Andrew Pardey - CEO Ross Jerrard - CFO

James Bell - BofA Merrill Lynch Richard Hatch - RBC Capital Markets Dan Shaw - Morgan Stanley Alan - Jefferies

Ladies and gentlemen, welcome to the Centamin First Half-Year Results 2017 Conference Call. For the first part of today's call, let me remind you that all participants are in in listen-only mode and afterwards there will be a question-and-answer session. Please note, that today's conference call is being recorded. And I would now like to hand over to Andrew Pardey. Mr. Pardey, please begin your meeting.

Thank you, operator. And good morning to everyone, who has joined the call this morning. As announced to the preliminary production results, production increased 14% in the first quarter to 124,641 ounces. The majority of this improvement came from additional licensed paid ounces as both mine and feed grades improved from the Q1 level. From a financial perspective, costs remained well-controlled with mine production costs up 1% on Q1 2017. We've increased production. Cash cost for the production fell 17% to $609 per ounce compared to the first quarter. EBITDA increased by 24% on the first quarter to $66 million. Allowing for an increase in our sustaining capital expenditure, all-in sustaining costs fell 7% to $829 per ounce. With a strong second half to the year expected, we maintained our full year guidance of 540,000 ounces at a cash cost production of $580 per ounce and all-in sustaining costs of $790 per ounce. Given the strong free cash flow of $50.8 million we have generated during the first half of the year, we are delighted to announce a 25% increase in last year's interim dividend to $0.025 per share. This dividend will be paid at a cash and liquid assets, which stood at $334 million at the 30 of June, which is essentially the same figure as at the end of the first half of 2016. This is a notable achievement, given that we have paid $178 million in dividends to shareholders and almost $50 million in profit shares and royalty payments for the government of Egypt to the end of June 2017. Looking in more detail at the operations. At the open pit, the fleet again improved productivity levels to mine a record quarterly total of 17.5 million tonnes. As in the first quarter, the majority of the mining during Q2 was focused on the east wall cutback, with consequent lower grades. In addition, the open pit, as mined, has a lower product grade, approximately 0.25 grams compared to the reserve model with low grade oxide in this range reporting to the dump leach from Stage 4 and 5. Excluding the dump leach material, open pit grades for the quarter averaged 0.80 grams per tonne. Towards the end of the last quarter, mining progressed to the higher grades zones within the middle benches of Stage 3B, which helped raise the mine grades above the level seen in Q1. We're expecting to mine several high grades in the open pit for the balance of 2017. Turning to the underground operations. We enjoyed an excellent quarter with ore production of 293,000 tonnes, well above the guided annualized rate of one million tonne. The ratio was up stoking to development ore, remained consistent compared to Q1 with 59% of our ore coming from stoping and 41% from development. Some very high grades, we'll exit in the quarter leading to high -- leading to overall stoping grade of 11 grams per tonne. Once development grades came in at 5.6 grams per tonne. As the narrow bank, selective mining operations quarterly variability in the underground grades is to be expected. Moving on to the processing plant. It achieved a record throughput of just over three million tonnes, exceeding the quarterly annualized rate of 12 million tonnes for the first time. Metallurgical recoveries of 86.7% were the lowest we've achieved for some time. Recovery rates were below leverage, likely due to below average hit grades and are expected to increase in line with the average plant head grade during the remainder of the year. We continue to learn from experience how recoveries vary at the highest throughput rate. We are now achieving a strong focus on improving overall metallurgical recoveries while processing increased tonnes through the plant is continuing. Several projects are due for completion in the third quarter, including the installation of the VisioFroth, which is an automated control monitoring system, that aims to increase the floatation mass pull and expansion of the elution circuit and reducing the CIL tailings losses with improved carbon management and carbon monitoring techniques. From a financial perspective, we continue to focus on cash flow and free cash flow. This business generated free cash flow after all CapEx and expiration of $31 million in the second quarter and over $50 million in the first half of the year. Revenue increased $10.6 million or 8% from the first quarter due to both higher sales volumes and higher average gold price. With cost well-controlled, if EBITDA rose 24% to $66 million, sustaining capital expenditure increased during the second quarter due to open pit mining fleet rebuild and increased underground development. Moving briefly on to the exploration activities during the quarter. Underground drilling remains a focus of the Sukari exploration program. Drilling in the second quarter focused on extending in one region at depth. We're encouraging intercepts to the West of the main and one load and above the interpretative sign. At the Cleopatra exploration decline, drill test targeted the expansion of the Antoine zone within the core pit. It should be noted that the exploration results reported today from the Cleopatra area are internal in the core. Drilling results from the context end west and the [indiscernible] will be reported on an ongoing basis as the results are obtained. At the moment, we currently have three drill rigs operating in Cleopatra with all of them now targeting the western context. In Exploration focused on regional target generation around The Doropo project, principally through systematic grid mapping, prospecting, soil sampling and further results development. In Burkina Faso exploration focused on anomaly development and expansion from the mining resource area prospecting that within the results cluster within 50 kilometers from Konkera and Napelepera. Looking forward, the current performance levels of the open pit underground and processing operations both give me the confidence that we'll meet guidance for the year and demonstrate the potential for further growth in production from the existing Sukari operation. In addition, Cleopatra and our West Africa projects offer significant additional growth opportunities. With that, I would like to hand back over to the operator for questions. Thank you.

