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Edited Transcript of CEY.L earnings conference call or presentation 21-Apr-20 11:30am GMT

Q1 2020 Centamin PLC Earnings Call

Saint Helier May 5, 2020 (Thomson StreetEvents) -- Edited Transcript of Centamin PLC earnings conference call or presentation Tuesday, April 21, 2020 at 11:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Martin Horgan

Centamin plc - CEO & Director

* Ross Ian Jerrard

Centamin plc - CFO & Director

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Conference Call Participants

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* Alan Henri Spence

Jefferies LLC, Research Division - Equity Analyst

* James Andrew Keith Bell

RBC Capital Markets, Research Division - Mining Analyst

* Justin Chan

Numis Securities Limited, Research Division - Analyst

* Laurent Kimman

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

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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to the Centamin Q1 results call. My name is Joshua, and I'll be your conference coordinator for today. (Operator Instructions)

I would now like to hand over to your host for today, Ross Jerrard. Ross, you have the line.

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Ross Ian Jerrard, Centamin plc - CFO & Director [2]

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Thank you, Joshua. Good afternoon, everyone. Thank you for taking the time to dial in to our first quarter results webcast and conference call. I must say these are extraordinary times to be living in, and I do hope that you and your family is all well and keeping safe.

Joining me today on the call is Martin Horgan, our recently appointed CEO; and Alexandra Carse, our Head of Investor Relations. Martin will be available for questions, but please remember, he only joined us 2 weeks ago and is in the midst of an intensive handover.

Martin, a very warm welcome to you on our first results call, and is there anything you'd like to add before we actually start?

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Martin Horgan, Centamin plc - CEO & Director [3]

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Thank you, Ross, and just to say thank you for your efforts over the last 6 months. I think given your role as interim CEO in an intense situation followed by COVID, I'd just like to thank you for your efforts and an astonishingly sort of excellent first set of Q1 results as well. But really just to say I'm delighted to have the opportunity to join you and the team at Centamin. And I'm really looking forward to what, I believe, is the sort of the next phase of evolution of the business. I think Sukari is attractive as a world-class asset. That's been the foundation of the business over the last decade. I think the team has done an excellent and exceptional job to be able to deliver and operate the mine over that time.

Look, I think, as we look forward about the next decade at Sukari, as that asset matures, that really will be the foundation for the business. But I'm also keen to sort of explore the -- both the organic opportunities for development within the business, West Africa and regionally within Egypt and also potentially externally as well as we seek to sort of grow a multi-asset business of high-quality assets to give us a diversification and growth story.

Anyway, I look forward to sort of engaging more formally with everybody at the half year. Obviously, as Ross said, it's only my second week in the hot seat, and I'll certainly take my timing given the current COVID situation that Ross alluded to earlier on. But I think I'd say just again, thank to you, Ross, to what's been a fantastic start to the year. You've certainly set the benchmark for me to try and follow on from here.

With that, I'll hand back to you for now.

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Ross Ian Jerrard, Centamin plc - CFO & Director [4]

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Thank you, Martin. Before we get started, it is important that I draw your attention to our disclaimers around those forward-looking statements on Page 2, but please take your time to read these statements thoroughly.

And I'm turning straight on to Page 3. Our corporate strategy remained as clear and deliberately simple. Our 3 core pillars, which are: one, to safely and responsibly maximize value from Sukari through value over volume, in other words, driving margins over headline ounces, which translates into free cash flow generation and subsequently stakeholder returns. We have appointed Martin to bring strong operational and strategic expertise, and we have a series of optimization studies underway targeting this approach. There are also a number of cost saving, ESG and other initiatives to support the strategy.

Central to our strategy is our commitment to stakeholder returns. Centamin has an established track record of delivering meaningful and reliable returns to the stakeholders, including profit share dividends to our Egyptian partner EMRA and returning surplus cash as dividends to our shareholders. We have approximately $380 million of cash and liquid assets with no debt. And importantly, we have a 6-year track record of paying dividends.

Last but not least is our growth pillar, where Centamin strives to be a multi-asset producer, but not at any cost. Our strong balance sheet means our internal growth pipeline is self-funded, including some exciting brown and greenfield resource development across the portfolio, both at Sukari and Doropo. We do look and will continue to look beyond our existing portfolio and are encouraged by the new pit ground launched in Egypt. But all growth initiatives, organic or inorganic, has to make good business then, creating value for our shareholders and more broadly stakeholders.

