Q2 2021 Endeavour Mining Corp Earnings Call
Ladies and gentlemen, thank you for standing by and West Coast and the room mining Oh, 2 and entering 2021 restaurants conference calls.
At this time all parties to pump on at least an only mode.
After management's presentation, there will be a question and answer session to ask a question. During this session you will need to press star 1 on your telephone.
This conference call He's bakery carton and task of the Covid the head of and divorced website Tomorrow I would now like to hand, the conference over to the management. Please go ahead.
Hi, everyone I am Marcellino, Vice President strategy, and Investor Relations and I'd like to welcome you to our Q2.2021 results webcast on the call I am joined by Sebastian Mark Joanna and Patrick before we start please note the usual disclaimer.
Today's call will follow our usual from Sebastian as Rhonda will start by discussing the Q2 operational and financial highlights Mark will then walk you through our detailed results by mine and finally, Patrick will give you a brief overview of our half year exploration results, we will try to be as quick as possible to leave time for questions at yet.
Now I'll hand, it over to our CEO Sebastian to walk you through our Q2 highlights Sebastian.
Thank you Martino, it's definitely been a busy year, so far and we have achieved several important milestones, including our LSE listing back in June to recap the quarter I would summarize in 1 sentence with that had a strong business performance, which has underpinned our ability to deliver access shareholder returns.
And you'll see on the left Starbucks delivered record operating performance with production up 18% compared to Q1.
We produced over 400000 ounces during the quarter and that's an annualized run rate of over $1.6 million ounces. While this year's guidance is 1.4 to $1.5 million ounces.
As a result, we are on track to achieve the top end of our production guidance and our cost out is on track.
Strong operating performance is of course translated into a very robust set of financials operating cash flow increased by 44%, 45% over Q1 to reach roughly $300 million in there.
Our adjusted net earnings nearly doubled to reach roughly $180 million. So yes, we are generating a lot of cash and we are allocating that cash to continue to strengthen our balance sheet exploration growth and of course shareholder returns.
Wheelbarrow reduced our net debt this quarter with a leverage ratio now standing up near zero. This put us in a very strong for us a good position to deliver excess shareholder returns.
This started earlier this year when we paid a maiden dividend of $60 million for day 2020 fiscal year and today, we are pleased to announce the dividend of $17 million for each $1.21.
Many of them commitment for this year is $125 million. So as you can see today's dividends demonstrates our intent to pay more than the minimum.
In addition, given the attractiveness of our stock price, we have been actively buying back our stock since the program was launched in April to date, approximately $70 million has been per chase and we intend to keep the program going as long as we see our share price undervalued.
This cash flow also allowed us to continue to aggressively explore with $50 million spend this year already and given the strong results, we will be announcing in the coming weeks I can already confirm that the group is on track to deliver again over 2.5 million ounces of indicated resources. This year, thanks to Patrick and his team.
Moving to slide 7 you can see our key performance indicators tracking through the year to date safety performance has continued to track well ahead of our industry peers and we have enhanced several safety programs with the ultimate goal of zero harm.
Despite being busy with corporate activity during the first half of the year, we are very well positioned in terms of production related to our target for the full year.
<unk> to date has put us well on track to the top end of our guidance range with the inclusion of 1 in Salvador and Massawa for a full quarter, having a positive impact.
Similarly, all in sustaining costs are on track and during the first half are in the bottom half of our full year guidance range.
On slide 8 you can see our production and all in sustaining costs.
For the past 5 quarters with the consolidation of <unk> for the full quarter.
We've had a strong improvement in our production, which is up 18% as well as solid performance on cost controls.
Portfolio moves over the last year have had a clear benefit with production up by more than 2 and a half times, while unit cost declined by 9% compared with the prior year quarter.
As we look to the individual contribution of our operation you can see that ETE Hyundai income all contributed positively compared with Q1, we saw an anticipated decline in <unk> due to grade sequencing, while manner was essentially flat. In addition, we had the full quarter consolidated benefit of sub solar Massawa and when you.
On slide 10, I'd like to draw your attention to how our results compared with the first half of 2020, not only in terms of production and all in sustaining costs, but also in terms of assets and geographic diversification.
Our business has changed significantly with the left by representing our general portfolio and the right <unk>, representing our current portfolio.
We produced 433000 answer as more ounces of gold while all in sustaining cost declined by $56 per ounce not only that our portfolio is well diversified with 7 different operation across 3 different countries with 1 flagship mining each of those countries with some other line in Senegal.
<unk> could you and Hyundai and book you know.
On the following slides John I will take you through our financial performance in more detail John.
Thanks for that and moving to slide 11, our all in sustaining margin has continued to trend up right.
Combined benefit of increased consolidated production reduced all in sustaining costs and a modestly stronger gold price have resulted in a 19% increase on a quarter over quarter basis.
With the prior year quarter, all interest any margin has increased by more than 250%. This is due to stronger production at our legacy mines as all of their acquisitions as kind of how I'm trying to ask.
On Slide 12, you can see the trend of our operating cash flow, which increased by 51% over Q1, 2021 and then more than 400 per cent compared to the prior year quarter.
When looking at this metric this is our second best quarter ever following a strong performance in Q4 of last year, where the gold price was roughly $50 per ounce higher.
Our Q2 performance is not fully representative of the operating performance of the company due to seasonality of our tax installment payments, which are always higher in the second quarter of the year.
As such moving to slide 13, we have tried to illustrate a few of the key factors behind the variance in operating cash flow between Q1 and Q2.
The waterfall chart starts with our Q1 cash flow of 198 million.
We then see that the largest portion was driven by an increase in gold sales as noted earlier in the presentation.
The second quarter is when we normally pay most of our corporate income taxes, leading to the outflow for taxes paid.
We also benefited benefited from an inflow and changes in working capital of $14 million, while last quarter, we had an outflow of $58 million, which was driven primarily from net working capital acquired in the triangle acquisitions.
We also got some modest help from the gold price in the quarter for reference we had put a few details on the right of the page and of course Theres a more fulsome note in our MD&A.
On slide 14, we show our net debt position has continued from trade since the start of the year.
We are now sitting at a very healthy leverage ratio of 0.07 times net debt to last 12 months of adjusted EBITDA. Despite absorbing the taronga debt as well as repaying nearly $120 million of growth.
