Centamin PLC

LSE:CEY

Earnings Call Analysis

Centamin's Strong Q3 Performance and Future Prospects Highlighted

In Q3 2024, Centamin achieved impressive results with gold production of 131,000 ounces, driving revenues of $369 million, a 730% year-on-year increase. Cash costs were maintained at $766 per ounce, with all-in sustaining costs just over $1,250. The company continues to aim for a production guidance of 470,000 to 500,000 ounces and all-in sustaining costs between $1,200 and $1,350. The balance sheet remains robust, with over $240 million in cash. Operationally, Centamin is focused on expanding its Sukari mine and engaging with local communities in West Africa, as they move toward finalizing permitting processes by year-end.

Strong Performance in Q3 2024

Centamin concluded Q3 2024 with significant operational achievements, producing 131,000 ounces of gold and realizing sales of nearly 150,000 ounces due to favorable timing from the previous quarter. The emphasis on cost discipline allowed Centamin to maintain competitive cash costs at $766 per ounce and all-in sustaining costs at approximately $1,250 per ounce. This diligent management resulted in a remarkable revenue of $369 million, with free cash flow reaching $103 million, marking a substantial increase of 730% year-on-year and nearly 220% quarter-on-quarter.

Maintaining Production Guidance Amid Market Volatility

The company remains on track to meet its production guidance, targeting between 470,000 and 500,000 ounces for the year. With Q4 showing momentum from Q3, Centamin is optimistic about continuing its progress in gold production. This stable output coupled with robust gold prices positions the company favorably in the marketplace, enabling it to leverage its cost advantage effectively.

Focus on Cost Control and Financial Health

Effective cost control strategies are at the forefront of Centamin’s success, allowing the company to maintain profit margins even when faced with fluctuating gold prices. With a strong balance sheet of over $240 million in cash and liquids, along with an undrawn revolving credit facility, the company exhibits robust financial resilience. The emphasis on sustaining margins while increasing production is clearly part of Centamin's ongoing strategy.

Operational Updates from the Sukari Mine

The Sukari mine's operational performance remains strong. Open-pit mining activities have maintained momentum, with good volume and grade metrics on plan. The underground operations are ramping up, targeting 1.1 million tonnes in production this year, and processing has seen an improvement with an average feed grade of 1.43 grams per tonne, which represents a 14% increase year-on-year. Additionally, gold recovery was strong at 89%, reflecting a 1% improvement compared to the previous year.

Safety and Environmental Initiatives

Safety remains a critical priority at Centamin. While recent incidents resulted in some lost-time injuries, the company continues to implement proactive measures to enhance workforce safety. The total recordable injury rate stands at 1.96 per million hours worked. Centamin is determined to achieve a zero-harm workplace, reflecting a commitment to operational excellence and worker well-being.

Future Expansion and Developments in Egypt

Centamin is also focused on expanding its exploration efforts in Egypt. Work is underway at the Eastern Desert Exploration and the Little Sukari deposit, located approximately 20-25 kilometers from Sukari. Successful exploration can open new avenues for gold production and significantly contribute to the company’s long-term growth strategy. Additionally, advancements are being made in West Africa, particularly at the Doropo project, where Centamin is actively engaging with the government to finalize licensing before the year’s end.

Strategic Direction Amid Potential Acquisition

The earnings call highlighted the pending acquisition of Centamin by AngloGold Ashanti, a transaction that could reshape its strategic direction. While this adds a layer of uncertainty, it also underscores the high regard for Centamin’s assets and operational effectiveness in the gold mining sector. As discussions progress, management remains focused on maintaining operational integrity and delivering value to shareholders.

Earnings Call Transcript 2024-Q3

[Operator]

Good day, ladies and gentlemen, and welcome to Centamin Q3 2024 Results. [Operator Instructions] I would like to remind all participants that this call is being recorded.

I will now hand over to Michael Stoner, Head of Corporate, to begin the presentation. Please go ahead.

[Michael Stoner, executive]

Thank you, Gavin. So before we begin, please could we draw your attention to the disclaimer on Slide 2. And as I'm sure you've all noted, on the 10th of September, we announced the recommended firm offer for AngloGold to acquire the entire issued and to be issued share capital of Centamin. As a result, we're under a number of restrictions in terms of what we can discuss today due to the requirements of the U.K. Takeover Code. We'll do our best to be helpful during Q&A. However, please note, we are unable to provide any further detail beyond what is disclosed in the 2.7 announcement in the scheme document. So please, where possible, try and keep the Q&A to the operating performance for the quarter.

And with that, I'll hand over to Martin. Thank you.

[Martin Horgan, executive]

Thank you very much, Michael. And as Michael mentioned, welcome to the third quarter Centamin results presentation. I'm joined today by my colleagues, Ross Jerrard, Chief Financial Officer; and as you heard, Michael Stoner, Head of Corporate.

So this, of course, is a supplementary update. As Michael mentioned, on the 10th of September, we announced the AngloGold Ashanti transaction for Centamin. And at that point, we issued an interim trading update, which announced the first two months of the third quarter. So today's presentation is really rounding out the full results for that quarter and effectively adding September into those already pre-released numbers.

I'm delighted to say that September, in terms of -- moving on to the next slide, [ Richard ], in terms of the results from September, they continue very much in the vein that we've seen previously through the quarter and rounded out what was a very strong performance by the assets. And at Sukari itself, we produced 131,000 ounces in the quarter, which was a great result. And actually, because of the timing of sales from Q2, actually had sales of just under 150,000 ounces.