Turning to Page 4 and our COVID-19 response. Presently, Centamin has no recorded cases of COVID-19 at our sites and have experienced no material disruptions to the supply chain or gold shipment. We took early action to protect the health, safety and well-being of our employees and communities in response to the global threat of COVID-19 and are well positioned to manage future impacts within the company's control, in line with our Severe Communicable Disease Outbreak Management Plan and in accordance to the advisory and governance with relevant health authorities, Where the impact and potential duration of the COVID-19 pandemic remains uncertain, we have confidence in the active response framework in place to manage and mitigate future impacts within our control.

Our workforce has been superb in their collective response, commitment and flexibility throughout these times. We have sufficient staffing and supplies through Q2. Should government-imposed travel restrictions be extended into the second half of the year, operations may become affected, but we are well positioned and confident with the response framework in place, and we'll update you on material changes. We have highlighted some of the key actions across people, supply chain and gold shipments on this slide.

Moving on to our leadership team. Centamin has transformed the Board and management over the last 2 years, as the company evolves and resets ahead of the next stage of growth. With Martin joining as CEO, we really feel like we have made one of the final step changes in strengthening the Centamin leadership team, and this includes the General Manager of Sukari reporting directly to the CEO, with Jeremy Langford resigning from his position as Chief Operating Officer to pursue other interests.

Over the last 18 months, substantial work has also gone into restructuring the group organizational chart, developing robust chains of command to ensure timely and effective decision-making. This has involved flattening the operating structure, expanding departments and simplifying reporting lines. These changes have meant Centamin is better equipped to respond to challenges, such as those that we are currently being posed by COVID-19.

Specific to our COVID-19 response, we established a COVID-19 Executive Committee to provide oversight during the pandemic, supported by multifunctional teams and a framework led by both risk and operations. At a minimum, the Board are updated weekly, the Executive Committee meets 3 times a week and the support team meets daily, providing workforce update and supply chain assessment.

ESG initiatives. ESG to us means good business from conduct to decision-making. In testament to the work we are doing on our business conduct, we became constituents of the FTSE4Good Index in Q1. For the past 25 years, Centamin has been building a responsible culture that values and supports people, creating jobs infrastructure and opportunity as well as developing our assets and delivering strong return. The health, safety and well-being of our workforce is central to our culture, and Centamin have established a reputation as a safe, ethical, local and international employer. This stems from a clear culture of awareness and responsibility. Training and ensuring processes and procedures are constantly evolving, in line with the changing environment. We respect the areas in which we operate, both socially and environmentally. And I'm happy that there are no major incidents recorded. And again, there are no recorded cases with COVID. We continue to target improvements in recycled water. The TSF2 construction progress is on schedule and on budget. We have temporarily postponed the solar construction to minimize the spread of COVID-19 and protect our people in operations.

Strong long-term relationships are paramount to the success of any business. We have constructively worked with our local Egyptian partners, EMRA, the Egyptian Mineral Resource Authority, since 1994 with the same shared vision of creating opportunity now and for future generation through gold mining. Since commencing mining operations, we have made a cumulative direct financial investment of over $4.2 billion in Egypt, including $500 million distributed to EMRA in profit share and royalties. Further to profit share, we are proactive in our financial and logistical support, both within our local communities and nationally. During Q1, we committed EGP 100 million to support the Egyptian response to act to combat COVID. And locally, we have denoted PPE and sanitation to the site.

Slide 7 lays out our financial strength and commitment to shareholder return, which is core to our strategy, and today was no different. To ensure our shareholders receive their dividend in an acceptable time frame, the Board resolved to replace the financial '19 year final dividend with a 2020 first interim dividend. The quantum remains the same at USD 0.06 cents per share, equating to $69.4 million. Our business model centered around our high-quality cost advantageous asset base gives us confidence in continuing to deliver strong and sustainable shareholder returns. You can see our track record of cumulative dividend returns against the backdrop of our cash position over the last 6 years, which provides flexibility to deliver on our strategy. We feel this demonstration is of a good working dividend policy. As a reminder, our dividend policy is 2-staged: a minimum of 30% of free cash flow; and secondly, after assessment of growth capital. Therefore -- thereafter, excess is returned. The last 4 years, we have returned 100% of free cash flow.

Again, with just shy of $300 million of cash and liquid assets on the balance sheet and no debt, hedging, loans or gold streaming, we are very -- in a very strong financial position to balance shareholder return with significant investment for the future.

Moving on to Slide 8. Our first quarter highlights. The first quarter was a strong start to the year, with operational and financial performance delivered ahead of plan. Gold produced was 125,000 ounces, up 8% year-on-year and 6% ahead of market consensus. Gold sold of 139,000 ounces, a 26% improvement year-on-year, reflecting a higher production and increased gold inventory we held at year-end. Both unit cash cost of USD 659 and all-in sustaining cost of $902 per ounce are tracking to budget, and we are 7% and 6%, respectively, above consensus.

