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Edited Transcript of CEY.L earnings conference call or presentation 23-Oct-19 7:30am GMT

Q3 2019 Centamin PLC Earnings Call

Saint Helier Oct 29, 2019 (Thomson StreetEvents) -- Edited Transcript of Centamin PLC earnings conference call or presentation Wednesday, October 23, 2019 at 7:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Jeremy Langford

Centamin plc - COO

* Ross Ian Jerrard

Centamin plc - CFO & Director

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Conference Call Participants

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* James Andrew Keith Bell

RBC Capital Markets, LLC, Research Division - Analyst

* Justin Chan

Numis Securities Limited, Research Division - Analyst

* Michael Stoner

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 Q3 Results Call. My name is Jordan, and I'll be coordinating your call today. (Operator Instructions)

I'm now going to hand over to Ross Jerrard, CFO, to begin. Ross, please go ahead.

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

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Good morning, everyone. I'd like to thank you for taking the time to dial in to our third quarter results webcast and conference call. For those participating on the conference call, the presentation can be found on the website. And for those wishing to follow via the webcast, the link can be found in the quarterly results announcement.

My name is Ross Jerrard. I'm the CFO of Centamin, and I'll be hosting the call today. Joining me on the call is Jeremy Langford, our Chief Operating Officer; and Alexandra Carse, our Head of Investor Relations.

Andrew Pardey will not be joining the call today. Andrew remains active in his role and responsibilities as CEO while carrying out an orderly handover. He is fully supported by the Executive and the Board. External communications will be managed by the 3 of us on the call today and going forward.

There will be a Q&A session at the end of the call. However, if there are any further detail that you require or if you have any questions that we cannot answer immediately, please be in touch.

Moving on to Slide 2. I draw your attention to our disclaimers around forward-looking statements. Please take the time to read through these statements, which can be found both in the announcement and the presentation.

Going to Page 3. The company's corporate strategy is the long-term production of profitable ounces, maximizing free cash flow generation. This supersedes ounce growth. The company has a track record of generating meaningful free cash flow, and we are in our sixth consecutive year of superior dividend distribution, returning in excess of $500 million to shareholders and $430 million to operating country stakeholders by way of profit share and royalties. Near- to longer-term profit-improving initiatives are expected to ease cost pressures and reduce the cost base, enabling us to maximize free cash flow, and ultimately, the returns to stakeholders. The group's business model centered around our high-quality, low-cost asset base enables continued reinvestments in growth through exploration and a revitalized culture of continuous improvement, giving us confidence in continuing to deliver strong shareholder returns.

The chart on the right shows the cumulative shareholder returns against our strong net cash position. Centamin has no debt, no hedging nor streaming, offering a unique exposure to the gold price, which provides the foundation of our business model. As at 30th of September, we have $290 million of cash and cash equivalent. I would highlight that the cash position is after the payment of our interim dividend of $46 million or $0.04 a share. And with the delivery of Q4, the Board expects to maintain this payout for the 2019 final dividend at the end of the year.

Page 4 discusses our gold production and cost guidance. In Q3, production was 98,000 ounces, which brings our year-to-date production to 332,000 ounces. This was lower than expected. Although the open pit grades have shown improvement, these have come through slower than scheduled. Importantly, October production to date is in line with plan and is actually on track to be the strongest monthly performance for the year-to-date.

The key focus of this quarter's production target is the mining of the higher-grade ore as scheduled from Stage 4 West of the open pit. As such, the bottom end of the full year production guidance being 490,000 ounces remains the target for the year.

Full year cost guidance ranges remain unchanged, but we do guide towards the respective top end of the full year guidance ranges: cash costs of $675 to $725 per ounce and all-in sustaining costs of $890 to $950 per ounce sold. As mentioned, but worth noting, again, strong free cash flow generation is expected in Q4 driven by improved gold sales and reduced costs, which supports the Board's expectation to at least maintain the 2019 final dividend at a minimum of $0.04 per share.

