Q2 2022 Endeavour Mining PLC Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Okay.
Okay.
Good day, and thank you for standing by while I come to the endeavor mining Q2, and half year 2022 results conference call.
At this time, all participants are in listen only mode.
The management presentation that will be a question and answer session.
We know that due to time constraint, we will be prioritizing.
<unk> from covering analyst two.
Todays conference call is being recorded and a transcript of the call will be available on Endeavour's website tomorrow.
I would now like to hand, the call over to my age My Please go ahead.
Hello, everyone I am Martino, Vice President strategy, and Investor Relations and I'd like to welcome you to our Q2 and half year results webcast.
On the call I am joined by Sebastian Mark Joanna and Patrick.
Today's call will follow our usual format, where we will first go through our quarters highlights.
And then the detailed financials and then we'll walk you through our operating results mine by mine, we will try to be as quick as possible to leave time for questions at the end.
Before we start please note the usual forward looking statements.
I'll now hand, it over to our CEO Sebastian to take you through our results highlights Sebastian.
Thank you Martino and Hello, everyone. We are pleased to report that we have continued our strong momentum from Q1 into Q2, which has positioned us well for the rest of the year.
We've noted six recurring themes as displayed on slide six which summarizes where we are focusing our efforts.
In summary, our strong operating performance and each one has resulted in robust cash flow generation.
This strong performance allowed us to continue to execute our capital allocation strategy, which is focused on strengthening our balance sheet.
<unk> shareholder returns and investing in our growth.
Looking at the balance sheet first during Q2, we increased our net cash position by $141 million.
I'll also returned $808 million in the form of dividend and buybacks to shareholders.
And speaking of our strong shareholder return the commitment we are pleased to declare today each one dividend of a $100 million, which represents a 43% increase over last year's dividend.
This is reflective of our improved financial position and confidence in our business outlook.
Moreover, we are now targeting.
The minimum dividend of $200 million for the year, which is 50 million more than the initial minimum commitments.
We're also continuing to supplement our shareholder returns with ongoing share buybacks.
In terms of investing in our business a key focus as the <unk> expansion project and we're very pleased with the progress that has been made as we remain on budget and on schedule.
And then the DFS is.
In the third quarter of 'twenty two.
We also made some exciting discoveries last year into this year and as such our exploration program remains on track to discover 15 to 20 million ounces of indicated resources over the next five years.
On the ESG front, we recently published our first sustainability report, which showcases our we are leveraging our increased size and scaling up our ESG efforts.
Given we are now the largest producer in the region. We firmly believe that we can have a positive and lasting impact.
Moving to slide seven you can see we have performed well across our key operating metrics.
On the safety stock we are proud to say that our lost time injury frequency rate remained lower and better than our industry peers adjust <unk> 13 for the last 12 months.
We continue to work on improving this and aim to achieve your arm performance.
Looking at the quarter's production, you'll see that if you annualize it we will exceed the top end of our full year guidance.
We are very well positioned against guidance and we need to keep the momentum going through the reminder of the year.
The same story can be seen with our audience sustaining cost which are sitting within the lower half of our full year guidance range.
It's a great result, given the industry wide inflationary pressures, which of course, we are not totally immune to but we've been working hard to offset them with value initiatives.
John I will provide more detail on our cost base in the next section, but at a high level. We've been helped by a long term supply contracts favorable exchange rate valuation the in country pure pricing mechanism and of course, our production and cost optimization initiatives.
Turning to slide eight you'll see our production and cost trends on a half year basis engraved a portion related to our discontinued operation, which is comprised of the Idaho uncommon lines, which were divested.
Production was relatively flat between the H one this year on H, one last year, while it decreased slightly compared to 82 last year.
In line with our mine plan importantly audience.
Importantly, all in sustaining cost is $10 per ounce compared to eight two last year.
To put this in context as you see on slide nine.
We've plotted the AAC guidance, an H, one realized cost for our sector using the relevant companies that have published so far as you can see we are currently the lowest cost producer when ranked against senior and mid tier producers.
We firmly believe that this low cost positioning is now a strong competitive advantage and we are pleased on the hard work to reposition our portfolio over the recent year is now paying off.
Moving to the next slide you'll see our all in sustaining margin trend.
Even though we have maintained a low cost base, we continued to benefit from the higher gold price environment, resulting in a 52% margin in the first half of the year.
Next on Slide 11, you can see the trend of our operating cash flow before changes in working cap, we generated $622 million in the first half which is nearly the same as the previous six months.
On slide 12, I would just like to highlight our operating cash flow after working capital you'll see here the seasonality of our working capital outflows ahead of the wet season, when we typically stockpile traditional and fresh ore in preparation for the rain.
Managing the rainy season is an area, where we have shown significant improvement over the past few years and I feel we now have a good handle on this.
On Slide 13, you can see how strong cash flow generation has allowed us to continue to strengthen our balance sheet and it's one we added $141 million of net cash while also returning around $110 million to shareholders during the period.
Q2 marked our sixth consecutive quarter of shareholder returns following the payment of a maiden dividend in Q1, 'twenty one and since then we have paid $376 million in cumulative shareholder returns.
That's a number that we are very proud of and we will keep increasing.
On slide 14, you can see more detail on how we're tracking against our shareholder returns commitment as you may recall last year, we outlined a three year dividend policy to pay a progressive fixed minimum dividend, which increases each year with the aim of distributing accumulative minimum of just over $500 million by the end of full year 'twenty three.
We are tracking well ahead of that target and for 'twenty, one we exceeded our minimum dividend of $125 million.
<unk> hundred $40 million.
H one this year, we've declared an interim dividend of $100 million.
This is a 43% increase on last year's H, one dividend and to reinforce our commitment to paying supplemental returns. We are also increasing our full year dividend commitment from a minimum of $150 million to at least $200 million.
Turning to slide 15, where we put a healthier shareholder returns and context for each one the dividend declared in the buybacks conducted totaled $138 million.
This represents about 10% of revenue, 25% of operating cash flow of nearly 60% of adjusted net income.
