Q3 2019 Earnings Call
Hello, ladies and gentlemen, and welcome to <unk> mining third quarter, 2019, restaurants confidence called <unk>, which is being recorded a copy of the presentation is available.
Yes website at this time, all participants adina listen only mode.
Question answer session will follow the no formal presentation.
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Telephone keypad.
Well now hand over to your hosts Sebastian that month to source seal off and thereby maintaining please go ahead.
Thank you operator.
Hello, everyone and thank you for joining our Q3 2000 lunch in results presentation. My name is Sebastian Dimont issue I'm, the CEO of another mining and it's a pleasure to be talking to your once again.
This time from our operational hub in outage on where we always thing our board for the second annual site visits.
Slide to just say also that our new independent non executive director Sofia Junkie is with US on this trip and in a on the core.
Please note today's call.
Is covered by all disclaimer and notice on forward looking statements.
The format for todays call will be our usual quarterly formats I will provide an overview of the result, then <unk>. Louis <unk> will review our financial performance followed by market will discuss the operations and I will conclude before opening up folks you anyway.
Our head of exploration that take a is also with US here today and available to answer any exploration questions. You may have.
So now onto the first line of the presentation and the Ken and I'm excited to announce that our net net net net net net net free cash flow is finally positive. This marks the transition from our high capstone intensive investment phase two a cash flow generation phase.
If you remember I told you back in 2016, the tender on would be completed after our three year strategic plan and I'm pleased to confirm that this quarter. We have generated our first net cash flow positive quarter.
Before we dive into the presentation I'd like to saying the team for their tremendous efforts over the past three years, which have ultimately resulted in this quarter.
Thank you as well to our shareholders. This achievement could not have been done without the support and we expect that they will now start seeing that patients rewarded.
On this but we have led out the key takeaways for the quarter I think it is safe to say that there has been a strong quarter. Despite the challenges brought by the severe rainy season.
This strong operating results in a higher gold price led to our operating cash flow doubling and most importantly, the business reduced its net debt by $52 million as we have completed our investments during the previous quarter.
Looking ahead, our objective is to generate strong cash flow. So we can continue to de leverage the business and demonstrates a robust return on capital employed.
In addition, I believe that the business is very well positioned to continue to grow into short term with very low capex requirements.
In Q4, we expect Eightys ramp up to 5 million tons per on them to be complete. This means that 2020 will benefit from a full year production at IGI at an increased alongside.
We also expect exploration success to generate for the gross and this is not on waving wishful thinking as you know from a announcements we have found deposits, which are at least one gram per tonne richer at both our flagships EG and one day, we are there for moving quickly to get permits. So that we can start mining them in late 20 early 21.
As you can imagine we are delighted because it's rare to be able to have both debt reduction and gross at the same time.
And finally based on the exploration success. We've had it is now part of our DNA to have a strong exploration focus this will allow us to continue to bill low cost optionality was on within our portfolio.
Turning now to the next page safety safety continues to be our top priority. We were disappointed to record one lost time injury during the quarter.
18 mine the first in over 23 months is across the group.
It was our safety record remains well below the industry average 0.06. It is a reminder to all us that we must continue to be vigilant about our safety.
Safety teams at all our minds are redoubling, our efforts to ensure all our workers, taking the necessary safety precautions at all time.
Moving to the next one as I mentioned, we have had a strong quarter. Despite the rainy season as production increased by 6% over Q2 and all in sustaining costs remained low at six 800 dollar per ounce.
This page you can see than in fact this has been our second best historical quarter. After the record set in Q4 last year.
Turning to slide seven you will see that we were up against this quarter in Burkina Faso.
The left hand side of the page illustrates the average rainfall during Q3 over the past four years of four times versus when we first started operating in that country.
The rain undoubtedly impacts production cost if we assume all other factors our constant however, it is not the only factor to consider.
By incorporating the lessons we've learned we are able to better plan for the rainy season with the goal of maintaining a production profile that is flat as possible.
Every rainy season has its challenges and this year was no difference. The main challenge. This year, we're starting a high grade wary of deposit that hone the during the rainy season and also at the same time ramping up our 18 mine in soft material quite a challenge.
I'd like to tell the team our job is to be problem solvers and make sure we have backup solutions in place.
As such we've been able to mitigate the impact by mine scheduling and building of stockpiles into dry season.
Cost tends to increase during the rainy season, because more water pumping is needed mining efficiencies lower and we used truck by low grade lower grade ore to maintain plans throughput, which is why we place a greater emphasis on maintaining production levels tuna. This out and then the current gold price environment. This is even more beneficial.
Moving to the next one as I mentioned earlier, the Tcl project as being the big driver for endeavors performance. This year. As you noted was completed four months is ahead of schedule $10 million below budget and without a single anti.