Net cash generated from operating activities was $110.5 million, an 88% improvement year-on-year. After Sukari profit share distribution and group investing activities, group free cash flow was $45.6 million, a 175% improvement, which underpins a good start to the year.

A highlight that the second quarter is scheduled to be a lower production quarter, producing approximately 115,000 ounces of gold, reflecting a reduction in the underground output, as the key focus is development and upgrades in underground.

Investing in the future and for 2020. Although the impact and potential duration of COVID-19 remain uncertain, the company has carried out scenario risk analysis for the business and believes it is well positioned to continue to navigate these difficult times. Centamin is closely monitoring the situation with an active response framework in place to manage and mitigate future impacts within its control. Sukari operations continue uninterrupted. And as mentioned, we have sufficient staffing resources and critical supplies for Q2. We expect global travel restrictions to begin to ease later in Q2. However, should global lockdowns extend into the second half, it is possible operations may be affected. But we continue to proactively work on our longer-term contingency planning. As such, Centamin maintains its 2020 full year guidance, targeting between 510,000 and 540,000 ounces of gold at cash cost between USD 630 and USD 680 per ounce produced and all-in sustaining cost between $870 and $920 per ounce sold.

Our production weighting -- is weighted 45:55 between H1 and H2. This was previously 40:60. And open material -- open pit material is contributing 80% of the full year production driven by higher-grade stage 4 ore. The balance is scheduled to come from underground, specifically the Ptah as the focus with the Amun is infrastructure upgrades. We have made the decision to defer some nonsustaining, nonessential capital, primarily the solar plant, during the COVID-19 challenges.

Taking a bit more -- a bit of a closer look on our core asset and turning to Page 11. The beauty of Sukari is as there are multiple assets all within one porphyry, which provides us the flexibility. Here you can see the long section of the resource-defined porphyry host effectively to 5 separate areas: the current open pit, Amun, Ptah, Horus Deeps and Cleopatra. Open pit is a large bolt-on operation, and the underground is a high-grade system. The underground is not yet fully defined and as is open at depth and a long strike. Where the underground is typically a 5-year life of mine, we have a 10-year track record of reserve replacement. It is important that I highlight that with the success of the underground drill program and particularly the Horus Deeps discovery this last year, which shows mineralization up to 200 meters below the current underground, we have reassessed the scale and underground upgrades required with the future underground in mine. Accounting for the strength of the open pit contribution this year, it is an opportune time to invest in the underground infrastructure upgrades to position for the longer term. Specifically, the upgrading of the ventilation system, which will significantly improve the air quality at greater depth, allowing for increased future mining activity.

In order to carry out this work in a safe and efficient manner, and with minimal disruption to operation, ore mining in Amun area has reduced in 2020 with us targeting development, while Ptah and stage 4 of open pit will provide the ore source for 2020.

Slide 12 shows a planned view of the open pit with the stage 4 areas highlighted, just to give some color and orientation of stage 4.

Moving across to Slide 13, which shows open pit performance, which performed ahead of budget for the first quarter. Looking ahead, we expect to see continued delivery of above 1.1 grams per tonne ore feed as we continue to mine stage 4. In 2020, the open pit is scheduled to contribute 80% to the full year ounces. In assessing the potential risk from COVID-19 on operation, the open pit is robust, benefiting from being owner-operated, with a strong open pit equipment availability and productivity, sufficient supplies and a skilled workforce sufficient for multiple rosters.

During Q1, total ore mined was 4.2 million tonnes at an average grade of 1.1 grams per tonne, a 34% increase in tonnes year-on-year and a 54% improvement in grade year-on-year, of which 2.9 million tonnes was delivered to the mill at an average mill grade of 1.3 grams per tonne. Nearly 1 million tonnes net was delivered to the stockpiles at 0.4 grams per tonne. During the quarter, there was a benefit from some waste being classified as low-grade ore for stockpiles, which has optically reduced the strip ratio.

The short-term mine plan was updated during the quarter to maintain efficient mining operations and support the annual production guidance, while maintaining the planned waste stripping volume, and the open pit optimization studies progressed well for the second half of the year.

Talking a little bit about the underground. As we have said, 2020 for the underground is focused on development and upgrades. The strength in the open pit gives us the flexibility to pull back on underground mining and focus on delivering these upgrades. As such, underground mining is targeting specifically the Ptah, with Amun being focused with infrastructure upgrades.