Moving on to Slide 5. As a whole, this quarter was one of continuing transition. We have welcomed excellent individuals at the Board and operational level with the benefits of these appointments already coming through. There is a revitalized culture of continuous improvement.

Sukari is a world-class asset, which we have built and operated over the last decade, producing 3.7 million ounces and our long life reserve of 7.2 million ounces supports production over the next decade. With 10 years operating experience and an understanding of the ore body as we do, we recognize this is the juncture to undertake a consolidated life-of-asset investment, incorporating independent optimization studies across all sections of the mine with which to maximize the opportunity for the next 10 years plus.

Taking a deeper dive at Q3 starting with our top priority of environmental, social and governance. If we turn to Slide 7, Centamin has always enforced a strong safety culture. Our LTIFR in Q3 was 0.11 per 200,000 workplace hours.

We respect the areas in which we operate, both socially and environmentally. And during the quarter, we continued to progress our solar feasibility study, scoped to be one of the biggest or largest solar farm to power a gold mine. We have exceeded our annual water management target of 50:50 ratio of saltwater draw versus recycled circuit water, which also involves drawing water from the tailings and thereby positively impacting TSF management.

Page 8 shows a strong multi-disciplinary Board. Those of you who are familiar with the Board will recognize how much the Board has evolved over the recent quarters. This quarter, we welcomed Dr. Catherine Farrow and Ms. Marna Cloete to the Board.

Earlier this month, we announced Andrew's intention to retire. A CEO succession process is actively underway, managed by the Nomination Committee and global executive search firm, Korn Ferry.

At the management level, we are delighted Jeremy Langford joined us as COO. Jeremy is mandated with making further high-impact operational level appointments, ensuring we have the optimal leadership team on-site. During the quarter, multiple key appointments are made including mine manager, operations director and both underground and processing manager.

The company is very excited about the transitional period as the multiple personnel changes settle in and embed themselves in their roles and teams, and we look forward to delivering value in the near term. We've already seen the impact in the short time that they have been with us.

Slide 8 discusses our political risk. We operate in Egypt and have advancing projects in Ivory Coast and Burkina Faso. Each country is unique as is each asset, and thus, we believe a hub-based approach is the most effective in managing the political risk, establishing strong stakeholder relations at the federal and community level as well as the local workforce in respect to work programs.

In Egypt, we're the largest gold producer. Our cumulative direct financial investment is over $4.2 billion including salaries, local community investment, project development, growth and sustaining CapEx. Approximately $295 million has been distributed to our partner, EMRA, as dividends in the form of profit share since 2014 and approximately $145 million in royalties since 2009 has been paid.

We have established a reputation as a safe, ethical, local and international employer and we're always communicating with our stakeholders to understand their vision and needs. Importantly, we are applying the same approach within our West African project pipeline as we continue to unlock value against our objectives.

Now taking a closer look across the operations. If we move to Slide 11, which gives a quick overview of our operating asset, the Sukari gold mine. This is a long section, striking 2.7 kilometers across. We own or operate the large bulk tonne open pit operation. Shown here is the current pit shell, Stage 4, through to the final pit shell, Stage 7. We contract mine the high grade underground, which spans across 4 main assets. We are currently mining 2 of the assets and one in Ptah while developing and exploring Cleopatra and Horus.

Looking at the open pit on Slide 12. The pit delivered continued grade improvements, although production was adversely affected in Q3 by ground conditions in the Stage 4 West wall. Increased mechanical dilution from mining resulted in reduced mining rates in this higher grade zone. Measures being implemented to mitigate the future impact include the reduction in bench blast height on ore to 10 meters, closer mine management and tighter geological controls.

Total ore mined was 3.6 million tonnes at an average gauge of -- grade of 0.75 grams per tonne, and 2.9 million tonnes is delivered to the plant at an average mill grade of 0.83 grams per tonne. The strip ratio was 4.45 due to prioritizing an increase in mining from Stage 4 North over Stage 5 stripping as a result of the slowed mining in Stage 4 West.

