Earnings Call: H1 2021

Sep 15, 2021

Thanks, Emma, and good morning to everybody to our interim results for 2021 presentation. You just start turning through the slides. There's a disclaimer, first of all. Read that at your leisure, please. And then if we turn to Slide 2, which is just a summary of our results for the first half of twenty twenty one. We've had a really good performance in the first half, a strong financial performance based on strong commodity prices, as you can see on the page there. So On the back of those strong that strong financial performance, which is driven by strong commodity prices, we're delighted to announce an increase in our dividend to 0 point 0 8p for the first half of this year. And we'll also be paying back early a $10,000,000 of our corporate debt facility. So $10,000,000 back to the banks and 0.08p which is $19,500,000 back to shareholders, which if we were to pay the similar kind of dividend at the final, that would be a yield of about 6.8%. That's driven off the back of strong revenues. Our revenues increased to 100 and dollars 300,000 from $75,400,000 in the comparable period last year. And the EBITDA on the back of that 51% margin was $64,400,000 A key number for us is our free cash flow, and that's increased 130 6 months period, to $48,900,000 from $21,200,000 All of us will remember last 6 months in 2020 the 1st 6 months in 2020, so the comparable period was a particularly tough period for all businesses. But still 131% improvement is a good performance on the back of those strong metal prices. And that's the number, the free cash flow that we pay that dividend against. And we're around the 40% of that number for the £0.08 dividend that we've announced this morning. On the back of those strong cash flows over the period, we are deleveraging the balance sheet. We've now got just under $61,000,000 of gross debt on the books and cash of $54,300,000 outside of the financial numbers on sustainability issues, we've had a good response to COVID-nineteen. We currently only have about 3 employees with COVID-nineteen and none at Coonrad, and our procedures are proving to be robust to prevent much disruption on-site from the pandemic. We have unfortunately suffered 3 LTIs, and I'll talk about those later in the presentation, which gives us an LTI of R at the half year of 2 point Clive. We reported our 2nd sustainability report to GRI standards in April of this year. One thing which we negotiated one day after the period end on the 1st July with our electricity supplier in Macedonia, was the supply of 94% renewable energy to the site. We have to purchase a percentage from the government, which is claimed to be renewable. So in essence, we're looking at 100% renewable energy at the Sasa mine, and that should reduce our CO2 footprint for the group, not just Sasa, but for the group by about 35%. We are still working on other projects at Krumovgrad and also at SASSA to further improve that, and we'll be coming out targets later in the year as part of our climate change strategy. And last but by no means least before I hand over to Gavin, the cut and fill project at SASSA is underway. It's progressing well, and we're on track to deliver on that in Q4 of 20 22. And on that point, I'll now hand over to Gavin to give some more information on the financial numbers. Thanks, Nigel. If we could turn to Slide 4, please, which just gives a background to the market that we operated within through the last half. COVID is still prevalent, unfortunately, and we are seeing some varied vaccination programs. So we continue to be sort of wary ourselves and operating within this environment. But what that has impacted is metal prices. So you can see in the charts on the right hand side of the slide, the average prices that we received for copper, lead and zinc over the past three periods with appreciable increases in those prices due to sort of squeezed supply, robust demand given the sort of stimulus that we've seen coming through from governments. And also the sort of build back better mantra that governments are selling us with the transition to green economy, very supportive of copper prices and also the same prices led. We did see some supply disruptions throughout the industry, but weak demand from the auto industry due to this semiconductor shortage has kept some of the demand there. Treatment charges, we mentioned here because those feed through to our lead and zinc revenues. We did see an increase period on period. That's because those prices sort of kick in from the first April every year and we do expect them to reduce as of 1st April this year and we do continue to see spot TC is being suppressed mainly due to continued COVID impacts on supply and sea freights. If we turn to Slide 5, please, there's a summary of the income statement. As Nigel mentioned, the highlights there, gross revenue and EBITDA really responding to those increased commodity prices with increases of 41% in the gross revenue line there. And what I'll draw your attention to here is some increase in the cost of sales. Now that does include $14,800,000 of depreciation, which goes which we report in that line. And we also have a unrealized hedging loss, which is $4,900,000 in that cost of sales as well, which hence we are sort of reporting that adjusted EPS at the bottom of the table there, which strips out that unrealized loss to allow your period on period comparable. So you can see the EPS has gone up by almost double. Again, the chart on the bottom right hand side of the slide probably tells the story best where we're seeing increases in commodity prices and their impacts on revenue, you can see that copper alone has contributed to a $20,000,000 increase in revenues with more modest increases from lead and zinc, but still significant to push up that gross revenue line on the income statement. Margins remain strong across the business, as Nigel said, 61% for the business as a whole. And segmentally, we're looking at a EBITDA