On an annualized yield basis, it equates to just under 5% and this is just assuming the minimum annual dividend of $200 million.
And only the buybacks done in <unk>.
Perhaps more relevant Lee is that equates to nearly $200 return for every ounce of gold produced in each one we described an impressive statistic I think.
Turning to slide 16, this shows that over the last six quarters, we've already delivered $469 million in total shareholder returns for context. This is already about 10% of our market cap.
In the waterfall chart, you'll see that if you only factor in the minimum dividend commitment for this year and next.
It would represent over $750 million in shareholder returns.
And this amount could be higher provided the oil price remains about $1500 per ounce and if endeavors leverage remains below five times net debt to adjusted EBITDA as stipulated in our dividend policy.
This amount is well above our minimum commitment of $500 million. So we believe it demonstrates the resilience of our business and shows how focused we are on delivering strong shareholder returns.
In addition to delivering shareholder returns given our balance sheet strength and our ongoing strong cash flow generation. We are also well positioned to fund our growth and slide 17 highlights our attractive pipeline of growth projects.
As I set out earlier, a priority of the sudden other MSR expansion, where construction commenced in the second quarter of 2002.
Progress is on track with the first of all a pool from the backstop is expected in early 'twenty four.
As outlined in the DFS. This expenditure, we lifted some of them as our complex to top tier touches.
I'll, let mark provide more information within a section.
Our Greenfield development projects are also progressing well as we continue to refine that I figured DFS, which is scheduled for completion in Q3.
This would enable us to have a construction ready projects, which could be quickly launched once an investment decision is made.
Ahead of that investment decision to not delay the project timetable and derisk. Its construction phase we are conducting many more infrastructure investments.
As such the milestones and the Astral consumption are not completed yet.
Access where construction is nearing completion and the construction camp has been procured.
We haven't put as much in fact less than $7 million. This year for both the DFS and infrastructure work that these investments will greatly help us in the future.
At Kalana, where I've been seeing some of the desktop worried that contributes to the DFS.
While both projects look attractive let me give the priority because of its production profile favorable infrastructure and economics, which have the potential to meet our capital allocation criteria and things to the loan production visibility we have from our portfolio. We have the flexibility to decide when the optimum timing is to launch the project into.
Traction.
Turning to slide 18, you see the continued focus on exploration across our portfolio with nearly 44 million spent in the first half of 'twenty two.
Exploration activities were mainly focused on expanding resources and extending mineralized trends at existing operations.
In addition, given the long mine life visibility on our flagship assets. We are now able to dedicate significant efforts towards greenfield exploration opportunities and.
Given the success so far <unk> are expected to continue to ramp up in age to 22.
Later this year, we expect to publish resource update and we are pleased to reiterate that we remain on track to achieve our five year discovery target of 15 to 20 million ounces of indicated resources at less than $25 per ounce.
Next on page 19, I wanted to briefly touch on a few of the highlights from our sustainability report that was published in Q2.
For me the key Stat is that R. 21, total contribution doubled to reach $2 billion.
In doing so we supported around 700 local businesses. This.
This shows that our activities can make an enormous difference to accelerating the economy and social development of the regions in which we operate.
That local approach is important to us we are one of the largest private employers in the region and as we take development of a local talent very seriously I'm pleased that over half of our 10 year operation of our management team I know nationals.
And this is a number we expect to improve on further in the coming years.
On the environmental side, we continue to be one of the lowest emitter amongst our peer group and are busy working on a pathway to a 30% reduction of emissions by 2030 as we have previously outlined.
Crucially, we know we know how vital it is to align all of our people with our ESG ambitions.
To drive the right actions and outcome, we've increased the weighting of the ESG related confidence to 30% for the annual bonus and 50%, 15% for the long term incentive plan.
Before turning to the next slide I just want to flag. The pictures on this page. These are just a few examples of.
Ongoing initiatives, which we are extremely proud of.
One more you can visit our website to read about the various case studies.
Investing in endeavor mining is basically supporting impactful activities and investments.
Continuing on the theme we were delighted to recently receive a double a rating from MSCI, which marked a significant improvement in our rating over recent years.
And this is I believe a strong reflection of the hard work and progress we are making across the group.
This particularly pleasing as this places us in the top quartile of our peer group.
Before I hand over to John and Mark as we have just passed the first anniversary of our LSE listing. So this would be a good opportunity to recap on the progress we've made.
It is good to see the progressive increase in volumes traded on the LSE and its associated exchanges.
Following the most recent FTSE 100 inclusion we are now seeing over 40% of our total liquidity in the UK This is also a reflection of the change in our shareholder Register as we continue to attract the UK and European funds, given our attractive investment proposition.
We have also seen a significant portion of our shareholder Register me, great chefs from Canada to the U K in fact, 73% of our shares outstanding I've moved shares older and we're continuing to see Sham integrations.
Given the stat, we are very pleased with our LSE listing the incremental demand it has driven for our share and our overall positioning within the U K market.
Now I would like to hand things over to Joanna who will take you through the financial results in detail.
Joanna thank.
Sebastian.
On slide 23, we show our financial highlights.
Even though we'll go into the details of the table in the upcoming slides on this slide I just want to draw your attention to our adjusted EBITDA margin, which as you can see remains extremely high at over 50%.
It's high margin allows us to generate significant cash flow protects us against variations in the gold price and as Sebastian mentioned earlier gives us the financial flexibility to deliver our capital allocation strategy.
On to slide 24, coming off a very strong Q1, our quarterly production GTA decreased 3%.
While all in sustaining cost increased by 13%. This variation was as expected given the seasonality of our production and the associated mine plan.
Mark will detail. This in the next section, but at a high level in Q2, we had lower production at some of our mine due to the preparation ahead of the rainy season in some cases, we focus more on waste stripping activities, which resulted in lower grade ore mined while in other cases, we mined more fresh ore from deeper levels in the pit again in preparation for the rainy season on.
The cost side, we did experience some inflationary pressures.