The ramp up has also been quick lasting only as three weeks. Since then this year loan has been performing extremely well production continued to increase in Q3, and we not expect the mine to achieve the top end of the 2019 on your production guidance range.
Just a reminder, we deliberately gave a wide guidance range at the beginning of the year as the lower end was based on the nameplate capacity and the top and already included upsides, such as the blown running above its nameplate.
During the ramp up we identified the ability to further increase the mill throughput by 25% to 5 million tons per annum for many more capex those upgrades are progressing well and on track for completion before the end of the year.
Moving to slide nine none that we are three quarters of the ways through the year. We are adjusting out 2019 full year guidance for production and all in sustaining cost.
To walk you through our thinking let's look at production first we've already produced 473000 ounces and as I. Just mentioned, we expect it to me the upper hand of its guidance. So the lower end of the group's guidance has been increased slightly by 35000 ounces.
Turning the other mines, we expect I go to perform well in the final quarter to have sitting on the weather severe rain slow the development of the high grade where it fits.
The group audience sustaining cost guidance has also been adjusted upward slightly by 4% to reflect the higher royalties associated with the stronger gold price environment, which is a equates to around $15 unknowns. In addition, the adjusted estimate to take into account. The IGI is all in sustaining cost which is expected to be near the top end of is guided range.
As mentioned during our Q2 call driven by increased production at the lower average grade overall, we expect I go to offset honed income.
Now I'd like to give an overview of our financial performance focusing on what I consider our this three important metrics for the business operating cash flow net debt reduction and return on capital employed.
This quarter, we doubled operating cash flow compared to Q2 as we benefited from both an increase in production, thanks to EG and the stronger gold price.
Again. This is why it's important that we hit our production targets whatever the weather.
Turning to slide 11. This graph makes me very happy as thanks to both operational performance and our financial discipline. We can know those strong per share metrics. This is the reward of managing to fund our growth without diluting our shareholders.
As we have now transitioned to being a capturing business. It is interesting to see that our annualized cash will yield is into double digits, which is high for any industry and particularly for the gold industry.
In the context, where we are competing for capstone across industries I believe that this is important for the gold industry to show it can be benchmarks across industries all relevant metrics.
As you see on this next slide the gross capital spend since 2016 has been significant amounting to over $800 million. This represents almost half of our market cap.
With only the EG upsize remaining capex decreased to $6 million in Q3.
Delivering our projects on time and on budget is great, but ultimately the most important is to show a return on capital employed.
As you see on slide 13, this metric as improved substantially this quarter to 15% on an annualized basis.
Moving to slide 14.
With the high Capstone investment phase now behind US, we have pivoted to reach the cash flow inflection point in the business.
It was announced it is finally, there we will accelerate our deleveraging.
I think this graph sums it up nicely and you can see the different elements on the bottom side in particular.
And now as you can see for this quarter with the Capex spend pretty well finish we can start focusing on debt reduction.
This quarter, we decreased net debt by $52 million compared to Q2 as you can see from the Orange line. The net debt to EBITDA ratio decreased from 275 times at the end of June to 1.94 times at the end of September which represented 30% degrees and just one quarter, which is very pleasing to see and we expect this ratio.
To achieve decreasing quickly over the next quarters.
Turning to exploration now.
As part of our strategic plan, we did invest a lot during the last three years and exploration in the same spirit us for the project. We are also now starting to benefit from the exploration successes, we ever had and converting progressively our discoveries into reserves.
As you May recall the main goal set three years ago were twofold first to extend mine lives to more than 10 years and second to advance Greenfield discoveries to build optionality within the portfolio.
Well the first two years, we focused mainly on near mine exploration. This year, we started to ramp up brinjal efforts, which now represent nearly 20% of the spend.
We're very pleased with the results are those as those each in hone day now have demonstrated potential to have tenure mine lives and we have started to see delineation of new Greenfield discoveries.
Moving on the cake is that our discovery cost and less than $15 an ounce.
Let's look at Hyundai quickly in some more detailed.
I will target is to have at least 10 year mine life at an average to 150000 tons per annum. The graph on the right hand side showed the production gaps in grade that we need to feel to achieve this and this is how we calculated our target on meeting an additional 1.1 million ounces of reserves.
While this sounds a big number we have already discovered 710000 ounces, which we published has a maiden reserve for carry pound back in June and not only did we add reserve ounces. It will also a considerably higher grade of just over three grams per tonne.
During the quarter, we've been finalizing the resource calculation for the carry centre and carry west discoveries and expect to announce a maiden resource and reserve estimate in the coming weeks and demonstrates once more that will be reaching the target we had set for Hyundai.
Moving now onto.
The same principle applies we want a 10 year mine life at an average 250000 owns annual production to adjust to achieve this we only need to add 500000 ounce of reserves. We have already discovered 500000 ounce I've indicated resources. So we are confident we can mid this target as the discovery keeps growing similar.
