Q1 2022 IAMGOLD Corp Earnings Call
Thank you for standing by this is the conference operator, welcome to they I am Gold's first quarter 2022 operating and financial results conference call and webcast.
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At this time I would like to turn the conference over to Graeme Jennings VP Investor Relations and corporate communications for Ion goals. Please go ahead Mr journey.
Thank you operator, and welcome everyone to the Iron Gold first quarter 2022, operating and financial results Conference call.
Joining me today on the call are very used to launch a chair of the board and interim President and CEO Daniele.
Danielle the Dimitrov, Chief Financial Officer, and Executive Vice President strategy, and corporate development, Craig Macdougall Executive Vice President growth and Bruno Lemelin, Senior Vice President operations and projects.
Our remarks on this call will include forward looking statements. Please refer to the cautionary statement included in the presentation under the heading cautionary statement regarding forward looking information and be advised that the same cautionary language applies to our remarks during the call.
non-GAAP measures will also be referenced on the call and we direct you to review the cautionary statements included in the presentation and the reconciliation of these measures included in our most recent MD&A each under the heading non-GAAP financial measures.
With respect to the technical information to be discussed please refer to the information in the presentation under the heading qualified person and technical information.
Slides referenced on this call can be viewed on our website.
I will now turn the call over to our chair and interim President and CEO My reason to launch it.
Thank you Graeme and good morning, everyone and thank you for joining US as you saw in the announcement last night has agreed to step in as interim President and CEO .
This appointment is a great honor and I'm very pleased to be here and look forward to working closely with the rest of demand Aikman team I am go.
Especially to navigate the challenges and opportunities ahead, the decision to come aboard was giving careful consideration.
The complexity of the business both from an operational and project development standpoint for two further management capacity is needed to bridge the gap until a search for a permanent permanent sea always completed.
On behalf of the board I want to thank Daniela for effectively leading the company through a difficult period.
In terms CEO . In addition to her role as President and Chief Financial Officer.
Each of these roles demand tremendous time and commitment and my coming on Board will allowed then you're allowed to turn more attention to investigating measures to increase the company's liquidity.
Since being appointed chair earlier this year I have been working very closely with Daniela and the executive team.
I just spent the weekend at Coty and was very impressed to see the ramp up of activities as the weather improved.
I am confident we will address the current near term challenges and no doubt we remain fully focused on our goal of becoming a leading high margin gold producer.
With that I would like to turn the call over to Daniela to take us through the events of the quarter.
And then you're allowed please.
Thank you very much my race and thank you again, everyone for joining us on the call today I know it is a busy day of earnings. So we will do our best to expedite our presentation.
Before I begin I would like to welcome our Reis as interim President and CEO as she mentioned she hasnt been actively engaged in the business since being appointed chair and we very much look forward to working with her in her new role.
Her proven strength and experience in operational and efficiency improvements and then project development bring important additional capacity and capability to the management team.
As we actively address that challenge as well for us.
Turning to the quarter.
I am gold delivered a strong start to the year with attributable gold production of 174000 ounces.
21000 ounces or 14% from the prior quarter on continued strong performance from S Mccann and improvements at Rosebel.
The strong production results and higher sales volumes directly translated to improvements in cash cost.
At $1017 per ounce sold and all in sustaining cost at 14 90 per ounce sold on a unit cost basis costs were effectively flat quarter over quarter.
The health and safety, ensuring all of our employees go home safe continues to be a key focus where I am called as reflect that in our long held zero harm vision.
For the quarter, our darts frequency rate, which translates to days away or transferred duty was 0.29 tracking below our annual target of zero point for two.
And a total recordable injuries rate was 0.85 currently above our target of 0.73 for the year.
Courtade gold achieved another milestone surpassing over $4 7 million hours with no lost time injuries to date.
The COVID-19 pandemic continues to evolve and managing the impacts of it.
It remains a significant focus for us in the first quarter.
Rising positive cases at our operations, including at Rosebel, Westwood and Copay resulted in rising rates of workforce workforce absenteeism early to mid first quarter 2022.
We will address these impacts further in the following remarks.
Looking ahead, our attributable gold production guidance for the year remains unchanged and is expected to be in the range of 570 to 640000 ounces.
Cost guidance for 2022 is also unchanged at this time.
With cash costs expected to be between 1100, and 11 50 per ounce sold.
And all in sustaining costs are expected to be between 16, 50, and 60 90 per ounce sold.
As previously reported these estimates issued in January including an inflation assumption of 5% to 7% on key consumables.
Towards the end of the first quarter.
Additional cost pressures emerged arising from systemic inflation constrained global supply chains, and the sanctions on trade with Russia.
Further increasing the average cost of certain key consumables such as oil.
Nitrate grinding media line and cyanide.
We continue to work with our supply chain to seek alternatives to mitigate ongoing cost pressures, including the sourcing of appropriate alternatives, although at higher prices and sometimes that vary in quality as well as progressing productivity initiatives at our operations through the I am all in operational.
Improvement program.
In an effort to offset certain of these cost increases.
Increases in oil prices have been partially mitigated by our existing oil hedge program.
For reference a $10 per barrel increase in the oil price equates to approximately $6 per ounce increase in our cash cost.
Without our hedging contract the same $10 per barrel increase would translate to a $15 per ounce increase in cash cost.