As I will detail on the next page. These variations were not the key driver for our cost increases.
These efforts and the strong each one performance mean that production and all in sustaining costs remain on track for our full year guidance.
Moving to the next slide we see in more detail the breakdown of our all in sustaining cost for the quarter, which increased by $106 to $954 per ounce.
Over 90% of that increase was the result of operational factors during the quarter.
As I mentioned on the previous slide we were focused on waste stripping ahead of the wet season, its avid elements out longer and weighing on which led to lower gold sales and higher operating and sustaining capital costs, resulting in a 38 and a $61 per ounce increase in all in sustaining cost respectively.
Factors also played a part with increased fuel and explosive costs, which we highlighted in Q1 contributing to an additional $52 per ounce to the all in sustaining costs.
This was offset by favorable foreign exchange rates as the Euro continues to depreciate against the us dollar and by reduced royalty rates as the gold price decreased during the quarter.
You will remember in Q1 this year that we presented our cost breakdown, where we see inflationary pressures pressures and how we are mitigating them, which we reiterated on slide 26.
We'll not walk you through the whole slide again I just wanted to focus on the key impact Sallie.
Salaries makeup approximately 717% of our all in cost and are locked in for three years, giving us stability and visibility on salary inflation.
Fuel makes up approximately 60% of our all in cost base as you can see since Q4 last year average Brent prices have increased by 46% well in countries pricing in Cote d'ivoire has remained flat and Burkina Faso, Allophone, and HFF increases are 35% in 2025%, respectively and in Senegal, HFF prices have increased by <unk>.
38%.
In country pricing continues to be partially sherwood by governments as pricing has revised only periodically.
This means that the price impact of Brent crude volatility is generally delayed and often not fully felt in country and we are shifting from paying peak spot international prices.
In addition, the fuel price increase as detailed above have been largely offset by favorable FX movement as the euro has decreased 7% compared to the US dollar in the first half of 2022.
Given that approximately 65% of the operating cost base is in local currency, which is linked to the euro. This is significant mitigate to a higher cost.
Touching upon our consumables given renegotiated key contracts across the group last year to leverage our larger sites. We are currently well positioned with favorable terms as.
As we highlighted in Q1, the only area. We are realizing any material cost increases as unexploited forecast where prices have increased by around 70% since Q1, resulting in approximately $13 per ounce increase in our all in sustaining costs, which is in line with the $10 per ounce. We flagged in our Q1 results and is not significant to our overall cost structure.
Moving to slide 27, you can see a breakdown of our operating cash flow, which is a quarter on quarter decrease.
Our quarterly operating cash flow before working capital decreased by $31 million to.
$253 million in the second quarter due to the lower realized gold prices and slightly lower production as well as the higher cost all of which impacted our operating cash flow.
The realized gold price from continuing operations decreased by $79 per ounce.
From 19 $111 per ounce in Q1 to 18 32, perhaps in Q2.
At the same time the amount of gold sold decreased by 26000 ounces, resulting in an 11% decrease in operating cash flow.
On Slide 28, you can see in operating cash flow bridge.
We typically pay increased income taxes in Q2 related to the final tax payments for the previous financial year upon filing of our tax returns in the second quarter.
As previously mentioned our operating cash flows were impacted by higher operating expenses and a decrease in gold production and the gold price.
The changes in working capital were negligible in the second quarter compared to an outflow in the prior quarter, primarily due to the increase in stockpiles and decrease in payables in Q1.
So on an overall basis, the operating cash flow decreased by $51 million during the quarter.
Moving to slide 29, I wanted to highlight how our net cash position has improved quarter on quarter.
As mentioned, we generated $253 million of operating cash flow and invested $145 million in our operations and growth projects during the quarter.
We also incurred $26 million in financing activities, which was largely associated with the shareholder returns in the form of share buybacks paid during the quarter.
The value of our cash on hand was impacted by the declining euro to U S dollar exchange rate.
We ended the quarter with a net cash position of $217 million.
Well on our way to our $250 million targeted net cash position.
At the end of the quarter, our liquidity remains strong and we have $450 million undrawn on our Rcs.
Turning to slide 30, we have a detailed breakdown of our net earnings I won't go through every line item here, but I wanted to address a few of the more significant items.
Corporate cost decreased during the quarter, primarily due to lower costs associated with employee and Patrick professional services as employee bonuses were paid in the prior quarter.
The gain on financial instruments with $107 million in the second quarter of 2022, mainly due to an unrealized gain on our go forward sales in bold colors as well as an unrealized gain on the revaluation of the conversion options on our convertible notes.
Offsetting much of the unrealized losses that were recognized in Q1 'twenty two as these same items.
On the same items as the gold prices decreased.
And the gains in Q2 were partially offset by foreign exchange loss of $39 million.
Which increased from the $20 million recognized in Q1.
The majority of the above games are unrealized and realized gain in Q2 of this year related to our foreign contracts, there's only $1 4 million.
Adjusted net earnings remained.
We're slightly lower than the prior quarter due to lower earnings from mine operations, which were offset by higher gains on financial instruments and lower income tax expense.
In summary, you can see that our financial performance is strong and we are well positioned to continue funding our shareholder returns program and internal growth pipeline, while continuing to build our net cash position.
This concludes my section and I will now hand, it over to Mark to walk you through the operational performance Mark. Thank.
Thank you Joanna and Hello to everyone on the call.
Over the last two weeks I've been in West Africa, visiting our mines and projects and I am pleased to report at the operations are performing well and projects are advancing on schedule.
Our safety performance has been very encouraging for the first six months of the year with just a single loss time injury.
We actively encourage and track leading safety indicators, such as management Walker and task observations and drug Hasnt analysis.
In addition, we ensured that all of our contract is adopt the same general approach to managing safety too.
As Sebastian and Joanna mentioned, our operational performance continues to be strong.
And reflects the benefit of having a diversified portfolio.
The group is well positioned to meet full year guidance.
And on Slide 32, we have provided a breakdown of performance by asset.