Slide 13 provides a bird's eye or plan view of the open pit where we're mining and -- where the mining is predominantly focused within those 2 white circles, Stage 4 West and Stage 4 North. The blue and red squares are the high grade, above 0.9 grams per tonne resource block. We expect a stronger performance in Q4 with the key focus for this next quarter's production being the mining of this higher grade ore, which needs to be mined as scheduled from Stage 4 West of the open pit. A comprehensive review of the open pit operation is also underway as part of a revised life-of-asset study and long-term mine plan.

Moving to the underground on Slide 14. Underground production exceeded plan in Q3, driven by marginal low-grade development area being reclassified as ore and processed through the plant. This positively contributed towards underground production, but the addition of low-grade tonnes reduced the average total underground grade.

Stoping resumed in the upper Amun towards the end of Q3 once the secondary access was established. As a result, stoping in Q3 was predominantly in the lower Amun at the base of the cascading stoping block. Better dilution controls have continued to reduce unscheduled dilution. And in Q3, the estimated impact on stoping grade in the lower Amun was 5%.

In the short term, mitigating measures to further reduce and control unscheduled dilution from the cascading stopes remains unchanged. Disciplined capital management of the underground contractor, increased dilution controls and tighter compliance to plan and a full review of the underground mining methodology and infrastructure is underway, which will feed into the life-of-asset study.

Turning to Page 15. The processing plant achieved a throughput of 3.2 million tonnes of ore in Q3 at a 94.3% plant utilization and at an average head grade of 1.1 grams per tonne. Metallurgical recovery averaged 86%, a 3% decrease year-on-year.

I must highlight that we've been operating the plant well in excess of nameplate capacity of 10 million tonnes for over 5 years now. It's important that we ensure the best throughput and optimization to maximize value. We have a number of performance initiatives, which include optimizing the reagent mixing, the ashing plant is currently being commissioned, installation of automatic samplers and the construction of the PSA oxygen plant is in the final stage with commissioning scheduled for Q4. It is expected that completion of these commissioning events, combined with increased feed grade, will improve gold recovery. Our focus is on valuable ounces and a revised study is underway, assessing the optimal throughput to maximize cost yield.

Turning to the financials, and I must note, as with Q1, Q3 is focused on operating and does not include full financials. That being said, we feel that it is important to provide as full a financial picture as possible. All numbers are unaudited, and full year results will be scheduled for publication on the 30th of January 2020.

So turning to Page 17. Testament to the company's strategy of producing most profitable ounces and maximizing cash flow, the company is in a solid financial position with cash and liquid assets of $290 million at 30th of September 2019 with no debt. This is exercised through a simple financial strategy: stringent cost management and disciplined capital allocation. In other words, we've closely managed the bottom line and allocate capital carefully. Near-term profit-enhancing initiatives are expected to improve operating efficiencies and reduce the cost base. This is a key area of focus.

With regards to the capital allocation, we are tracking within budget for the year with sustaining capital for Q3 being $22 million and nonsustaining at $6 million. Exploration is core to our business. However, budgets are competitive and results-driven.

The company's strong balance sheet and cash flow generation provides financial flexibility to invest in the sustainability of the business and maintain shareholder returns. We paid $14 million in profit share payments and $5 million in royalties as well as distributing the $46 million as an interim dividend to our shareholders.

Slide 18 gives you a quick snapshot of some key financial metrics. Importantly, we have generated significant cash flow from the operations, up 4% year-on-year at $155 million, and our adjusted free cash flow is up 14% to $39.7 million. Strong free cash flow generation is expected in Q4, driven by increased gold sales and reduced costs, which supports the final dividend expectation.

Talking a bit more about cost management on Slide 19. Our year-to-date absolute costs are on track and in line with expectation. Absolute cash costs of production of $83.9 million were within budget, down 4% quarter-on-quarter and up 18% year-on-year. More efficient fuel and reagent consumption and improved pricing benefited costs in Q3, which were partially offset by increased tonnes mined and processed.

