Jun 16, 2015 (Thomson StreetEvents) -- Edited Transcript of Endeavour Mining Corp earnings conference call or presentation Monday, May 4, 2015 at 2:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Neil Woodyer Endeavour Mining Corporation - CEO * Ota Hally Endeavour Mining Corporation - CFO * Attie Roux Endeavour Mining Corporation - COO ================================================================================ Conference Call Participants ================================================================================ * Rahul Paul Canaccord Genuity - Analyst * Mark Bentley MAB Trading - Analyst * Danny Ochoa Haywood Securities - Analyst * Ragu Gurham - Private Investor ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Greetings and welcome to Endeavour Mining's first-quarter 2015 results webcast. (Operator Instructions). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Neil Woodyer, CEO of Endeavour Mining Corporation. Thank you. Mr. Woodyer, you may begin. -------------------------------------------------------------------------------- Neil Woodyer, Endeavour Mining Corporation - CEO [2] -------------------------------------------------------------------------------- Thank you, operator, and welcome, everybody, to our Q1 2015 webcast presentation of our results. With me as usual is Attie, our Chief Operating Officer, Attie Roux, and joining us the first time is Ota Hally, our new CFO. Ota had been VP Finance and Controller for some time before, so he sat very naturally into the job of CFO. So, welcome to Ota. If we can now change to Slide number 4, which gives our operational highlights for the quarter, Attie and the operating team performed very well for the quarter. Our production was 124,000 ounces, which positions us very well to be able to deliver the full year's production guidance of 475,000 to 500,000 ounces. Our all-in sustaining cost for the quarter was $964 (sic -- see accompanying slide number 2, "$946") an ounce, so somewhere around the midpoint of the range of $930, $980. And very significantly, we saw an improvement at Tabakoto where its all-in sustaining cost came down by $246 in the quarter to $1,127. And we are anticipating continuing improvement throughout the year, bringing it down to its guidance for the year. Overall, our all-in sustaining margin was $33.9 million and our free cash flow before exceptional items was $9.3 million. Our after-tax net earnings was $13 million. We finished two heavy years of capital expenditure where, over the last two years, we've invested $300 million in building Agbaou and improving Tabakoto. And in this quarter, we have a new phase where our non-sustaining capital expenditure was only $8.3 million. And most of this relates to carry-forward projects finishing us off at Tabakoto from last year. If we turn to the next slide, Slide 5, one of our primary objectives this year is to reduce our debt. In March this year, we extended the corporate revolving facility with five banks and extended it to its final maturity date five years away of March 2020 and significantly increased our flexibility and ability to use that facility. There are no mandatory repayments for the next 3.5 years. The terms of the loan are similar but slightly looser for us and slightly more flexible than they were before. Because of the strong quarter we had in the first quarter and because we saw continued performance in April this year, at the end of last week, we took the decision to make our first repayment or reduction of the facility and we reduced our usage by $20 million. So that means currently the net amount drawn is $280 million. So we have $70 million which we can draw in the future for whatever reason we thought was appropriate. So, we are in a stronger financial position now as we've turned the corner and generating cash. And on that happy note, I'll turn over to Ota to take us through the production numbers and the all-in sustaining costs. -------------------------------------------------------------------------------- Ota Hally, Endeavour Mining Corporation - CFO [3] -------------------------------------------------------------------------------- Thank you Neil. On Slide 6, we see the breakout of the mine-by-mine produced cash cost and all-in sustaining cost. Attie will speak to some of the technical details, but one can immediately see the strong performance of Agbaou at an all-in cost at the mine level of $577. Nzema had a challenging quarter coming in at $1,194 and as Neil indicated, a good improvement from Q4 of last year at Tabakoto coming in at $1,127 and Youga right in line and another strong quarter at $851 all in-costs. Down at the bottom, the evolution of our all-in costs, it has been a very happy story presenting this to you over the successive quarters. And we find ourselves at $946, right in the middle of our guidance range, which gave us the all-in sustaining margin of $33.9 million. On Slide 7, we continue to present our all-in sustaining margin, both in dollars, ounces, and on a per-ounce basis. What we can see here is the revenue we achieved, the cash margin, sustaining capital, I wanted to highlight that that includes some of the waste cap which, depending on strip ratios and timing, finds its way between cash costs and sustaining capital. And then the start of our 2015 exploration program saw us sustaining exploration of $1.6 million, bringing us again to that all-in sustaining margin of $33.9 million. On Slide 8, just a reconciliation and walk-through explanation of our cash position. We did start at $62.2 million at the end of the year. And with the regular items that we see and including non-sustaining investments and additional bit of non-sustaining spend at Hounde, our free cash flow before the exceptional items was a positive $9.3 million, which brought our cash balance at the end of the quarter before the exceptional items at $71.5 million. And as Neil mentioned, we renewed the credit facility, which incurred fees as well in the Q4 of last year. We had some VAT factoring balances that had to be repaid this quarter, so that was a $9.7 million drop. Ended our cash balance at $56.4 million. And