margin of 80% at Conrad, which is a stunning result for that operation and 54% at SASSA, both significantly increased over the prior period. We'll turn to Slide 6, please. We can show you the sort of development of our EBITDA from H1 2020 to H1 2021. Obviously, there are the huge increases in commodity prices that we've seen for each of copper, lead and zinc. And then where we've sort of suffered some losses, we had a fair value loss on the hedges of $1,900,000 We hedged 30% of our metals for the year beginning January. And then the other cost of sales, we are seeing some inflationary pressures, which I'll talk to a little bit more in a later slide. And that G and A cost of $1,900,000 is non cash and relates mainly to share based payments. We turn to Slide 7, that'd be easier. We should scribble some notes. So cash costs at Conrad, as I said, that EBITDA margin of 80% really being driven by extremely low costs. They have increased from $0.48 to $0.57 This is a consequence of increased electricity prices primarily increased reagent consumption and a slight decrease of 3.93 tonnes in terms of units produced. So if you look at the dollar amounts at the bottom of the table, you can see almost $1,000,000 increase, which is related to in the C1 costs related primarily to some inflationary pressures and those reagents, which constitutes $600,000 of that amount. And if we look at the total cost of sales, we are looking at around a 20% higher total cost of sales for Conrad, but around half of that is actually related to MET, which is the royalty effectively that which we paid to the government for copper extracted, and that is directly related to the increased copper prices. Slide 8, please. Similar chart for SASSA, the C1 equivalent zinc costs. We have seen an increase there again of around $0.16 That is attributable to the slight decrease in production, which Nigel spoke about earlier, dollars 0.05 of which is cost inflation, again around consumables and reagents. If you think about it, we consume things like steel in the ball mills and copper in the flotation plant as a reagent. So all of that commodity complex increase of prices filtering through to miners right now. And also the way we calculate the zinc equivalents with the relative price moves in lead and zinc plus the production increase relatively of zinc and lead. We are portioning more cost towards that zinc than we did in the previous that period, hence the IFC1 cash cost. But if you look at the actual unit costs on-site, those are almost entirely down to inflationary pressures. A lot of that is actually foreign exchange at SASSA where we've seen the Macedonian Denar, which is pegged to the euro appreciates relative to the dollar and 41% of our on-site costs are related to foreign exchange increases. We go to Slide 9. Balance sheet, as Nigel said, we continue to delever and more aggressively with the additional prepayment that we announced this morning. I'll only draw your attention to a couple of items which may stand out on the balance sheet. 1 is your PPE number, which has decreased fairly significantly. There's two reasons for that. The primary one again is foreign exchange where the local balance sheet in Macedonia, Denard is impacted by the relative sort of weakening of the dollar there. Plus also we started depreciating our Natus tailings facility, and this is the 1st full period that we'll be reporting the depreciation of that facility. If we go down the table to other liabilities, that unrealized hedge loss of $4,900,000 needs a balancing item somewhere in the accounts and that's where it sits right now, within that $22,400,000 hence the higher increase there. Slide 10, please. This relates to CapEx. Now if you recall from our previous announcements, we have been talking about a project to transition from the current sublevel caving mining method to cut and fill and we started to see some of that CapEx come through in H1 this year, dollars 3,300,000 of the total CapEx spent on a cash basis is relating to that project alongside $2,900,000 of sustaining CapEx at SASA and $1,500,000 of sustaining CapEx at Conrad. Now the sustaining CapEx relates to replacement of some mining fleet, mine development underground and also the usual dripper pipes and implementation of what we call the ILS system, Intermediate Leach Solution System on the Eastern and Western Dumps at Conrad. Patent film, you can see the little photograph there of some of the items that we bought. That's a new Twinboom jumbo, which is going to be excavating a decline. So it's that sort of thing that we're buying, so decline equipment. And we also received certain items related to the PACEFUL plant that we are constructing and also some prepayments that we've made on equipment relating to that capital project as well. Final slide for me, Slide 11, cash flow, and that's just important because it does drive that dividend. We're we're very pleased to report that enormous increase in free cash flow period on period to $48,900,000 again, if you look at the sort of developments of that from the cash balance at the 1st January this year, we generated $60,900,000 of cash from operations. We have in terms of investment and returns to shareholders, purchase of equipment $7,700,000 repayments borrowings $19,200,000 dividends of $19,400,000 all value generated for shareholders there and then some other items, including income tax interest and some adjustment on our working capital facilities as well. So ending the period with a very healthy cash balance of $54,300,000 On that note, I'll hand back to Nigel. Thanks Gavin. Hopefully, you can see there a strong financial performance, strong balance sheet and some good returns back to shareholders as well as early repayment of the debt. Just a few slides now on our progress in improving our sustainability and our ESG credentials. Health and Safety, first of all, Slide 13, if you don't mind. At SASSA, we have disappointingly had 3 LTIs in the 1st 6 months of this