In our M. DNA, we know what I've got continued external cost pressures may result in an increase to 20 twenty-two cost guidance estimates and that we will provide further updates next quarter.
The following are some key highlights of our first quarter 2022 financial results.
Gold revenues in the first quarter totaled $356 6 million from sales of 196000 ounces.
481000 ounces on an attributable basis.
The average realized gold price for the fourth or first quarter was 1800 and $13 per ounce. These.
These revenues and average realized prices include the impact of the physical delivery of 37500 ounces at $1500 per ounce.
Our 2019 prepay arrangement.
We closed monthly contracts.
Adjusted EBITDA came in at $137 6 million for the quarter translating to first quarter adjusted net earnings of $26 1 million or five cents per share.
Operating cash flow before changes in working capital was almost 134 million for the quarter and mine site free cash flow was $87 5 million.
In terms of our financial position, we ended the quarter, what $520 million in cash and cash equivalents and almost $5 million and short term investments for a total of just over 524 million.
During the quarter, we received the first $59 million in cash of the 236 million to be received over the course of the year in relation to the 2020 to prepay arrangement on 150000 ounces.
Which will be physically settled in 2024.
On April 29, we entered into a master lease agreement, what cat financial police mobile equipment expected to be delivered.
Over the course of 2022, and 2023 with a value of approximately $125 million.
This is in line with our budget expectations and Cotai project cost, which we have been reporting net of these leases.
In terms of cash flows we started the year with 500.
$45 million in cash and equivalents and this balance decreased by just over $25 million over the course of the first quarter.
Cash generated from operations of $133 9 million net of income taxes was offset by outflows from investing activities, reflecting capital expenditures of $168 3 million at Cotai gold Essakane, Rosebel Westwood and volatile.
We will now walk through each of our operations in more detail.
S. I can deliver the highest quarter production to date with attributable gold production of 112000 ounces or 14% higher quarter over quarter benefiting from higher head grades and optimized ore blend management at the mouth.
Mining activity of 15 million tons was in line with the prior quarter due to efficiencies achieved from material handling procedures.
Mill throughput of $3 2 million times was modestly lower quarter over quarter and was offset by higher head grades of 139 grams per tonne.
Higher average recoveries of 88% and higher plant availability of 95%.
Head grades came in above expectations as a result of higher than anticipated ore grades in phase four.
Or blending strategies up and they'll feed optimize the feed grade and helps to mitigate the negative impact of the grocery to content on recovery.
Cash costs and all in sustaining cost per ounce sold for the quarter.
781, and 11 34.
Per ounce sold were lower by 14% and in line respectively quarter over quarter.
Primarily due to higher production and sales and higher sustaining capital expenditures of $47 7 million.
Her says $22 9 million in the prior quarter.
COVID-19 cases peaked at the end of 2021 and the situation is currently stable.
The operation continued normally following the political developments in Burkina Faso reported on earlier in the year. Although it is continually challenged by the on the ground security circumstances.
We continue to take proactive measures to ensure the safety and security of our in country personnel.
And we continue to adjust our protocols and the activity levels at the site. According to the security environment and the supply chain circumstances.
We are furthering certain additional investments in security infrastructure in the region and at the mine site.
These measures and investments are captured in our cost and Capex guidance.
Looking ahead.
Attributable gold production at Essakane in 2022 is expected to approximate the top end of the range of 360 to 385000 ounces.
Selecting the higher than expected grades in the first quarter and the potential for further positive reconciliation between mine grades and the reserve block model.
Head grades are expected to normalize closer to the reserve grades over the course of the year.
And we are investigating whether the updated block model, maybe underestimating grades.
Complexity of mineralization has increased in the lower portions of the pit with.
With higher amounts of course gold.
Turning to Rosebel it had a good start to the year.
The operation reported first quarter attributable production of 46000 ounces, which is a 10% increase quarter over quarter.
Benefiting from improved recovery in head grade, partially offset by lower throughput.
Material mined up $12 7 million tonnes was 8% lower quarter over quarter as waste stripping activities in the quarter with a ramp up in March.
Due to some impact from weather and the continued challenge of managing pet intrusions by illegal miners.
The grade mined Salamanca continued to be lower than reserve grade due to the phase that is currently mined.
The completion of our haul road, which is in progress is expected to provide access.
Two of the higher grade phases in the fourth quarter of 'twenty two.
Mill throughput achieved $2 3 million tons or 6% lower than the prior quarter and an average head grade of 0.1 grams per tonne.
Impacted by mill maintenance work, including the realigning of the Sag mill.
Mill recovery was 91%, which is 6% higher than the prior quarter benefiting from improvements to the carbon.
ADR circuit, which was completed at the end of the <unk> 2021.
Cash costs of $1315 per ounce sold and all in sustaining cost.
17, $184 per ounce sold were lower by 13% and 2% respectively quarter over quarter.
Primarily due to higher sales volume and partially offset by higher sustaining capital expenditures mostly related to stripping.
The COVID-19 situation at the site on its R&M stabilized during the quarter. Following an increase in new cases in January looking ahead attributable gold production guidance for 2022 at Rosebel remains unchanged at between 155 280000.
And Alex is weighted to the second half of the year as the seasonal rains subside.
Which typically peak in the first half of the year.