Thank you. [Operator instructions] And the first question comes from the line of James Bell, Bank of America Merrill Lynch. Please go ahead. Your line is open.

Good morning Two questions. Firstly, just on cash. Obviously, the cash balance continues to grow. I wonder Andrew, if you could talk a little bit about minimum cash balances, especially in the light of the positive developments around the second decline and how you think about sort of excess cash, and whether we should expect all of that to return to shareholders? And secondly, in terms of the second decline, when could we expect the initial resource? And then, given the fact that a lot of infrastructure is obviously already on -- in place at Sukari, how quickly could that go towards a feasibility study in economics? Thank you.

For the first one, just on the cash balances, we've always maintained -- we've maintained a cash balance of between $250 million and $300 million. And with the interim dividend payout that we've just announced of $0.025 a share, that brings the cash balance down to around the $300 million mark. And as we've always said, excess cash will be returned to our shareholders. With Cleopatra for expansion opportunities, Cleopatra is still really in the development phase with exploration drilling now going on in earnest with three rigs drilling there. And it's really going to be delivered -- how it comes online will be determined by the results that we achieve. The principal target is obviously the Western context, where we see the current high grades come from the existing Amun and Ptah decline, and that's where the main focus will be. In the interim, there are also results coming back from the Cleopatra area on the Antoine structure that is internal to the core fleet. That will also be getting further drilling on those because they have the potential to bring in production sooner while we're waiting for further drill results to come through from the Western context. The reality is Cleopatra heading to production. We've got to complete the drillings first, then we can make the decision to move into production. It's not a major change. The decline is being constructed as though it would be a production decline and have initial capacity over million tonnes per annum. And what it would do if it comes out successful, the underground production would increase and you'd use that to -- in place of open pit door.

Okay. Thank you.

Thank you very much. And moving on to the line of Richard Hatch with RBC. Please go ahead. Your line is open.

Thanks very much and good morning Andrew. Thanks for the call. Three questions for me. First one, I know you've given a bit of an update on -- you've got cases in Law 32 in particular. Are there any dates out there that you're aware of in terms of when we'll next hear anything from the Egyptian Government? Or is it still the case of wait and see and wait for their update. Second one. Can you just talk a little bit about cost inflation? And how -- what kind of cost inflation you're experiencing at the moment? And how you're mitigating that. And then my third one was just on this recent Egyptian licensing round, I think you decided against participating as you've done before just on account of being I think challenging economics or whatever the government was looking for you to commit to. And can you just talk about what was challenging in those proposals for the new licensing round please? Thanks.

Okay. Thanks Richard. I'll answer the first and the third question and Ross, you are allowed to the second question on cost inflation. Regarding the court cases, it's really now -- it's as before, it's a wait and see. As we get any information, we'll provide updates. That's all I can say now. Regarding the current, the previous bid round that's just been released, we said publicly before we weren’t going to participate in were unsatisfactory sentiments to participate in and we're still very strongly along the lines, we would like to these introduce in modern day mining code text and royalty arrangement. We still believe that we do it the best way just to move forward. There has been talk that Egypt is going to release another good round. It's only talk. We haven't seen or heard any details of it. Obviously, if and when it is released, we would then take a look at the terms and conditions and determine whether we would participate in that bid round.

Andrew, with the -- terms such as government free carry or excess royalty rates and such left...

It was basically -- it was a 6% royalty and then a 20% production share and only partial cost recovery.

Okay. thanks.

Richard, it's Ross here. Just in terms of the inflation question. It's wrapped up considerably. So, when you look at the official inflation steps running late last year, inflation was at about 13%. It's now up to 29%, 30% in terms of inflation rates. Those are official figures out of the Central Bank. In terms of what that means for our cost, the big savings are really around salaries. There's a little bit of insurance and it's our consumables and food supplies, and it's really an inverse relationship in terms of our U.S. dollar versus EGP exchange rate. So, we're watching that closely. We had a few savings in the first half, versus where we expected it to be. But it's for watching recent terms of where we're going with this and we certainty think that we're going to have to push out local costs in line with the net inflation rate we've seen flow in effect on transport and the like locally.

Okay. Ross just remind me what percentage of your costs are local?