year. We're working to understand what went wrong and improve the proceed is on-site there. And at Cunrad, we've had no LTI. So overall, at group level, we're reporting 3 for the period. As I said before, that gives us an LTIFR, which we measure ourselves against of 2.5 for the 6 month period. COVID, we have had cases of COVID on-site, 77 at SASSA and 58. These are cumulative numbers at Coomad. Currently, we have no cases of Coomad and we have, I think it's 3 or 4 people now currently with COVID-nineteen on-site. But I think overall, as I said before, I think we are controlling that reasonably well. The vaccination programs, given quite a lot of government initiatives and government pressure effectively in Qumad, we've got nearly 100% of our employees now double vaccinated, which is really encouraging in terms of moving forward with this pandemic. Slightly worse at SASSA, where we think it's 36% at the moment that we've had vaccinated. There's a little bit of resistance to vaccination within the country. That kind of percentage vaccinated mirrors what the general population is. So we are trying as best we can through a program of education to to try and educate people about the benefits of being vaccinated. And slowly but surely, the governments are clamping down on things that you can't do without a vaccination. So I think that's helping us on-site as well, but that's work in progress a little bit. Moving on to a more broader update on sustainability. We published our sustainability report, our second one to GRI standards in April this year. That incorporates 4 of the 17 United Nations Sustainable Development Goals. So no poverty, good health and well-being of all our staff, quality education, decent work and economic growth. So I think all the work that we're doing on there is pushing us forward in terms of how we report on sustainability matters, and we're quite proud of where we've got to for the size of the company that we are. At both operations, both SASSA and Coonrad, we now have an independent legal entity that we call a foundation, which does charitable works for the community. We put money into those separate legal entities and all that money is ring fenced for community projects. We improve education, welfare and just move things forward from a sustainability point of view. The outlook, we continue to work on our climate change strategy. As I mentioned before, we're looking to come out later this year or early next year with some greenhouse gas emissions target. We've made a good start with this 35% reduction in group levels from the renewable energy at SASSA, but we're also working on solar farm and Cunard and other initiatives, tree planting, etcetera, Cunard and SASSA, and we'll come out with more details on that later in the year. A Couple of other points, asset retirement obligation, which is something any mature and responsible company will do for closure responsibilities, what's expected of us. We've engaged with a company called Golders to actually do some work on that, and we'll be reporting on that later in the year as to what our plans are in that regard. And the last one is the global industry tailing standards, which we're making good progress in terms of compliance with that on the suggested 3 year guideline from August of last year. We're quite well advanced on that in terms of meeting compliance against that particular standard. We turn to Slide 15. I won't talk much to this, but just to reemphasize the point that we are setting targets for sustainability. And against those targets, executive remuneration will be benchmarked. So we will be set targets and rewards and remuneration will be against how we perform against those targets. So for example, in governance, we're looking this year for 0 human rights abuses. Health and safety, ones that we've always set ourselves really zero fatalities and improvements in LGIFR. People targets in terms of collective agreements at SASSA and also developing plans to train and develop and improve the knowledge of the workforce at SASSA and CUNAB. Environment 0 severe or major environmental incidents is a target for this year. Unfortunately, we as everybody on the call probably knows, we did fail on that one with our Tier seven-four incident last year, almost a year ago to the date. I think we've recovered from that, and I'll touch on that a little bit later. And finally, on the community, just working closely with the community really and putting money into the community to develop it and be a responsible citizen. A little bit more on the greenhouse gas emissions. You can see the chart there on Slide 16. We did manage to reduce our CO2 print, because we use less coal at Cumaat primarily between 2019 2020. So we're now reporting for 2020 about 98,000 tonnes of TiO2. As I said before, the 35% reduction in that number on an annual basis from this renewable energy supply that we've negotiated at SASSA. Just a few facts and figures of our electricity consumption at both sites, and I won't reemphasize the point about the 35% reduction because I think I've probably, said that enough. In terms of Slide 17, just a little bit on where we spend money within the communities. And the picture on Slide 18, which I'll come to in a minute, is where we primarily spent our money at SASSA. But at Coonrad, we have purchased an ambulance to help out with not just the pandemic, but moving forward with all kinds of health issues in the local town of Balcash near to us, and we're constantly putting money into the community there to help out. So just moving to Slide 18, there's a few pictures there really, not a lot of words, just a lot of pictures of something which we spent just north of $100,000 on as a kind of goodwill gesture back to the community in cabinets following the TSF4 incident, something I think as a management team we're particularly proud of. And I was there on-site last week actually, there was a lot of young children, a lot of parents using the facility. It was a