with that, I'll hand it over to Attie for a walk-through of the operations. -------------------------------------------------------------------------------- Attie Roux, Endeavour Mining Corporation - COO [4] -------------------------------------------------------------------------------- Thanks Ota. If we go to Slide 9, I'll start with the operating summary for Agbaou mining Ivory Coast. Another excellent performance for Agbaou for the quarter, producing well in excess of budgeted ounces for the quarter at 45,000 ounces. Agbaou is at the moment still benefiting from the soft nature of the oxide and sulphide orders we're processing at the moment in terms of increased tons throughput through the plant, higher grade that we forecasted and also significantly higher recovery in the purchasing facility. The exploration program at Agbaou continued during the first quarter and the focus at this point in time is to convert the last bit of inferred resources to indicated, but mainly generation of new targets during the first half of the year for drilling up in the second half with the Phase 2 drilling program. For the first quarter, we drilled about 18,000 meters. If we turn to Slide 10, the operating summary for Nzema, as Neil and Ota alluded to, Nzema had a tough quarter for the first quarter, mainly in the second month in February. We had some limitations in the throughput through the processing facility mainly due to the blend of mainly Adamus ore, very hard rock coming from the pit. What we've done now is to increase the blend of the other sources. I can go especially with the Adamus to alleviate this problem. And also, the blast fragmentation has improved significantly during the last well and that will assist in the throughput through the processing plant. We did see some great variances in the blocks that we mined during the first quarter, but that looks like it's normalized at the moment. One of the unexpected issues that we picked up during the first quarter was reduced volume and grade of the purchased material that we are purchasing at Nzema. I must say, for March and now into April, the suppliers have rectified the problem and the material is back to specification. I think the biggest challenge Nzema is facing, together with all the other mines in Ghana, is the current mandatory power (inaudible) that we have in the country where we have to shed one-third of the power. This means that at Nzema we are on one-third of the timing on diesel and as we all know, Ghana government has not passed the fuel savings onto the consumer, so we are having a double hit at Nzema. If we turn to Page 11, Tabakoto mine in Mali, as Neil and Ota alluded, we had a much improved quarter at Tabakoto mine with the all-in sustaining costs improving almost 20% down from the last quarter to this quarter. This comes from the back of changing out the open pit from Djambaye and to Kofi C and the first oil has been hauled to Tabakoto around during the middle of January. This is going to be a key driver in driving the all-in sustaining costs down. The people on the mine are concentrating on reducing dilution, especially in Tabakoto underground, which results in higher grades getting to the processing facility. We also started seeing improved grades from Segala underground compared to the last quarter, and these are expected to continue into 2015 as we move into the second series of high-grade blocks now. The new CRF plant has been commissioned during the first quarter and that will certainly benefit us going into the future. The exploration plan is on strike at the moment with 6,000 meters drilled and the early results are very encouraging with extended mineralization on strike and on all the targets that we've built. If we turn to Slide 12, Youga gold mine, a very solid quarter for Youga Goldmine producing in excess of budgeted ounces at an all-in sustaining cost of $850. Of note at Youga is that all the first generation pits, the main pit, east pit and the west pits, are all done. They are finished. We are now moving or have moved into the gold pits which will become the future of Youga at this stage. And with that, I'll turn back to Neil to talk about Hounde. -------------------------------------------------------------------------------- Neil Woodyer, Endeavour Mining Corporation - CEO [5] -------------------------------------------------------------------------------- Looking at Page 13, Hounde, our development project, we received the mining permit in February of this year after receiving the ESIA completed in last year. And at the end of last year, we were able to increase our reserves by 34%, which means we now have 2.1 million ounces or 2.1 grams a ton, which would give us a 10-year mine life of about 190,000 ounces a year but the first three years will be about 240,000 ounces each. The current estimate of the upfront capital is $325 million, which includes an owner mining fleet of about $55 million which, when we go forward, we will look to lease that. The economics are at a gold price of $1,250. The all-in sustaining costs are just over $700, $714 million. The IRR is 31%. But when you look at the chart on the right-hand side of the screen, we've shown a positioning of where Hounde is both in terms of its reserves and where it is in terms of feasibility, permitting, construction, and production compared with other projects in West Africa. And very importantly, we've shown where the 30% IRR break is and we're showing that Hounde certainly ranks in the top tier of West African projects. With regard to financing the project and constructing it, we look to the end of the year to see what's happening with the gold price. We look to the end of the year to see how our cash generation this year has gone. And between now and sometime around about then, we would intend to negotiate the lease for the equipment. So we would expect towards the end of the year, early next year, to be positioned to, if it's appropriate, to make a production construction decision. And we would expect, if the gold price stays above about the $1,200 mark, we would expect to be able to finance it from our own cash flows