As you can see a strong group production is driven by outperformance at Hyundai <unk> and <unk> mines.
From a production cost perspective, we are pleased to see that for the first half of the year sabaton on Massawa, Hyundai Aegean manner, a role globally that guided ranges.
Leaving us well positioned to achieve guidance.
I'll now move on to the performance of each asset starting with <unk> on Massawa on slide 33.
At Teva dollar Massawa, we are transforming the mine from a CIL only operation processing non refractory ore to a combined CIO and box operation with the ability to process high grade refractory and non refractory rolls through two adjacent circuits.
During the quarter mining capacity shifted from the largely developed Sofia north pit to enable increased mining rates at the <unk> and Massawa Central Zhang pits.
In addition, we commenced mining at the Massawa Northland pit, which was predominantly by stripping.
As a result of a stripping activities or mining was focused on lower grade areas of the massawa central time period, as well as the Sofia North pit.
Which resulted in lower production this quarter compared to Q1.
Similarly, all in sustaining cost increased in Q2, largely due to the lower volumes of gold sold and the expected increase in fuel costs.
<unk> is on track to achieve its full year production and cost guidance.
Most notably in the second half price are expected to increase given the access to the higher grade areas of the Massawa Central zone and <unk> pits.
Moving to slide 34, you can see an overview of our seven dollar Massawa expansion project.
Where we are constructing a $1 2 million ton per year plant.
Adjacent to the existing CIL.
This will allow us to process the high grades of refractory ore from the Massawa deposits, which currently contained more than $1 3 million ounces of reserves that have significant potential to increase.
We are happy to report that the expansion project is on track.
And activities are ramping up.
We have finalized the PCM contract the powerhouse contract and the <unk> contract, which was awarded to a cynical each contractor.
We have started to order long lead items, including the crusher and mill.
Detailed engineering and design is progressing well.
And on the ground Reits have been realigned in order to X to prepare the full processing plant area are well underway.
Regarding the capital spent to date.
Ultimately, 37% of the $290 million project Capex has been committed.
With $24 million spent.
We are very pleased that the capital that has been committed so far is in line with our expectations.
And we are tracking on budget and on time.
As has been the advantage of spending significant time on the DFS potential that we appropriately scoped and price. The work and then launch the project and started to award major contracts and work packages before the numbers become out of date.
Moving to slide 35, you can see that the whole day mine had a very strong quarter.
When they continues to benefit from the higher grade ore source from Kari pump, which is now being supplemented by ore from the <unk> mine and Kari West.
All in sustaining cost increased slightly during the quarter, while staying below the lower end of guided range, primarily due to higher mining and processing unit costs. As a result of the expected increase in price for fuel. The next places, which were partly offset by the higher gold sales for the period.
For the remainder of the year, we will focus on Kari West and Vindaloo mine for the majority of the old feed as we continue the next stage of stripping at Kari pump.
We expect pricing recoveries to decrease in the second half as a result and costs to increase slightly.
The strong first half of the year has positioned <unk> die very well.
We expect production to continue to trend above the full year guided range and all in sustaining cost to achieve the full year guidance.
Turning now to <unk> on slide 36.
We are very happy with the performance of EG with another very strong quarter of production due to higher recoveries and higher price.
Following the completion of mining in the current phase of such appropriate.
Which had lower associated recoveries.
We expect to maintain these high recovery rates as all mining will focus on the le plaque.
<unk> and Walter pits in the second half.
We expect demand a higher proportion of oxide ore.
All in sustaining cost increase in Q2, primarily due to higher sustaining capital and higher mining and processing unit costs.
<unk> from the expected price increases in fuel and exploration.
Following the strong start to the year is on track to produce near the top end of its guided range at an all in sustaining costs within the guided range.
Turning now to slide 37, and the <unk> mine.
Focus continues to be on waste stripping in the Westfield.
As a result during the second quarter, almost <unk> from the lower grade HP, which resulted in lower production and higher production costs.
After pre stripping is completed in the west pit, we'll be able to stop mining higher grade ore in the second half of the year, which will be blended with lower grade stockpiles.
We currently expect full year production to be near the lower end of the guided range, while all in sustaining costs are expected to be within the guided range.
Moving on to slide 38 millennium.
Here, we are focused on expanding the footprint of the existing deposits and adding new satellite deposits such as some of our guide to increase mining Optionality and provide additional high grade ore sources.
This will allow us to continue to process ore well above name plate capacity and introduce higher grade ore into the feed to increase production later in the year.
During the quarter production at <unk> decreased primarily due to the lower average cried mood as.
As mining was increasingly focused in the North valley North pit as activity at the core of it started to wind down.
All in sustaining cost increase as lower grade ore was mined and processed due to the sequencing of mining activities at the <unk> North <unk> South pits.
As expected, we saw an increase in mining and processing costs due to a combination of higher fuel costs and increased electrical consumption as a proportion of fresh ore in the mill feed increased.
In the second half of the year, we will start mining from some of our guide, which will introduce a higher grade source of oxide ore into the face.
This satellite pit required to construction of a 20 kilometer haul road and village relocation both of which are progressing well.
In the short term, we will continue to be sourced from the North Valley, North not really Seth in for <unk>.
<unk> is expected to continue to trend below its full year production guidance and above its cost guidance with grades and cost are expected to improve significantly with the introduction of some of our growth.
Moving mass amana.
On slide 39 during the quarter mining of the why not open pit was completed.
We are now preparing the whole route to the <unk> satellite pit and conducting advanced great control drilling to enable mining to commence later this year.
Started production in the sea you underground continued to perform consistently.
<unk> comprised of a combination of primary stopes, which assumed with the cemented rock fill and secondary stripe extraction between the primary stopes.
At the same time, we've been progressing the underground declines at Weiner with over 1500 meters of combined advanced achieved during the quarter.
Production for Q2 was consistent with the previous quarter as lower grades from the wire open people were offset by higher plant throughput.
All in sustaining cost improved largely due to the low strip ratio from the final benches in the why not open pit.