lovely sunny day, and it was really nice to see that we've actually built that and given that to the community, and I think the mayor is particularly grateful for that as an input. And just turning over to Slide 2019 now and really to draw a line on the TSF for instance, which has taken us a while to recover from. I think it's hopefully, we've managed it in a very professional and transparent manner. Obviously, there was the immediate remediation of the dam, there was the getting back into production, some slight changes to our operating procedures there to improve things. And we had an audit for an IP sold in late June, early July, which gave us a very good complementary review independently of how we're managing that facility now. It's very pleasing for myself and Gavin to get that. But there's just a few pictures there of something which is taking slightly longer to remediate, which is the pollution that we very unfortunately did to the river. We stated at the previous announcements that 95% of the tailings have been removed from the river by the end of December 2020. In this half that we're reporting now, we have continued that work. And the river is actually in a very good condition, helped by Mother Nature as well a little bit with some strong rains that we've had over the period that have flushed things through. But we've now removed all the silt traps. We've planted 3,600 trees, 350 shrubs and 3 20 kilograms of wildflower seeds and grasses to try and improve the environment there. So again, that's drawing the line under the TSF for instance in terms of the community park, the river remediation and the work that we've done on-site to improve our procedures to prevent this happening. So if we just move on to an operational update and move to Slide 21. Very quickly, everybody knows the Cunard operation, I'm sure. We're we're now reporting approximately, because as we know, this is not an exact science in many ways, that we have about 134,000 tonnes of recoverable copper, sorry, still to produce at Cunarad. About 10,000 tonnes on the Eastern Dumps and about 124,000 tonnes on the Western Dumps. Slide 22 is just a diagram, standard one that we put every 6 months up to the investors of our production. Everybody knows it is seasonal, we produce more in the summer months and the standard leach curve there in the bottom, and we are progressing well on all of our cells that are currently operating in terms of the production. Moving over to Slide 23 now, something which Gavin mentioned before, which is some capital work that we're doing at Coomrad to help through to the end of life of mine in 2,034 is what we call an intermediate leak system. That's Phase 1 has been completed. That was the construction of a 14 kilometer water pipeline from the east to the West and the associated pumps. Phase 2 will be completed next year with irrigation pipeline onto the older Western cells that we'll be irrigating to get some extra pickup. And then Phase 3 will effectively be operating in 2023 during the summer months to increase the offtake from those West the dumps and increase maintain the production levels. There's a table there at the bottom of production. And just to reemphasize, for the first half of this year, we produced 6,214 tonnes of cathode copper and we're on track for the upper end of our guidance at 12,500 to 13,500 tonnes of copper. Slide 24, just moving on to the Sasa zinc and lead mine. We've now owned this operation for almost 4 years and just a few statistics from it. We've now generated $240,000,000 of EBITDA from it. So it is a highly profitable operation. We've repaid $135,000,000 ahead of the announcement this morning for the early repayment of another $10,000,000 off that debt repayment. We have reserves and resources out to 2,037. And as everybody knows, it's a mechanized underground mine. The production numbers there, Slide 25, The table on the right hand side is showing the first half of this year. We mined 414,000 tonnes of ore. We processed slightly more, 423,000 tonnes of ore, we had some on stockpiles at the surface at the beginning of the year. We have had a few issues with some of the grade issues as we're a bit behind on development and we generally get higher levels of dilution when we're getting production from the stopes and we suffered that a little bit in the first half of this year. We are recovering from that. We've had some couple of good months, and we are maintaining as a consequence of that recovery program our guidance for the year is 23,000 to 25,000 tonnes of zinc and 30,000 to 32,000 tonnes of lead. And just to reemphasize what we've actually done in the half year was nearly 11,300 tonnes of zinc and 13,800 tonnes of lead, but just to mention those points about the grade, and we have a program to try and recover some of those grades by doing more production from the development steps as opposed to the sorry, the statement from the development channels as opposed to the offsets. So that's SASSA production. Big project at SASSA on Slide 26. I won't talk much to that slide because it's just a picture of the portal for the new decline, which we started. So if you move over to Slide 27, we now name this new decline, the central decline in Macedonia, and that's Miskop Central, for those of you who might be interested. Development has commenced. We've got a good team on-site led by Phil Jackson and Tommy Purcell, who were managing that and training the guys in the new equipment that we bought to manage that new decline. We've done so far approximately 200 meters. We took the decision to start the decline from the 9, 10 levels, so start on the ground effectively, where we've done now 188 and the picture you just saw a minute ago, which was the opening portal, we've now excavated in about approximately 10 to 12 meters from that surface, and we're just getting to the point where we should hit hard rock and then start heading down to meet the 9, 10 level. We expect to do about 800 meters of new this