Total ore mined was 154,000 tonnes at an average grade of 4.98 grams per tonne. This represented 43% decrease in tonnes year-on-year and a 21% decrease in grade year-on-year, predominantly a function of the mine plan. That being said, underground mine grade was 27% ahead of budget driven by higher stoping grades delivered in the quarter due to improved dilution from controls, including the use of cemented rock fill -- backfill in certain areas and a stope coming in higher than expected, resulting in stoping grade of 7.4 grams per tonne. Total underground tonnes were approximately 20% less than scheduled due to restricted stope access in Ptah. Q2 tonnes are scheduled to largely be flat, but at a lower grade due to more lower-grade development.

Touching on the processing plant. 3.1 million tonnes were processed at 1.5 grams per tonne material at an 87.5% recovery rate and 96% utilization. The focus in 2020 continues to be on optimizing plant throughput, with an emphasis on reducing reagent consumption, while maintaining recoveries.

We continue to maintain a disciplined focus with cost management and a focus on our bottom line, with all our costs tracking in line with budget particularly for Q1 and full year guidance. The company forecast additional costs and cash flow associated with the COVID-19 to come in, in Q2, including a buildup in working capital through increasing stockpiles and consumables. There's a temporary increase in payroll costs and support costs, resulting from logistics planning, including quarantine and increased sterilization measures as well as transport costs due to the government curfews in place. These cost pressures are not expected to be material in the short term and, therefore, are not expected to affect guidance, but we continue to actively manage our cost base to mitigate any future impacts from COVID-19.

Slide 18 shows some of the Q1 2020 drill highlights. The Sukari porphyry continues to return excellent results that show mineralization remains open at depth and a long strike with some high-grade structures within the porphyry, which are still not defined. A total of 12,000 meters of underground diamond drilling was completed in Q1. Drilling was focused on resource conversion within the main areas of Ptah, Osiris, Top of Horus and a step-out exploration program targeting the Horus Deeps structures. We have budgeted 70,000 meters of diamond drilling in 2020.

Slide 19 outlines the expansion framework to be more fully -- to more fully understand the Horus porphyry study, where we are targeting a 10,000 meter step-out program with 2 surface drill rigs. In Q1, near-mine surface drilling commenced, targeting Horus Deeps extension, up plunge to the South and down plunge to the North. 2 deep holes, an 850-meter depth hole in the South and a 1,400 meter hole in the North are in progress and calibrating well within the known porphyry contacts. The results of these are expected to improve the understanding of the structural controls, and we look forward to providing future updates.

Slide 20 gives a quick update on West Africa, where exploration activities continue, but the work programs have been limited due to restrictions imposed by COVID-19. During Q1, exploration activity safely ramped up at the Doropo Project and ABC Project in Ivory Coast. A second multipurpose drill rig was brought in on the Doropo Project, in line with the increased surface exploration program. We have no reported cases of COVID-19 with 100-kilometer radius of our licenses. Drilling and exploration field work has continued uninterrupted in Q1. It is expected to be reduced in Q2, as government-imposed restrictions on the movement of goods and people impact activities. Double shifts have been implemented on the drill rigs at Doropo. However, disruptions experienced with receiving drilling consumables could impact Q2. We are still assessing alternatives. The geophysics programs have also been temporarily postponed.

Turning to Page 20. 2020 is a budgeted year for a year of investment. Our sustaining capital spend remains stable at around the $90 million mark, but we have forecast to reduce some of our nonsustaining CapEx. Cost mitigation and cash management are fundamental to Centamin strategy and critical to mitigating the impact of COVID-19. The company is reducing capital expenditure for 2020 to between $150 million and $170 million. Previously, we guided $190 million through short-term deferral of nonessential growth capital, optimization of capital projects and reductions in discretionary spend. Changes to the nonessential capital expenditure programs are measures to taken to protect our workforce and secure the operations and are not expected to impact guidance for 2020.

We continue our growth initiatives and opportunities. Short-term initiatives are detailed on the left of the slide with the life of mine extensions and optimization studies as well as our 2D seismic program as being the most imminent. And on the right side of the slide, we have the longer-term opportunities at Doropo, ABC and Batie, also including some -- assessing some inorganic opportunities.

Slide 23 summarizes our position, and that is to maximize Sukari and leverage our balance sheet strength to deliver consistent shareholder returns with a clear but simple strategy and position for the future. Centamin is a resilient and responsibly run business with 0 debt and $379 million in cash and liquid assets as at 31st of March. I'm confident on our long-term strategy and our ability to respond quickly in this difficult environment. We continue to operate diligently and invest prudently. I believe Centamin is both well equipped to navigate these challenges and remain positioned for the future. Our solid Q1 performance has been a small step on that journey.