Our cash balance remains high at $833 million.
We reduced our gross debt during the quarter by $120 million and we will assess opportunities for further reductions given our large cash position.
Slide 15 illustrates the strength of our balance sheet, despite $59 million of buybacks during the quarter, we have been able to reduce our net debt down to the $77 million and our leverage ratio down to 0.07 patents. We have demonstrated a steady trend of debt reduction aside from Q1 of this year, where we assumed $332 million of net debt from triangle.
In Q2 alone, we reduced our net debt by $85 million and our gross debt by $120 million.
Moving to slide 16, we have a detailed breakdown of our net earnings for the past 2 quarters at the bottom of the slide you can see a 46% increase in our adjusted net earnings per share from continuing operations compared to the prior quarter as usual I won't go through every line here, but we'll address a few of the most significant items.
Earnings from continuing operations increased due to stronger production the full consolidation of the trying to assets and a slightly better gold price well costs have remained in check.
Corporate costs and acquisition and restructuring costs were higher than usual due to the heightened corporate activity as you are all well aware.
Current income tax expense decreased relative to Q1, despite the inclusion of the new mines required for the full quarter due to adjustments related to the prior year taxes upon filing of our tax returns as well as a decrease in taxes spent tax expense in the quarter based on the lower effective tax rate on the company's taxable earnings in the quarter.
Overall this translated into net earnings of $149 million and adjusted net earnings of $182 million.
On Slide 17, you can see how our adjusted net earnings per share has trended over the past several years.
Overall, we are very pleased with the trend here and we made more than 9 times as much per share in Q2.2021 relative to Q2, 2019, which is quite remarkable.
I'll hand, it back over to Sebastian so that he can probably comment on our shareholder return program.
Thank you Regina moving to slide 18, before discussing our concerns dividend as we have said today I would like to reiterate our commitment to shareholder returns and remind you of our all of our new shareholder returns framework that we launched earlier. This year, we are targeting a distribution of at least $500 million over the next 3 years minimum.
Golar remains about 1500. This is aligned to our expected production growth. So we are rewarding shareholders with a growing dividend growth in nominal terms and of course on a per share basis.
As you can see on this chart a friendly shareholder return program is very well positioned across senior gold peers from a yield perspective, specifically when you some of our dividend and the active buyback program.
To be clear our intent is not to compete with Russian gold producer or single mining companies will either need high yields to attract investors or do not have growth potential to invest in their portfolio.
Before handing it over to Mark just a quick word on the U K listing which was recently achieved this was a large milestone for us and we expect to start seeing the results. Once we once we are included into the FTSE index and the MSCI indices.
Before discussing UK indexation I wanted to acknowledge our deletion from the S&P <unk> composite which occurred mid June while we didn't expect this to occur we were pleased to see that the outflow provided natural liquidity for UK and European long only funds in fact on the rebalancing date, we traded approximately 10 million shares.
Share price still finished up.
Not that this overhang is completely removed, but it places us in a good position to benefit from the expected inflows related to FTSE indexation, MSCI, indexation, and which are expected to be larger than the S&P and tier 6 completed outflows on.
On this page you see our expected pathway to indexation as we didn't expect our liquidity to shift to the U K, we decided to re domicile the company to the U K. This allows us to have a very low liquidity threshold to be eligible for the indexation.
I will now hand things over to Mark with currently onsite that GT and it will go through the details of our operations on a mine by mine basis.
Mark over to you.
Thank you Sebastian and Hello to everyone on the call.
As Sebastian mentioned I am currently on target to spend some time the day, our general manager.
And these children, who have put together a fantastic Chris.
But more about shortly.
I'll begin the operations from EBIT dollar Massawa, which we acquired from <unk> in February 2021.
We transferred out General manager, Chris Sorry from 1 day to save a dollar in months and he has settled in very quickly to the new role.
There's a great team on site.
The transition will put again, a strong first half.
Production increased this quarter compared to Q1 due to higher grades coming from the Sofia mindset with the <unk>.
That's our area now contributing all of the mill feed which is expected to remain the case that reminder per year.
On Slide 23, you can see an overview of our ongoing phase 1 expansion, which is well underway.
The purpose of this expansion is to install the gravity circuit increased late President's time and increase the carbon management better handle the Hyatt and sell all the existing CIL plant.
The project is tracking ahead of schedule and the additional electro winning sales is now in <unk>.
The DFS for phase II is underway and on track for completion in Q4.2021.
As a reminder, this space, let's say the construction of a new bio oxidation processing claims to treat the high grades refractory all from Massawa.
On slide 20 for some reason pitches highlighting the good progress we are making the price went up price.
Starting at the top line.
You can see the additional electronics.
And the gold grade.
In the second picture in the top right you can see the new carbon regeneration kiln, ladies and so.
The bottom left you can see the infrastructure for the additional asset Bush and elution column.
And I'll ask whether you can say, they're all steel segments of the new Leach tank, which eroded together in situ 1 strikeout for another until the tank rates of such a guarantor.
Okay, where production increased significantly this quarter over Q1.
The key contributor to the group's strong quarterly performance.
Our new general manager alone has already proven to be a great replacement for Cristal and has a strong non background.
The sharp increase in production was attributable to higher price this price and recoveries due to the increase from the proportion of park right oxide will be carried from.
We started the benefit coming from positive grade reconciliation in some of the highest rates on.
Processing performance was also very good.
Daily throughput.
This resulted in a strong cough and put some day on track from the top huh.
Full year production guidance.
Turning to slide 26.
If you had a similarly strong performance and is on track to achieve the top half of its full year production guidance.
<unk> was a busy quarter with the successful transition from INR 2 contract money.
In addition, the project team completed the third will rise on the TSA.
So we agree with the operations and the whole road absolute flow.
Construction of the Leach tank to increase Switzerland on account of the highest throughput was also had commenced.
The team has been working to life in additional mining areas too.
<unk>, which has paid off with higher production either the second quarter as the average price described and gold recovery in price.
Yogurt force, mainly from the day invested 2 pits, which are both higher recovery.
Recovery rates increased proportion of the uplift in the blades it was lower than the previous quarter.
Looking at the full year, but we expect price decreases we expect it to in the Blaine we are planning to commence mining plant, which will see oil production in the last quarter of the year.