the lease and the use of our existing credit facility. So, ladies and gentlemen, that is basically the conclusion. If we turn to Page 14, we can see that we have five key objectives for the year. The first is to produce roundabout 500,000 ounces. And in the first quarter, we produced 124,000; to maintain our all-in sustaining costs mid range of $900 and in the first quarter it was $946; to be profitable for the year, our net income for the quarter was $13 million. Our fourth objective is to use our free cash flow to reduce debt. And as I said, this quarter, we successfully renewed and extended our revolving credit facility for five years and we also in April this year made the repayment or reduced the facility usage by $20 million. And in terms of our fifth objective, to extend mine life through exploration, we have started our 2015 programs, building on the success of last year. So, at the moment, we are on track to deliver all our 2015 objectives. So, ladies and gentlemen, that is the formal part of our presentation, and I would ask the operator to take us through question-and-answer session. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions). Rahul Paul, Canaccord Genuity. -------------------------------------------------------------------------------- Rahul Paul, Canaccord Genuity - Analyst [2] -------------------------------------------------------------------------------- Congratulations on the strong quarter. Just a question on Hounde. You spoke about developing the Hounde project and your confidence that it can be funded through internal cash flows and some capital leases as well. Now, the last presentation showed Hounde contributing to production in 2017. I'm just wondering. What gold price would you need to see over the next two years to be able to maintain that timeline? And if the gold price were to drop below $1,200 or whatever that gold price is, would you push out a construction decision for the entire project or would you just slow down construction maybe four-year build versus a three-year build rather than a two-year build, that sort of thing? -------------------------------------------------------------------------------- Neil Woodyer, Endeavour Mining Corporation - CEO [3] -------------------------------------------------------------------------------- Well, firstly, if I can say we haven't yet made that decision as to go ahead and construct and it would be very -- based upon how much our success of the year has been and how we've been able to perform. Plus also, the gold price at the time and our view of where the gold price was going, it's very simple. North of $1,300, it's a no-brainer. South of $1,100, it's a no-brainer. Between the two it's difficult. So $1,200, $1,250 is probably the kind of position we'd want to see. I think it depends upon our financial strength at the time as to how we would handle it and how quickly we would do it. Hopefully, we are in a position where we could start in the first quarter. The schedule build is 18 months, and I think we just have to be pragmatic between now and then and I think we'd have to be pragmatic if we took the decision to move ahead and see what we could do to strengthen ourselves to make sure we could finance through any downturn in the market, as we did with Agbaou. -------------------------------------------------------------------------------- Rahul Paul, Canaccord Genuity - Analyst [4] -------------------------------------------------------------------------------- Okay. Thanks very much, Neil. Then just moving on to Tabakoto, it was fairly good to see costs come down the way they did. And it looks like Kofi had a lot to do with that. Is the plan for this year mostly oxide material from Kofi, or is it -- is there a reasonable amount of sulfide material in the mine plan as well? -------------------------------------------------------------------------------- Attie Roux, Endeavour Mining Corporation - COO [5] -------------------------------------------------------------------------------- I'll take that one. Yes, the top players are really laterite and saprolite. So we expect for some period of time, quite a few months, that we will be in the softer type of material. Certainly, the transition zone once, we start needing to blast I guess by between the second and the third quarter somewhere that we will do some sort of blasting. But for now it is really soft material. -------------------------------------------------------------------------------- Rahul Paul, Canaccord Genuity - Analyst [6] -------------------------------------------------------------------------------- Okay, Attie. When you go into the transition into the south side, do the grades go up versus the saprolite and the laterite? -------------------------------------------------------------------------------- Attie Roux, Endeavour Mining Corporation - COO [7] -------------------------------------------------------------------------------- Yes, this is one of the fortunate situations where the grade does improve with it. -------------------------------------------------------------------------------- Rahul Paul, Canaccord Genuity - Analyst [8] -------------------------------------------------------------------------------- Okay, thanks. That's all that I had. -------------------------------------------------------------------------------- Operator [9] -------------------------------------------------------------------------------- (Operator Instructions). Mark Bentley, MAB Trading. -------------------------------------------------------------------------------- Mark Bentley, MAB Trading - Analyst [10] -------------------------------------------------------------------------------- I have just one question on the cash flow guidance contained in the Quarter 1 report. In your April management presentation, Slide 8 shows guidance of free cash flow of $130 million to $135 million for the current financial year before interest and tax, whereas you are now forecasting $100 million before interest and tax. I'm just wondering what's changed there. -------------------------------------------------------------------------------- Ota