So to the carry areas for one day, we're also seeing above three grams per tonne at look like we expect to announce again made and reserve for the black based on the current resource in Q1 2020.
Now turning to our Greenfield exploration efforts in Cote d'ivoire, we're very excited about the fitted core deposits in September we increased indicated resource to 1.1 million ounces at a good grade of 2.54 grams per tonne and we will be commencing in 10000 meter extension drilling program, shortly which will.
Spect will increase the projects resource base further solid Patrick thanks.
That concludes my quarterly overview, and I will now handover to lease for a detailed review of our financial performance.
Hello, everyone and thank you Sebastian for the introduction from my side I'm very pleased to be joining in does that this important juncture as the business matures into cash generating gold company.
With the current strong gold price environment.
I think on lifetime specifically.
To join the sector at this point in time.
On my first slide slide 20 in the presentation I thought it would be interesting to provide you with a snapshot of how the business has performed both on a year to date basis and comparing the current quarter versus the previous one.
So starting on the year to date results.
The Companys financial performance has improved across all key metrics on the financial side, adjusted EBITDA and EBIT margins are up 24% and 35% respectively.
Operating cash flow apps by 52% Sebastiane has mentioned the key driver has been increased production for continuing operations and the strong a gold price, which more than compensated for the slightly higher all in sustaining costs year on year.
Considering the significant change to our asset base over the past nine months.
The CIO plans coming Onstream at 80, and the growth Capex phase now essentially over.
I will focus on a quarter on quarter performance for the balance of the presentation and we'll be happy to address any further questions you might have later.
So, let's turn to slide 21 way, we have provided a breakdown of the major elements used to derive are all in margin.
In the tables, we have shown both the nominal amounts as well as the dollars per ounce impact.
All in sustaining margin came in at 44% up from 78% reported in the previous quarter low and on sustaining capital for base mining and exploration resulted an athree hundred five dollar passing through and in the oil in margin of the company.
This is due to significantly less non sustaining capital required by the business during the third quarter.
And to expand that point on the mining side, we did decrease stripping at our new deposits at Hyundai and Karma earlier in the year and on exploration most of the drilling was done ahead of the rainy season.
Unit cash cost decreased over the previous quarter, which was how ever offset by higher royalties and sustaining capital spend.
For instance, we have provided additional insights on each of the mine main line items on the slide.
On the next slide we start from the oil in large and work our way to the net cash inflow for that group.
As the best in mentioned the bottom line shows a positive info for the quarter, which has a turning point for the company.
Diving into a bit more detail I'd like to anticipate any questions you might have on the larger quarter over quarter variances. So starting with working capital. It has swung to an outflow during the quarter, mainly due to payables related to the construction of the PTC I'll plant winding down we trust some somewhat offset by.
A very large fast recovery.
During the third quarter approximately $15 million effect has been recovered in the quarter.
Texas came down slightly as the second quarter also included a provisional tax payment of $6 million at Hyundai for the 2019 financial year and growth project capital decreased significantly as you'd expect to see now that the plant EETC ill plant is commissioned.
So again, we have provided more insights on the page and I'd be happy to address questions during the session.
Moving onto the next slide we show the drivers.
For opening and closing cash position you can see that we started the year with $124 million of cash to which operating activities have added another hundred $78 million year to date.
Since the beginning of the year, we have invested $211 million into the business for growth projects and sustaining.
And on sustaining expenditures.
As you see with the inset this represents a 60% decrease over the previous year.
These activities with bridged by an interim financing activities, notably the drawdown of the Rcs earlier, this year, which was partially offset by interest payments and finance lease obligation retirements as well no further drawdowns our currency expected.
Our strong cash on hand position.
To the next slide.
The company's liquidity remains strong and we are in a healthy financial position, we have available funding of $240 million.
At the reporting date.
Our current net debt to adjusted EBITDA ratio stands at 1.94 times Sebastian referred to earlier and this is calculated on a trailing last 12 months adjusted EBITDA basis, which is a sharp decrease over the 2.7 times at the end of June .
What we have included in the slide is is a calculation.
We we annualize the quarter three adjusted EBITDA.
And obviously this is most probably a more relevant metric in this higher gold price environment, and with 18, now ramped up and on that basis. The the leverage ratio should be around 1.24 times.
Looking ahead, we expect net debt to EBITDA the ratio to continue declining on the back of reduce gross capital expenditure requirements.
Turning to my final slide.
You can see that on a quarterly basis adjusted net earnings per share increased considerably in quarter three to 30 cents per share this being the benefit of funding our growth in a manner that has avoided equity dilution for the shareholders that completes my review how do you have to answer any questions at the end and will now hand over to Mark.