year, and it is a 3 to 4 year program to do 3.8 kilometers in total. And why are we doing it? Well, it's going to give increased ventilation and improve the ventilation. It will make far easier access into some of the lower areas of the mine, and it would effectively increase our ability to ultimately increase production up to 900,000 tonnes with greater access to the lower ore bodies. So that's the central decline. There's a long section on Slide 28, I think it is, which shows the mine. Again, won't talk to that. You can see the dash line there just showing where that new decline is heading from the surface from nearby the process plant down to the 9, 10, 11 and subsequently down to below 7 50 level on a 3 to 4 year program. Slide 29, the pace backfill plant, which is a key part of this program, is well advanced in terms of design and choice of suppliers for most of the equipment. The equipment lay down area on-site has been established for when those supplies are delivered. The new site offices have been delivered to sites and we'll be marking out and segregating the area shortly. And as I say, most of the major plant payments have been ordered and over the next few months will be delivered to site ahead of construction starting in the first half of next year. And we're on track to install the reticulation from start installing the reticulation, which is basically the plumbing and the pipe work that takes the pace from the backfill plant to the voids and the areas within the mine that will be putting that pace. We're on track to start that pipe work in October of this year. And as I say, on track in total for construction of the paste backfill plant in the particulation to be done by Q4 2022 and then it will go into operation shortly thereafter to transition into cut and fill mining. Furthermore, difficult aspect of the project in some ways is dry stack tailings. We did have a while where we weren't 100% sure where we're going to place those tailings, Knight Peacehold have done a conceptual study, giving us confidence that we can place between 3,700,000 to 4,400,000 tonnes in the older area of TSF too. So we are now going to detailed engineering design, and we're expecting a report back from 9 Pizol at the end of October on the detailed cost things and design of the dry stack tailings landform, as we call it. The plant itself, which is a basic filtration plant to get the moisture levels down to 11.5%, is fairly well advanced with the team on-site in terms of as with the backfill plant, design, ordering of equipment and that is also on track for finishing by Q4 of 2022. So that's Slide 29 and Slide 30. Just moving over now to Slide jumping 1 minute. Slide 32, if everybody would please just look at that. Our capital allocation priorities, just to reiterate this morning, obviously, dollars 8 dividend. That's going to cost us about $19,500,000 but on top of that, we're paying $10,000,000 back to the bank in advance of the regular payments that we make, which is $3,200,000 every month. We maintain our policy of 30% to 50% free cash flow being paid back to shareholders. This particular dividend, as I said before, is 40% of that. And in total since we started the dividend policy back in 2012, we've now paid back £1.20 to the shareholders, $229,000,000 in total, something as a track record, we're particularly proud of as a company. And as Gavin said, and I won't reiterate point we are deleveraging rapidly. And in theory, with this advanced payment of $10,000,000 we would have paid the debt off by the 4th August 2022. Just continuing with capital allocation, Slide 33, clearly the other leg of that it's not just paying back dividends and paying back to debt holders, but it's also investing in the business, developing the business. And I've already touched on the cut and fill project at SASSA, and we are spending between $18,000,000 to $19,000,000 of CapEx by the end of 2022 outside to deliver on that. What will it give us? It gives a more efficient method of mining, maximize the extraction of our mineral resources, so more metal for the ore that we're actually mining. And it will certainly improve the tailings storage in a more environmentally friendly way as we put 40% to 45% that kind of level of turning back into the void underground. And it will be a lower CapEx in building another 2 TSF falls further down the valley, which has its problems complications if we were to have had to go down that path, but this is a solution to that. And finally, on capital allocation, we're looking at growth as we continue to look, it is opportunistic. We've looked at about 18 opportunities over the past 6 months and various NDAs signed and time visits, but there's nothing much further than that at the moment. But clearly, it's something we wish to do to actually enhance our portfolio of assets within the group. So just finishing me off on Slide 34, just on the outlook. I think we've announced some strong financial numbers this morning. We have a good strong sustainable business with strong finances and good performance on the sustainability aspects, strong operational performances, a few challenges in the first half of this year that we're working hard to overcome. And our basic mantra is to produce the basic metals that we need that are essential for modern day living in terms of what society needs to actually move forward. Strong EBITDA and free cash flow generation, a a good dividend back to shareholders this morning announced of $0.08 $10,000,000 back to the banks. And our outlook is really to continue on delivering to our shareholders the production, work on our climate change strategy, which is work in progress and will deliver either later this year or early next year. Delighted with the reduction that we've so far managed to achieve on the CO2 footprint of 35%. And strong metal price environment is obviously a very favorable tailwind Boris and long made that last in terms of maintaining good financial performance for the group. And