We know that the collective labor agreement expired in August 2022, and negotiations for a new agreements are scheduled to commence in the third quarter and have in the past.
At times been prolonged and disruptive to the operations.
Turning to Westwood quarterly gold production of 16000 ounces was 23% higher than in the fourth quarter of last year.
Mining volume and saw 222000 tons were lower due to a higher absenteeism, resulting from COVID-19.
And general Labor shortages, which continue on that region.
This was partially mitigated by higher grades and lower dilution.
Underground development improved significantly in the first quarter with over 800 meters of lateral development is completed which is double that of the prior quarter.
The COVID-19 situation at site and then the district stabilized in the second half of the quarter.
Gold production guidance at the Westwood complex remains unchanged for 2022, and a range of 55 to 75000 ounces and assumes the safe restart of the central and West underground zones at the end of the second quarter of 2022 which is on track.
I will now provide you with an update on our co take old construction project.
Before we got into the update on the project review and risk analysis.
And cost and schedule estimates I will provide some key project updates.
In the first quarter, we expanded $82 $3 million and incurred $130 million and project cost.
The balance between spent and incurred cost relates to completed work not yet invoiced and timing of payments.
As previously announced our concrete batch plant was rendered inoperable following a fire on February 24.
Our project in contractor teams quickly enact at a mitigation plan, starting with sourcing concrete from local suppliers in 10 minutes in Sudbury.
This was followed by the sourcing of our mobile batch plant in mid March which could handle small to medium sized spores.
And then a replacement batch plant was commissioned and husband operational since mid April .
The impact to the project schedule as a result of the batch plant fire has been incorporated into the ongoing schedule and project costs re estimation work.
Which we will discuss in a moment.
We do want to take a moment to applaud the efforts of our project in contractor teams in their rapid and agile response and proactive mitigation of this event.
All critical infrastructure is complete for the spring thaw.
Earthworks productivity improved over the quarter.
However continued to lag due to COVID-19, absenteeism in January and February.
Lower productivity rates compared to plan.
As well as reduced equipment due to spare parts availability and other maintenance challenges faced by the contractor.
The concrete foundation work inside the grinding area is nearing completion and should be completed in the second quarter, allowing for the preparation of the commencement of structural and mechanical installation in the interior of the building.
Structural steel erection and the high Bay grinding section off the building has been completed.
Installation of the pre Leach thickener and Leach tanks concrete foundation has commenced.
Wall panel clotting installation has progressed with over 90% completed for the high Bay building section, including the roof of the plant.
However, this is not on a critical path.
The campus connect as a great power and pole installation work on the 42 kilometers of power line is ongoing.
We reported with our year end results that the rapid rise in cases in Ontario, and other provinces had a negative impact on construction activities in the first quarter.
Site staffing was approximately 60% of plan in the first part of January .
With a large number of infections, including in the steel construction workforce.
Mandatory vaccination policy was introduced in January .
And 100% of site personnel had two doses of the vaccine by April one.
Cotai Gold is a project that is being developed with a background of COVID-19 inflation and global events and their impact, including on the global supply chain labor availability and productivity cost of materials commodities and consumables.
As previously disclosed following the appointment of Jersey or the Koski as the executive project Director in December 2021.
Project cost schedule execution strategy and risk review commenced.
To us that's the previously estimated cost and schedule, along with the evaluation of potential mitigation and or optimization opportunities.
This project review and risk analysis is continuing.
And it's being undertaken by the I am Gold project team E. P. C M contractor and certain other technical experts.
And has been dubbed Super trend.
Following this on February 23rd we announced certain inflationary and other cost pressures had been identified.
Impacting earthworks electrical and instrumentation components.
Operation spare parts <unk> consumables and other indirect cost, resulting in projected remaining close to completion at that time to trend upwards above the high end of the previous estimate range of $710 million to $760 million.
And the timing of cost potentially Barry.
Based on the ongoing analysis assessment and preliminary information available to date, including.
Including provisions for certain commodities escalation and contingencies.
He currently estimates that the remaining project cost to completion at April one 2022 could be between approximately one point to two 1.3 billion net of leases and what the preliminary increase in project costs estimated.
FX rate of 1.25.
This range includes between approximately 100 million to $150 million.
In contingencies and other risk.
Accordingly.
The company has withdrawn its 2022 and 'twenty twenty-three Kotte gold project cost guidance.
We do caution that this is a preliminary estimate and that the company intends to provide a more detailed update at cost and schedule estimates.
Before the end of the second quarter once the ongoing work is completed.
And the last number of months the Cote Gold project has seen several changes in leadership and oversight both at the project level and corporate level.
Since the appointment of a new executive a project director our teams have been strengthened to target efficiencies, while leveraging knowledge experience and team integration between the owners team E. P. C M contractor and the various other project contractors that are working a coach a gold.
The preliminary estimated updated cost of completion, excluding contingencies result from additional cost and schedule impact in the cost categories, which I will review shortly.
And include Covid, 19 related impacts and delays as well as inflation impact.
Earthworks.
Approximately 25% of the increase is associated with scope gaps slower than expected productivity as a result of an overestimation of Earth moving equipment efficiencies based on geotechnical data.
And scope gaps and additional dams and dewatering.
Process plant and infrastructure approximately 25% of the increase is associated with scope gaps relating to the processing plant.