Thanks, Larry it's great to have given the time.
I'd like to start my operational review with the mine commissioning of the new processing plant in the lead up to the with season has gone pretty well.
As you can say from the graph on the right hand side the difference in production between the old heap Leach and the new CIO operation is considerable essentially three Tom to production at a low all in sustaining costs and good validation to support the capital investment minds.
Production for the quarter continued to increase to spot the heavier than normal rainy season.
On the mining front, we continue to open up the deployed energy flat pits, which extended down into the transitional and fresh rock in places, which as most of you know you for IGI is a benefit as we can use the larger mining fleet with more solid underfloor conditions, rather than the smaller articulated dump truck.
Additional all sources kind from the spin heap leach need a CIO plant and a light right, which is being mine to make way for planned TSS lives.
The production right has continued to ramp up based on the de bottlenecking were being conducted we expect to be in a position to process at an annualized 5 million tons per annum during the fourth quarter.
The mines all in sustaining cost decreased during quarter three.
Mostly due to a lower strip ratio greater production volumes and lower gene I costs. These factors helped to more than offset higher mining related costs due to the rainy season and increased royalty costs.
Patrick and his team have done a great job discovering and modeling the high gridlocked deposit.
There is still more resource to be drilled we're in the process of converting the initial resources into reserves and incorporating this into a lot of mine plan.
We ended the credit profile of the park a goal is to work for the permitting and planning process and bring this into the mine plan as early as possible.
Looking ahead to the final quarter. After year is on track to achieve the upper end of 2000 non in production guidance.
So the all in sustaining cost as guided during the second quarter results. We expect them onto finished near the top end of guidance to account for the lower average cried mined and processed in taking the plant beyond nameplate capacity.
Turning to hone day on the next slide the mine delivered a good performance for quarter three despite the severe rainy season with only a slight decrease in production.
We started tomorrow, hi, Brite Bora deposit during the second quarter discontinued at a high right in the third quarter, which helped maintain the process credit profile. As we also blended this financially we've been loulo and low grade stockpiles.
Ramping up production at bar I was slowed due to the most of your rainy season, which is the main reason, we now expect to be at the lower end of 2009 production guidance and above the all in sustaining cost guidance.
As you may have seen the guarded 25 million of sustaining capital for the second quarter second half of the is considerable compared to the 10 million in the first half of this amount 15 million is planned for the fourth quarter.
The strip ratio is well above the loss of mine ratio roughly 15 to one and is expected to remain high in quarter four looking at the Big picture.
The company push on dietary hardiness first two years of production in order to support the funding of the if oil project with issue now in production and operating well we plan to complete the guarded capital stripping during the second half of the year to place us in a good position for next year.
Similar to the exploration team has done a great job discovering and extending our knowledge of the hydride Pericom deposit, which is also expected to make a contribution.
200, its life of mine production profile.
We therefore looking forward to incorporating this into the mine plan as soon as possible.
Moving on slide 29.
Agrium on in Cote Divoire the maturity of this operation was highlighted by the smooth transition from expat GM to the new of or in general manager. The team has embraced the change and not the production or performance has missed debate.
Mining operations continued in the north and West Pete's during the quarter as a promise fuel sources.
Towards the end of the period why spawning recommenced in this asset light.
Processing circuit was supplemented with some low grade stockpiles and production was steady quarter on quarter through the rainy season.
All in sustaining cost decreased as a result of production by processing engine, our unit costs as well as an increase in gold sold.
The higher gold sales helped to offset higher unit mining costs and royalties.
Looking ahead to the final quarter at Bell is on track to meet the higher into full production garden.
And expected to come slightly below the all in sustaining cost guidance for the year.
And lastly to slide 34 outcome asset in Burkina Faso.
Production increased as forecast as bought the effects of the rainy season.
Mining activities focused almost solely on the newly commissioned candles.
As we finish man in the Cam mine pit in early quarter three.
The higher grade candles oxide, all contributed to the significantly higher stacked right, which more than compensated for lower stack tonnage.
All in sustaining costs decreased mainly due to increased gold sales, which more than offset higher unit mining and stacking costs and higher royalties.
Looking ahead to quarter four we expect comment to make the lower end of 2009 production guidance and finished slightly above all in sustaining cost guidance. This is mainly due to higher royalties as guidance was based on lower gold price of 1200 $50 per ounce.
That concludes my operational review, we have to address questions after sebastian's concluding remarks.
Thanks, Mark so in conclusion in conclusion that isn't gentlemen, I think this quarter demonstrate the successful execution of our strategy. We have completed the growth investments required to build a strong diversified portfolio with this projects now introduction, we have de risk the business and can now focus on harvesting the cash generated.
Segments.