on that note, I'll hand back to the operator, Emma, and we'll open it up to any questions. Thank We will now take our first question From Alexander Pierce from BMO. Please go ahead. The line is open. Great. So good morning, So it's really good to see, obviously, the move to renewable energy at SASSA. I just wondered, could you give us any kind of indication of the cost impact Of that going forward. And then also, obviously, moving to cut and fill, I wondered if you can kind of give us an idea of how much of an impact To your overall energy consumption as well for the mine. I'm dealing with the first question, Alex, and good morning to you. Yes, there's not a major premium. We've been using EVM, using the supply of our electricity for some time now. It is quite complicated, supply of electricity in Macedonia, which is why we're really only claiming 94% because they are put in place in discussions with us a process whereby they'll audit that and give us declarations of origin to prove that it is renewable energy from a company called EVN Electronic, which is a sister company of theirs and is 100% renewable energy. In terms of the costs associated with it, we paid a slight premium for renewable energy, but electricity costs in general have increased at both of our operations, particularly at SASSA, where they've gone up from like $0.065 I think it was per kilowatt hour closer to $0.10 per kilowatt hour. Across the world, people are experiencing increasing electricity costs because of these issues. So how much of that is factored into I certainly don't know, but we paid a small premium above and beyond that price just to ensure that we got renewable energy from them with, as I say, a certified process underlying it. In terms of our increased CO2 footprint because of the cuts and fill, probably during the construction period, you're right to say that will happen. But I think it's probably a number of moving parts for us to assess what the actual footprint will be once we move into cut and fill because obviously, we've got a different operation then with different movements from how the ore is moved underground through the decline. And we are looking at using electric vehicles in the future, and that's why we've widened the actual decline itself from the original plan such that we can accommodate potentially in the future electric vehicles. So I think that would help. So there's quite a few aspects we're looking at at SASSA and Akuma to bolster that initial starter pack, if you want to call it that, a 35% impact on our 2019 CO2 footprint. Okay. Thanks. And then maybe hello? Hello. Sorry, can you hear me? Yes, I'm here, Alex. Sorry, yes. Okay, good. Sorry, yes. Maybe I can just ask a kind of a follow-up just on Coonrad. Obviously, you haven't completed The feasibility study, yes. But do you have a kind of a rough idea about how much power potentially could come from Solar in terms of like a percentage of the total and how seasonal that could be? Yes. I think of the amount that we consume at Cunrad, we're looking at SolarPharm contribute, I think, 20% to 25% of that power. So it would be no more than that really. It wouldn't be the full 100%. As things improve in Kazakhstan, we will look at other opportunities there. But at the moment, that's where we're putting our focus as we move from scoping study to feasibility study, and we've allocated the area and we're dealing closely with people to actually get that delivered effectively. Perfect. Thank you. Thanks, Alex. Thank you. We will now take our next question from Sam Cattellana from Canaccord. Please go ahead. Your line is open. Yes, thanks. Good morning, guys. Two questions. Just firstly on unit costs in the second half. Obviously, you've already spoken a bit about some of the inflationary pressures that you dealt with in the first half. Just wondering how you're seeing that into the second half of the year. And then the second question, just to maybe push you a little bit more on capital allocation, which to be fair, you've been very clear on. But I assume in the broad discussions, you potentially could have gone to the top end of your payout range, 50% and perhaps not paid as much back in debt. Just wondering how the decision process worked around balancing those 2 sort of competing uses of capital? Thanks. Do you want to say that again? Yes. Well, I'll take the first half certainly. In terms of unit cost, Sam, I think we the electricity increase that Nigel mentioned earlier, we're going to see more impact from that in the second half at SASSA. We think that all the other costs are reasonably under control. And you've probably seen what we presented today is probably going to continue into the second half. We may see some additional G and A at Cunrad as well relating to some salary increases there just as some inflationary pressures here, but other than that, not so much. On the positive side of things, as I mentioned earlier, we've got our treatment charge contracts kicked in on 1st April. So second half TCs will be lower than H1 TCs, which and we've reported earlier, we're looking at about a 30% decrease annually on those treatment charges. So that's a good positive there. And I think, Sam, on the capital allocation, hopefully, we've got it reasonably well. It's a fair question you asked how did we arrive at that decision. I mean, it's one of these situations you never please all the people all the time, can you? So we have on shareholder basis, and what we thought was a good balance was to pay a healthy dividend. There's also we've got some shareholders who would prefer us to pay the debt off maybe earlier. So we thought because of the strong cash flow generation we've experienced because of the high commodity price, it seems a good balance to pay back early without any penalty, some of the debt, really, and I think that strikes the right balance. And we didn't want to get ahead of ourselves too much because it would maybe then create a problem for the final dividend