Absolute all-in sustaining costs of gold sold was $123.6 million, up 13% quarter-on-quarter, again in line with sustaining capital cost profile and what was budgeted for 2019. This metric was also affected by the change in finished good ounces inventory balance, which is driven by the timing of ounces produced and sold in each particular period. So for example, the Q3 2018 was a buildup of ounces at period end while there was a drawdown at Q3 2019. You will see the relationship between produced and sold ounces for the quarter on the previous slide, in the table. Importantly, it's critical that we maintain our cost-saving outlook and have a number of strategies and programs targeting reduction inputs across the business.

Slide 20. We have included this mine production cost slide for illustration purposes. This helps to show the standard breakdown of our mine production costs across departments and the relationship against volumes mined or milled, highlighting sections which would have the greatest impact from changes in volume or cost-saving initiatives.

This visual shows the single biggest cost center is processing. And for example, with the introduction of the solar project as well as other targeted saving -- targeted saving initiatives focused on consumables, reagents and throughput rate, they are scoped for meaningful cost reductions going forward. The graph at the bottom of the slide shows the quarterly profile of open pit, underground and processing cost per tonne, showing a relatively consistent per tonne metric profile.

Slide 21 provides the cost base exposure, which shows marginal variability across our cost centers and foreign currency exposures when compared to the same period in 2018. An important cost element is always fuel as the price is stipulated to us by government. We were pleased to be advised that the fuel price for Q4 has been reduced to approximately $0.58, down from -- down from $0.61 a liter, which helps to provide clarity on our costs for the final quarter. It's nice to see that these reductions are being passed back from government.

We have also been monitoring the effects of the strengthening EGP versus USD during 2019. And while there has been a strengthening of the Egyptian pound, the movement on exchange rates has not had a material impact on the business so far, although every dollar counts.

Now moving on to exploration, which is at the heart of what we do, and turning to Page 23. We have a strong organic growth pipeline: near-term Sukari exploration and development, medium-term Doropo and longer-term ABC. Currently, when we look at strategic opportunities, we believe that the best value opportunities come within our existing pipeline, maximizing our asset base.

There's been a notable increase in exploration activity at Sukari, both in the current main underground, Cleopatra, and also with the commencement of a regional exploration program including the seismic program and drilling. The Doropo Project work program is focused on advancing the resource drilling for the PEA and further regional exploration to better understand the upside. The ABC Project is earlier stage, but is highly prospective greenfield exploration. This is on an under-explored contact between significant known gold-bearing belts.

I draw your attention to Slide 24 where it is critical that we unlock further upside across the concession agreement. Here, we are looking at the 160-square kilometer Sukari tenement, the defined orebody system to the northwest annotated by the 2.7-kilometer strike. This has been the sole focus prior to this year. Historic exploration identified an additional 7 main surface prospects that remain to be fully explored.

The company has been assessing the viability of a 2D and 3D geo-seismic program with the objective of creating a detailed 3D structural architecture of the entire licensed block to a depth of up to 1.5 kilometers. We do not know the source of the Sukari porphyry, and we believe that -- there to be another porphyry system to the north. We expect the seismic survey will not only provide greater insight into the geological systems on the tenement, but also enables smarter and faster exploration.

In Q3, geophones were marked, situated and calibrated across the 3, 10-kilometer seismic lines. The vibe trucks arrived this month and the 2D field seismic acquisition has now commenced.

We have also commenced an exploration campaign with 2 surface rigs at the V-Shear deposits located less than 5 kilometers from the Sukari processing plant. Interpretation of the drill results identified a new gold mineralized shear zone, striking more than 200 meters. The zone consists of 2 parallel shears. Further drilling of the zone is scheduled for Q4.

Slide 25 shows the underground potential and the drilling results. Underground drilling at Sukari remains the focus. Drilling from the Amun continued along the top of Horus and also tested deeper extensions and structures to the south including Horus Deeps. Results confirmed the high-grade consistency along the southern extension of the top of Horus Zone and this zone remains open along strike.