Just to remind you of our for upcoming near term catalyst first we expect to publish made in resources at the new Honda discoveries in the coming weeks second we are looking forward to completing the Tcl upsize before year end third we're looking forward to publishing made and reserves for the new one day and each discoveries early next year. This will be followed by a d'etude technique.
Well reports, where we aim to demonstrate 10 robust years of production across both assets.
And last and most important continuing to generate cash flow.
Thomas Edison taught me a 100 years ago, having a vision is not enough vision without proper execution is alusi nation.
Well I'm pleased to say that after three years of discipline in executing our plan 50 near $50 million of net net cash flow. After everything this quarter is not alusi nation, but just the beginning of a new chapter.
Thank you very much for your time and we're happy to answer any questions you may have.
Thank you so much ladies and gentlemen, we will now begin my question and answer session.
If you wish to ask a question please.
And just telephone and wafer your name to we announce.
Please standby when we compile the Q on Q. This will only take a few moments.
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And once again.
Please.
If you wish to ask a question and the Heskey canceled your request.
And the first question comes from the line of meat.
Bonus from Bob bottom Beth. Please go ahead.
And I.
Thank you very much for the call.
On the AC gross capex.
Thank you spent $4 million after $10 million to $15 million budget.
The bulk of the what's left is on the tailings.
Commissions that the Capex is tracking kind of towards the low end of the range will better than that range or is there is big ramp up in spend through Q4.
Thanks, Michael Yes, confirming the objective is tracking towards the lower end of the of the guidance.
Okay, perfect and then on two Hyundai at some Blu ray forgive me if I missed it in the coal but.
Do you expect to have that fully ramped up in Q4 is that more of the Q1 event.
Sorry set again Michael.
Sorry ads for Hyundai and the ramp up of high grade from Blairite stacks.
Expected in Q4 to kind of a full production rates or is that going to be happening early next year.
It's going to stop at the end of the quarter and mainly in in Q1.
Okay perfect.
On Act.
The better than expected mining unit cost that is now anticipated to sustain.
With that kind of a few one off peak Sir.
I'm always cautious when we have.
Better than expected results so it would be.
Probably break.
I think thats the standards, but yes, I mean, we hope that.
The performance of the team and following the change of the GM has laid out in a strong foundation for the future. So we hope to continue.
In the same territories.
Okay, but thats not down to a change of contract terms or anything that.
Hello.
Yeah its performance based exactly.
Okay, perfect and the final one for me is on the working capital outflows.
The flag that it's payables washing through.
Much of that to expect for Q4 is that largely done now.
Hi, Michael Thank you for the question that effect is basically.
Done now so it was.
CTCL accruals at the end of the year that if now are winding down.
Hi, Thanks, Okay Thats all from me. Thank you very much for Tom.
Thank you Michael.
Thank you so much and the next question comes from the line of Elias heavy from Scotiabank. Please go ahead.
Hi, everyone. Thanks for taking my question, Firstly, Sebastian and team congrats on a strong quarter, achieving free cash flow. Despite the renasant was worried there.
For the quarter.
So just on that Sebastian.
Obviously.
You guys got hit with drain in Q3, but how's that looking going into November and looking in going into Q4.
It was November still weak in terms of or in terms of rain or.
We're seeing a relief there.
Thanks surveys will.
Surprisingly this year the rain has been quite late.
And October has still been a rainy arrangements.
So but.
Again, we hope that November and December should now start to be the dry season, and if you recall, we tend to have record.
Q4, each year as we enter into those dry season. So I mean, yes, we couldn't going forward for for Q4.
Excellent, Okay, and then just moving a little bit.
On to exploration.
In terms of just one nowhere Patrick its fourth focusing his efforts now and is it is it fair to grow as it is still at one day or can you give us a little bit color on that.
Yeah, Patrick you want to.
To answer the question.
Hi, how are you.
Right now.
Main point pharmacies to concentrate on the fit they call first.
Because we started this 34 appeared to be possibly issues at the end of quarter. So we want to.
Evolve as many of answered as possible on the so if you give the proceeds. So this is off my first priority right now and we're still working early Tervita now now several initiatives finish on on the black extending looked like southeast.
But.
That's basically is a priority we our we have now until the end of the yields will be the priorities.
Are there any other targets or kind of greenfields that you're working on right now or I mean this is just.
The target for us.
Now for the fall right now in the next coming to once he's going to this.
Being set for next year, we are preparing additional on those greenfield target.
Well, let's say in different country on our portfolio.
Okay perfect.
Thats it from a for me so thanks for taking my questions.
Thank you bye. Thank you and the next question comes from the line of Justin 10.
Securities. Please go ahead.
Hi, guys. Congrats on another strong quarter and the first major positive free cash quarter as well.
My first one just on in terms of Bob now that your balance sheet see leveraging of a lot more sort of strategic options, how do you evaluate.