Moving onto <unk>, which has now completed its third full year sales from.
Quarter since the race out of Montreal price since last year. Following a strong Q4 and Q1 production day climbed in Q2 as a greater focus was placed on life's extraction and mining was constrained to lower criteria.
In contrast during the previous 2 quarters production was focused on mining of the highest right overall during the ramp up of the mining fleet.
<unk> General manager of Banca <unk>.
He's done a great job to ensure the SMTP and mining contractor.
Now with the increased mining volumes to catch up on the shortfall from launching.
Mining extraction activities continue to focus mainly on the west pit.
With the new size of the pit.
To the north commencing as well.
Are you stripping activities continued in the street.
The mining sequence will continue like this for the remainder of the.
Mill throughput is expected to remain broadly consistent with the first half along with average price described.
Recovery rates are expected to decline slightly due to the yield characteristics.
All right of the TSA was largely completed by the end of the quarter.
Overall volume grew remains well positioned to meet its full year production guidance.
Moving to matter on Slide 29, which is also on track to meet guidance for the year.
Based on our robust top line performance driven by strong mill throughput and grades.
During the quarter production decreased slightly due to a reduction in average price hit stride, which resulted from the day trades and the proportion of ore from the higher grade underground mining.
With our focus was on development and back filling of stopes.
It is worth highlighting that following a detailed review of the 1 mall sales fall cutbacks economics and given the success of the underground. The decision was taken to full guys. It makes cutback and rather develop the line is an underground operation.
We expect this to start in the coming months by.
By compute mining will continue at -8 of which Tom but 1 underground.
We reached production level.
Matson, who has been a.
On line.
Great job to refocus the team improved operation efficiencies and reconfigure the operations away from.
Good morning for a period until some of the satellite deposits are proven.
Patrick will discuss in the next section.
Moving to 1 of them now.
On a full quarter basis production remained relatively stable at higher throughput offset the lower grade.
Olson force, mainly from the North Valley, North and not really tough mining areas.
It was supplemented with all from Sephora for mining.
Mining commenced earlier this year.
Tons milled increased following planned maintenance carried out in Q1.
To increase mill availability in Q2.
The more frequently with similar to Q1 with transitional rule and a 60.40 split between outside interest.
Whole Ajay 1 zone has been that the months commissioning and has done a great job may be retained through the transition from touring to endeavour.
Ensuring that the mining operations take price for the processing plant, which is running well above nameplate.
Given its strong half 1 performance when non is well positioned to meet its full year guidance.
<unk> is expected to continue.
Not really sales and the foreclosure piece with significant waste development continuing throughout the year.
Construction of the second Philippic CSF will continue through 2021 and will be completed in half 1.2022.
Turning to Slide series Jamba has also had a solid quarterly performance, placing it on track to achieve full year guidance.
The economy is the smallest month in the growth and a runny heap Leach Adama at GM has done a great job in making these things through.
These efficiencies reduce costs and continue with advanced grade control drilling around the pit to extend mine life.
Production increased during the quarter due to the higher price decks. Thanks to some higher grades coming from channel, which also had a positive impact on recovery due to second the highest proportion of all from the same day.
Looking at the rest of the year mining activities expected to flow from the <unk> free.
As a result prices and recoveries are expected to be lower.
That price is expected to decrease in Q3 due to the wet season before returning to normal levels in Q4.2021.
Before handing over to Patrick I would like to take you through our development projects, which are all progressing very well.
I've touched on the set the dollar Massawa phase 1 and 2 expansions earlier.
Price 1 is on schedule and we expect all of our packages to be commissioned by the end of the year.
The <unk> is also on track to be completed by year end.
It's been a crazy DFS is progressing well.
Metallurgical and geotechnical tests completed during future.
The mining payment is expected to be awarded shortly.
At the same time, our exploration team doing further drilling unless you get your resource which will be the mining for this project along with follow up drilling when we bought <unk>.
<unk>, who will talk about later.
At Kalana optimization of the study continued with a particular focus on investigating all sourcing as a method to produce to reduce the volume of water prices and increasing the fakery.
The <unk> remains on track to be completed in Q1.2022.
As you can see performance across our operations has been strong in quarter 2.
<unk> is on track to achieve its production and all in sustaining cost guidance for the full year.
This is a testament to the overall quality of our portfolio capabilities and credit rate from the operating team.
With that I'll hand over to Patrick.
Thanks, Mark and hi to everyone on the call are you can see on the slide 33 has been a really a very busy so Mr Force. We there were a whole more than 1000 meter all believe the coastal properties to date in 2021.
<unk> towards total spend of over $15 million.
We saw all year or exploration they fall from booties to boots today.
You mentioned by say about yeah.
We should be on target to add more than 2 and I'll give you an answer from you indicated on sales in 2021, which is close to our target.
Total weighing on Walmart, if you count the exploration success since the beginning of the year.
The data the resource estimate.
I expect it to be published in the ETE will do how about myself.
So I feel pretty cool.
Going on the slide said before talking now with all new flagship operations trouble, there that must sell well.
We are very excited by all the remaining exploration opportunity we see overall it is clear that you leased.
Gulfport book, we are focused in 2021 all how're.
Oh, you don't keep fighting it you shouldn't normally pottsville targets within the muscle wall.
We chartered catered less than 30 kilometers away from the sell below that.
In the first semester always talks will mainly focus on 70, knocking us off here and those are all undeveloped.
Especially non another <expletive> Dolby target.
Good day changes so far in 2021, we have been.
Quite successful and we expect.
So office teammates for all of the H 1 the device to exploration target to be published later on in 2021.
So if you have noticed it was equally initially focused on delineating its previously I don't see.
Why not sell them extension when you say extension is being tracked and he is now extending over the 800 meter for longs heightened is 1 of more than 15, you tell why I remain open.
So they didn't conducted also.
The sudden deposit focused on increasing the formerly known 500 meters.
Quite line will go up 900 meters.
On the E.
2 the mental book.
The police.
Find their day initial bleeding, mainly for peaceful and expanding in converting per use can know infill the resource defined in 2019 into indicated resource in 2021.
Then you have to CEO slides.
Slide with the main call 6 young issue from the main targets that have been otherwise.
So with that I'm not so sure.
Deposit.
