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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for standing by, and welcome to the Endeavour Mining First Quarter 2022 Results Conference Call. [Operator Instructions] Today's 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 management. Please go ahead.
Hi, everyone. I am Martino, Vice President, Strategy and Investor Relations, and I'd like to welcome you to our Q1 2022 results webcast. On the call, I am joined by Sebastien, Mark, Joanna and Patrick. Today's call will follow our usual format, where we will first go through the quarter's highlights, then the detailed financials. And finally, we'll walk you through our operating results by mine. We'll try to be as quick as possible to leave time for questions at the end.
Before we start, please note our usual disclaimer. And I'll now hand it over to our CEO, Sebastien, to walk you through our Q1 highlights. Sebastien?
Thank you, Martino and Laura, and hello, everyone. We're pleased to report that it's been a great start to the year for us, which position us well for the rest of the year. We've noted 6 recurring themes as displayed on Slide 6, which summarize the quarter and showcase where we are continuing to focus our efforts.
In a nutshell, we had a strong operating performance this quarter with production of 357,000 ounces at a very low all-in sustaining costs of $848 per ounce from our continuing operations. This performance has resulted in robust cash flow generation during the quarter, which in line with our capital allocation framework, we used to further strengthen our balance sheet to continue our attractive shareholder returns program and to reinvest back into our business.
In the green box on the page, you can see that our net cash position has improved by $90 million. And in the yellow box, you can see that during the quarter, we returned more than $100 million to shareholders through dividends and buybacks. In line with our focus on continuing to improve the quality of our portfolio during the quarter, we were pleased to launch the brownfield expansion of Sabodala-Massawa. Once completed, this will further enhance our business resilience as Sabodala-Massawa is poised to become a top-tier asset as outlined by the robust DFS numbers published a few weeks ago.
In addition, to further improve the quality of our portfolio and focusing management efforts on long-life core assets, we were pleased to announce the successful sale of our noncore Karma mine during the quarter. On the ESG front, we are looking forward to publishing our sustainability report in the coming weeks, which will showcase how 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 positive lasting impact in the region, and we're excited to continue progressing our ongoing ESG initiatives.
Moving to Slide 7. You can see how we've performed well across our key operating metrics. On the safety stat, although the company's aim is always looking to achieve zero harm performance, we are proud to say that our lost time injury frequency rate remains better than our industry peers at just 0.15 during the quarter. Looking at the quarter's production from continuing operations, you see that if you annualize it, you will exceed the top end of the full year guidance. It is, therefore, very apparent that we are very well positioned against guidance, and we need to keep the momentum going in the next quarters.
The same story goes with our all-in sustaining costs, which are sitting below the full year guidance range. It's a great result given the industry-wide inflationary pressures, which of course, we are not totally immune to. Joanna will provide more detail on our cost base in the next section. But at a high level during the first quarter, the inflationary pressures have been partially offset by the pricing mechanisms brought by our long-term supply contracts, favorable exchange rate variations and production and cost optimization initiatives. Again, we're trying to manage our business like any other business, and hence have negotiated long-term contracts to lock in prices and have a more predictable cost base.
We've also benefited from the regulated in-country fuel pricing mechanism where prices are revised on a monthly or quarterly basis, which shelters us from paying peak spot international fuel prices. And of course, the key driver is focusing on improving the quality of our production, and we are seeing the benefit of our discoveries being put into production and that of our optimization initiatives.
Turning to Slide 8. You see our production and cost quarterly trend. In gray, we have shaded the production coming from discontinued operations, which includes Agbaou, which was sold in Q1 last year and Karma, which was sold this quarter. Overall, this performance was better than our guidance, coming off of a very good fourth quarter, which has historically always been our strongest quarter due to the seasonality with coming out of the West African rainy season.
On Slide 9, you see our all-in sustaining margin trend. Given that we have maintained a low cost base and have restructured our revenue protection program, we were able to benefit from the higher gold price environment, resulting in a $48 million increase in our margin compared to the first quarter of '21, which represents more than $150 per ounce of extra margin.
Turning to Slide 10. You can see the trend of our operating cash flow before changes in working capital, which increased by 41% over the first quarter of last year and which marks our strongest quarter to date.