Before I hand back to the operator, I did want to address the obvious question of timing of our financials. We have indicated that our financial year 2019 results will be published by mid-May. I fully acknowledge that this is unusual, but we are living in unusual time. Our delay is purely process-driven. If there was something material, we would certainly be updating you in a timely manner. The main process item to be finalized in our assessment is the consideration of COVID-19. There is no precedent for this event, and the Board want to ensure that thorough assessment is done, which is required for the going concern and a viability assessment for the full year account. I do not want to flag unnecessary concerns. Centamin are currently in a solid position as detailed in today's results, and we are confident in the response framework in place. It is still fundamental that all risks are adequately considered and documented. To that extent, we have [Craig Murray] recently join us as the Head of Risk. And obviously, with Martin joining as our new CEO, we all collectively have been very focused on COVID and the future implication. The regulators have allowed this extended period of time for a reason, and whilst we don't intend to use the full time, it is our priority to get the Q1 results up to schedule, and we will get the annual accounts after as soon as we can.

And with that, I'll now hand back to the operator for any questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question on the phone lines comes from Justin Chan from Numis Securities.

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Justin Chan, Numis Securities Limited, Research Division - Analyst [2]

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Really pleased to see the good results this quarter, and welcome to you, Martin. My first one, perhaps for Martin, just in your initial remarks, you mentioned growth, both organic and external. Could you perhaps just share your vision in terms of what parameters drive considerations of growth assets in terms of -- is that primarily driven by IRR and unit returns? Is there a size cutoff in your view that's meaningful for Centamin? And I think from my perspective, your asset base is quite interesting and that you've got your production centered in Egypt. It kind of opens it up to perhaps some of the regions in Central Asia or Turkey or geographically not, in relative terms, that far. You've also got West Africa on an exploration as of -- could you perhaps give us a sense of how you view the world? What is a relevant asset in terms of size and how you view the returns that you'd like to see?

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Martin Horgan, Centamin plc - CEO & Director [3]

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Sure. Thank you. Look, I think, just an upfront caveat, as I said, this is week 2, 3 of the -- of being in a hot seat anywhere, look, I think this is me more generally speaking, as a Martin Horgan's view, that any sort of agreed strategy with the ExCo and the Board, which obviously will flow through in time as we step into it. I think sort of first and foremost is the sort of understanding and the optimization of Sukari, I think, is a clear short-term focus, and that's the foundation on which, I think, the next phase of the company will be -- growth will be built on. So I think that's a clear focus. And obviously, we have the life of asset review, which has been already initiated and is underway keenly to understand that. And I think importantly as well, when we look at sort of the growth opportunities, there's -- one of the things I'm keen to look at is capital allocation and competition for capital. An ability to diversify away from Sukari, clearly, have some advantages around both country and the operational risk diversification. But in terms of brownfield expansions, sort of competition for capital, we'll have to look carefully at where we get the best bang for our buck as well. So I think, first and foremost, getting Sukari right and understanding the levers of Sukari for investment and what that can return is a key focus on that.

I think secondly, West Africa, obviously, I'm unfamiliar with West Africa, and I'm keen to understand the opportunities at both Doropo and Batie and how that can sort of grow from the existing portfolio. And on it's final stage, as Ross alluded to there, that the Egyptian bid round is currently open. And clearly, as the only commercial scale gold mine operator in Egypt, that should put us in a good position to be able to look very, very carefully with a strong operating and exploration base at Sukari to look at other opportunities within Egypt.

So I think there's quite a lot on our plate in the short term to really understand, as Ross alluded to as well, disciplined around sort of investment criteria, return is going to be key to making sure we allocate capital correctly through the business.

On a personal basis, in terms of -- I wouldn't like to put sort of pigeon holes around or boxes around what I say as a project. I think there's some clear sort of metric that people will probably talk about in terms of minimum annual production rate of ounces per annum, minimum sort of lowest quartile cash costs, sort of 8- to 10-year mine life as well. I think that's fairly sort of well-established metric that most people would understand. I think I'd also like to look very carefully at both political and security risk globally. I think if I think back to sort of 10 years ago in West Africa, it was a very sort of open and opportune place to conduct business. I think, today, the world is unfortunately withdrawn in quite a significant way, so I would also be sort of cautioning at not only looking at sort of technical merits of projects and also their financial returns or forecast returns, I'll be looking very carefully to ensure that we maintain a balanced portfolio, both political and security risk-wise as well.

So I think at this stage, happy to have a fuller conversation at the midyear point. But obviously, I'm a lot further down the track of my sort of first period at Centamin here and obviously, then develop those discussions with both the ExCo and the Board from there as well. But hopefully, that gives you a sort of flavor of the sort of thinking around the capital allocation discipline around that and the political and sort of security overlay as well.