Due to time, our we'd keep overall, but can you just hold the book first of all he used to it seems a good quality of EMEA like they shouldn't income build.
These depots.
Reported.
On slides LTA at 1 day.
O H 1 exploration April will mainly be focused on moving the results mambo.
And the intersection between the Cali, GAAP and Jerry Seinfeld, where all initial in previous exploration they talked to eat not yet close let me Alization extension.
We discussed the newmont will cover in more detail on the following slides, but it must be the Hilton that additional exploration in the caveat that.
So scaffold during the first semester.
From pasted on delineating Nuomi.
Extension and we'd be the subject of additional exploration. Therefore later in 2021.
On slide 39, you can feel that the drilling results at the mobile talk yet of user generated significant internal excitement.
It may be considered all of that as a signal to us.
No.
Generally speaking mobile is located in a very <unk> sitting at the boundary between organic and the Guardian.
Pleasure.
Like many of our largest trend now extending to little more than 800 meters. We are spending the day they expected toward fully extended the strike length to over a 1 to 1.2 kilometer.
They shouldnt appeals to be see open from the northeast southwest and don't show a depth.
It has been the only test down to approximately 1 out all the detail.
Hey, Paul bleeding into the second half of the year, we've got let's see another extension of marble and also on your shoulder a maiden resource is expected to be published before year end.
Slide 40 shows a section called the northern part of the deposit we're all quite taken a very continuous and utilization okay.
We need to call your.
In Korea.
While on Slide 41 section B show is located in the South southern part of the mobile deposit at the boundary between all night and day monks equal techniques wherever near organization also appear to be somewhat see no north but more importantly, much higher grade as shown for example in the hole.
Sandoz and piece them.
Moving now to <unk>.
Oh exploration self so myself a software mainly focused on the red blood cell Saturday.
<unk> no.
No other new discoveries name Westwood tool on the dark blue deep on Youll, probably get an extension and onshore on the allocators of the junction between the bucket 2 and we'll tell people.
Full jewelry equaled at all he is the application of the award Javier lasers too aggressively.
The west flow towards target, which is located immediately below there.
West waste dumps.
Led us to very data makes sense significantly is the discovery of a series of continuous high grade mineralized lands located in the immediate proximity.
Keep it up.
EBITDA as shown in these please on free going on aggressively and these new discovery, which is still open to the north south and ultra depths, we gather new maiden resource at least before the.
At the end of the year.
Very positive.
All true.
So conductor adept adapt Lou and these clearly confirmed that mineralization continues according to our model and now extend at least.
We don't offer.
Also the deepest QEP line.
Probably nearly drilling contractor that the junction between buckets, 1 wholesale deposit confirm the continuity of yoga hole mineralization.
You're seeing between these 2 book gotten type deposit.
The global continued deal.
All around the world.
Joey you can clean closure.
Yeah.
On slide 43.
We closed the profile H, 1 extra dollar share like GDT was going to look like out here. We saw 1 of the best City Index.
Net blocked up.
I forget.
It looks like the in force he has been extended.
Holly and that they are liking its colson.
Expansion outside our 2020 resource pit design and Youll pull together would probably use the school he has gone from being positive and concealment significantly extended.
On slide 44.
We are.
So let me just say shutting off all success in extending high grade mineralization laterally.
And that's.
They'll take centuries.
They won't say team is a possibility of extending all please on planned peak lots of Harley and non food in the world and even in that bring us to consider or potential non dog Honda sighful, He's really a key she'll slipped too.
Now going on the booking up I saw on the bogie mining.
The exploration was full crews in the first am I still on the very near mine targets, yeah. They allocated in between the east and the west pit and <unk>.
The southwest southeast and the northwest net to Oreo.
That's not true northwest.
He would mineralization was either.
In total 1 which is a higher grade mineralization extending over 700 meter and remaining open to the north.
We also had higher amplified some interesting mineralized trend towards houses to sell.
<unk> west flank and volume.
North West and we'd focus on extending lakeville on these and evaluating additional in total resource on those targets.
Jumping now going on.
Combined the slide 46 briefly interest rates some of the best predictor of intercept whole mall H, 1 breeding program on Google. Unfortunately, due to time I'm going to have to jump over all of the slide.
Without too much detail next we moved quickly to tackle the mining where we have been very active during the first semester on slide 47, you can see the targets that well I believe.
Yeah, Julien each 1.
On the Virginia all mapped.
That is also exhibiting some.
Some will fall basically into a simple thing that builds all Julien.
So much though.
The exploration they coped well mainly focused on sales of all open pit oxide targets such as the for example, 1 and evaluating and Doug I'll talk yet at Schuh and yesterday.
I will discuss the bleeding at my old on the next slide but before I do so it is worth noting on this slide that you put all the leading convicted that true no interest.
Hi, great.
Gold's adjust centers with planning the long development.
On slide 48.
The income due to the biologics.
Ali you extended the mineralization, which we need the exploitation license. He is not made of 2 east and the Western U S highlights bunches mineralized trend.
Also now extend to the southwest, Louisiana, enabling exploration license.
On the slides Cookie line.
We are each old shows a cross section cause there's often part of the mineralized land would you simply restating the tool because it dipping he's still on the West Elm Mull loved me, though why like why should that remain.
To be fully delineated.
Moving to when you own on slide 50.
We are a global macro volume really shown that exploration licenses.
Within the 1 you are here showing the entire area well we'd be free.
We achieved during 2021.
The exploration really only started during Q2 at what Neil and the team right now speeding up and focusing on the milk really isn't often nobody sells deposits and total getting the continuation of net realized like shale between the pits.
So they shouldn't equal in the second half, we'd like to see day rates.
Kelly.
And we continue to 4 crews from the extension of the Nook media organization or the wall. The continuation of the fourth quarter deposit in testing also so it makes sense from these insights that we get when they saw the bleeding at value of supply keeps target surcharges catching up with and the new rule.
We don't fully completed later this year.
Slide 51 show an interest to you of course section of not really south we saw them interesting mineralized zone Kigali days on these exploration and I always keep although these wholesale channel showed you 2 type concept moving.
Now on slides 15 through the first half of 2021 exploration work was implemented as backfill fan out advanced grid control type drilling as mentioned by Mark navigating the he made yet the extensions of the Q1.2 mining the authorization, that's killing off and accelerating yeah I'm not sure all income.