Diving a bit deeper on the next slide. You can see that the strong cash flow we are generating is coming from a well-balanced portfolio of 6 mines across 3 West African countries. Furthermore, we see further potential to diversify our production by completing the brownfield expansion at Sabodala-Massawa and over time by pursuing our greenfield project pipeline.
On Slide 12, we see how our balance sheet has continued to strengthen, most notably following our investment phase where we built Ity and Houndé between '16 and '19. We added more than $90 million to the balance sheet in the first quarter of '22, all the while continuing to return capital to shareholders through dividends and share buybacks. In fact, this now marks our fifth consecutive quarter of shareholder returns following our investment and debt reduction phase as illustrated on the chart.
On Slide 13, you can see more detail on how we are tracking against our shareholder returns commitment. As you recall, last year, we have lined a 3-year dividend policy to pay a progressive fixed minimum dividend, which increases each year with the aim of distributing a cumulative minimum of just over $500 million by the end of full year '23. For 2021, we exceeded our minimum dividend of $125 million, paying $140 million. And in green, in the waterfall chart, you can see that so far, we paid out $200 million in dividends. In addition, we've continued to supplement our shareholder returns with buybacks, having repurchased $169 million worth of shares since the program began about a year ago. In all, it means that over the last 5 quarters, we have returned $369 million to shareholder returns. For context, this is near the equivalent of the CapEx required to build a new mine.
In the waterfall chart, you see that if you only factor in the minimum dividend commitment for this year and next, it will represent almost $700 million in shareholder returns. And this amount could be higher, provided the gold price remains above $1,500 per ounce, and if Endeavour's leverage remains below 0.5x net debt to adjusted EBITDA as stipulated in our dividend policy. This amount is well above our minimum commitment of $500 million, so we hope this shows how focused we are on delivering shareholder returns.
In addition to delivering shareholder returns, given our financial strength and cash flow generation, we are also well-positioned to fund our growth, and Slide 14 highlights our attractive pipeline of growth projects. Our priority is the Sabodala-Massawa expansion where construction is commencing with the first gold pool from the BIOX plant expected in early '24. As outlined in the DFS, this expansion will lift the Sabodala-Massawa complex to top-tier status. I will let Mark provide more information within his section.
Our greenfield development pipeline is also progressing well. At Le Plaque, on the Fetekro property, we expect to publish the DFS midyear. While at Kalana, we're working on advancing some of the desktop work that contributes to the DFS and expect to publish the DFS results in the second half of the year. Both projects look attractive. And thanks to the long production visibility we have from our portfolio, we have the flexibility to decide when is the optimum time to bring on one of these projects into construction.
Turning to Slide 15. You can see the continued importance of our exploration efforts with an $80 million budget committed for '22. We spent $18 million during the first quarter and intend to do a strong push during the second quarter ahead of the rainy season. This means that we will be well-positioned to communicate our successes and report updated resource estimates later in the year. You see our exploration focus area with the pie chart on the left of the page, we are continuing to both explore near mine to extend mine life and on greenfields to find new projects. As published last year, our discovery target is 15 million to 20 million ounces between 2021 and 2025. And with over 3 million ounces found last year and the success we're continuing to see this year, we are confident we will be able to achieve this ambitious target.
Lastly, before handing on to Joanna, I want to reemphasize our continued commitment to increasing the overall quality of our portfolio. As shown many times, our goal is to move our assets to within the bottom right box on this chart, which represent plus 10-year mine life, with an all-in sustaining cost within the industry bottom quartile. Over the last several years, we have built an integrated assets, but we've also divested noncore assets shown in light blue. The most recent was Karma, where we closed the sale in March.
On our core assets, the two key factors to enhance their outlooks have been and continue to be our exploration and optimization efforts. While you have often heard about exploration efforts, we are also working on a number of optimization initiatives at both the group and asset level, some of which are highlighted on the slide here. Some efforts related to expediting the opening of better deposits, be it with the underground operation at Mana or at Wahgnion with opening the Samavogo deposits or at Houndé with the Kari West deposit. Some efforts are linked to improving our processing and mining efficiencies by integrating new technologies or simply by including learnings from one mine to the next.