In terms of cost control, as you know, we focused as well on the cost discipline as well as production ounces. I'm delighted that, that momentum was maintained through September and rounded out the quarter very nicely indeed in terms of cash costs of $766 per ounce at an all-in sustaining cost of just over $1,250 per ounce. And of course, that allowed us to maintain guidance, both in terms of production ounces in our range of 470 to 500, tracking to the midpoint. And of course, the same in terms of our all-in sustaining costs as well.

And of course, if you produce the ounces at the right costs, that allows you to take advantage of what have been some very robust and strong gold prices. And when we look at that, that generated $369 million of revenue in the period. And again, with that focus on cost control and ounce production enabled us to generate $103 million of free cash in the quarter. That's a 730% increase year-on-year and a nearly 220% increase quarter-on-quarter.

And when that flows through to the bottom line, it puts us in a very healthy position with the balance sheet sitting at just over $240 million in cash and liquids. And of course, that, as yet, undrawn RCF as well available to us, leaving us in a very robust and liquid position.

As I mentioned there, when we look forward to the balance of the year, gold production continues to move in line with plan, and we see that the momentum we've seen in Q3 will continue into Q4. And as I've mentioned at the half year, we're still tracking towards that midpoint of guidance in terms of ounce costs. We've noted the cost -- the cash cost basis around the stripping adjustments. When that flows through and we look at that on the all-in sustaining cost, we're maintaining our guidance range of $1,200 to $1,350. And in terms of CapEx, CapEx guidance is maintained as well. So an excellent quarter and some excellent results as evidenced there as well.

Slightly deeper dive into Sukari itself now. Unfortunately, we've had a couple of LTIs during the quarter, which is very unfortunate and something that we're looking at and something, obviously, we aim to provide a zero harm safe environment for all our staff. One of those LTIs was at the Sukari mine and the second one was at our EDX, Eastern Desert Exploration, in Egypt as well. So we're now looking at those incidents, looking to understand the causes and looking to make sure that we can address those to prevent future issues going forward. And that leaves us with a group LTIFR of 0.65 per million hours worked and a total recordable injury rate of around 1.96 per million as well. So as I say, operational safety remains a key focus and proactive measures are being put in place.

In terms of Sukari itself, open pit, good performance continued again, that momentum from the first half of the year. Volumes and grades moving nicely as per plan. And I think one of the highlights, of course, was the now completion of the Capital Limited earthmoving sort of project, and that has now been completed. And as of today, Capital are demobilizing their equipment from site as well. So they go with our thanks and have been one of the key drivers in our ability to reinvest and reset the Sukari mine as well. So moving well.

Underground, a continued good momentum with the underground, focusing obviously on that ramp-up that we've talked about moving to 1.1 million tonnes this year and seeing our volumes moving both in terms of stoping development tonnes and of course, focus on grade as well. So in terms of underground, steady as she goes and maintaining that on target for the full year.

And in terms of processing, again, very good processing performance, good processing tonnes, including scheduled maintenance during the period, benefited from an average feed grade of 1.43 grams per tonne. That's an increase of about 14% year-on-year and that 3 million tonnes is about 8% increase on year-on-year as well. And when we look at the gold recovery, obviously benefiting from those higher feed grades, sitting at just a shade over 89%, which again is an increase year-on-year of about 1%.

Moving away from Sukari itself, work continued staying in Egypt at EDX. Obviously, we're looking to drill out the potential of the Little Sukari deposit, some 20, 25 kilometers from the mine site, plus generation of other deposits within the Sukari region. Good progress there in terms of both the RC and the core program, and we anticipate that work being finalized this quarter, results there being put through towards the end of the year as well. So continued good progress there as we look to try and extend and understand the extent of Little Sukari to work out the ability to bring that into the Sukari mill in due course.

Pivoting across to West Africa. Clearly, the focus at Doropo maintains government engagement around permitting and our mining license application. We continue to engage with the government and progress that process. We anticipate and hope that, that will be finalized before year end. And of course, in the interim, stay -- keeping busy with further engineering works in terms of the [ FID ] and the predevelopment opportunities while also engaging with local communities as well.

So really a strong quarter to round out the sort of the third month within that quarter, very happy with that momentum and really set for the balance of the year at Sukari. Pretty happy with progress at EDX, to say the least, very happy with how that's moving. And of course, good progress in West Africa as well.

So all in all, Michael, a pretty positive outcome. And with that, maybe we'll hand over to questions and see if there's any questions from the floor.

[Operator]

[Operator Instructions] Currently, there are no questions on the conference line. I'll hand over to Michael Stoner, Head of Corporate, to address written questions submitted via the webcast.

[Michael Stoner, executive]

Thank you, Gavin. There's no questions on the webcast. So I'll hand back to Martin for closing comments.

[Martin Horgan, executive]

Well, thank you very much, Michael. Clearly, everyone absolutely stunned and amazed by an excellent third quarter outcome for Centamin across the group operations. But maybe leaves me just to say thanks to everybody for taking the time to listen today, noting that with the deal transaction that this is potentially the last quarterly report that we will be presenting as Centamin, should things progress as per the published scheme documentation. And maybe just leaves me as a final note to say thank you to everybody at Centamin over the last sort of 4.5, 5 years that I've been involved with the business and obviously all of the people a lot longer. It's been a real privilege and an honor to work with a really good group of people doing some really excellent work. And I think the AngloGold Ashanti proposed transaction really does indicate the quality of that work done by the team of people here at Centamin as well, a group of very good professionals who are good people and I have enjoyed immensely working with them.

So with that, I maybe just like to say thank you to all. Follow-up questions available to us through the usual channels and I wish you all very well and talk to you again soon. So that's it. Thank you very much.