Felicia into the queue onto in very short film mining plan.
Slide 53, we are moving now to 50 coal, which was again I'll just go and see the exploration focus Julien H, 1 and 2021.
The map to the right of the page.
Gates older. So it may still bleeding.
In small yellow Sheffield and highlight some of the best in selected intercept on golf dog.
Since the beginning of the year unlucky with more than 50000 meter.
The arena.
Having been completed since the last day swaps a day.
Last year and updated resource estimate is expected to be published in late 2021.
That's a small part of the exploration program focused on converting king some of the remaining infield resources into indicated resource, but really most of the activity really focused in the area located in between Lucky Center on a luxury good Nox deposit.
As a result of east side, I see drilling activity being excuse me successful and they will say to the continuity of the mineralized system with your feelings of shallow Sip bothered them stacked.
We have a lot of these lenses.
Previously located outside of the 2020 results.
All these newly disclosed El Nino organization, we know be included in the new resource estimate, which we can support the ongoing DFS.
And finally slide 54, you read more or less a north south section of lay off that day was beaten them see the leader in between left and center, you're stating that the extent of the newly discovered mineralized lenses.
Clearly located now outside of our previous 2020, you always feel free to chose.
It seemed not Swiss of this action.
And now I'll say best Yeah, but do you.
Uh huh.
Thank you Joanna Thank you Marc and thank you Patrick for your overviews.
As you can see with this quarter's results compared to a year ago. We now have 4 more complete investment proposition with a high quality portfolio, our strong social license to operate a healthy balance sheet robust organic growth pipeline and a friendly shareholder returns program. Overall, we firmly believe that having a resilient business and having a disciplined capital allocation framework are key.
To be able to deliver long term value for shareholders.
And finally to conclude on slide 16, you can see our key upcoming catalysts, which we have described throughout the presentation.
With that I would like first to thank my team for this very solid quarter and in particular Mark's team in our Gms, who have been pushing on all fronts and keeping the house in order, while some of US were busy on the corporate agenda.
With the listing and the integration of semi flow in turn get people and assets I think this quarter is a demonstration that the integration is now completed and that we have strong foundations for the future.
Last but not least thank you all for dialing in and I will now open the line up to questions.
Thank you, ladies and gentlemen, well now begin the question and answer session.
A reminder, if you wish to ask a question. Please press star 1 on your telephone anyway from name to be announced please standby and what if it comes to Q&A queue.
I'll take a few minutes.
She used to come to your request please press husky.
Our first question came from the line of Hot topic from Credit Suisse. Please go ahead. Your line is open.
Hi, good morning, Thanks for taking my question.
You reiterated the 2021 cost guidance.
But I didn't hear anything and I apologize if I missed this but I didn't hear anything on inflationary pressures, which is kind of the most common theme. We're hearing from some of your peers, maybe talk a bit about.
Are you seeing any labor wage inflation or any other inflation and how we should be thinking about cost maybe in the second half of this year. Thanks.
Thanks, I had I mean, we haven't commented too much on this because we.
We don't have that much impact so compared to our peers I mean, we probably have a bit of a different situation.
I think the fact that we went through a massive renegotiation with the <unk> acquisition, and then with the <unk> acquisition or our main key contracts on the supply chain and logistics either.
We have locked in over the last few months as you know contracts, which are lasting 6 months 12 months 18 months 24 months as with minimum increase in some cases, you know even some some reduction.
I gave the example of cyanide.
We've locked in prices for 'twenty, 1 and we've got even a reduction in 'twenty 2 of several percentage.
So we don't we are not seeing yet you know inflation cost rising.
The 1 which is obviously important that we keep monitoring is an affluent cheerful depending on where the oil prices and the impact from slated in countries, where we operate which depends a lot of the taxes that we're paying in country.
The only 1 which I would be careful you know on our side is to see how we will be impacted on capex for 2022, when we will finalize the DFS in particular for the next 2 projects that will go into construction so mainly.
Some other MSR, what phase 2 expansion and also Citigroup and obviously, we would expect some increases compared to our initial thoughts due to steel prices.
But at the same time, we might see a bit of.
We might see steel prices to start coming off a bit towards the end of the year. So we'll wait to finalize the DFS and come up with the real Capex numbers for those 2 projects to comment on the on the inflation cost or not.
That's very clear thank you.
Yeah.
Thank you for your question. The next question came from the line of Mr. Habits from Kushner Bank lets go ahead yeah.
Thanks, operator.
Congrats Sebastian in Endeavour team on a solid quarter in a clean beat.
Just a couple of questions from me.
The first 1.
Sebastian Youll produce about 756000 ounces in the first half implying around 740000 ounces in the second half.
That's according to the top end of guidance now in regards to your outlook provided on your key mines looks like second half is going to be better than the first half are you just being conservative on guidance or am I missing something here.
[laughter].
Rules.
On the on the under promise over deliver.
So I think it depends on a lot of parameters.
First of all we know we pushed a bit in Q2 because.
We were also lucky to have a rainy season that started later than the year before.
So when this happens this is where you want to push as.
As much as possible because.
Then the impact that you can have in the future you've already back then I would say as much as possible answers.
So rather than having pressure on big Q3 and Q4.
We have now de risk I would say.
The production profile I mean for the full year. So that's that's the positive side.
We have I mean, we don't know how the rainy season is going to be interest free. So we tend to have depending on when the rainy season starts and how long. It goes for we tend to have lower Q2, and lower Q3 versus Q1 and Q4. So we just from Q2 its again the risk of Q3.
And the other element is.
You should be producing as much as you can when gold price environment is positive and clearly with gold price around the 1800. This is where you want to be.
Producing a lot so we've been pushing and what we could.
Q3, and Q4 will be good quarters, and I have no doubt.
And therefore.
If we can go until the.
At the end of the guidance you know what I think are in the contract will be done.
And just in terms of the rainy season.
July fared out.
Is it kind of normal range or is it above average total average anything any comment.
Mark was at ETE could comment.
And our lives.
But so far it's been it's been pretty good.
On the positive side of that.
But.
What I am saying that might tell me that he is under heavy rain.
Yeah, sorry.
What I would say.
Had a pretty good July actually it's lower than normal whereas.