As well as slightly lower sustaining capital.
<unk> has made a strong start to the year and look set to produce near the top end of the guided range for the full year at an all in sustaining costs within the guided range.
As you can see performance across our operations has been strong in Q2.
In the first half of the year and we remain on track to achieve that full year guidance.
That completes my brief overview of the mind and I'd be happy to go into more detail during the Q&A session.
Sebastian back to you.
Thank you Mark and drawn up.
As you can see we've made good progress during the first half of the year and we are well positioned for the rest of 'twenty two.
And this we believe that our progress are across our key themes will continue to build the resilience of our business.
To conclude I'd like to leave you with three key numbers, which are presented on the right hand side of the page.
This summarizes our business model and how we generate value to shareholders.
In summary, we discover answers for $25 an ounce.
We produce them for less than 900 per ounce.
And then we have returned nearly $200 per ounce to shareholders.
And our ability to continue to do this over and over again is supported by our track record of replacing our depletion through exploration.
And by delivering our growth in production. According to plan, where we are on track to meet guidance for the 10th year in the row.
As always I'd like to thank my team for their tremendous work and dedication. We are fortunate to have fantastic people within the organization that are pushing everyday to make sure we eat or exceed our targets.
You can't imagine how lucky I am to lead this incredible team and supported by an Amazing Board.
With that I'd like to thank you all for dialing in and open the lineup for questions.
Thank you ladies and gentlemen, we will now begin the question answer session.
As a reminder, if you wish to ask a question you will need to slowly press star One and then one on your telephone and wait for your name to be announced.
We will be prioritizing questions from covering at least at this time.
Once again, please press star one and then one if you wish to ask a question.
Please standby, while we compile the Q&A queue.
We have our first question comes from the line of Fahad Tariq from Credit Suisse. Please ask your question.
Hi, Good morning, Thanks for taking my question. The Lockheed gave such a crowd DFS I noticed the timeline changed a little bit by a quarter.
And in the press release, you mentioned that it's continuing to be refined can you just provide some more details on.
What is the current status of the DFS, if anything is changing and.
Also if you could provide.
An update on whether you still have the view that.
Costs remain high that you could potentially defer or delay the project.
Sure. Thanks Fahad.
Yes.
We're still convinced that this is a very attractive project for for endeavor.
It will fit well in our portfolio.
<unk>.
As I mentioned, the beginning of the year given the inflationary environment.
It is taking more time to reassess the DFS and optimize cost what we want is to make sure that when we come out with a capex figure. This is the capex that everyone can can trust and therefore, we continue.
To work on this but as I mentioned in the presentation in parallel we are working already on the ground on some of the minimal but important and key construction elements such as the fencing the astrolabe.
The road access in order to continue.
<unk> target production in the second half.
In the first half of 'twenty four so we keep this in mind.
<unk> will be to publish in the Q3.
Into Q3, so we are I would say weeks away too.
To come out with these <unk>.
Yes.
And then it will be a robust again, DFS and I think that with some background on the sub elements our expansion will be able to illustrate that we have strong confidence on the capex number that will come out from the DFS.
Okay, Great. That's very helpful. And then maybe just one more on capital allocation I noticed the pace of buybacks decrease from Q1 to Q2.
Just curious and maybe you can remind us how do you think about buybacks versus dividends I was a little surprised that they werent more buybacks done in the second quarter, given the share price was lower.
Thoughts there would be really helpful. Thank you.
Sure.
We have we have.
We mentioned that in.
In 'twenty, one and up to Q1 'twenty two.
The preference was going to buybacks in particular in the midst of the changes with the listing in London. So I think it helped and supported it.
We believe that we will continue going forward with a combination of more dividends and more buybacks. So I think that it's more a timing issue and you should see more buybacks in H two.
That's very clear thank you very much.
We are going to take our next question.
Our next question comes from the line of Amos Fletcher from Barclays. Please ask your question.
Yes, good afternoon, everyone.
One question on the all in sustaining costs in the second quarter.
Running above the top end of the guidance range. So obviously I guess youre expecting an improvement in the second half could you just walk us through what are the main drivers of that thanks.
Sure.
We usually have in Q2, and Q3 lower production numbers and higher all in sustaining cost simply because of the of the rainy season.
We usually have strong Q1.
And strong Q4, so I think that it's.
It's fair to say that we should see.
Q3 more in line with Q2 and Q4 more in line with Q1 and Thats why overall, we come.
<unk> that.
By the end of the year will meet the.
Initial guidance that we gave at the beginning of the year.
Okay, great. Thank you.
We are going to proceed with the next question.
The next question comes from the line of Harlan Gabriele from Morgan Stanley . Please ask your question.
Good afternoon, gentlemen, I have two questions. Firstly sebastiano you have been very active in managing your pure portfolio quality the acquisitions and disposals do you think that portfolio today is fully optimized and if not which assets are drifting away from your quality framework on our quality criteria. That's my first question.
Sure Thanks for that area.
I know I think we.
Since 2016, we've always been.
Managing carefully our portfolio.
We do it by improving progressively to quality.
Net of exploration going on in some of the existing assets to continue to improve mine life improve cost, but at the same time, we like the pipeline growth that we have with the some other MSR expansion probably noted that some other MSR is by far the lowest production site production cost side. So the.
Expansion will continue to drive audience sustaining costs down we believe that projects such as <unk>, which will have audience sustaining cost below 900 will will also drive in the right direction to portfolio, we're not shy in.
Taking out from the portfolio.
Assets, which are underperforming or which are not meeting the targets that we want.
We currently happy with the portfolio obviously.
<unk> and <unk> are challenging assets currently.
We see some opportunities in particular, when you're starting from next year and bingo with it's more because of the current environment. Some of the logistic issues and inability to do as much exploration as we wanted but overall, we know we are pretty pretty confident on the on the portfolio.
<unk> has been doing extremely well with this tenant.
Turnaround moving over moving out from we'll now open pit and getting into the.
Underground that will provide strong feed them into the plant and allow us in parallel to do further exploration.