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Justin Chan, Numis Securities Limited, Research Division - Analyst [4]

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Definitely. That's fair and it's been helpful. So from a relatively exciting question to relatively boring one, I just have one on -- my second one is related to working capital in H1. We don't have the full year financials yet. I'm just wondering, in absolute terms -- perhaps this is one for Ross, do you expect the levels to be relatively similar to last year H1? Or should we anticipate a noticeable increase in dollar million terms?

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Ross Ian Jerrard, Centamin plc - CFO & Director [5]

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It's not going to be materially different, Justin, but you had sold up to between $6 million and $10 million in terms of building up, especially on those consumables and supplies. We've really been looking at restocking a lot of the consumables, holding fuel farm as full as we can and getting in all the supplies that we could. So maybe a $5 million to $10 million type increase in stock levels.

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Justin Chan, Numis Securities Limited, Research Division - Analyst [6]

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Okay. Great. And then just 2 more for me. One on the solar plant. Given movement in fuel prices, is there any reconsideration of that? Or is this just a deferral based on site activity levels and maintaining proper, call it, precautionary protocol? And then -- yes, maybe I'll let you answer that one first.

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Ross Ian Jerrard, Centamin plc - CFO & Director [7]

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Yes. So the solar, it's really around the COVID and this limiting, we've really wanted to quarantine or sterilize to limit any inbound as much as possible. That's really a deferral rather than a cancellation, and that's moving things to the right from there. And then the impact of -- sorry.

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Justin Chan, Numis Securities Limited, Research Division - Analyst [8]

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Sorry. No, I didn't mean to cut you off. Please go ahead.

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Ross Ian Jerrard, Centamin plc - CFO & Director [9]

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Yes, just on the global fuel. We are -- the global fuel pricing has obviously gone down. But for us in Egypt, it is regulated or governed by government. So we haven't seen those slow-on impact yet on our operations. In terms of how we model that going forward is basically how we set the budget, which is sitting at $0.60 for the year per liter.

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Justin Chan, Numis Securities Limited, Research Division - Analyst [10]

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Okay. So just high-level summarizing, the CapEx that's deferred from this year, it's probably best to treat as moving into next year.

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Ross Ian Jerrard, Centamin plc - CFO & Director [11]

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That's right. That's just pushing it to the right. The 2 main projects of the solar -- is the solar. We're still going along with some of our HP upgrades, so some of that spend is there. But the bulk of it or the best part of $25 million would be pushed right and into next year, as we assess our solar project. And then some of the CapEx spend on the raise bore, and this is some of the advantage of COVID challenges is looking at alternatives. And the team at site has looked at what else or what other alternatives could we do with the raise bore and could it be done in a staged approach. So about half of that CapEx that was allocated to the raise bore is expected to be spent. So the $12.5 million that we had flagged has been guided to do it would probably be down at $6.5 million.

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Operator [12]

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The next question on the phone lines comes from Alan Spence from Jefferies.

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Alan Henri Spence, Jefferies LLC, Research Division - Equity Analyst [13]

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Welcome, Martin. Two from my side, and the first is a little bit coming back to what Justin was asking there. Just around that CapEx deferral, is this something -- I know you said it would basically get pushed into next year, but will this ultimately delay the development time line for the solar plant? Or can you kind of catch-up on the time line? And if you could remind us when you had initially been expecting that to be completed.

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Ross Ian Jerrard, Centamin plc - CFO & Director [14]

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So the preparation works are still continuing, Alan, so less electrical upgrade and the early works on the ground preparation. But actual mobilization of, I guess, equipment and people on to site is the big challenge. That set was originally scheduled to occur between now and the first quarter of next year, and we'll be pushing that further to the right. But we've got no visibility on the time line just yet because of COVID in a pretty fluid situation. But I don't expect it will make a huge impact in terms of timing. It will be a pretty quick build once it all comes together. But I'm sorry, I can't give you exact date.

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Alan Henri Spence, Jefferies LLC, Research Division - Equity Analyst [15]

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Okay. That's fine. So my second question is on the open pit. You noted in the report some positive grade reconciliation there. I was just wondering if you could tell us what was in budget for Q1 for the open pit mine grades and then what you're expecting there explicitly in Q2, please.

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Ross Ian Jerrard, Centamin plc - CFO & Director [16]

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It depends on the areas that we are mining. We have basically budgeted a circa 1 gram a tonne-type material coming out from the open pit, and that's being well in excess of the 1.1 and above. So we've actually done very well in terms of grade reconciliation. And there's also been some of the material that was forecast or budgeted to be waste that came in at lower-grade material, which also helped. The key thing is the grade profile for open pit during the rest of the year will be above that where we're expecting it to be above that 1.1 or at that 1.1 level.