In between effects of its thing.
So yeah.
Yeah, it's actually good to see.
Savings side, you know, we don't want it to be relying too much.
So you guys are the guys have managed well through July and as I said, if he seems to be that lead flow.
On the way.
But always we are cautious because sometimes what we see is.
With a late start in the rainy season. It can mean also that the rainy season goes over into part of Q4. So.
Let's let's be cautious I mean, it's good to have this significant advanced compared to.
Our target for the full year, which gives us room to to deliver the high end of the guidance.
Perfect makes sense.
Thanks for that and just 1 more question from me regarding vertical.
Going forward with the release of the feasibility study by the year end.
Patrick.
So building out these new targets and new.
Zones and continues to expand political.
How should we be looking at the <unk> study I mean in terms of the cut off on the exploration obviously it looks like this.
It could be a lot more upside on on Patrick show them, what we're going to see in a <unk> study.
Am I on the right track on this.
Well the way we're looking at it is the reason why.
We've been pushing and <unk> has been continuing to drill is what we need to be clear is on the size of the plant.
For the DFS.
You might recall.
The <unk> story.
Started with.
PFS.
At $1.5 million Zone, then we move to 2 million tonnes than 3 million ton loans under construction for a 4 million tonne plants and ended up with a 5 million ton CIL plant.
So we just wanted to get a bit more information, obviously, we're not going to complete all the drilling programs that we wanted but we're going to take a view at the end of the year with the project team and with Mark and Patrick on based on what we see what's the right size for the plant.
And we always said that what endeavour projects looks like is a 200000 ounce annual production for about 10 years at 50.
50 or below.
<unk>.
On track on that so, let's let's see the results at the end of the year.
Okay. It sounds good that's it from me right now.
Congrats on a good quarter.
Thanks.
Thank you for the question. The next question is from the line of any testimony from CIBC World markets. Let's go ahead.
Good morning, Sebastian team, Thanks for taking my call.
First off congratulations on a really solid results this quarter.
And I guess 2 questions on <unk>.
Operations.
Kind of hitting the top end have been already asked by all day, So I'm just going to stick to the financials.
Restructuring costs that you had this quarter.
And the depreciation.
Reevaluation again for a much the trend acquisition could we expect that to now be behind us and we won't see any more restructuring costs or any kind of fair value adjustments at this stage.
I'm throwing up sorry. Thanks.
The restructuring costs, we would expect to go down significantly or being nominal moving forward because we like to complete the majority of that with the completion of the trend acquisition and the completion of the London listing and with respect to the fair value adjustments and the depreciation adjustment, we have not yet finalized the triangle purchase price allocation, so that might happen that we expect that to happen in Q3. So there.
It could be some minor changes, although we don't expect them to name a channel similar to <unk>.
What happened this quarter with the Finalization of the standard of LPTA.
And then just if you could just provide joanna a little bit more clarity on.
What that adjustment was legit, just regards to the inventory rather so it was that I.
I guess I'm, just just related to things that were on the pads or was that actually.
Sort of related to the actual sort of from a physical.
Physical assets.
Do you mean do you mean, the gold inventory changes or.
It just it just said your depreciation adjustment was related to inventory. So I'm just I'm just not quite sure. If you could provide some color on what that was related to.
It's related to gold inventories.
From 1 quarter to the second 1.
But.
I'll ask Martinez to call you back on this with the details.
Okay. That's it from my questions. Thank you.
Thank you for your question. The next question is from Kevin Mcveigh from Canaccord Genuity.
Please go ahead mining everyone.
So you've got the Sabadell on Massawa feasibility study.
Expected to be done by the end of the year and just some light of Patrick's comments around a new resource update there.
Should we expect a reserve and resource update with that study or is that sort of too late to make the cut for the DFS.
Yes, you should expect definitely some updates on our resources and reserve.
Along side with the with the DFS Kerry.
Okay, Great and then maybe just on the balance sheet, you've got over 800 million cash in but still quite a bit drawn on the revolver.
I'm wondering any color on why keep such a high amounts drawn on our credit facility.
Sure. So we we said as part of our capital market day that the objective was first to close.
Integration of their ongoing semi flow into the lifting and we know we are now ready.
To work on.
Credit ratings for the for the company and based on that to restructure the balance sheet. So thats something that would happen in the second half of the year or beginning of next year.
Okay, Great and then maybe just 1 for 1 more from me I know you mentioned that manner going to sort of.
100% underground just wondering what that is going to look like and sort of how quickly.
It is expected to happen so like sort of the underground currently I think its only about a third of the mill feed so should we be expecting the underground to expand overall or is the plant can run at a lower but higher grade level going forward.
Sure. So the plan and we're still working on it I mean, we completed a PFS and we'll probably provide I mean to the market with.
From a technical.
Technical reported data for momentum in the coming months.
But the.
The objective is to be able to meaningful NAV.
Do you want to open bid and transition to the underground.
The 1 underground alongside we see you on the ground you know should allow to give.
Good solid profile for the next 4.5 years 4 manner with about 100000 non funeral provided by each underground mines. So between 180 to 200000 ounces.
The oil production for the assets over the next the next few years. The objective through that is to give a stronger a strong production base is to allow in parallel Patrick's team to work on the exploration side.
Net in 2.3 years' time once all the key targets that we wanted to drill.
We can then decide.
Future of manner. So yeah happy to have a plan for the short term, while Patsy cash team, we'll be drilling heavily in the area to get us a better picture on the future of manner.
Got it got it that's helpful.
Any thoughts on 1 day all in sustaining cost there would look like for a range.
Not at this stage carry I mean, we've just completed a force PFS I would wait for the final results probably in September October. So I guess, we would provide visibility as part of our Q3.
Alright fair enough. Thanks, a lot.
Thank you for your question. The next question from Wayne Lam from RBC.
Go ahead.
Hey, good morning, guys.
Just curious at Massawa.
In terms of the mining from the various deposits how long do you expect or to be sourced solely from Sofia and when might you begin stripping in sourcing water from the central zone.
Anyway, Thanks, Mark do you want to comment.
Yeah sure I'll start.
<unk> insight.
Just as we were talking about the wet season, just as we finished that it started mining but leaving.
Moving onto onto SAP, a dollar yes.
Yes.