Other initiatives include using solar power to reduce our energy costs and improving our processing plants to allow for better recovery rates and reduce costs, such as the resin initiative at Ity. What I like about our portfolio is that while we are a low cost, we still see strong optimization potential. I believe that this is normal because Ity and Houndé are recent builds, which are now gaining in maturity with strong teams on site, capable of focusing on optimizations. While at our other assets, which have been integrated over the last 24 months, we got some quick wins, specifically on moving to a group procurement strategy, but still see strong optimization opportunities.
Overall, we believe that our current combination of continuing to focus on exploration reducing cost and improving operating efficiencies will help us offset the inflationary team and continue to generate healthy levels of cash flow well into the future.
Moving on to Section 2, I will now hand things over to Joanna who will take you through the financial results in detail. Joanna?
Thank you, Sebastien. On Slide 18, we show our financial highlights. As you see in the colored box, our adjusted EBITDA increased by 10% quarter-over-quarter due to reduced all-in sustaining cost and increased gold price and our operating cash flow before working capital was up 22% quarter-over-quarter to $370 million. Working capital was an outflow of $70 million, and as a result, operating cash flows from continuing operations decreased slightly quarter-on-quarter to $299 million.
Moving to Slide 19. You can see a breakdown of our operating cash flow, which shows a quarter-on-quarter decrease. The amount of gold sold decreased by 31,000 ounces from Q4 to Q1, but was more than offset by an increase in the realized gold price of $124 per ounce over the same period. Operating expenses decreased by approximately $29 million due to the lower production in the quarter and the timing of certain operating expenses, while our lower tax payment is linked to a nonrecurring settlement of a tax assessment in Q4 2021. And lastly, working capital decreased by $112 million over the fourth quarter of 2021, resulting in an outflow of $70 million during the first quarter of this year. The outflows during the quarter were primarily due to the expected increase of stockpiles at Houndé, Ity, Sabodala-Massawa and Wahgnion due to the mine plan, a decrease in trade payables and an increase in advanced royalty payments at Houndé and an increase in VAT receivable at Boungou and Mana due to the timing of the receipt of our VAT reimbursements.
As Sebastien highlighted earlier, inflationary pressures are present across the industry. So on Slide 20, I wanted to address our cost breakdown in a little more detail, focusing on the largest components of our costs, which are fuel, consumables and salaries. Regarding fuel, it's important to break it down further into LFO and HFO exposure, where roughly 75% of our exposure is LFO. We only use HFO at the powerhouses at Boungou, Wahgnion and Sabodala and have the option to switch to LFO as all of our gensets are configured to also use LFO. Typically, HFO is cheaper than LFO. However, we have recently seen a divergence. Given LFO is used by the general public, its price is generally more subsidized by government, whereas HFO doesn't always get the same benefit.
Prices for both LFO and HFO are fixed and revised on a monthly, quarterly or sometimes longer basis. This means that the price impact of Brent crude volatility is generally delayed and often not fully felt in country. and we are shielded from paying peak spot international prices. As you see in the chart at the top right of the page, during the quarter, LFO price was only up 2% in Cote d'Ivoire, and it was down 2% in Senegal, compared to Brent crude oil price having increased by nearly 30% from Q4 last year to Q1 this year. Because Burkina imports oil while Senegal and Cote d'Ivoire have their own refineries, the LFO price did increase by 16% in Burkina in Q1 2022.
Of course, we cannot forever avoid the impact of higher oil prices, and we are expecting some price increases during the second quarter. which we expect will result in roughly $40 per ounce increase in our all-in sustaining costs, some of which we had anticipated, which is still a lot less than most of our international peers. On the other hand, we are also seeing some of the cost pressures being positively offset by a favorable exchange rate variation, as approximately 65% of our cost base is linked to the euro.
Touching upon our consumables. Given we renegotiated key contracts across the group last year to leverage our larger size, we are currently well-positioned with favorable terms. On some items, we are completely protected from price increases, while on others, we have seen some increases. But given they represent a small proportion of our cost base, they are negligible at the group level. Lastly, our salary and mining contractor costs tend to be stable from one quarter to the next. As Sebastien mentioned earlier, cost controls are an important factor in maintaining our low all-in sustaining costs, but the larger opportunity for us continues to be improving our operating efficiencies and discovering higher quality deposits, which the team is continuing to focus on.