Approximately 50% of the drilling was in Ptah, along strike of the gold mineralized zone, exploring close to near-term underground development design and infill drilling. Results have confirmed grade continuity with high grades concentrated along side -- strike on both the eastern and western context of the porphyry. Ptah continues to show significant upside potential for reserve growth. Drill results within the Porphyry-Keel confirmed the resource potential extension at depth plunging towards the north.

Exploration and development focus on increasing the geological understanding and near-term growth potential within the main Cleopatra zones. A total of 3,750 meters of systematic drilling of the structure was completed in Q3, and targeted interaction between Cleopatra mineralized zones and the Eastern contact shear.

Slide 26 shows the advanced exploration. Doropo is our most advanced exploration project to the company's portfolio outside of Egypt. Results received in Q3 continued to illustrate the untapped upside potential.

In Q3, the key exploration focus at Doropo was infill drilling for further resource definition. Due to the unusually high rains experienced throughout Q3, drilling operations were suspended in August and are expected to resume at the end of Q4. An updated mineral resource estimate based on the available data as at 18th of August shows a 23% increase in measured and indicated tonnes and a 15% increase in gold metal content over the last 9 months. The deferred resource drilling will be included in the PEA study, which is currently targeted for completion in the first half of 2020.

And very quickly, Slide 27 shows the ABC Project. The exploration work for the quarter focused on infill drilling for the mineral resource definition. Approximately 8,000 meters of drilling was completed on the Kona Permit, focusing on extensional drilling on the Kona South and infill drilling on the Kona Central. The ABC resource update is planned for later in 2020 as infill drilling continues into Q1 at Kona South, Central and North.

So in summary, Slide 28 shows our investment case is robust and underpinned by strong fundamentals. We have a clear corporate strategy underpinning a reliable dividend stream built over quality, long-life Tier 1 asset with a robust financial strategy on a solid foundation of cash and no debt. We have significant growth opportunities through both the internal value chain, cost reductions and operational efficiencies, and very importantly, being delivered through responsible corporate citizens.

Slide 30 shows our near term and our delivery of milestones, which include optimizing performance at Sukari, both in terms of closing out 2019, but importantly, ensuring the platform is set going forward for Sukari Phase 2 through an updated life-of-asset plan. We need to unlock value from the organic pipeline, both at Sukari and West Africa, and strive for the highest standard of ESG management through identification and appointment of a strong CEO successor, maintain a strong social license to operate, the delivery of the solar project and the continued focus on the workplace safety and well-being.

Thank you for the time. I'd like to now hand back to the operator who will reiterate how we can submit any questions that you might have for Jeremy or I.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Justin Chan of Numis.

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

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Welcome, Jeremy. Just my first question is on stoping grade. You were below where you expected to be by 1.5 grams to 2 grams per tonne and I saw that you mentioned that you were more so in the cascading stope areas. Was that always in the plan or did something happen that caused you to be there?

And I guess, longer term, I guess, does a quarter like this make you revisit the assumptions you had in your medium-term plan? And do you still expect to be around 6 to 6.5 grams per tonne from stoping, I guess, in that medium-term outlook that you have?

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Ross Ian Jerrard, Centamin plc - CFO & Director [3]

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I guess overall, I mean, we'd always flagged and we knew that underground was going to be a lower quarter. Looking at grade and coming through in terms of what's scheduled, it was below where we thought it was going to be. I don't think that changes any of our longer-term outlook in terms of where we're going.

Jeremy, do you have any comment on that?

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Jeremy Langford, Centamin plc - COO [4]

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No, Ross. Alex (sic) [Justin], pleased to meet you. I guess the fundamental changes seen in the stoping grade really is not to do with the orebody, it's got to do with dilution. And we've put improved controls in place to try and minimize the dilution. I'm confident the grade is there. It's the mining activity, which we need to improve on.

And yes, we have some adjoining stopes, if you like, a level above level where we do get a cascading target set but we're looking at designing some short-term fixes in, which minimize the dilution. And then we're going to be seeing the higher grade, I suppose, through this next half of the quarter and we're tracking that pretty much daily. So we're moving through this quite nicely as we speak.