Under estimation of winter are concrete and steel costs.
Impacts on the underground utility construction.
And received bids for the S N P light packages.
Number three indirect approximately 40% is associated with impacts from increased project cost and schedule extension.
Including E. P. C M owner's cost mining operations readiness and other indirect costs and finally, others, including procurement account for approximately 10% of the increase.
As part of this work a study by an independent capital project management and service company.
Estimate of direct and indirect COVID-19 related impacts to the project too.
To be in the range of approximately $150 million to $300 million on a 70% basis at an exchange rate of 1.3.
Looking at the schedule based on.
Preliminary results the timing of commercial production is expected to be extended by a proxy to approximately the end of 2023.
While this is consistent with previous guidance of the second half of 2023. It does represent a four to five month delay.
All thing from certain of the factors that we've previously discussed.
This year has always been critical for project Advancement of project activities are expected to ramp up into the summer and fall months.
With our coordination of earthworks concrete plant structural mechanical piping work empower.
And electrical installation being very important.
The increase in the oversight team managing contractors and contracting packages, which will facilitate the expect that increase in the number of contractors working at site.
Our board of Directors has also retained an independent technical consultants to assess what the boards review of the results of the Cotai Gold project review and risk analysis.
We do caution that potential further disruptions, including caused by COVID-19, the Ukraine war, whether potential labor disruptions on the tight labor market could continue to impact the timing of activities availability of workforce productivity and supply chain and logistics and conflict.
We could further impact the timing of actual commercial production and consequently project cost.
Taking a look at the project metrics coach a gold continues to be a transformational asset for the company with.
With the addition of a tier one long life generational asset in Canada to our portfolio.
We note that the results of the ongoing re estimation work will also include a reanalysis of the project ramp up assumptions and other project metrics, including operating costs.
Which we expect will increase based on head count assumption.
To better capture the current pricing environment for consumables.
And increased labor rates.
As we mentioned these results will be issued before the end of the second quarter.
Turning to liquidity.
At March 31, the company had $524 $4 million in cash cash equivalents and short term investments coupled with approximately 498 million available under our secured revolving credit facility.
Resulting in total available liquidity at quarter end up $1 billion.
We drew down $100 million on the credit facility at the end of April to prepare for Cotai gold cash calls during the remainder of the second quarter, while we complete a certain cash repatriation initiatives, including our dividend declared and paid by us it can be.
The end of April .
Just on current information total current available liquidity.
Together with estimated net cash from operations is expected to be sufficient to continue to fund the construction of Cotai gold to meet obligations and upfront planned investing activities at our existing operations for approximately the next 12 months.
We expect that the change in the remaining cost to complete and schedule of the Cotai Gold project will result in a company requiring additional financing in 2023. In addition to the existing credit facility to complete the Coty, a gold construction through their ramp up period to take off.
The positive free cash flow.
We are therefore actively investigating measures to increase to increase liquidity and capital resources, including additional debt <unk> equity financing.
Strategically disposing of assets and or pursuing joint venture.
Thank you to everyone for joining us today, and I will now pass the call back over to the operator for Q&A.
Thank you.
We will now begin the question and answer session.
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The first question is from Josh Wolfson with RBC capital markets. Please go ahead.
Thank you very much maybe daniela on some of the points you made about the funding gap for 2023.
Could you first highlight perhaps what would be some higher priority assets that could be divested there's been I guess various views partially by some of your shareholders should have pointed to assets with the potential that may no longer be a priority for shell.
And then also you know when you.
Talk about joint ventures.
Is that related to co pay or other assets and then how would that work with your existing partner there if it is culture.
Thanks, very much for the question Josh.
We certainly are actively investigating measures to increase liquidity and capital resources as a we talked about some of the options that are available to us.
At this time, we're not going to speculate on specific alternatives or are on potential outcomes and and updates will be provided when when warranted. We're very much focused on completing those super trying to work and and getting the report dawn and the detailed information out.
So the marketplace, which will also allow us to provide us the tools to complete the liquidity analysis.
That we're going through a lot.
And certainly our noncore assets in our portfolio are or something that you know that we're we're certainly looking at.
Okay are you able to sort of identify.
What the specific noncore assets would be what would those be the nonoperating assets or could that be some of the producing assets as well.
But when I when I indicated noncore Oh, that's fine I I do I do not mean, the operating assets. We do have some assets in our portfolio, where we've been doing some exploration and in noncore jurisdictions for example, and in Brazil.
Okay on the uncoated.
With obviously a lot of changes on the capital side should we expect any update on the operating cost expectations are with the update later in the second quarter or is that a is that a still under review.
Yeah.
We certainly are doing our work on updating our mine plan we've had the schedule.
Extension that we talked about which take us closer to the end up 2023.
On that so the <unk>.
Production under our original schedule, we were expecting to see a greater production in 2023, we have identified a number of opportunities to optimize the mine plan, particularly in the first couple of years of operation.
And so we're incorporating a dot optimization in there and are doing and have been doing an assessment of our head count our labor rates.
And other operating costs, and which has obviously.
<unk>, obviously been impacted by the inflation that we're seeing on key consumables that Oh God. We are in all of our peers have been talking about.
And so we will be publishing we will be providing an updated updated information on those metrics.