I guess, if you could give us an update on kalana onset CRO and just how you evaluate.
Projects going forward and I guess, what what if any criterion cut offs do you have to what makes and endeavor project.
Perhaps like gold price you evaluate the bat.
Thanks, Justin.
Saying was back.
Back in Denver during my presentation, we said that the key objectives through the next two years. So 2021 is really to focus on deleveraging and generating strong cash flow.
Thats really the priority, which give us time into continue to grow the optionality into the portfolio for Omics mine, whether its kalina or whether it's fair to grow.
So we have this optionality in the portfolio, obviously is the gold price continue to be strong.
We should be deleveraging faster than expected, which will give us you know even more flexibility on the next to the next options, but really I want to insist on the fact that the next the next two years 2021 are really focus on generating as much as we can cash flow in the portfolio.
I see and then in terms of cash flow and how you view balance sheet management.
That that arguably already at a healthy level relative to what your EBITDA will be lumpy going forward.
I guess when thinking about a dividend or capital return or simply just I think thats a zero could you just run through those options and how they are viewed by by your team right now.
Yes, I think that.
We'll have I don't want to precipitate.
Discussions with.
With our board on those on the subject with just completing the first quarter of net cash positive.
I think we'll have as we move forward and accelerate this deleveraging and though we always said that our target was to be below one below 0.5 times net debt to EBITDA.
So depending on the on the gold price, that's something that we will reach.
Quite rapidly and we always said that.
Soon as we are ready our objective is to be in a position to move too.
Giving back some of this cash flow to shareholders. So this is clearly are subjected.
We intend to address with with the board in 2020.
Okay. Thanks, and just my last one on Q4. This is a bit more of an operational cash and cost question.
Are there any accrual that we should be aware of that tend to occur in Q4, but that being sort of our I'll come back on cost.
So that again sorry, Justin.
Just I was just wondering if there any year end accruals that we should be aware of in terms of how they may impact cash costs are just or costs in general.
For Q4.
Justin I don't believe they should be ne and Se. We'll let you know that I don't think Thats. The case reason for yes.
Okay, all right. Thanks, very much guys.
Thanks, Justin.
Thank you and the next question comes from the line of games better from RBC capital markets. Please go ahead.
Yes, good afternoon, and thanks for the call I'm, just firstly on the permitting for the carry targets in a plaque.
Okay by meeting those sort of late Twentys already 2021, do you see any risks around that process or do you think that these going to be relatively straightforward to secure.
Thanks, Jeff I think the good thing is we're talking about permits of.
In terms of new new pit.
Permitting for in our new mine.
So this tense.
In our experience to go quite fast there's still a process to be followed.
At.
This week with the board and for example, we met the Minister of minor yesterday, and new confirmed that the with supporting to get us as quick as possible the looked like permitting and about two weeks ago I was with the minister of mine in booking a vessel is also committed to help us get the permit for carry bump as early as possible. So we.
Quite.
Quite confident that.
End of the year is is the latest date, we are expecting those.
Okay. That's great and then on the cost side I think it's pretty clear what was happening in Q3, but when we start thinking about looking into 2020 are you seeing any headwinds in the underlying business or any inflation coming through that you think.
Could impact your cost space as you start to look into next year.
Well, obviously will be going through the budget process in in the next two three weeks I have a better understanding of 2020, but based on the robust I would say life of mine plans in particular out our two flagships on the energy pretty pretty confident on the on the outlook for.
20 and 21.
In terms of.
Supply chain, we haven't seen yet.
The significant increase in a in supplies.
And even more as we said now that we having a much more global approach to our procurement and our supply chain.
We will see in 2020 some improvement.
The inventories and consumables as we are moving towards better control in particular, having.
Stuck containment with a lot of our suppliers to continue to improve.
Working capital and therefore, our return on capital employed.
Okay that makes sense and then one just final one.
And you look at your return on capital employed led screens pretty pretty impressive layered on annualized basis.
Do you have an internal target for where you would like that figure to be on a go forward basis and does that feed into your kind of view on projects or or potential asset purchases in future.
Well I think that as a group in terms of philosophy.
We always said that we wanted to be as close as possible to 20% return on capital employed.
In a 15% is is a first step we hope that we'll be able to continue.
To improve this this number but that again I don't want to preempt.
The the short term future given that this is our first quarter of net cash positive and I think that based on the full year 2019, and the budget 2020, we'll be able to give some even better guidance to the market.
Okay. That's perfect thanks very much.
Okay.
Thank you and the next question comes from the line of Chris Thompson from PE Finance Health. Please go ahead.
Yes, good morning.
Good day guys. Congratulations on a great quarter, yes, very very nice to see the free cash flow that just a couple of quick questions. I think a lot of my questions have already been onset, but just moving to Hyundai right now with bombora, what's sort of what sort of mill grades are you anticipating when you do bring that that pit fully on.