Moving to the next slide on Page 21. We illustrate how our financial position strengthened during the quarter. We ended the quarter with a net cash position of $167 million, an improvement on the $76 million position we had at the end of the year, further solidifying our net cash position even after $31 million of share buybacks and $70 million in shareholder dividends paid during the quarter. Operating activities during the first quarter included $304 million in operating cash flows, which includes the cash flow from discontinued operations of $4 million, while investing activities was an outflow of $94 million due to sustaining, nonsustaining and a small amount of gross capital. During the quarter, cash flow used in financing activities was an outflow mainly due to the shareholder returns paid during the year -- during the quarter, sorry.
Moving to Slide 22. We have a detailed breakdown of our net earnings. I won't go through every line here, but will address a few of the most significant items. Earnings from continuing mine operations increased due to our improved production costs and the increased realized gold price during Q1. During the quarter, we recognized unrealized losses on our gold forward sales and gold collars as part of our revenue protection program. This loss is based on the forward-looking nature of this program, and it's influenced strongly by gold price volatility. As the gold price was performing well during the quarter, we restructured our revenue protection program by deferring a portion of our forward sales from Q1 to later in the year, allowing us to benefit from the strong gold price during the quarter.
For Q1 2022, adjustments mainly included a loss on financial instruments. Adjusted net earnings was consistent with the prior quarter and adjusted net earnings per share decreased during Q1 compared to the fourth quarter of last year, due to a higher portion of attributable to noncontrolling interests. I'll now hand things over to Mark, who will go through the details of our operations on a mine-by-mine basis.
Thank you, Joanna, and hello to everyone on the call. As Sebastien and Joanna mentioned, our operational performance continues to be strong and reflects the benefit of having our diversified portfolio. The group is positioned well against guidance. And on Slide 24, we have provided a breakdown of asset performance against guidance. As you can see, the strong performance is being driven by a very good start at our flagship operations, Sabodala-Massawa, Houndé, and Ity.
Starting on Slide 25, I would like to begin the review of our individual mining operations with our flagship asset, Sabodala-Massawa. I've just returned from the mine this morning, where we are making excellent progress with opening up both the Massawa CZ and NZ pits. There are many other initiatives underway, including a comprehensive exploration program and the early works activities on the BIOX project. During the first quarter, we continued to see all-in sustaining costs trend down towards the lowest levels achieved at the mine so far, reiterating Sabodala-Massawa's status as a top-tier asset.
Production decreased by about 10,000 ounces over quarter 4 as tonnes milled decreased slightly due to an increased proportion of fresh ore from the Sofia Main and Sofia North Pit. In addition, the average grade mill decreased due to a lower proportion of high-grade ore from the Sofia Main offset by more ore from the Sofia North pit. With the ramping up of activities at Massawa Central and Massawa North in quarter 2, we expect grades to decline as we focus on establishing pit perimeters and waste extraction ahead of the wet season. Grades are expected to pick up again in the second half of the year.
Moving to Slide 26. You can see an overview of our Sabodala-Massawa expansion where we are constructing a 1.2 million tonne per year BIOX plan. This will allow us to process the high-grade refractory ore from the Massawa deposits, where there are currently over 1.3 million ounces of reserves with strong potential to continue to add to this through exploration. As Sebastien said, construction activities have started with the first gold pool from the BIOX plant expected in the first half of 2024.
On Slide 27, you can see the projected production profile for Sabodala-Massawa for the next 10 years, which explains why we are so excited to push ahead with the expansion project. In dark blue is the production expected to be added with the refractory circuit. Given the exploration upside, our goal is for the mine to produce at least 400,000 ounces per year at an all-in sustaining cost well below $800 per ounce, which would position the mine as a top-tier asset.
Moving to Slide 28. You can see the progress made at the Houndé mine, which is off to a strong start for the year. During the quarter, mining activities were focused primarily on oxide material from Kari Pump and Kari West, while waste development continued to progress in the fresh rock at Vindaloo Main. Production declined slightly quarter-over-quarter with lower processed grades as the high-grade Kari Pump ore is blended with the lower grade Kari West ore.