Okay and then one final one on on Rosebel was is there any more information you can provide on some of these proposals from from the government is just kind of a typical royalty tax type of increase or could it be something more.
They they fall within three categories, Josh number one is the a T which currently does not exist in the country and is a measure that has been talked about.
For it for a bit of time now the original plan on the part of the government was to introduce this in 2022 and.
Of course, there's a lot of administration that comes with.
Implementing a something like this and what we're not seeing dot com or right around the corner. Yet however that is one of the measures.
Number two is to your point royalty.
And that's something again, that's that's been talked about but it's nothing that's come forward, but but it is a discussion point as the government looks.
For additional measures to increase revenues in the third one is threw us a solidarity payments and all were where you are government would be a in.
In a sense looking for advanced payments on future taxes, and the ability to then offset those payments against future taxes that that then become.
The com deal those are those would be the three category.
Great.
Thank you.
Thank you Josh.
The next question is from Jackie Pierce below SKU with BMO capital markets. Please go ahead.
Good morning, Jackie.
Good morning, good morning, Daniela and Murray's thanks, very much for the call I think I just wanted to ask a just to start.
What do you see as the differences between yesterdays release, and the detail you've given us and the upcoming full full results from this study later this quarter is it do you expected material changes in.
In the the dollar amounts or is it really more just adding detail into the existing estimates I'm just a little confused about why the number came out ahead of the of the full update.
Thanks, Jackie we felt that our work had had progressed a sufficiently.
That it warranted are providing this information to the market.
The work that we're gonna be completing over the course of Mei is Ah is some update work on and risks analysis around around the schedule, particularly around the peak period.
And where we're doing we're completing work on the contingency and we do have some some follow ups and in some of the contracting packages. However.
We are not expecting a material change to the range that we provided in yesterday's release.
And with with the full a study completion you expect you reinstate your 2022 and 'twenty 'twenty three guidance is that right.
Yes, yes, we do we we would intend.
On providing for a more detailed update of the final cost estimate as well as the timing of payments over the course of 'twenty two 'twenty three as well as a.
A confirmation of the preliminary.
Estimate that we provided with respect to the schedule as well as providing the.
They did a mine plan information as a as we've just tried to about what Josh.
Okay and can you maybe give us a sense of what you're looking at in terms of the financing options I realize you still have a over a year before you need to complete any kind of financing or filling any financing gaps, but would that include potentially equity.
New debt stream are all of the above and have you been in discussions with Sumitomo in terms of its plans to participate in any new financing.
And and so with respect to Sumitomo's involvement they've been involved in the work that has been ongoing along along with their own technical experts on the island and they continue to.
<unk>.
Our progress there.
Their review of the preliminary estimate on the expected extension of the start of commercial production and similar to to our board are retaining on independent technical experts.
To to conduct US similar a review of the results they have done the same.
With respect to our financing alternatives. We are investigating our measures are two to increase our liquidity and capital resources as we've talked about.
Hum and and and are similar to what I've. Just said, we're not going to speculate at this time on the specific alternatives or or on potential outcomes.
I can comment on one one alternative which would relieve some pressure off us in 'twenty, 'twenty, four which relates to the to the prepay.
The 2022 prepay, which is physically.
<unk> to be delivered in 2024, and I really results in a an obligation on our part to in a sense, we pay $240 million of debt over of or a 12 month period.
That is one one of the things that we are considering similar to what we've done.
Last year or two to in a sense extent accent that obligation and beyond that we're not going to speculate at this time on on specific alternatives are or potential outcomes.
Got it.
If I can just bother you with one last question, we were I'd say that coating in October and.
And the personal let's say at the time were incredibly insisted that they had a you know dotted all the I's and cross all the Ts.
So it's a little disappointing, but you know frankly, not super surprising I got to see some scope changes with material impacts on the budget can you maybe go through and I know I know you've changed coach at the leadership level, but can you maybe go through.
You know any other changes are whether its personnel or or just some you know in the process I guess that you've gone through to make sure that.
Then you've got things are you know nail down a little bit tighter going forward.
Sure.
So in addition to detailed engineering, which which is just about complete and the addition of Jersey, which which we you mentioned and we talked about.
We've updated these estimates based on on performance productivity metrics.
And so for example for Earth works, which is.
You know 25% of the increase.
The updated estimate takes into consideration actual performance productivity metrics that we achieved or the contractor achieve them over the course of the second half of last year.
We've also supplemented the completion of our works with an additional contractor for some of the work and in this contract or it comes in with smaller available equipment and and they are currently mobilizing.
We have incorporated escalation are in in the contracts to manage potential additional quantity problems.
We are re estimating contingencies and other risk to the schedule.
We've increased oversight with resources or additional resources and area management and project controls flight coordination both on the part of wood and on the part of island gold.
We've got better integration between our teams are the P. C M and contractors are we've got a more robust tracking progress of our construction progress and trends.
And I would add that you know I think that we really have increased the agility to drive flexible execution strategy and that is the ability to rapidly pivot in response to problems such as the response that we executed on two increase Cobra cases in January and.
February .
And their response to the batch plant fire, which which the team execute it I probably thought agility to deal with what the unplanned challenges that a doctor has very much increased over the last number of months.
There are things, obviously in the earthworks and dewatering.
And water management infrastructure that has led to a to the increases.