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Justin Chan, Numis Securities Limited, Research Division - Analyst [5]

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Okay. And what are your great assumption -- or great expectations from stoping and development for this quarter?

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Jeremy Langford, Centamin plc - COO [6]

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Look, that's a very open-ended question. What I can say is we have reduced what we've put into dilution, a short-term factoring. That is in accordance with the 2015 technical report where, if you refer back to shallow dipping, steady dipping ore-type body, they each have a different dilution co-efficient, along with, I think, (inaudible). So we're tracking to that. We've got more stringent controls in place in terms of the waste-to-ore ratio. And the grade remains firm. As we plan it, I guess, what I can -- I'm going back to what I just said before, we have to minimize the mechanical dilution we have in the underground and we did actually.

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Justin Chan, Numis Securities Limited, Research Division - Analyst [7]

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Okay. And in terms of mining method and stope design, are there any sort of more structural changes that you're looking at? And might we expect more information on that in due course or is it more just execution of the plan but you think it's where it needs to be?

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Jeremy Langford, Centamin plc - COO [8]

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No, Alex. I think you'll be pleased to hear that, yes, we are looking at a different range of options. I mean the asset now has 3 undergrounds contributing potentials, Amun, Ptah and Cleopatra obviously. And with Horus Deeps, Osiris and the Porphyry-Keel, we need to look at the asset holistically, and I guess, in completeness and revisit things such as mining methodology and how we go about expecting the future ounces for maximum free cash flow yield. So we are looking at different ways of doing things.

I will say though that we're about 3 quarters of the way through the year we planned. We're not keen to change the plan halfway through it, and I'm sure you would understand that.

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Justin Chan, Numis Securities Limited, Research Division - Analyst [9]

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Yes. Absolutely. And just I'm sure -- I'll leave the open pit questions to others because I'm sure they'll ask them. But on Doropo, I thought this was interesting, especially, Jeremy, given your background in West Africa building mines. You're now at 2.5 million ounces. The PEA is coming in early next year. I was wondering what you could share with us in terms of what the scope looks like, I guess, high level parameters and what's the development -- I guess what the thoughts are on the development time line and what the logic is there?

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Jeremy Langford, Centamin plc - COO [10]

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Yes. Look, I mean, there's a few moving parts but I really like a lot -- all of our West African projects actually, to be frank. And Doropo, [I had to head] into the last 3 or 4 weeks in earnest, the resource speaks for itself and it looks buildable, that's for sure.

What I can say is we're working through the PEA as it stands now. There's a number of different ways to skin the cat with social responsibility, resettlement action plans and things like compensation and the like so I can't expand on them yet. But certainly, the assets is taking shape quite nicely and the resource ounces and the resource growth is evident.

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Justin Chan, Numis Securities Limited, Research Division - Analyst [11]

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Right. And the grades, just on that line. I mean from what you can share with us or perhaps, yes, from what you know, does it look like you weren't putting in a back end to the circuit or is it more of a heap leach? And can you just comment on -- do you -- is it in a location where you can connect to the grid or what do those parameters look like?

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Jeremy Langford, Centamin plc - COO [12]

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Yes, it's interesting, Alex, your question because, yes, I've been with Centamin now since the end of April and having spent the best part of the last 15 years in West Africa. I've been keen not to change the, I guess, the scope of work or what the PEA is delivering because there's 2 ways we can do this. You can put heap leaches in, you can put CILs in. The way you design and operate and build an asset overall has different drivers. What I can say is our carbon in leach plant is not as cost ineffective in the modern day than it was years ago. I see this type of orebody. A heap leach probably with the recoveries obviously at the moment, I think a CIL is more suited to this asset.

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Justin Chan, Numis Securities Limited, Research Division - Analyst [13]

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Okay. And just on power, is that -- is it -- could you put it on the grid or are you looking to...