All-in sustaining costs fell in the first quarter as we processed a higher proportion of oxide ore from the Kari Pump and Kari West deposits, contributing to a lower unit mining and processing costs as well as higher throughput and recoveries. In quarter 2 2022, mining activities are expected to continue to focus on the Vindaloo Main, Kari Pump and Kari West pits. In the second half of the year, ore is expected to be sourced mainly from the Vindaloo Main and Kari West pit, as well as mining the next pushback continues at Kari Pump.
Turning now to Ity on Slide 29. We are very happy with the performance of Ity, which achieved one of its best quarters in terms of production with 72,000 ounces produced as a result of higher grades milled, higher tonnes milled and higher recoveries. All-in sustaining costs also decreased in quarter 1, thanks to less waste stripping. For the remainder of the year, ore will continued to be mined from the Le Plaque, Ity, Bakatouo, Walter and Colline Sud deposits, supplemented by historic stockpiles. While Ity continues to perform well, we are always looking for ways to optimize our assets. Last year, we brought in mobile screens and a mobile crusher so that we can add ore directly via the surge bin, which has helped to increase throughput.
We also identified the addition of a cyanide recovery circuit as a key initiative and thanks to the excess cash flow being generated by the company and the cautious approach taken in staggering our growth projects, we are able to accelerate the launch of this initiative.
The additional circuit aims to optimize costs by reducing leaching and detox reagent consumption, improving the quality of the discharge slurry to the TSF and recovering some additional gold. For those less familiar with the resin process, it basically reduces the cyanide consumption by capturing free cyanide from the plant tailings using a resin similar to how carbon works in the CIL tank and recycling it back into the leach circuit while also recovering additional gold.
Given that the project is expected to result in 87,000 ounces of additional gold production and $63 million in cost savings over Ity reserves, the $41 million upfront investment, of which $31 million is expected to be incurred this year, has screened very well with our capital allocation framework based on both its financial returns and positive ESG impact. The resin circuit is expected to be commissioned by the middle of 2023.
On Slide 30, you can see that production remained consistent with the prior quarter at Boungou as mill throughput and recovery rates remained stable, while grades fell slightly. We continue to mine ore from the East pit while we strip waste in the West pit. As we focused on mining lower grade areas of the East pit, the head grades decreased slightly quarter-over-quarter, resulting in slightly higher all-in sustaining costs. Through the remainder of the year, we expect process grades to decline slightly as ore mining will shift back to a new phase of the West pit.
Moving on to Slide 31. At Wahgnion, production decreased and all-in sustaining costs increased in the first quarter, primarily due to the lower average grade mined and milled. During quarter 2, we will focus on waste extraction and mine grades are expected to remain consistent with quarter 1 as ore will continue to be sourced from Nogbele North and Fourkoura with supplemental feed from Nogbele South. Later in the year, we will source ore from Nogbele North and the new Samavogo mining area, which will be commissioned in the second half, as well as supplemental feed from Fourkoura.
Moving on to Slide 32 at Mana. Strong production in quarter 1 was in line with the prior quarter, while we significantly reduced all-in sustaining costs as open pit mining activities taper off. Increased production during the quarter was driven by higher grade ore from the Wona South open pit as it continues with depth. As the Wona open pit is planned to be completed in the middle of the year, we will be transitioning to the new Maoula satellite pit, where we expect to start mining in the last quarter of the year. At the same time, we are quickly advancing the Wona underground development, where we have advanced more than 2,200 meters across the two declines in the last 5 to 6 months and are on track for first stope production during the third quarter of 2022.
As you can see, performance across our operations has been strong in quarter 1. And through the remainder of the year, we will continue to optimize our operation to tackle inflationary pressures while we continue to advance our growth projects. And with that, I'll hand it back to Sebastien to wrap things up.
Thank you, Mark and Joanna. As you can see, we have made good progress during the quarter and are well-positioned for the rest of the year, but our job as management is to not only manage for the remainder of the year, but also beyond and well into the future. And with this, I believe that we are also well-positioned to be able to reward our stakeholders over the long term given our long mine lives, continued focus on asset optimization, our exploration efforts and robust project pipeline.