And obviously I am just.
Emotionally attached to Honda and <unk>, which are original assets from the beginning.
We won't be surprises those two assets might get close to 300000 ounce of production this year each of them.
As you know a significant recognition too.
What was.
What the team has been doing sensor and improving the quality of those assets and at the beginning.
Thank you and my second question is on working capital can you managed to avoid building up any working capital during the first half in spite of the raw material prices have been great and sharply during that period and this is in contrast to almost every other mining companies.
Can you elaborate on how you manage to keep working capital creep at Bay and how should we think about your working capital movements as we go into the second half. Thank you.
Sure the working cap I mean, he is really.
A direct translation of our mining activities, but also in the seasonality.
So.
And we're trying to put as much pressure as we can on the team also in the.
In reducing inventories.
We've got more and more control I would say on the.
On the on the stocks inventories.
More work done with our suppliers in order to move progressively to.
Stock consignment with a lot of them. So this helps us too.
To better control over time, our working cap store.
Thank you and how do you expect them to evolve in the second half.
Donna you want to comment on.
Working capital evolution.
We expect changes.
Changes in working capital capital the negative negligible for the next quarter any increases that we're seeing in inventories are largely being offset by reductions in our prepaid and our other payables. So we don't expect there to be significant changes quarter on quarter for the rest of the year.
Thank you.
We are going to proceed with the next question.
Our next question comes from the line of Anita Soni from CIBC World markets. Please go ahead. Your line is open.
Good morning, everyone. Thank you for taking my call.
Sebastian could you talk about the implications of that in both NAND and when we're going into 2023 is there is there a long term sort of implications of bundling the challenges that they've been having this.
This quarter or do you expect them to reverse.
Hey.
Okay.
Sure. Thanks Anita.
<unk> sorry.
Sorry, I think I misspoke I meant when you're on <unk>.
Not model yes.
Okay, Okay market and you want to comment Mark.
But when you're on for 2023.
We'll be winding up the mining activity for core this year and we will be opening up the mining at <unk>, which is a.
A higher grade ore source.
So we are expecting to see some higher processing grades next year.
And sorry for <unk>.
And really it is just going to be a continuation of how we're going there as we continue.
Just balancing the stripping and opening up of.
<unk>.
The stages of the pits between the east and the West.
Okay.
Okay.
Okay. Thanks, I guess I was just wondering you mentioned that you haven't been able to do exploration and also address the question on.
So question ore grades going into sort of a medium term and the long term.
Part of that profile for Pringles.
I mean look the good thing is we still got some headroom in terms of reserves. So.
What we're doing is we're focusing on everything around the and within the fence perimeter.
Just to ensure that we fully understand everything there and has that all possibilities and then there has been some just small advancements just immediately to the north.
But.
As I said at this point in time, we've still got a number of years of reserves ahead of us.
And then flipping that around could you maybe talk about HCN human day.
They're going to hit the top end of their guidance range is there anything that we could maybe crack into 2023 are you seeing positive grade reconciliation or is it all just as expected.
I mean look I think if you and Hyundai and manner of all had exceptional years this year manner did.
Did have a nice combination of the wine the open pit and the underground going forward and we will.
A lower grade satellite pit called <unk> that will be opening up.
But then we'll also be opening up the <unk> underground.
For PC and Hyundai.
We're not from a from a 2023 perspective, it will be similar probably to the guidance of this year, we're still working through our updated life of mine plans, the reserves and planning and everything.
But.
As Sebastian said, they've been great assets for us that we've had for a while and we're very very comfortable with how they're performing.
And then lastly on alright.
If I could ask.
Since you mentioned reserves update do you plan on using the same gold price that you used previously and can you remind me what that is or are you going to change your vote prices.
We're going to use the same gold price as previously which is that $800 per ounce.
Okay. Thank you very much.
Okay.
We're going to proceed with the next question.
Our next question comes from the line of <unk> Habib from Scotia Bank. Please ask your question. Your line is open.
Thanks, Operator, Hi, Sebastian endeavor team.
Really congrats on a strong quarter.
In the first half.
Great to see production of specialty cost guidance maintained.
So actually most of my questions that I have.
I was looking to ask have been answered, but maybe a follow up question on <unk>.
You kind of mentioned obviously, the PDP study coming in the end of Q3.
Youre really trying to tighten up.
The capex assumptions.
But maybe any sort of.
Comments that you could make them maybe mark you can jump in here as well in terms of.
The scope.
Any sort of scope changes of mine life extension that you kind of take a golf within this <unk> study.
That you could point towards thanks.
Sure Thanks, Frank device.
I think that what's important for us.
On the P eight years.
The quality of that project.
Ability to control the Capex. So this is why.
Are we spending were spending time in terms of scope. We mentioned that we've increased the plan from three to 4 million tonnes, which is obviously an important step in and explain part of the delays compared to the initial plan. The second half was in the current inflationary pressure we have been.
Taking our time to see where prices stabilize.
We're thinking to select all the right suppliers ourselves to negotiate best generative prices.
We moved from an EPC contracts to the new PCM contracts to be able to build ourselves much more I think I gave you.
Some examples.
We had it in our initially initial capex.
Kevin construction for about $15 million.
Our guys have been able to identify a camp that was due for Rio Tinto for Guinea that OSA.
Whether it was in the port in Turkey that we were able to take up and a $4 $6 million.
So you see that when you are able to spend more time focused you are able to significantly improve things, which is even more critical in this inflationary environment. So.
The reason why we're not rushing is because we want to make sure that at the end of the Capex, we are going to come up with the overall returns that we have on this project, which has 20% return on capital employed and at the same time that we have enough confidence in room in this capex that there won't be any surprise going forward and I think that we might be able to.
In Q3 to demonstrate that if we take the first projects, we launched about three months ago, which is the sub other MSR expansion.
This capex is going well on track compared to what we.
Announced and therefore feel comfortable that the number we will put out for for that figure.
<unk> is one that.
That will stand behind.