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Jeremy Langford, Centamin plc - COO [14]

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Yes. Yes, Alex. The good thing about Côte d'Ivoire it's probably got the best grid power reticulation in West Africa and it feeds straight to the West African [CEA] whilst -- and a part of Côte d'Ivoire is fully reticulated, as you know. So getting grid power to any operating mine now is relatively easy, I guess when you look at it in terms of executing a whole project.

I think the other thing since joining Centamin this year is -- it got me a lot more exposure to is certainly the advantageous issue of having potentially solar as well. I wouldn't remove the need for grid power, you'd certainly need both. But to install a, I guess, a backup or a temporary or work in parallel is obviously going to adjust the cost down even further. The costs in Côte d'Ivoire to reticulate 91 kV or 11 kV or 33 kV are very, very cheap in the big scheme of things. But by adding a hybrid type system, it would bring that cost down at the mine even further.

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Operator [15]

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Our next question comes from Michael Stoner of Berenberg.

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Michael Stoner, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [16]

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Right. Starting on the inventory release. You released more ounces than were unsold at the end of Q2, kind of the difference between production and sales in Q2. Is there a strategic decision to draw down on that 1 billion inventory? Or could we expect it to normalize in Q4?

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Ross Ian Jerrard, Centamin plc - CFO & Director [17]

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No, the timing of that release is purely on when the shipments are made. So it's purely down to logistics and when final [course] are determined. So that will align. And the good thing is year-end and when the gold falls -- actually fall, we'll minimize that. But there was an abnormally large timing in the past. But clearly, there's no -- the decision is all around logistics rather than it being (inaudible). Yes.

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Michael Stoner, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [18]

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Okay. Given kind of a very meaningful acceleration in production rates that's implied by guidance, does that mean we're likely to see sales lag production into Q4?

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Ross Ian Jerrard, Centamin plc - CFO & Director [19]

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No. We expect to -- I expect it to align quite nicely for Q4. It's a short -- it's probably 3 days of production at the end of the year. And then importantly, from an annual basis, we've got the rollover in terms of ounces sold coming into this year from the beginning -- in the beginning of the year from last year. So on an annual basis, I think we'll see that net off. But no, there's not a big lag.

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Michael Stoner, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [20]

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Okay. Then moving on to the open pit. Are you certain -- given kind of the concern you had in Q3 over rates around the high-grade material in the historical underground workings, are you certain that you can deliver the required volume of high grades in Q4 from open pit?

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Ross Ian Jerrard, Centamin plc - CFO & Director [21]

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Jeremy, if you want to make comments on that?

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Jeremy Langford, Centamin plc - COO [22]

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Yes. No problem at all. Look, we are on track to deliver the material mined at prescribed grade as planned and forecast. There's medium grade that comes out of the pit as well, not just high grade. So we need to be delivering the total material volume at prescribed grade is the plan and we're on track to do that.

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Michael Stoner, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [23]

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Okay. And the issues you had in Q3, kind of why was mining rates in that high west wall kind of below expectations? Was there any surprise kind of issue? Or were you just being particularly conservative as you moved into that area on mining rates?

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Jeremy Langford, Centamin plc - COO [24]

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Combination of both actually. We wanted to -- what's the terminology, measure twice, cut once. So I wanted to -- so we had a good look at the drill and blast plan, the grade control program, and we did have a little bit of trouble with some dig-ability as we moved in to the Stage 4 West.

And what does that say to us? It impacted the speed at which we can move through the grade control program. Also (inaudible) just a touch with the production excavators, but we're managing that quite well as we speak. And I'm seeing the ex pit tonnes coming on track.

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Michael Stoner, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [25]

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Okay. Ross, when you're talking through cost initiatives, you mentioned kind of some potential cost savings in Q4 and then into 2020. Are we talking reductions in total kind of cash terms? Or is that reduced unit cost? Obviously, with production rising, there's some effect of that, too.

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

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Yes, it's a combination. I mean we focus very much on pricing in the first instance and then obviously the efficiencies that come through on a volume gain. But there's varying strategy in terms of value ounces, but we're driving the cost and pricing particularly hard.