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Alan Henri Spence, Jefferies LLC, Research Division - Equity Analyst [17]

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Okay. And actually, just one quick follow-up. You mentioned kind of global travel restrictions. If they extend into the second half, then you might see some impact on guidance. The second half can obviously be a bit of a wide range. Is this something where if this extends into July, do you think there's risk? Or do we need to actually see it get a little bit further into the back half of the year?

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Ross Ian Jerrard, Centamin plc - CFO & Director [18]

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Yes, I think it's all on timing. The critical thing for us, we've been very fortunate that the teams on site are being very supportive in terms of staying on-site and extending rosters and the like, and they're basically being locked down. But as that opens up and the ability to move people on the North site and our service providers, that will also have to be assessed in terms of where that goes. So from a people and a movement perspective, I think we will be okay depending on how quickly everything opens up. I think a number of the concerns are really about the longer-term lead items, the supply chain down the track. We've had discussion. It's all been around -- the impact on the supplies will probably be only 3Q, 4Q and beyond in terms of some of the long line lead out of the pipe -- mill lines and the like. So we covered for the moment in the short term, but it's the impact of what that means down the track and being able to get them back on to start. Martin, I don't know if you've got any comments on that area.

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Martin Horgan, Centamin plc - CEO & Director [19]

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No, I think that's exactly right, Ross. I think in terms of sort of short-term supply, reagents and consumables, I think we're well set and obviously looking at alternative suppliers and supply routes for that. I think the more interesting challenge for the industry as a whole will be -- you just mentioned, we forgot mill miners. I think we've just done a reline, if I'm correct, Ross. All was done before I joined, but -- and we have a spare -- spares on sites. But ultimately, restarting of heavy industry in South Africa, Southeast Asia and the likes and flow on impacts from that will have extended delay there. Sourcing alternative routes for those larger strategic items, I think, is going to be one of the focuses for the business as we go forward and, I think, for the sector, not just necessarily for us. So I think that's right.

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Operator [20]

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The next question on the phone lines comes from Laurie Kimman from Berenberg.

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Laurent Kimman, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [21]

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And welcome to the team, Martin. Just a few from me. If I could start on the underground. How should we look at underground stoping grades for Q2?

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Ross Ian Jerrard, Centamin plc - CFO & Director [22]

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Laurie, the -- for underground, and particularly in Q2, I think you've got a factor in there, lower grades as the real focus is on development there. So I think it's really having a low quarter coming in 4Q, which will then ramp up Q3 and Q4 as we move forward, but they're going to be the low-reserve grade in that short-term period.

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Laurent Kimman, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [23]

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Okay. Great. And then in terms of -- sorry, I continue?

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Ross Ian Jerrard, Centamin plc - CFO & Director [24]

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Yes. So then I would go back up towards reserve grades. So model -- a lower Q2, ramping up at Q3, Q4.

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Laurent Kimman, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [25]

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Okay. Great. And then in terms of underground tonnes mined in Q3 and Q4, is that sort of a significant increase on Q1 and Q2?

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Ross Ian Jerrard, Centamin plc - CFO & Director [26]

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It wouldn't be step-change increases. It's all around how this ventilation alternative get or what solution gets put in, but it's not as difficult, the step change, but some increase, but not whole set of changes.

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Laurent Kimman, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [27]

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Okay. Great. And if I could, just on the plant performance. You noticed a slight decrease in the recovery rate in Q1. How should we look at recovery rates for the rest of the year? Is it similar to Q1? Or is it sort of closer to 90%?

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Ross Ian Jerrard, Centamin plc - CFO & Director [28]

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Recovery is one of the big areas that we're pushing and is trying to get that optimal balance in terms of slowing the throughput to increase recovery and getting that balance. So to be perfectly honest, we're somewhat disappointed in the recovery rate coming through with the lower throughput. So we'd like to see that moving up again as we go through the year.

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Laurent Kimman, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [29]

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Okay. Great. And then, Martin, one for you, if I can. Just on the ESG, given your sort of experience and success at Toro among the ESG front and kind of improvement Centamin has made so far, is there a particular area that you would like to focus on, on that front going forward?

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Martin Horgan, Centamin plc - CEO & Director [30]

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No. Look, again, I think early days and recognizing, if you like, the sort of the environmental and social setting of the Sukari operation, it is a remote setting. As we know, it's a fairly benign environment and, obviously, has had some significant advantages around the COVID response. So I think the sort of environmental and sort of social architecture of Sukari lends itself, not a particularly challenging environment that you might see, for example, say, in West Africa. So I think in Sukari, it's more the emissions around solar and so on, social programs potentially around there. So I think Sukari is well set for the mature operation.