where people expect it almost. So I think it's a good balance really. And we have historically paid around the 40% mark. And I think $0.08 $10,000,000 back to shareholders just strikes that balance from the capital allocation side correctly. Yes, that's very clear. Thanks guys. Thank you, Sam. Thank you. We will now take our next question from Richard Hatch from Berenberg. Please go ahead. The line is open. Yes. Thanks a lot. Yes. Good morning, Nigel and Gavin and team. A few questions. First one is just on the move to the Western Dumps. Yes. Are you comfortable on the recoverability there? I mean, you kind of talked to the challenges that you saw. You managed to mitigate it in this So the 1st year of going wholly there and next in this winter, you'll kind of blend between the East and the Western. But are you comfortable that you're able To get the recoverability that you're looking for. And is there going to be any impact on costs as a result of that if you need to Sort of throw a bit more reagent at it or such like? Yes. No, I mean, on the cost side, first of all, Richard, and good morning to you. We don't expect a major incremental increase in costs as a consequence of doing any of this really. And am I confident in the recovery as well? We've now been leaching the Western Dump since 2017. And yes, we are confident. And we claim, what, 35% to 42%, which is quite a range for different cells. And we're confident that we will get that recovery over the life of mine out to 2,034. But clearly because it is lower and it's a longer lead time and everything else, we have to husband those cells. And that's all we're trying to do here by trying to get an extra little bit of take pick up from what effecting is acid rock drainage, just an effect because it's fresh water we're putting on. And that's what we will do. You get a little bit of copper back because there's enough pyrite and pyritides in the cells to generate their own acid. If we have to add some acid to it, we will do, but we don't back to the moment from what we've experienced in the West that we need to do that and then we'll put it on to the other domes just to increase the tenure of the grade and just to help with the production side of it. So not a major increase in costs, confident with the operation on the West, having done it now for 3.5 years and the kind of recoveries that we're getting and our program to rotate around those Western cells to get the 124,000 tonnes that we require. We may end up as we often say it's not an exact science. We may end up recovering more than that, but our plans are based on those numbers and those recovery levels, and we're fairly confident that we can do it. Howard and the technical team there had planned this ILS system quite some time ago actually. We don't need it at the moment, but feel it will be a good beneficial supplement, if you like, to the operation in the future, a pretty minimal CapEx cost to be quite honest with one thing just to add on to it, which we did experience during the winter of last year was we stopped for the first time since we started operating. We stopped the eastern dumps and just leads to Western Dumps. And that did create a few concerns over the consumption of reagents that came through some of the costs. And first, it was plummeting. Even people like Howard and the rest of the technical team are pretty knowledgeable about these things. And we concluded there was either physically, which we then concluded there wasn't because we inspected all the equipment, and we looked at viscosity levels and the different makeup between the East and the West. And so as a consequence of that experience last winter, what we've decided to do is continue leaching the eastern dumps throughout the winter period this winter. And I think that will help as well with the kind of makeup. So as with many things in life, Richard, you live and learn as you go through it, but I think we're fairly confident in how we manage and husband those jumps through to the end of the life. Thanks, Nigel. That's very helpful. Can I switch over to SASSA? So you talked a bit earlier in the presentation about the dilution challenges that you were seeing there. Would you just be able to kind of give us a bit of a flavor as to how you think sort of the mine perform in the last couple of months Since you provided that last update, is it kind of more tracking in line with your expectations? And are you managing to kind of show some signs of improvement and get a handle and To address those challenges that you saw? Yes. Scott and the team on-site have put in place. We felt behind on development is the honest answer. And we have got some Pua ground conditions down at 9.10, 9.90 level, which takes a bit of work. So they put in place a recovery program. So we are seeing more of the ore coming from the development as opposed to the scoping, which is development generally has got lower dilution, as I said before, because you're more in the core of the ore body. So this recovery program is showing signs. In July August, we've had a couple of good months, I have to say, which is positive. But I don't want to sit here and be disingenuous and say, well, definitely, we'll get back to the low end. That's what we keep maintaining guidance up, but we may be a couple of percentage short. Likewise, we may be a couple of percentage over on the copper, as I said before. But we have a plan in place, and we're working hard to deliver on that. And the past 2 months have shown signs of recovery from that with increased combined rates on daily basis for quite a number of days above 7%. So that's all positive as far as we can see. Yes. Okay. Cool. And then while we're still at SASSA, just I mean I noticed in the results there's some kind of commentary around technical work to look at the move to 900,000 tonnes a year, 3rd ball mill and maybe some additional float sales. I mean, have you got a kind of rough Sort of order of magnitude and what kind of CapEx that