstances in COVID-19, improving metal prices, a strong balance sheet and all the other good things that would have indicated that we would have paid a dividend.

Unfortunately, this happened early on Monday morning. It's caused us to just pause, consider -- take onboard the implications of this and then come back to the market with a dividend decision, which, as I say, is simply deferred at the moment.

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Operator [57]

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And that was our last question for today. So anyone whose questions didn't get answered, please e-mail Louise Wrathal. Her e-mail address can be found on the website. And back to you, Nigel, for concluding remarks. Thank you.

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Nigel Francis Robinson, Central Asia Metals plc - CEO & Director [58]

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Okay. Thank you very much, everyone, and goodbye. Thanks.

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Operator [59]

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Thank you for joining today's call. You may now disconnect.