And we talked about the performance productivity metrics that we include it on on the re estimation.
And what respect to water management and and certain of that infrastructure. You know a lot of that work is is now behind us in in terms of water management. So those are some of the examples.
That's great. Thanks, very much for the color and I will let somebody else. That's a good question. Thanks. Thanks Danielle.
Thanks Jackie.
The next question is from Mike Parkin with National Bank Financial. Please go ahead.
Hi, Thanks for taking my questions.
So productivity assumptions have you.
Re budgeted the schedule based off.
Your productivity rates as of today or are you assuming.
Any kind of significant improvement on those productivity rates through the course of 2022 and 2023.
We're particularly on Earth works, where where we've updated the estimate based on performance productivity metrics to date.
And we've supplemented that what what the additional contract or that.
We've talked about and that is one area, where where we did see a scope gap on that was that was.
A much different than in the original project cost estimates.
And that wasn't not really visible to us mid last year. We had just started the Earth works are at the beginning of 2021.
And as we were coming into the summer in that sort of two to five month period, we did not have enough additional full data, including in relation to ground conditions throughout key side areas too.
To really.
You know sort of recast that our estimation as a as we.
Took over earthworks in the summer time and work to recalibrate and improved productivity and supplement is getting the work done.
We had had pushed too to try and recover.
Some of that underestimation as we progressed through the second half of 'twenty one.
And and just did not get there so to to answer your question certainly on Earth works that is how we approached it and in terms of the overall schedule for the for the summer and getting into the fall, Mike where we're at about 950 people at site right now.
We're expecting that to increase to about 1700, or so a peak construction in the summer and heading into the fall and that's where those additional resources in terms of oversight on managing the contractors are the contracting packages and making sure that.
We don't have any hiccups as a result of congestion at site is going to be very very critical.
Okay and in the release you mentioned.
She's with maintenance and.
Spare parts for your work suite.
Is that just excessive wear and tear.
Can you give us a bit of color in terms of I guess the.
The overburden proofing.
Les ideal for the equipment.
It's using like a recall some other operations.
Kind of scoping your larger equipment when smaller equipment would've been more ideal just given the topography and challenges of the wetness of it as that.
What you're looking at facing or any additional color there would help.
Yeah that is definitely want one other factors like the additional contract or that we're mobilizing.
Dogs come in what what smaller available equipment than the current contractor is using and therefore, where are being more selective around which area is is being progressed by by which of those two contractors are with respect to to.
The to the existing contract or what the larger equipment. It. It's just simply what we're seeing in the in the supply chain and and just accessing.
And parts to do regular maintenance on the equipment in and again, that's something that we've addressed by by escalating.
Our own relationships and our own arrangements with a particular distributor of the spare parts.
And and and and really pushing to unblock that logjam on for them really flash for us.
Okay.
And then the revised budget for coach there what are you assuming for oil or diesel price.
So in about 152 and that $100 million to $158 million range that we're calling contingencies and other risks there is some escalation included in there.
For oil really.
We at the project level, we're using $70, we're tracking the escalation in that range. The 100 to 150 <unk>.
And then we've got you know we've got obviously the the hedges that are that are laid out in detail in our N DNA and we've actually just on a bit more work to help people understand.
The value of our hedge book and we broken down more distinctly D. D. FX oil hedges and then separately the gold hedges that we have in place and we layered on a few more gold hedges in the quarter in accordance with our with our current policy on on how much of that production.
And warehousing.
Okay.
Yeah, that's it for me thanks, so much.
Thanks, Mike.
The next question is from Anita Soni with CIBC World markets. Please go ahead.
Good morning, Daniela Anne Marie and good morning, maybe a question.
Maybe a question for Chris I'm not sure. If she is still on the call, but I I'm trying to take a step back here and look at you know the NPV of the project I think originally it was around $1 $6 billion.
And we've had no capital cost escalation and now you're reevaluating your opex.
And you know I noticed on the site tour that the mining costs in my opinion, we're I'm pretty optimistic you know Eddie I think it was 227 Atlanta that had already been revised up a couple of times.
Quint.
Bakken and evaluate whether or not like this project needs are.
Pause in terms of you know I mean, we've seen well it's like this like pascua on Tasiast and you know those companies would have to basically step back we look reconfigure.
Rather than just continuing to push forward and are hoping that.
Operating costs will will will be okay, and that they'll have something at the end of August .
Do you want to take that Murray.
Okay.
Maybe I'll give it a shot and a N C. It's Maurice can Ken can jump in here.
You know what at the end of the quarter, we were 49% project completion construction was about.
35% or so complete.
And you know what the what you know certainly with our with our major components in in place.
We as we tried it about we we are looking at it and update it operating costs, then and expect that but some of that impact will be.
Will be.
Taken into AR will be softened the impact of that by by the optimization that we're doing on the mine plan.
Yeah, We've got 18 years of life. There, we've got Gosselins two kilometers next door and and the additional drilling that we've done since that resorts has come out.
Has I believe is demonstrating that the learner realization is extending.
Both that strike and and at depth so it.
To your point on N P V. A row, we have seen them MTB erosion and certainly there will be N P V erosion, when corn and wheat.
Put all of those tend to go into it.
We do expect the SASSA could be here.
To be a multi generational asset and and and you know certainly look at it from that perspective.