With that, I would like to first thank the entire Endeavour team for a stellar quarter, and I would like to thank you all for dialing in and open the line up to questions.
[Operator Instructions] And your first question comes from the line of Ovais Habib from Scotia Bank.
Congrats, Sebastien and Endeavour team on already a strong start to the year. Sebastien, just a couple of questions for me. Again, fairly straight forward...
Apologies, the line has disconnected from the call. I will go on to your next question, and this comes from the line of Don DeMarco from National Bank Financial.
Yes, I'd just like to just continue to echo congratulations on a very strong quarter, a great start to the year. So with [indiscernible] below the guidance range [indiscernible] this month. So looking ahead, do you expect the cost drivers that led to the low cost in Q1 to continue through the year at this cornerstone asset.
Don, sorry, was there a specific asset you were talking about? Because the line broke.
Yes, Sabodala-Massawa. We're looking at the great performance from this cornerstone line in Q1. We're not [indiscernible] rainy season impact.
Yes. I think Sabodala-Massawa will continue to have strong performance for the rest of the year. Obviously, we are getting more pressure on the fuel cost, in particular, which will impact a bit. But overall, we're confident that Sabodala-Massawa is in a good position.
Good to hear. And regarding fuel, I think, Joanna mentioned that you're expecting some modest fuel price increases, maybe $40 an ounce. So does this reflect the increases in jurisdictions where you don't have the fuel price mechanisms?
No. So it basically reflects the anticipation that we have on some of the changes in the country where we operate. As you know, some of the fuel prices, which are governed by government locally, and they tend to change those prices either on a monthly or a quarterly basis. And we've seen recently some increases in April, in particular, whether it's HFO for Senegal or whether it's LFO for Burkina, so our anticipation, if oil prices are staying where they are, is to see around $30, $40 impact on the rest of the year.
Okay. Okay. That's fair. And just a final question. With the Fetekro DFS pending for midyear, can you talk about how you might sequence or overlap the spending between Sabodala Phase 2 and Fetekro development?
Yes, sure. So if you recall, when we did the Ity and Houndé construction, we were comfortable in having at some point, two projects in parallel being built. I think the good thing is that we're now progressing well on the start of the expansion of Sabodala-Massawa. And this is why we don't see any rush into building Fetekro. We are optimizing also the CapEx. I think we mentioned as part of our year-end results that initially, we had some thoughts about going with a full contract for the construction of Fetekro, Le Plaque.
Now we are looking also at doing a big part of the project ourselves in order to optimize the CapEx. Because of the strong performance of the assets, it's not like we need to rush into building this asset. So we want to make sure that we preserve the economics of this project and ensure that they continue -- I mean, this project continues to deliver the types of returns that we are expecting on any, I would say, another project. We are expecting also some further drilling results over the next 2 months. And we believe that this will continue to strengthen the feasibility study for Fetekro. So in short, compared to the initial plan where we might have started both Sabodala-Massawa and Lafigue in Q1, Q2, we see more opportunity to continue to improve the overall CapEx number of Fetekro. And in parallel, you probably saw some new initiatives like the resin project at Ity. So that's something that we feel comfortable to move forward as the Lafigue project will have more delays than what was initially expected in order to strengthen the CapEx.
Your next question comes from the line of Anita Soni from RBC World Market.
Can you hear me?
We can, Anita.
Yes. Apparently, I switched teams. It's CIBC World Markets and it's Anita. So I would kind of guess my question that -- Josh will be pleased to know. My question most of it already answered, but you kind of noted that you were running for -- sorry, well over the higher end of the guidance range for the year. And I'm just wondering, is there something we should be thinking about from quarter-to-quarter in terms of seasonality. I think I remember that you guys were a little bit more front-weighted this year and less back-end weighted. So is there something that I should be considering in Q2, Q3, where it might be lower production.