Mark you want to yes, sorry.
The board.
Should get better in grade as we go.
At the end of the year will be sort of just under three grams.
Average for the year and then we expect it to improve in 2020 by another Graham.
Great I mean is.
As far as the blended rates the mill, what should we be anticipating.
We're talking for this year or for next year.
Generally for the with the sort of steady state run rate I guess in the near to medium term with for a on.
Sort of in the low twos.
Okay, great. Thank you.
Just just moving on quick quick great performance from Mike.
Just focusing in on gets on the here.
Nice to see the guys are on track for the full for meeting the 5 million ton per per year.
Do you anticipate an improvement in grade or are you pushing into continue to push on the tons.
Rather than the gray that can we anticipate a plus two grand sort of milk right there.
Now with the increase throughput.
That will keep the great lower.
Okay perfect. Thanks, and then finally comma.
Nice to see the good grade coming in there from Carlos.
When can we anticipate an uptick in those tons.
Yes, we're doing some work on the stacker right now and were expecting that to be finished in this quarter so that.
Come 2020 will be improving throughput.
Yes and.
As you Mudrick remember Chris for US a dozen 20 is a turning point for Karma in terms of cash flow as will be finishing the loss in our capex with the sector, which is about $24 million. This year and next year is the end of the first high level of Hong Kong, Nevada stream that will allow us to.
Start working on come up for us rather than just for Franco Nevada.
Great. Thanks for that Sebastian good guys keep becoming thank you.
Thank you very much Chris.
Thank you and the next question comes from the line of Jody Mark from how wed Securities. Please go ahead.
Hey, guys.
Just a follow on.
Questions the.
Focusing firstly it.
It's very nicely done.
Through the with.
I'm just trying to get an idea of how you're looking for sort of mining fleet capacity now that you coming out of it.
The wet season initiative rotating into the 82 season into other equipment and how that's going to affect ultimately the balance of your mining fleet and hopefully this should have some reflection on unit costs as well.
At this point in time, we're still using quite a number of I'd taste and that's also just looking at the kind of activity that we've got on we've got.
Yes, if construction underway and sourcing.
Adequate fresh rock for that so certainly Q4 Q1.
We'll still have quite a number of the idcs and obviously as we get into any fresh rock and our ability to use the dump trucks, we'll certainly take that opportunity.
Right leasing I mean in terms of pro disco reconciliation.
Sort of those numbers sort of coming in line at the moment or is it too early to tell.
It's probably a little bit early to tell ramping up and also going through wet seasons because.
Morning is not always as easy in the wet season, so probably what another quarter or so on that.
Academic and.
Probably is questions rationale for the timing.
I see there the ramp up through nominal nameplate capacity two to 5 million you kind of close to their already on an average in Q3.
What are you thinking.
Do they need to be able to exceed that.
Going next year.
Should we just say 5 million sort of tend to be conservative on that basis.
I think I think we should be considered the timing.
No in all our ability into the growth of fast.
That is just settle I mean, one or two quarters, and then we'll be able to draw lines on where the fixed.
Okay and.
Well, we're on exceeding capacity design lets give it up one day, it's running at full well Wuhan truly rather I guess.
Well above initial nameplates with the guidance of.
Obviously to the 250000 answer the sort of that's what you want to try and.
See I mean, what sort of are you looking at.
Moderating grade on that or are you looking at a combination of synvisc cattle plant expansions to achieve that sort of 10 year objective.
One of the things with Hyundai is we can get the 4 million tons. When we've got a nice blend of oxide and hardrock.
And at times, the profile will change and we'll just have hard rock and when we're in hard we're sort of down at the 3.6 range. So it's the force not given over the life of mine profile.
Obviously, if we continue to discover high grade deposits like carry pound and.
Which are mainly oxide and it helps you know two to improve the blend both in terms of throughput and in terms of average grade. So this is where we're expecting to to maintain this type of profile over the next 10 years.
Okay and in terms of.
Maybe adding two question earlier in terms of.
And as you've shown in terms of shown to rotate around assets or organic growth and allocation of capital within your portfolio. Obviously, there's some assets that are to that started their lives or rejuvenated and others that are nearing.
The never fees at the end of the mine life is sort of.
Decreasing.
Just thinking about how you go about.
Looking at those assets with fewer a few years on their on their lives.
A few assets there in the portfolio.
And with these sort of what you do sell those or close from a certainly in order to your asset allocation within their portfolio.
I think is that's the beauty of mining, it's a never ending sorry, you need to move from one asset to the next one and.
We always said that we have no emotions and string attached to any assets, what we want to those assets to generate the level of cash and returns that we expect if at some point and not generating those returns than is probably that they are not asset for us to be owned and.