In terms <unk>. Thanks for the question. The other thing I would add is less.
It is important also for us as we want to.
Continue to ensure that we have a diversified portfolio across the region.
So you'll recall that we probably have a bit more than 50% of our production and <unk>.
<unk> from volcano today tomorrow with the sub other MSR expansion going to above 400000 answer that you should take in a 141 5 million ounce annual production means that <unk> will be close to about a third of our production once the expansion is done.
With <unk> that we'd be doing between 200 $250, an ounce alongside EG, which is about.
Again, 250000 ounces that means that could be well will be around half a million ounce also so thats another third and therefore have an evenly.
Spread.
<unk> portfolio between <unk> and <unk>.
Excellent thanks, and really appreciate that insight.
And just on the exploration.
Nation side then.
Obviously, the figure that was completely a greenfields discovery.
Mom endeavor.
Is there other lets you gave us kind of in your back pocket that you can start talking about.
So I'm not going to give the mic to Patrick with good center hours.
On the.
The back pocket, it's options that that we are building and preparing but.
But I think that's the beauty.
This region.
You'll recall that.
From a discovery standpoint, it's the biggest region.
For the last 10 years for discoveries.
We've got one.
<unk> I would say very from rising Greenfield exploration in Guinea in Cote d'ivoire, and I think we will be making some announcements in Q3 beginning of Q4 around the results that we have on some of them.
And.
Some of them are quite.
Quite spectacular and vary from rising to continue to fuel I would say our organic growth pipeline.
Okay. Thanks, Thanks for that question.
Maybe just teasing.
Okay.
Thanks.
Thank you.
We're going to proceed with the next question.
Our next question comes from the line of Wayne Lam from RBC. Please ask your question. Your line is open.
Hey, Thanks, good morning, guys.
Just a question I had I.
I was just wondering as you move into the central in the North zones can you give us an idea of how the grades will trend there relative to Sofia and and.
And when do you expect to get into that transition material from those deposits and what kind of impact on recoveries.
Do you expect once you get into those zones.
Yes, okay. Thanks for that.
<unk>.
Massawa North pit is a higher grade pit then Sofia.
The central zone, and the oxides is kind of similar in.
In terms of the weathering surfaces they are variable so.
You do get you do start to see some transitional.
Parts of the pit earlier than others, it's not like it's just a.
Uniform line that you get to in your transition.
Between the sizes.
So we are starting to see some transitional in occasion in the central zone pit.
That we've been mining since the start of the year. What we're doing is we're not processing any of the transitional rule, that's all being stockpiled for the biopsy.
Okay perfect. Thanks.
And then maybe just on fuel I think the detail that you guys provided was really helpful.
Would you be able to help quantify the impact of the government subsidies in various regions and all else equal should we expect cost to trend higher.
As.
As prices start to reset.
Okay.
Okay.
Sure.
Martino, we can probably take this offline with you and go through it.
As you probably saw I mean, this is probably about <unk>.
Close to $50 an ounce in terms of impact for each one based on the current Puma several different countries.
There is no real I mean subsidies I mean direct subsidies for for the industry.
It's just the timing.
The sense, we have is that we probably reached a peak in terms of fuel prices in the different countries, where we are.
And therefore, our confidence that.
Our forecast for <unk> two.
<unk> is under control.
Okay.
Okay got it thank you and maybe just last one.
Just curious how much more open pit material you expect to be able to supplement the underground on a go forward basis, I know post depletion of the open pit and there are a couple of smaller satellites, but.
Just based on the outlook today.
Proportion of where can we anticipate kind of adding to the underground profile.
So before for the open pit.
<unk> immediate.
Deposit is Mayo, we do have some other options that.
I guess to slightly lower quality than mailer and slightly further away that we are still investigating.
From an underground perspective, the winder underground and the <unk>.
<unk> theater is quite long and we've started with two portals and that gives us the ability to mine in the order of.
Basically 60000 ton a month per portal and we are considering the ability to then.
Go further along strike to then start to duplicate that.
Okay.
The open pits.
Specifically like how much.
Should we model in terms of tonnage.
Yes.
Are you talking about over the over the course of the year or yes sure over the next call. It 12 months.
Yes.
The exact numbers in front of me.
But I think.
We are looking at.
Clearly the goal will be to fill the mill if possible.
One of the other things that is always something that we will balance is looking at the quality of the of the ore coming from underground is.
Whether we do slow down the middle.
In future years.
There is certainly nothing wrong with that and <unk> certainly done that before in my career.
If you have a higher quality of feed from underground the goal is not necessarily to fill the mill in.
In the short term, we believe we will have enough feed for.
Certainly 'twenty two 'twenty three.
Okay got it thank you.
We are going to proceed with the next question.
The next question comes from the line of Don Demarco from MDC. Please ask your question. Your line is open.
Alright, Thank you operator, and good morning team Hi, Sebastian.
So what did we see here is very strong consistent.
Operations quarter over quarter now, it's good to see maybe one little blemish in in Q2 of one Jan can you maybe add a little bit more color on one Jan then like whats different.
Through the execution of an H one versus what your expectations were at the time of guidance.
And what's the grade of the salmon Vogel pit and how much or would you be expecting to mine from that say in Q4 and into 2023.
Yes.
Essentially.
What we do in the different mining areas no belly, north Nobel SaaS for cooler as we stopped mining the high value pits first and then.
Progressing to the lower value pits.
And we were just in a situation, where we were running multiple lower value pits, whilst we are establishing in particular in the <unk>.
Have a good area.
So.
We are definitely on track to be mining at <unk> in Q4.
In terms of the specifics of the detail I don't have that and Im sure Thats something that maintain on obtaining can take you through some of them who is a.
A bit more than two grams per tonne in terms of upgrade so.
And so a bit higher than what we currently have and this is why we are confident that we.
We should see higher production numbers and therefore so.
<unk>.
Okay.
Okay great.
Maybe another continuation of a previous question. So you've got a couple of up and coming.
Resources in your pipeline back to Karen Cassel Golden Hill.