Yes, Anita. I mean, we obviously had a strong Q4 last year, which also helped to have a good start, I mean, to the year for '22. So pleased to see that Q1 has been a strong quarter. We tend to have Q2 and Q3, which usually are a bit impacted, I would say, overall by the rainy season. So it all depends on when the rainy season is going to start, obviously, we are trying to mitigate as much as possible by doing a bit of stockpiling during a bit of Q1 and Q2, which explains obviously some of the working capital movements in Q1, I would say that in a normal plan where rainy season is mostly towards Q3, we tend to have a Q2, which is in line, I would say, with Q1. And then Q3, which tends to be lower than Q1 and Q2 and Q4, which is back more in line with Q1, Q2.
All right. And then just another follow-up on the cost control. I mean do you -- I mean do you anticipate that closer to this at the back end of the year that we might start to see any further inflationary pressures hitting a lot of the companies that I've been speaking to have been saying that for the first half are fine, we've got inventories, but we may need to reassess as we look at the second half of the year.
Well, I think we are in a similar position with one difference, which is obviously, we've got -- we had limited impact in Q1. We will see, I think, a bit of impact in Q2. I don't think this will change our guidance. We're very comfortable at this stage on our guidance. and this was factored in when we came out with our guidance that there will be a pricing inflationary in particular around Q2, Q3. But so far, we're extremely happy with a very strong start, which obviously helps to ensure that we will be well into the guidance for production costs for '22.
Yes. And then can I just ask, what are you assuming for your -- in your guidance assumptions with your diesel rates that you're assuming per liter? .
So in fact, it's all -- the problem is that there is a combination between FX and oil price. As you know, about 75% of our fuel price locally, I mean, is based on taxes. So what we've been working on is around -- if I tech in average, we have about $0.90, $0.95 a liter across the different countries for '22. And obviously, depending on FX, we are able to compensate a bit as our local prices are paired with the euro.
All right. Maybe I'll ask that offline. And then lastly, I would like to ask a little bit about sort of the situation -- security situation in Burkina and whether or not you see any impact near the Boungou mine, I think there was a recent security incidents at another company.
Yes. Well, I think, Anita, for the time being on Burkina, I mean we haven't seen any deterioration in the situation, in particular around the Boungou and our ability to continue, I mean to operate there. Obviously, we are monitoring carefully the situation. But certainly, we're seeing more and more activity from the security forces in Burkina and trying to strike back, I would say, with the -- some of the terrorist groups. There's been also a big initiative launched by the government of Burkina in having some open dialogue and discussion with some of those armed groups because a lot of those armed groups, in fact, are not terrorists. They are just I would say, people in certain region of Burkina, which have been left with not much opportunities. So there is an initiative of dialogue, which has been launched by the new government to try to bring them back into a more peaceful approach. And hopefully, we'll see some of those discussions, benefits over the next few months.
Your next question comes from the line of Ovais Habib from Scotia Bank.
Can you hear me?
Yes, I can, Ovais.
Okay. So take two on this. A lot of questions that I wanted to ask have been kind of answered especially on the cost side. So just a follow-up question on Anita's question regarding Boungou. Now in regards to Boungou's current mine life and with the whole security situation there, I mean, are you guys progressing with exploration there on -- in terms of improving and extending the mine life there? And now does Boungou kind of fit in your -- still in your portfolio? Is it still a core asset? Or how are you thinking about Boungou? .
Sure, Ovais. Obviously, we would like to do much more exploration at Boungou because we see potential in that area. Given the security environment, we've decided for the time being not to progress outside the mine fence. Anyhow, we still have -- I mean, for the time being, I think, about 7 years of reserves at Boungou. So we still have a bit of time to see the environment to settle and still give us enough time to then start extensively some of the drilling exploration programs that we had in mind. So I think we're still very comfortable with the asset. It's part of the portfolio. And hopefully, we're just waiting to have some more green lights on the security front to be able to heavily accelerate on exploration.
Okay. Got it. And just quickly moving on to capital allocation. I mean, in terms of -- obviously, you've been very aggressive on the dividend side, and you've reinitiated your buyback program as well. In terms of going forward, I mean, how should we look at your dividend policy just in terms of is there any room for increases? Or should we see something more stable along with what you're already providing in terms of dividends?