Hally, Endeavour Mining Corporation - CFO [11] -------------------------------------------------------------------------------- I can take that one. The forecast and guidance that we have in the financials just published actually is the same guidance that we have from year-end. And the fuel and FX cost savings that we are presenting in the presentation are still approximate. So you know, we continue to hold our guidance as we see the fuel and FX savings come into place. -------------------------------------------------------------------------------- Mark Bentley, MAB Trading - Analyst [12] -------------------------------------------------------------------------------- Okay, so there is where possible additions to the forecast free cash flow and you are still holding where you were at year-end? -------------------------------------------------------------------------------- Ota Hally, Endeavour Mining Corporation - CFO [13] -------------------------------------------------------------------------------- Correct. -------------------------------------------------------------------------------- Mark Bentley, MAB Trading - Analyst [14] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- Operator [15] -------------------------------------------------------------------------------- Danny Ochoa, Haywood Securities. -------------------------------------------------------------------------------- Danny Ochoa, Haywood Securities - Analyst [16] -------------------------------------------------------------------------------- Just one question here. My first question just on Agbaou. I'm just wanted to know what drove the higher grades in the quarter and what do you expect for the remainder of the year to look like? -------------------------------------------------------------------------------- Attie Roux, Endeavour Mining Corporation - COO [17] -------------------------------------------------------------------------------- Okay. I'll take that one. Thanks. The higher grades for the quarter was mainly just a mix issue where we mined and a little of cost reconciliation between the grade control and the original resource drilling. For the rest of the year, we see the grade marginally down from the mid 2s -- closer to the 2, but we still foresee that will make the monthly guidance quite easily for the rest of the year. -------------------------------------------------------------------------------- Danny Ochoa, Haywood Securities - Analyst [18] -------------------------------------------------------------------------------- Okay. And then also at Agbaou, I saw that you guys incurred a $0.8 million in land compensation capital during the quarter. What was that related to? And do you expect more payments during the year for that? -------------------------------------------------------------------------------- Attie Roux, Endeavour Mining Corporation - COO [19] -------------------------------------------------------------------------------- Okay, thanks. I'll take that one as well. Yes, the land compensation payments are related to expansion as we drill more on the exploration drilling. If you find something you need to secure that in terms of the land and you need to compensate. It becomes a bit -- that's just increasing property holding in terms of the permit and also around the tailings then where we are doing a tailings extension we need to do some compensation. The compensation is not really seen as going out of the budgeted number for the total year. It's maybe just a bit of pricing issue at this stage. -------------------------------------------------------------------------------- Danny Ochoa, Haywood Securities - Analyst [20] -------------------------------------------------------------------------------- Okay, okay. Great. And then just at Tabakoto, can you I guess clarify what the stope bridges are and I guess what drove the reduction in the amount of the stope bridges required? -------------------------------------------------------------------------------- Attie Roux, Endeavour Mining Corporation - COO [21] -------------------------------------------------------------------------------- Okay, the bridges results at the top -- as you drill upwards and sometimes the -- you know, you don't drill to the top or you don't charge to the top. So there's a little hang up in the top of the stope, a little bridge hanging across the stope. What's happened in during this first period now is we've had to totally focus on correct drilling, correct charging. We actually have an automatic house pressure that charges always right to the top. So we are getting more focused on doing the thing properly and we've seen this significant reduction in the amount of bridges hanging up. -------------------------------------------------------------------------------- Danny Ochoa, Haywood Securities - Analyst [22] -------------------------------------------------------------------------------- Okay. And then my final question, on the debt repayment side, do you guys expect to see any more principal repayments during the year? -------------------------------------------------------------------------------- Neil Woodyer, Endeavour Mining Corporation - CEO [23] -------------------------------------------------------------------------------- Yes, we do. It's reduction of the usage because it's a revolver, it comes -- go in and out. But yes, we do. We will use whatever is appropriate surplus free cash flow to do that. Yes. -------------------------------------------------------------------------------- Danny Ochoa, Haywood Securities - Analyst [24] -------------------------------------------------------------------------------- Okay, great. That's all the questions for me. Thanks a lot, guys. -------------------------------------------------------------------------------- Operator [25] -------------------------------------------------------------------------------- Ragu Gurham, private investor. -------------------------------------------------------------------------------- Ragu Gurham, - Private Investor [26] -------------------------------------------------------------------------------- Thank you