Is there any timing on a technical report on any of these I know some of these are actually pretty substantial in terms of the magnitude of balances.
Okay.
No I think that.
Then to.
As expected to be drilled in age too I mean, we started I mean at the end of Q2 to do some drilling there so.
We start getting some results around that in H two.
Same for Golden Hill, which obviously was not a priority in the short term given some very good results that we had around the around the index as you know Golden Hill, we still view <unk> as a potential satellite pit for.
So it just goes through.
The highest priorities.
And.
And move forward progressively.
It's been also some very interesting discoveries recently in Q2 that.
We've decided to shift I would say the some of the drilling programs to those highly.
New attractive.
Areas and particularly in Cote d'ivoire. So this is why it's changing a bit some of the work plans but.
The good thing is to have so many so many options in the portfolio. So.
In any case, we intend to do.
Full update on the on the exploration as part of our Q3 results in November .
Okay great.
Okay, well look forward to that I think that's all for me for now thank you very much.
Thank you.
We are going to proceed with the next question.
Our next questions come from the line of Kerry macro <unk> from Canaccord Genuity. Please ask your question. Your line is open.
Hi, Good morning, most of my questions have been answered, but maybe just on the production guidance.
With H one performance you are tracking to the high end of the guidance range is that more or less what we should be expecting for the year now or should we expect to instead of a slow down at some of the assets.
We are always cautious carrier simply because.
We are into now of the rainy season.
We don't know what's going to be the magnitude of the impact of the rainy season.
Up to which dates I mean, we'll have some some impact obviously, we are preparing ourselves.
Stockpiling.
In H, one and particularly in Q1 and Q2.
But so far so good and this is why we felt.
Confident to raise rates.
Turning to our guidance both on production and cost because we see that that we're trending well in <unk>.
And the plan is.
As working as anticipated.
Okay fair enough and maybe similarly on the guidance.
To your peers.
At least indicated they expect cost to come at the high end of guidance Youre tracking right in the Middle I know there was a lot of pluses pluses and minuses over the last quarter, but it's still the middle of the guidance still a reasonable place to target obviously barring changes on the rainy season.
Sure.
We would like I mean, the entire sector being performing well.
And I need to track overall, our investors rather than being just an outlier.
At the same time.
Right.
Keep feeling that when.
<unk> got strong inflationary pressure you still have leverages I mean to compensate some of them.
Probably the worst thing to hear from you.
<unk> is it is what it is.
If not it is what it is.
That's what we work on its not because <unk> got a 50 dollar impact on your fuel cost that you can improve things elsewhere, you can reduce G&A you can do.
Improvements here and there.
Continuous improvement. So you always have leverage is just a question of are you putting the right efforts at the right place to ensure that you are able to compensate for that.
Great. Thanks for question.
Okay.
We're going to proceed to the next question.
Our next question comes from the line of Raj <unk> from BMO capital markets. Please ask your question. Your line is open. Thank you.
Good afternoon of American fashion, and that's my first question is more general insurance, but the one thing we are continuing to hear from the mining sector is.
Skilled labor shortage high attrition levels and related inflation.
Now being in West Africa, Im guessing youre shielded from a lot of that compared to other assets in Australia, and Latin America, but just wanted to get a sense of how you see that in West Africa <unk> seen.
<unk> seen some of the same pressures.
So.
Shielded against most of that and then my second question is on the converts that mature next year I know that there is the option of.
Either a painting of cash are taking delivery of shares now just wanted to get.
As a reminder, superior and whether adoption is on the comp.
And it's been asked or other convertible notes whether to take cash or shares.
Sure thing.
To speak.
I mean on the people side I think that the.
The beauty of our <unk>.
Being in West Africa, and Thats, why we like this region.
We've been working for years and years as you know.
Our program of growing local talents. So we have in fact access.
Two a significant pool of people attracted to move into the mining sector.
We don't necessarily have.
The same background and experience than in other regions, but they are willing to learn and we've been seeing some amazing success story internally.
On growing local talents.
So, yes, I think that we have that flexibility.
Given the region, where we where we operate and that has been a success so far.
On the on the other side on the convert.
Yes, I mean, we always said that the objective.
Given the cash flow generation that we have.
In particular in the current gold price environment.
Is to settle the convert into into cash if need be a mix of cash and shares but the time by the time being clearly the target is two to settle in cash and we're getting prepared I mean this is why you're seeing a significant amount of cash on the balance sheet.
In order to be to be prepared for this in the end.
In March and March next year.
And through this.
Avoid any dilution to our existing shareholders and demonstrates through that again that we were right. When we did the convert back in a few years.
As ago, and being able to finance our key projects.
3% coupon.
Which if we have gone through.
Other instruments, the debt level and the and the interest rates would have been closer to seven or 8%.
That's great Sebastian Thanks for that and the game there and good to see the operational momentum continue.
Thank you.
We will now proceed with the next question.
Our next question comes from the line of commentary from Bank of America. Please go ahead. Your line is open.
Hi, Thank you for taking my question I just had a question on your 2023.
Dividend you increased your minimum dividend this year, but does the 2020 through dividends still stand at $135 million.
And would you revisit that at some point and whats the thinking.
And what sort of what would drive that thank you.
Sure, we said that what we wanted is to have.
Cognex Eva.
The dividend that will continue to increase so a thing that we.
We said that next year, the minimum would be at a $175 million, providing gold price would be above 500, given that this year, we should reach a minimum of $200 million.
Obviously, we should expect.
A dividend in 'twenty three that should be in line with this our Ohio.
But again this will depend on where gold prices in the performance.
Great. Thank you.
Thank you we will conclude today's question and answer session I would now like to turn the call back to Mark Gino did Ya Chu for any closing remarks.
Thanks, everyone for joining the call today I realize that there are still pending questions. So we remain available to answer these offline. Thank you and have a good day.
And that will conclude today's conference call. Thank you for your participation ladies and gentlemen, you may now disconnect.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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Sure.
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Yes.
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Yes.
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Yes.
Dan.
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