Sure. Well, I think that, if you recall, we did come up with this policy of having both the dividend approach and the buyback approach. I think the buyback approach was important, in particular in '21 and probably for the half year of first half of this year '22 in order to facilitate also the listing in London and the transition and the volatility and liquidity required with the London listing. My sense is that we should see probably some swap progressively in terms of numbers between the amount allocated to buybacks and the amount allocated to dividends. So if we continue to generate the cash flow that we've been generating and the gold price stays where it is, I wouldn't be surprised if we come up with a higher dividend going forward.
Your next question comes from the line of [ Carmen Parry ] from Bank of America.
A brief question just on a Sabodala. The grades were quite high this quarter, and you've noted in your release that you're expected to sort of decrease in Q2 and pick up again in the second half of this year. Can you sort of just give us a sense for the magnitude for the grades in the second half? Or do you expect the grades to go back to around 3 grams per tonne? Or would they be lower, like maybe closer to the reserve grade? .
Sure, Mark, I mean you want to...
Yes. So what we were doing was relying on stockpiled ore from Sofia Main pit as mill feed going into the start of this year. And then as times progress, we've depleted those high-grade stockpiles. We're opening up the Massawa CZ and NZ pits. So it's just those top benches and getting the pits established. And then as we sort of get a little bit deeper in, we do expect that the grades will start to pick up. But the other piece with Massawa, which we've noted is that the -- there is transitional ore that we won't be putting into the CIL plant that will be stockpiled for the BIOX plant. So we will see some better grades, but it won't be as good as the Sofia main grades that we had in the previous year.
Okay, great, that's helpful. And just my second question is on the CapEx. You seem to be running a little bit late versus your guidance. And just looking ahead to the subsequent quarters, do you expect the rate of spend to equally spread out? Or might it be weighted towards second half of this year?
I think overall, we're not expecting, I mean, to be below the guidance, I mean, for the year. I think it's probably more about timing between Q1 and the other quarters. So yes. I mean, you should see some catch-up, I would say, in Q2, Q3 for sustaining and nonsustaining.
Your next question comes from the line of Fahad Tariq from Credit Suisse.
Just 2 quick ones for me. First, can you just remind us or summarize for us, if gold prices stay at these levels, do you expect a realized loss on the gold forwards and the gold collars?
Sure. So not on the collars because if you recall, the collars have a floor at $1,750 and a ceiling at $2,100. So at current gold price, I mean, there wouldn't be any loss. And on the forward, we have -- I would say, the average of the forward is around $1,840. So if you take $1,900, there is a small loss on some of those forwards. They are spread. As you recall, they are spread mainly towards Q3 and Q4 now. So it all depends on what's anticipation on gold price for Q3 and Q4.
Okay. Okay. And then my only other question, you mentioned a few times in the presentation, larger ESG ambitions. Can you elaborate on what that means? And what kind of CapEx that could require?
Well, I don't think it goes into -- I mean too much into increased CapEx. I think it's -- we've outlined our strategy as part of our London listing back in June. We're now basically implementing some of the key projects that we had on the ESG front. I would say that one, which is important for us is, obviously, on the CO2 emissions. We currently have one of the lowest intensity number. When you look at CO2 emissions per ounce produced, but we are accelerating also on solar plants, in particular, in Burkina Faso and in Senegal.
There is a PPA agreement, which has been currently finalizing for the Houndé mine in Burkina with the construction of a solar plant that should be up and running at -- next to Houndé by the end of the year. This should be around 30 megawatts. We're also discussing with the provider for an expansion up to 60 megawatts for that solar plant. And in parallel, as part of the BIOX plant and the Sabodala-Massawa expansion, we're investigating quickly the ability to put a 35, 40 or 50-megawatt solar plant in Senegal. So those are obviously key initiatives in our ability to continue to maintain, I would say, a low intensity number for our CO2 emissions, but it's also obviously in the current oil price environment. very competitive to be able to build quickly solar plants. So that's probably 1 area that we are accelerating on, and I think that we'll do a bit of marketing once we have our ESG report, sustainability report out over the next few weeks.
That will conclude today's Q&A session. I would now like to turn the call back to management for any additional or closing remarks.
Hi, everyone. Thank you very much for dialing into our webcast and asking questions. We remain available to answer more questions offline. Thank you. Have a good day.
And that will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.