What we were looking at is starting up stripping and getting everything sort of just stopped mining in central zone at the end of this year, so that will become a production for each for next year.
And then we're also looking at the option of reach and maintain the 7 <unk>.
Next year as well.
Just to provide you know just looking at the longer term profile. So yes at this point in time.
Mainly.
It's also for you, but then it'll be all massawa.
We will have some sort of a dollar coming back in.
Okay got it and then.
Just with the exploration focus on the non refractory ore.
If there's significant exploration success and more oxide material found.
Would that impact the timing of the construction of the box plant.
So it wouldn't way and impact the construction I think it just gives us more flexibility.
To ramp up the <unk> and and make sure that we've got everything required. So that's why we are pushing on that front, but also because this will provide even more flexibility in the coming <unk>.
For 24 months.
Okay Perfect and then maybe just last question that book.
<unk>.
Just wondering what the driver on the higher security costs was this quarter and just wondering in terms of the grade profile.
Through the year as the east pit is kind of broad line, how should we think about the grades trending relative to the reserve grade.
So maybe mark you want to comment on the mining sequence from the grade and I'll just give a few comments on the security cost.
Yeah sure I think.
What room mining late last year, it was a non hog right pocket and we did.
We did bring some of that forward from this year until into Q4.
And while we're seeing the trend down, but we are but we are probably trending back towards the reserve right, which is what you would expect.
Basically through to the end of the year.
Yeah on the on the security cost I think it's more.
Mining of.
Standard cash out spent on the <unk>.
Infrastructure that were reinforced around the mine site and also some equipment for all the logistic, but so yeah.
Nothing nothing in particular, I mean, there too to worry about.
Just we continue to monitor closely the situation and we make any adjustments required depending on the environment.
Okay.
Okay perfect. That's all from me. Thank you very much.
Thanks Wayne.
Thank you for your question Where's the next question from Don Demarco from National Bank Finance. Please go ahead.
Thank you operator, and congratulations gentlemen on a strong quarter Sebastian 19.
Yes, I see the stock is up 7% on the LSE right now so that's a nice sneak preview of what we can expect in Toronto.
A lot of the questions have been answered, but maybe continuing with the theme of the rainy season.
Would you expect any any impacts.
At Sabadell Massawa from potential rainy season that we don't we know obviously ETE and Hyundai are prone to that but is there any risk also at that flagship mine.
Things don't I mean first of all I wanted to thank you because I saw in your sales mode that you were pounding the table with those Q2 sets of results. So.
Agree thanks.
Yes.
On the sub model on Massawa, not really I mean, the rainy season.
<unk> got a bit of rain over there but.
It doesn't have.
I would say massive disruption compared to where do we see it.
At ETE or what we would see at <unk>.
Probably the 2 assets, which are getting the biggest the biggest impact from the rainy season.
I don't know if you want to comment more than that.
No is the.
The rainy season is not as certainly not as strong.
From what I've seen and understand.
We will be okay.
Okay, Okay, well, that's encouraging I mean honestly sabadell on Massawa is a key driver.
Among other assets the performance you saw in Q2.
And just continuing to focus on Salvador Massawa from that we saw the grades this quarter quite a bit above the Sofia reserve grades of $2.7 so what should we be thinking about grades for Q3 and Q4 at this asset I know we've talked about there's been commentary about mining Sofia little bit Salvador coming into the end of the year, but put back in line.
But.
In terms of just magnitude of great to me it seemed like it was a bit of an outlier in Q2 and can we expect this to continue or will this ease a bit.
Sure Mark do you want to you want to comment from a great profile.
Yes.
We did have a very good Q2, we had some very non hard right.
Sophie and 90 day.
So we expect it to be not quite as strong in Q3, and Q4, but still pretty good.
Okay. Okay, that's fair.
Then of course, we're looking towards the end of the year, we've got the DFS from fifth protect our own kalina and so on.
What are you guys thinking about potential sequencing of development of both of these as well as the phase 2 expansion that Salvador Massawa like is it possible you could do all 3 concurrently or are or would it be sequencing and I know this is still subject to final go forward decisions on.
Following the release of these studies, but.
But what can you think about here your balance sheet. Obviously, you went to a very strong quick deleveraging in Q2 gives you some flexibility but interested in your thoughts as you build out your pipeline into the future.
Sure well I think the view is still it's still the same at this stage, Don which is.
2 projects in parallel is.
Good.
3 would be a sledge from management.
And would be also potentially a stretch for balance sheet no debt the balance sheet is not going to be strong but.
Unfortunately, I can't forecast yet.
Gold price environment will be in 'twenty, 2 and 'twenty 3.
I think that progressing to have this project in parallel and it gives us a first wave of organic growth.
Strong.
Preference at this stage for some other MSR why expansion phase II and for the growth towards Kalana.
Which gives us a second wave of organic growth after 'twenty 3.
With <unk>, having more time to.
Your line up and to get into a into becoming a full end of a project.
As a as I said earlier above 200000 ounce.
For at least 10 years and below a 50 all in sustaining costs. So this would give more time to work on Kalina and also more time to bring up the next greenfield project or to surprise the market with some <unk>.
Expansion at 1 of the existing mines.
The good thing is that.
What I like with this portfolio is that there is a lot of optionality.
We have now a clear next 5 year picture between the existing portfolio and the 2 and the 2 upcoming projects.
The next 2 years will be about.
Preparing the next the next wave of organic growth and and I think that will have again.
A few interesting options for the second wave.
Yeah, certainly okay, well, thanks for that that seems prudent.
Look forward to a congratulations again and we look forward to talking in Q3 and at that point should be in a cash surplus position. Thanks again, that's all from me.
Yes.
Yeah.
The next question is from the line of Lotion window from BSA Securities. Please go ahead.
Hello, everybody and thank you for taking the question.
Just wanted to ask about.
Some of the exploration stuff going on so so first of all on boondoggle.
Patrick.
I noted that you were able to.
Do some drilling at Gogo northwest now is that kind of outside of the.
Safety perimeter area and would that signal that.
Into the second half of next year.
The exploration program at Blue lagoon might be expanding.
Yeah, actually we've been drilling a little bit outside the fence.
The mining to the north.
Just a little bit, but basically in 2021, we wanted from finished Oh.