all. It's a very good quarter and congratulations to the team. I have a few comments and maybe a few questions. Regarding Tabakoto, it went well. Really it's a great effort there. Now, my question is we have all-in sustaining costs of around $1,125 plus. I'm not exact here but something in that range. Now our guidance is somewhere between $950 to $1,000 for the year. That means management is expecting continued progress in both production and cost reduction. And that means we will be seeing tremendous amount of cash flows to the Company. I want clarification there regarding how production is ramping up each quarter, how management is viewing. And also, I read in various press that Kofi -- the government officials were there and CEO Mr. Neil Woodyer was there. I've seen his pictures with government officials in Kofi working. And can you please shed some light on what's going on and any exploration going on in Kofi? Obviously, that is a real jackpot if we could enhance exploration in that area, in that belt. So, I will stop there and I have another comment. And thank you. -------------------------------------------------------------------------------- Neil Woodyer, Endeavour Mining Corporation - CEO [27] -------------------------------------------------------------------------------- Will you take that one Attie? -------------------------------------------------------------------------------- Attie Roux, Endeavour Mining Corporation - COO [28] -------------------------------------------------------------------------------- Okay, let me go. Talking about Kofi specifically, we started the Kofi C permit for the Kofi C pit during this quarter. It is a high-grade pit. But, in the Kofi area, as you mentioned there, there are other properties which we are going to explore this during the rest of the year. There's a few other properties that we are targeting. So yes, you are correct. There is potential to increase the immediate feed to the mold from that area into the future. -------------------------------------------------------------------------------- Neil Woodyer, Endeavour Mining Corporation - CEO [29] -------------------------------------------------------------------------------- Yes, we built a 38 kilometer road north of the Tabakoto complex at Kofi C. The mining permit covers, including Kofi C, eight deposits, and we will progressively mine those going south to the mine. We are at the moment started at Kofi C, which is performing slightly better than we anticipated. So we will progressively move away from that being the third source of material to the Tabakoto complex. Does that answer your question? -------------------------------------------------------------------------------- Ragu Gurham, - Private Investor [30] -------------------------------------------------------------------------------- Yes, it did. The main question is actually -- or comment is like our all-in sustaining costs $1,125 Q1 and your guidance is for $950 to $1,000 for the year. That means we need to see the Q2 or subsequent quarters significantly lower than what we have seen already at Q1. So, my question is what is -- how you are ramping up and how things are going there. -------------------------------------------------------------------------------- Attie Roux, Endeavour Mining Corporation - COO [31] -------------------------------------------------------------------------------- Okay. If we look at the first quarter, Tabakoto produced 10,500 ounces per month for the first two months and then we when everything came together and Kofi started performing, we ramped up to 12,500 and it looks like April is going to be a significantly better month as well. So we have turned the tide. The positive influence on the grade from getting the higher grades from Kofi and also higher grade from Segala underground. And as I mentioned earlier in the presentation, the issues with dilution at the Tabakoto-2 mine has been sorted out as well. So overall we are getting higher grades, which will yield more ounces. And you know, with the costs under control, if you have good cost and good ounces, you will have low all-in sustaining costs. -------------------------------------------------------------------------------- Ragu Gurham, - Private Investor [32] -------------------------------------------------------------------------------- Excellent. Last question regarding Nzema. Is there a way you can enhance feed there by buying a lot of mines at any nearby properties that already maybe are good exploration targets? Is there a way you can buy -- and this applies to this question, applicable to all mines. I think we have great infrastructure. You have invested so much money, so now it is leveraging this infrastructure and you're generating cash out of all the mines the infrastructure we improved. I think you have to do something on that front and I appreciate that. And my questions are finished now. Thank you. -------------------------------------------------------------------------------- Operator [33] -------------------------------------------------------------------------------- Thank you. There are no additional questions at this time. (technical difficulty) I'd like to turn the floor back to management for concluding comments. -------------------------------------------------------------------------------- Neil Woodyer, Endeavour Mining Corporation - CEO [34] -------------------------------------------------------------------------------- Thank you operator. And thank you for everybody attending and listening to our presentation. We are very happy with the quarter performance and are certainly anticipating moving forward on our guidance both in terms of production and costs for the year and our intention to carry on taking surplus cash and reducing our debt. So, thank you very much, ladies and gentlemen, for being with us. Thank you. -------------------------------------------------------------------------------- Operator [35] -------------------------------------------------------------------------------- This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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