There's about 25% that's in EGP, but that actually includes our fuel component, which is priced in U.S. dollars but paid in local currency.

Thanks. Okay. But for now, you're comfortable with your cost guidance based on the current inflation rate.

That's right, that's right. And the big compound is fuel. I said that the fuel price for the quarter in advance probably in line watching brief on that is they recently introduced a retrospective adjustment. So, we have -- at the end of the quarter, we also get a letter in terms of what those fuel costs are. So that's slightly changed from previous. And then locally, fuel on the streets and paid out locally has gone up quite a lot. And we're expecting some flow on impact on that in terms of transport and consumables.

Okay. Thank you.

Thank you very much. And moving on to the line of Dan Shaw with Morgan Stanley. Please go ahead. Your line is open.

Hi. Good morning. Just two questions for me. So firstly, on CapEx. If you look at your CapEx in exploration in the first half was around $45 million or so. But I think for the full year, you're still expecting around $125 million. Is that still the case where we see slightly -- waiting to the second half in terms of CapEx spend this year? And then secondly, just on the core case again. Obviously, it sounds there been some negative developments to that in relation to that and on the concession agreement you've also mentioned there that Centamin has prepared a report in response to this. Can you give any details on the types of things that are contained within that? Thank you.

Hi Dan, I'll take the first one on the CapEx spend. We're certainly expecting a ramp-up in the second half around our CapEx and specifically, around our rebuild schedule. A lot of that is in [training] and we're expecting it to ramp up. But certainly, still within our budgets and figures but we've all seen an increase in the second half of the year.

Thanks.

Thank you. And moving on to the line of [Alan Smith]. Please go ahead. Your line is open.

Sorry, we've got after that, a second question. In relation to the court case, there's been no real change, there's been no real change. There was one group that had said that they found Law 32 to be unconstitutional. That has now been sent back to be reviewed again and then what we represented to the court to determine if it's constitutional or not. At the present time, does that have any impact that just leads to all out our existing court case on hold.

Can you guys hear me now?

Yes, we can.

Hi it's Alan from Jefferies. I was just wondered if you can give us some idea on grades you're expecting particularly from the open pit into Q3. You've done the cutback and you mentioned accessing higher grades in June. Is that the run rate into Q3 and just kind of where that will shake out?

In Q3, as we progress further down in the space, we think we have the grades coming through, we'll be around the 1 gram per tonne mark from that part of the pit. Then you go through a Stage 4 and your Stage 5. CapEx can be going ahead as well, which are higher up with is slightly lower grade. The overall grade throughput to the mill will be around 1 to 1.03 grams per tonne from the open pit.

Perfect. Thanks. And then following up on Dan's question just about H2 CapEx, can you give us a rough split of Q3 versus Q4? Are those roughly even or one of a higher waiting.

They're probably pretty much even. A lot of that orders and everything that are coming through. So, I would basically go 50-50 on it. It's going to be very close to that.

Great. Thank you.

Thank you. And moving on to the line of Richard Hatch, RBC. Please go ahead. Your line is open.

Thanks. And sorry. I just had a couple of follow-ups. The first one and just to your point, modeling one, should we expect that 4,000 ounces of gold that you didn't sell over what you produced just flow through into the third quarter. And then the second one, just I mean -- just on your West African portfolio, you gave us a little bit of an update on what you're doing there. What are the next key catalyst we should look for as you try and take these projects forward or look to take the projects forward? Thanks.

All right. That's a great question. So, the 4,000, that's versus timing. And that's the timing difference into the next month. So, no issues on that.

Thanks.

Okay. And regarding the West African portfolio. we've got that initial results we announced at the [Ropo] of 1.3 million ounces, as indicated in the third, of which 300,000 indicated in the mill. On the cost of our side, it's really about drilling around those areas, the other prospects. And that's really for the first half of the year exploration is focused on. And the second half, I think, is focusing more on results development to determine what we have there. And ideally, in that number towards the two million ounce mark so we can then make a decision, look at the economics of it and determine if we do have a project there or not. It's the same thing in Burkina Faso. It's really focusing around the Napelepera with [corridor], ignoring the difficult refractory sulfides and determining what we have there and doing further exploration on Napelepera, east and west which are all off side to again make the same course.

Andrew, can you just remind me what your hurdle rates are for projects?

We don't go into details of hurdle rates. But we'd like to see a minimum production of 120,000 to 130,000 ounces a year of costs below $800 an ounce.

All-in?

Yes.

Okay. Thank you.

Thank you. No further questions at this time. [Operator instructions] And as there are no questions in queue for the moment, I would like to return the conference call to the speakers.

Great. Thank you much, thank you very much, everyone, for listening to the call today. If you've got any further questions or you need clarifications you think, you've got our contact details, please feel free to contact us. Thank you very much.

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