I think the sort of the more opportunity there would be around Doropo, Batie West and sort of West Africa more generally, bringing some of that sort of experience and skill sets around the West African context. I think it's probably more applicable to my immediate sort of focus on that. But to be blunt or to be very frank, it's -- I view E&S issues as central to the business. It's not a bit on the site. It's not production for this. It's inherent or as a central tenet of the management process here as well. So I'm proud of what I've been seeing today. The guys have been doing an excellent job. And really, as I say, to what sort of experience can we bring, I think, for all -- in the first instance just to West Africa, and -- but also supporting that total project from a Sukari perspective.

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Operator [31]

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The next question on the phone lines comes from James Bell from RBC Capital Markets.

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James Andrew Keith Bell, RBC Capital Markets, Research Division - Mining Analyst [32]

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Yes. Just looking at the life of mine plan sort of update. You talked about there being some releases through the year. I just wondered if you could give more details on what we can expect when. And secondly, does the departure of your COO, with Martin's appointment, does that change anything in terms of your -- the overall kind of strategic planning around the group?

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Martin Horgan, Centamin plc - CEO & Director [33]

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Sure. Do you want me to take that one, Ross?

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Ross Ian Jerrard, Centamin plc - CFO & Director [34]

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Yes. Thanks, James. I think Martin could put some context on that.

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Martin Horgan, Centamin plc - CEO & Director [35]

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Sure. No problem. Well, look, I think the important thing to note there in terms of the life of asset review is that, that was initiated during the second half of last year. So that, I think, as you know, have been detained, and they've been given a brief. And they have been very busy over the last sort of 6 months looking at a number of, shall we say, ancillary studies. And where we're getting into now is the basis of the ancillary studies should now feed into, if you like, this overall strategic review, life of asset review, both on an open pit and underground integrated basis as well. So I think, importantly, that process is established. It's well underway and will continue to be delivering to -- as we go forward into the second half of this year as well. So that's one of the key focuses of -- from my side is to ensure that we have continuity in that process, be very clear about what deliverables we're expecting from it and how that can be assessed by both the company and the Board before we're able to update the market more broadly on that. So I think, first and foremost, no delay or change to that process. And I expect, as I said, it can be more broadly half -- second half of this year. But again, at the half year, we should have a lot more clarity around time tables of deliverables for that as well. But no changes.

And in terms of Jeremy's departure, obviously, that was an independent event to my appointment. But I've known Jeremy for a number of years just in and around the industry. Jeremy has got a run-off period now. And he's, as you'd expect, in a sort of consummate professional here. He's there working very closely with myself to ensure we end up with a smooth transition and handover and continue on number of those initiatives that he started during his tenure as a COO as well. So I think there's no sort of planned interruption to the life of asset review. And the projects that Ross discussed earlier are continuing as well in terms of their implementation. So I don't think there should be any significant disruptions to sort of previously stated plans at this stage.

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James Andrew Keith Bell, RBC Capital Markets, Research Division - Mining Analyst [36]

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Okay. That's great. And then maybe one for you, Ross, just in terms of thinking about capital allocation. Do you think, in an environment where there was a slowdown of operations, that the Board would use the group's cash balance to continue to pay a sort of similar level of dividend to that, that we've seen last year? Or do you feel like dividends would have to come down just purely on the ratio basis?

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Ross Ian Jerrard, Centamin plc - CFO & Director [37]

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We do have the cash balance and buffer there. And as we've always said, dividends are sacrosanct to the core pillars, so I think it would really take a lot to move the needle on that. Obviously, that needs to be put back in the context of operating responsibly and not doing something really outrageous. But certainly, we wouldn't be looking to move our core strategy away from normal procedure, and dividend is very much core to that position. I know the dividend policy is a function of free cash flow and things, but it also is very much considered in terms of our cash balance that we actually hold at any point in time.

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James Andrew Keith Bell, RBC Capital Markets, Research Division - Mining Analyst [38]

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So you think in an environment where your free cash flow is lower, the Board may consider using your cash balance to top up the dividend to keep levels flat year-over-year. Is that a fair assumption? Or is it just a wait and see what happens in terms of the situation?

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Ross Ian Jerrard, Centamin plc - CFO & Director [39]

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That would certainly be part of the consideration in the absence of cash being allocated elsewhere for specific projects or operations, which is no other home for it, and we've got a reasonable position with that distribution would certainly be one of the considerations here.

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Operator [40]

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(Operator Instructions) It would appear that we have no further questions being registered on the phone lines.

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Ross Ian Jerrard, Centamin plc - CFO & Director [41]

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Thank you very much to everybody for attending today's call. As always, please reach out. So if you do have any questions or queries, and we'll certainly look to respond as quickly as we can. But otherwise, I hope everybody stays safe, and have a good day. Cheers.