Demonstrated over the last three years that ability to.
Selling noncore assets and the either acquire built new assets.
The pleasing thing is to see that our exploration strategy to prepare for the next to the next project is getting traction.
Now in the portfolio you know two optionalities that we're building with Kolon on for Taco. This gives us confidence that there is still ways to continue to improve and maintain quality portfolio for endeavor going forward.
And again looking at.
The mine life of Karma and I, though you know when you look at the IPO performance in particular this year, we're very happy to have these this asset and very happy with the team over there.
And.
If at some points on one.
Shows up with the right price you know we have a disciplined approach to.
Capital employed so we'll just we'll just look as long as.
It's the right thing for the company.
Hey will set and then maybe just some housekeeping last question on either in terms of looking at.
2020, rethinking the the balance of feed.
He is looking to be there.
Ofi supply.
Sorry, your meaning for us for IPO.
No no surety what's on both sources, they just trying to get an idea of where the blend.
Coming from.
So deployed is is.
Fairly mine contributor to EDI over its loss of mine.
Better too.
It's going to be there.
It flat, we'll have some contribution and then there will be some contribution from low grade stockpiles.
Okay. Great also follow on from a little bit later, okay. Thank you very much for the term.
Thanks George.
And just to avoid receiving 25 phone calls about whether we are sellers of AG, though the answer is no today were not sellers of Expo in particular, as we see a natural extension for a IPO with this fitting a whole new projects, where there might be or other synergies between the end of AG bio later on and beginning of.
Correct.
Thank you and the one second if you wish to ask your question. Please press star one and Jeff telephone.
To be announce.
Okay answered your question. Please press the hash key.
And the next question comes from the line of Mark mentally jump ship. So please go ahead.
Hi, good afternoon, gentlemen, thanks, once again for an excellent quarter. Just one quick question relating to slide 15 of the presentation.
You mentioned in.
Guinea Greenfield exploration.
Then recollect licenses that you have in gave me could you clarify that please.
Sure.
Yes, we did announce a lost you're taking some.
Licenses about four licenses in in Guinea, that's in the security area not far from the.
Anglo Anglo asset in that region.
Last year was more.
Reticle analysis.
On on the ground in the Prospectivity of this area, which I think Patrick and the team quite excited about and therefore they are this year.
Shifting some some commentary drilling.
Thanks, very much that was all from me.
Thank you Mark.
Thank you.
The next question comes from the line just intense.
So securities. Please go ahead.
Hi, just for the aggregate aggregate that Thats, new Ms Securities, but.
Anyway. Thanks, Thanks for taking my follow up just just one it's been sort of a theme this year.
Especially in the C., the security situation, especially in Burkina.
Continuing headlines there are you noticing any.
But an increase difficulties in the operating environment I know that you've got very good protocols in country and people are generally on the roads.
Company, but I was just wondering.
Directionality perspective and some.
Difficulty or ease of operating perspective.
Is there any trend that we should be aware of.
And anything you can share on that.
Well, thanks again for the for the question, obviously, it's something that we're monitoring I would say nearly on a daily basis for the team here and on the security side.
We haven't seen any to date, whether outcome or at Hyundai.
The implications of those.
Security issues in ways to operate.
At least in our nothing has.
Chains are affected because of security hours to operate that boasts karma and Hyundai, but on a regular basis, we do reassess and in particular, we increase from time to time, the security protocols around some of their minds and in particular Karma, which is in the northwest of the of the country, but.
So far we have it.
Being in that position, where we had to analytic radical decisions, we still feel and I do feel taking that responsibility that our employees are operating in.
In safe area and that we have the right protocol in place to maintain those operations.
Okay, Thanks, and just just.
Or maybe a bit of color on that is.
As had been a ramp up and sort of government.
Involvement in some of the outlying areas that responsible for the increase in incidents.
I guess is there any anymore you can share on that.
Well you know.
I think that.
What is evident is that there has been an increase.
Level of attacks in particular in the North and east bust of booking now overall I mean, if you look and take a step back on the on the region you see that there has been some movements from north of Mally too.
South of Malia border of the three countries, mainly in Asia, and the and book enough vessel.
But what we see also is a an increasing presence, which probably explains the different attacks increasing presence from the gfive sale. So the five countries from the sale, which are putting joined forces to tackle the subject and also increased forces from both the U.S. and France.
Okay. Thanks, that's very helpful. Thanks very much.
Okay.
Thank you and that I have no further questions at the moment. So please go ahead.
Great well, thank you very much operator and.
Thank you, ladies and gentlemen, again for attending this.
To the results and.
Did you again for next year end results. Thank you very much and have a good day.
Thank you so much that does conclude our confidence for today. Thank you for participants you may all disconnect speakers, please container to standby.
Yes.