And I'm not sure maybe I'll check the feed them a resist can now hear me I know she she spent the weekend at Cotai and so perhaps you would like to supplement my comments.
And I think it's a bit early we probably need an extra month now too.
To fully assess some of the opportunities of demand.
And these opportunities are will be included with a new mine plan.
Probably a bit of a more aggressive mining schedule in the.
First two years.
And on top of that I see some other opportunities.
To really optimize and develop.
Developed a pet in a in a way that.
Gotcha.
Sorry.
That go it alone also for a better interaction between the pit itself and the water body to the east. So theres some ideas that are being explored.
Explored and as the full assessment continues we will be looking at integrating some of those opportunities.
And then what if you looked at the so you mentioned in more aggressive mining plant in the first couple of years. I mean, you guys are using the PON This holiday and.
Contracting this from Caterpillar and some hormone Tonight I believe the deliberate the truck schedule was also.
Pretty tight timing to them when a when you needed a lot of the mining and the stripping to be done.
I mean, how are you incorporating the autonomous haulage fleet and you know and you know given that it's a new technology at the mind that starting up you know you've seen other people who've used upon them apologize had start up issues and those were the established mine. So have you factor as you look at this have you factored in you know the extra complication of using H F.
Yeah. It has been factored in and I must I must say that disappoint.
We are the 994 being erected we Avi calibration pad that's already.
To be utilized and defer 793 will be outside our early July so I think there's ample time to be working on the autonomous trucks.
Trucks and at this point I don't see any issues with a photo daily.
And Oh, you see also some opportunities to.
Really take the time for the implementation so calibration plan nine nine for just systems in Germany and Sweden.
The systems implementation will stop in earnest. The first week of July which gives us lots of telling me in my mind.
Okay. Thank you very much and I'll pass it off to someone else for questions.
In Q.
The next question is from Lawson Winder with Bank of America Securities. Please go ahead.
Hi, good morning.
And thank you for the detailed update so far.
<unk>.
This is all very useful.
So I wanted to ask a question about your partners Sumitomo is in a bit of a different way, which is I know you can't speak for them.
But you know given the potential situations they may decide to dilute their interests down.
What would your preference be would be to find another partner or two.
Just assume whatever interests if they do it.
I'm going to I'm going to put that in the category of work, we're not going to speculate on or not Ah Ah Ah Ah Ah on.
On that at the time they are Sumitomo continues to review the.
The preliminary results in terms of cost and schedule estimates at this point in time I think although you know none.
None of US are are are obviously happy about.
The circumstances, we're all very very disappointed and are working diligently to address it.
We've not received any any indication that that they're looking to to otherwise exit. The project. There certainly is a lot of interest in in the exploration.
Activities that we have undertaken to date and if you're if you're a call part of our 2021 budget, we only allocate a $2 $1 million for our account two exploration activities. So we we really.
We achieved those results with with very little capital allocated to that and they've certainly indicated their desire to get more involved in in the exploration initiatives and in relation to site and that's yeah. That's that's with the community to the extent of the communicate.
Now we've had around the current.
Current developments.
Oh, okay.
That is helpful. Thank you very much.
So my next question would also fall into the bucket of not wanting to speculate but look I'm going to ask it anyway and you can take it what it is but let's do it when you say, okay. What do you think about sort.
Sort of financing the additional costs I mean at this point can you.
Say that equity is off the table or is it being considered.
But that does fall into the categories of our of not spec. So they're not looking to speculate on the outcome. At this time, we were really pushing to to have to finish this work and we're working diligently on on getting those done and and then really all.
Hands on deck and having a good summer at the project. This is really really critical you know for the for the project schedule on having a very productive summer and fall months book or before the winter coming from I'd say dogs.
That's the key focus and and and and you know, we'll look forward to achieving that and demonstrating to the market as the project gets gets more depressed.
Okay, and then maybe if I may ask just one more just thinking about.
You know your your decision I mean, it seems like you're moving at the project and so you know at this point when you factor in the higher Opex and higher caliber.
I mean it is the decision to proceed.
Based on IRR.
Are you able to share with us kind of what your.
Our expectations are at this point.
I'm going to say that.
Yeah.
That are of the similar response in a sense that we we are.
We are well progressed on the project we believe that.
The a.
Number of the areas have continued to be depressed the preliminary cost estimate as we've talked about incorporates.
Actual productivity rates, particularly on the earthworks side of that.
And we feel what the or the work that does steel still need to get completed.
That you know, where we're working to very much have our arms around around that that range.
Hum.
We complete the work and and look at the updated you know cost metrics on that schedule.
We'll complete our assessment.
On on that however, you know again, we were looking at this as a.
<unk> is a multi generational asset and certainly have expectations that the current mineral inventory that.
Does that is there there are tremendous opportunities to.
To continue to grow that and and extend the mine life.
Okay, Alright, that's very helpful. Thank you very much for your time today.
Yeah.
The next question is from Kerry Mccreary with Canaccord Genuity. Please go ahead.
Hey, good morning down there just in terms of just additional debt financing do you have a sense of what your debt capacity could be or what you'd be comfortable with at this point.
Yeah.
So currently our net debt to EBITDA financial Covenant in our credit facility is three and a harsh times.
Our certainly are at quarter and we were.
You know close to you know net net cash or or or or slightly.