might be? Well, we've got the order of magnitude on the main backfill plants and everything else. I think we've around $2,000,000 or $3,000,000 for the plant. If you're talking specifically, Richard, about plant expansion, that's the kind of number. No, there's the ball mill, that ball mill. That's the kind of number we're talking about, dollars 2,000,000 to $3,000,000 on the ball mill for the plant expansion. It will be a few more flotation cells, a bit of an expansion maybe to the building itself and then a ball mill is what Barry O'Connell is running it, he's thinking about at the moment. Okay. Understood. I'm sorry, I'm nearly done. Just on the labor renegotiations at SASSA, have you got a steer on what kind of Inflation rate that kind of is a good order of magnitude to think about? The actual official inflation, I think, is about 3.5% in Macedonia at the moment, something of that we are going through and we will go through a collective bargaining agreement, which we expect to finish in this half of the year. So I can't really say what percentage pay rise we're making next year in terms of that will be pretty confidential information, I suppose so. So no, I can't. But as I say, and as Gavin alluded to, we are, as most mining companies and people across the world are experiencing some cost inflation as a consequence of high oil prices and metal prices, we're not immune to any of that. But I think the numbers are probably sub-ten percent overall, even though they look on the face of it higher than that, if you strip out exchange and you strip out mineral extraction tax and those kind of things, we're probably looking at percentages in some consumables in some aspects that might be 10% and some that are less. So anything below the 10% I suppose is what we're looking at as a kind of cost inflation overall that we're experiencing across the pantry. Yes. Okay. And then just on the M and A commentary, Would you be able to give any more sort of are you looking across the piece in terms of development assets? Or is it producing? Or Is there any could you just give a little bit more flavor as to kind of some of the broader kind of Opportunities you're looking at, should we be expecting maybe a producing mine or something that you can just step in and finish the development of? There's not a lot more I can add if I'm honest with you, Richard. And I always feel I give a woolly answer on this, so I do apologize. But it is opportunistic, and we are increasing our focus on it and our energy on it, to see what we can pick up on top of our current assets, which is a great base to build from. And it could be something in I mean, ideally, it will be something in our own area, be it the Balkans or Central Asia in copper is primary, but Vegas can't be choosers sometimes. So we have to look at other assets and be a bit more creative and look at the opportunities and look at every aspect of it. So we continue to do that. I think we're looking at having paid all our debt off next year at some stage and certainly turning into a net cash position soon. So we've become stronger by the day to actually acquire a decent asset, but there is opportunistic still in terms of where we look. I mean, it sounds obvious, but the key thing is the accretion metrics that we look at here. So Richard, of the 18 that we reviewed over the last 6, 7 months or so, that would have included producing assets, development assets and a larger sort of transformational M and A as well. Okay. Thank you very much for taking my questions. Is better. Apologies. Thank you. We will now take our next question from Peter Alan Jones from Peel Hunt. Please go ahead. Hi, guys. Unfortunately, Hatcher jumped in with my M and A question. So I will defer to the next questioner, please. Sorry about that, We will now take a follow-up question from Richard Hatch from Berenberg. Please go ahead. The line is open. And thanks. Sorry, I have got a last one. And just with the Traxxas agreement kind of coming to a conclusion at the tail end of next year, How are you thinking about the sale of the products from SASSA and Kumbev when you haven't got to sell it into Tractor, would you kind of extend you happy with that? Or do you think you could get a potentially a better agreement somewhere else? Well, Richard, I think on Conrad, we have been selling to Traxxas since the that we have, during that period, run at least one tender process where we've invited other parties to tender for the material and there's no obligation to stick with Traxis beyond October 22 on Conrad. So I foresee us running a similar process. Again, on the lead zinc side, it's a similar process again. On the lead zinc side, the products are far more complicated. The logistics are way more complicated as well. So I don't see us doing that ourselves, but we haven't decided anything yet in terms of running tender processes and the like, but I think there's certainly benefit to having somebody with that deep market knowledge assisting us with those sort of sales. There are no further questions in the queue at this time. I will turn the call back to your host. Okay, well, thank you very much for everybody attending this morning. Thank you to Louise for producing a lot of the literature for it, and thanks to Gavin. And thanks to the board for supporting us on announcing a very healthy dividend of $0.0810 million back to shareholders. We will work to improve our climate change strategy or develop our climate change strategy as we've already announced, work to improve on the production in the second half and the first half and deliver on that guidance for the year and continue to pay down our debt and look for other business Thank everybody for paying attention this morning and listening to us, and we look forward to meeting some of you hopefully in person, physically in the near future as we move hopefully out of the COVID-nineteen restrictions we've all suffered from for the past 18 months or so. So thank you very much and goodbye.