Very very near mine exploration on the beach and.
And those who are walking a little bit on the junction between the west pit and the top that he the on going along the path to the.
The West that's a force.
And yes, so as you can see.
We are working on defining our improved the security policy, you will be able to hopefully before the end of the year all stocking more August next true on doing some more exploration, let's say the COVID-19 CET called your mind, but at least outside the fence.
Great.
And then.
On the expected R&R update on $7 on the seller and it actually mambo in particular.
Do you have an idea of what the expected split will be between oxide.
Sulfide and both of those.
2 received it too early to say these kind of things. So you should take a simple that I must say well just remember that we we incorporated the assay itself says the new window at all.
In March and they still need a few months ago. So basically what we have been doing is we are sharpening in the polyol eating all the targets that we had in mind.
Right now we are quite a I.
I would say are aggressively working on the on Massawa, because if you look at the what we are planning the price trough. The bolger spending basically we spend less than that what we should all be just because the start of the project. The exploration of the project was delayed.
Too early to speak about some tangible book side on the.
Fresh.
Pall mall.
You know we have been working mostly.
Extending.
On the Mambo.
You are talking a lot on the mono.
All non booth.
So our model at 1 day.
Non both T mobile all at full force.
Just to what extent as much as we could and now we are only stocking you know twin fingering, so it's a bit.
Too early yet to say or what could be the percentage of oxide vlcc's equation. So on these deposits when they see it seem too early we showed all the old logs when we provision of data.
Sure.
Great and then the decision to go to underground.
At Kona, how does that going to impact the <unk>.
Or is it going to be a slight reduction in the total are 1 our reserve as a result of that.
No.
<unk>.
We didn't comment in detail during the.
Reserve that we have.
Published a.
4 at the end of 2020.
But in fact, we already.
2 accounts some reserves that were on the 1 open pit side in particular on the north part, which initially similar flow had plan.
2 mine and it was I think it was about 700000 ounces that we took out but we were able to add about a bit more than 800000 ounces of reserves for the underground. So those reserves already included and we did it on the basis of our PFS and <unk>.
As I mentioned earlier the objective now is to finalize all the studies and be ready.
For construction hopefully at the end of the year.
Okay, Great and then on the topic of.
<unk> plan chemical was quite excited about band 2 and I've noticed that Patrick hasn't been.
Particularly focused on dancing so far this year was that a conscious decision and what was the thinking around that and how are you viewing that asset.
Yes, exactly I think concho.
Conscious decision for 2 reasons 1 as you know we were extremely busy on.
Other areas.
Second we are clearing also all the permitting and.
Environment around around then too.
So thats something on the on the agenda for Patrick's team.
Later, this year and in 2022.
Okay, Great and then just 1 final question I wanted to.
He was asking about Paramount you'd mentioned some.
Some additional drilling success near mine.
Perhaps can you quantify.
That that success and what it might mean in terms of life extension extension or Bob or analysis.
March net margin.
Marginal and it doesn't change our view, which is that karma is non core and.
Each 1 was pretty busy for the corporate team on the integration of <unk>.
Taronga and listing.
So the team is going to be a bit more focus on H 2 on potentially divesting comma.
Excellent great job on the quarter guys. Thanks.
Thank you very much Wilson.
The next question from Mark Bentley from Shale zone. Please.
Please go ahead.
Hello Hello.
<unk> and team thanks, very much for excellent delivery in the first half.
Firstly I have a question concerning the possible index inclusion and then 3 questions concerning exploration matters.
The first day on the index inclusion.
Just wanted to clarify the liquidity test of 2 and a half basis points. If shares trade. It is that the number of shares traded daily or monthly.
So the test I mean based on the cutoff date was taken.
About 40, a bit more than 40000 shares a day.
Thanks, very much great.
Then the 3 exploration questions.
First of all the new discovery at <unk> west flow to them.
Where you've found some new mineralized lenses.
Roughly what depth. These licenses then my second question is you've stated in the results that you expect to add 2 and a half million ounces of indicated resources in 2021.
How much of that will convert to reserves.
Will more of that convert to reserves in 2022, rather than 2021.
And then the third question is what are your plans for exploring Golden Hill.
Sure. Thanks, Marc maybe Patrick you want to comment first on the on.
On the E T.
Yes.
Yes.
It's pretty simple there were some stocking at your face.
Some of the landfill basically swapping out the Beatles are waste them. So it was a big mistake about value.
Is are you still he called seem to like.
So we calculate the book.
Overall, I don't know exactly what would be the size, but it's.
Starting from the shelf phase down to.
But we could have a debate we found some continuity of mineralization. So we don't know exactly.
We didn't know are we thought we had more or less amortization you novel age of 2 or more.
More or less.
<unk> also fulfills the first question on <unk>.
Waste.
On the second 1.
The $2.5 million ounces of indicated resources are predominantly will be coming from the core assets. So when the ETE sub adela Massawa and further grow and <unk> Tec, our historical conversion rates, you know I wouldn't be expecting between 70% to 80% to be converted into.
<unk>.
And will that Reserve addition come in this year's reserve results or will it take until next year before that can be added.
Difficult to say at this stage because it will depend on the drilling campaigns in particular infill drilling that we would do in in the second half of the year. So.
What we always said is that at least we want to ensure that in terms of reserve that we will be adding in 'twenty..1 at least what we deplete. So you would be expecting at least $1.5 million onto the reserves added.
Thank you.
And then the final part was what are the plans for Golden Hill exploration.
Yes.
<unk> you want to comment on Golden here.
From Golden Eagle.
Same or would it just be the same issue non too.
He is located immediately.
So if you could only tell social from day.
So basically we are keying on evaluating the possibility to coordinate total mahalo.
Does it go to their needs.
That have been previously these codell.
And we are also planning to solar.
Where you can also more licensing issue.
Your line all that stuff as soon as everything we know about been cleared.
We'd be in action again on the good loans, but no tier total itself.
So much though.
Thanks, very much Sebastian Patrick that's very helpful.
Alright, Thank you Mark.
Thank you.
And the conference back to the management.
Uh huh.
Thank you everyone for attending the Q2 webcast for additional questions. We remain available by phone or email. Thank you very much and how does the rest of the day.
Net to conclude the conference for today. Thank you for participating you may hold disconnect.
[music].