And then and our net debt scenario. So we do have capacity.
Assuming the full draw down under our credit facility to assume additional debt.
The prepay arrangement do not count as debt.
Our financial Covenant.
Although of course are as far as we are all concerned are they they are debt and and they do need to get paid back end.
I was talking about the extension of the of the prepay for from 'twenty for the as an alternative to.
To help us manage through 'twenty three 'twenty four.
On on that.
And.
And so.
And then of course that ultimately you know what what is what is the price that the price deck that we used to make the comment in the liquidity outlook.
Around having sufficient liquidity for the next 12 months is 1800 for this year.
17, 100 for 'twenty, three and then 1600 or 24 and thereafter.
Great and then maybe one other question just in terms of when you sort of get to the peak spending rates like how much are we talking per quarter. As you know the past quarter. You spent about 80 million cubic and you're sure last quarters with 140, if theres going to ramp up to like 200 million a quarter or where do you see that sort of since it's been great.
Yeah. We were we're just we're just finalizing the update on timing of the spend.
The one thing that we we you know we wish we share when when we talk about liquidity is is the following.
We have the obligation along with our joint venture partner Sumitomo to stay ahead by three months in terms of.
Expect that expenditures under the joint venture and so therefore, when we manage our liquidity on a monthly basis.
We've talked about in the past that our monthly you know that our minimum cash balance that we're targeting to maintain if somewhere around $200 million.
And we talked about the fact that you know look look look look took for drawdowns, one when our cash balance might be well above that.
Where we're repatriating funds and and so on.
So so just to come back to your question will update the timing and provide an updated spend of of the updated cost estimate when we come out before the end of the quarter. So what will provide you with you know what we're estimating our 'twenty two 'twenty three spend to be up.
And then and just just keep in mind that our that we're you know we're managing that liquidity on an ongoing basis and have a bit more cash tied up.
As we progressed up the project.
Thanks Daniel.
Okay.
Yeah.
The next question is from Tanya Jacuzzi connect with Scotiabank. Please go ahead, yes.
Yes, hi, good morning, everyone and thank you for taking my questions I just want clarification on the prepaid that you mentioned Danielle did you say that that's the potential to push it out a little bit beyond the 'twenty 'twenty three 'twenty 'twenty four did I hear that correctly.
That is one of the alternative is we we are looking at as we as we did last year and in a sense you're you're settling.
I would now where you're settling the contracts you've entered into on your you're layering on new contracts.
And that you know that is an option to manage liquidity beyond.
Project completion and into commercial production.
On on on that and sort of manage what you know whatever our capital structure and swap spreads up looking like so that that is.
It is one of the options we're looking at.
And so then your ability to you know they are on debt.
Financing option you know, we'll give you a bit of breathing room. If you were able to put a push that out a little bit.
That's it that's exactly that would be the intention of that is is it it is.
You know, it's an obligation and a sense of repay $240 million in 2024 as it sits right now.
And maybe someone can just help me with a bit of sensitivity on the.
Costs on your Cotai project, we did notice that youre using 89.
Sensor leader for for your fuel pricing, there's someone there that can give us a sensitivity.
For for your diesel exposure at coating.
But we can take that well, we can take that back down and come back to you on that.
Okay, because that will be helpful and and maybe.
A question to Matt as if I could you know as you look at this project Muddies do you you know what do you think an appropriate internal rate of return should be on that project.
Ah Tony Thanks for the question.
I mean.
Oh until we've finalized all the work in the next month or so cannot give you a firm answer but.
Typically we'd be looking at 10% to 12% at a minimum and this is just based on my experience. It is not based on the Coty and what I've seen so far.
So we will continue with the work for the next month or so we will finish that rebase lining and then we'll.
Share with the market. The results that's all I can say at this point Tanya.
It's just you know looking and I had a follow up 28 as questions and we've all seen these projects. There comes a point in time, when you're putting so much money behind them and you know sometimes you have to pass and so I'm just wondering what internal rate of return would you need to see at these prices that I guess Daniela gave US 1800 17 16.
Long term for you to pause like is it 5% is it you know we're just trying to understand at what point if there is a pause.
Disappoint, new formal answer for you but.
It's definitely something that's gonna be soft in the next four weeks.
Okay, well, we would love to get back to what is that study going to be released to the market, So where we're going to be able to see it you said at the end of Q2 is that when it's gonna be finished when we get it with Q3 results I'm just trying to understand when we can see that.
It will be before the end of the second quarter Tonya.
Yes.
Okay. Thank you very much and I will take it offline on the sensitivity for the bank.
Thank you. Thank you.
This concludes the time allocated for today's call.
Quick questions and I would now like to hand, the conference back over to Mary sellers, yet for closing remarks.
Thank you very much operator, and thanks to everyone for joining us this morning and for your continued engagement with all of them go.
There is no doubt that we have many challenges and lots of hard work ahead of us.
But myself and the board and management team.
100% focused on advancing co due to production addressing our capital needs and continue continuing on the solid operational performance at our upper reading mines.
I intend to be very hands on to provide support to our team.
I also wanted to say that I look forward to directly engaging with you our investor and analyst community.
Please reach out to myself or Graeme Jennings, if he would like to set up at meeting and Avi.
Separate conversation.
Thank you all and good day.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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