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Michael Stoner, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [27]

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Okay. And then that links through to this solar initiative. Are you able -- I mean you flagged there's potential for material fuel savings. Are you able yet to put any numbers around potential cost impact of solar?

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

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Michael, we're still going through and we will need to present the feasibility study where we'll be able to actually name numbers and rates of return, but we will progress on the project. I don't know if Jeremy wants to make any comments, but it's probably a little bit premature to build in specifics at this stage.

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Operator [29]

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(Operator Instructions) Our next question comes from James Bell of RBC Capital Markets.

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James Andrew Keith Bell, RBC Capital Markets, LLC, Research Division - Analyst [30]

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Just one for me. I mean in terms of looking at this new cost -- consolidated life-of-asset plan, I mean you've only just put out a base case outlook to the market. So how should we interpret you now moving ahead with a full recast of the asset plan? And do you see any risks around the targets that you've put out there for the medium term?

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Ross Ian Jerrard, Centamin plc - CFO & Director [31]

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I guess from a strategy and the Sukari Phase 2, it's all very much -- the focus is all on these value ounces and we've sort of gotten a stage of maturity with the asset where we need to have another recast. With Jeremy and the team coming in, that's provided the opportunity and it's really an assessment across those mature assets.

Jeremy, do you have any comment in terms of your thoughts on what you've seen at the site and how this would...

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Jeremy Langford, Centamin plc - COO [32]

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No. Not at all. Just to add, I guess, James, I think it's critical that we rebase the asset now that it's nearly 10 years into production and really understand all the value-driving inputs moving forward. And consider these things collectively, not individually. What I mean by that is consider the open pit, the underground, process plant, power stations, corporate costs, that's all in parallel with this so we can make the best decisions on which meaningful KPIs to fit the asset to deliver, which, of course, will take care of our market deliverables.

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James Andrew Keith Bell, RBC Capital Markets, LLC, Research Division - Analyst [33]

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Okay. That makes sense. Is there a time line in terms of you guys actually delivering on the back of that plan and when we might expect an update for the next couple of years in terms of your base outlook?

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Jeremy Langford, Centamin plc - COO [34]

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Look, I can't give you a day and a time or a week. But what I can say is when we have to look at the 3 financial years that we marry, the Egyptian financial year, the U.K. year, the TSX year and also the resource year where we did a reconciliation of -- obviously, the underground resources. So we have to look at all these 4 things in parallel, and that will dictate when we culminate the studies.

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James Andrew Keith Bell, RBC Capital Markets, LLC, Research Division - Analyst [35]

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Okay. Makes sense. And then maybe just one more. I realized it's obviously relatively difficult to comment, but do you have an internal time line that you guys are targeting for a replacement in terms of a CEO? Is this something that we should think of in the first half of next year? Or do you feel like this could be a relatively long process, similar to what we've seen around finding a new Chairman?

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Ross Ian Jerrard, Centamin plc - CFO & Director [36]

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James, we're actively pursuing that. We've appointed our advisers on it. It's a work stream, driven by the Board as a priority. Depending on the candidates that come through, obviously, the extraction might be difficult in terms of timing, but the decision point is obviously very critical.

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James Andrew Keith Bell, RBC Capital Markets, LLC, Research Division - Analyst [37]

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Okay. No prob. So we'll keep our eyes peeled.

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Operator [38]

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(Operator Instructions) We have no questions on the phone lines.

We received one question via webcasting from [Graham Fuller] asking when is Centamin going to announce its new Chairperson?

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

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We are well progressed on our search for a Senior Nonexecutive Director. And depending on the appointment of that person, the transition to Chair will occur over the forthcoming 12 months. But we need to identify that individual first.

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Operator [40]

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Okay. We have no further questions.

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

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Well, with no further questions, that wraps up today's session. Please, as always, if you have any further questions or follow-ups, please reach out to the 3 of us or direct it through Alex and we will be sure to address any of your concerns.

But thanks for your time, and have a good day.

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Operator [42]

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Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.