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Good day, and thank you for standing by. Welcome to the Endeavour Mining Q1 2023 Results Conference Call [Operator Instructions]. Today's conference call is being recorded, and a transcript of the call will be available on Endeavour's Web site tomorrow.
I would now like to hand the call over to management. Please go ahead.
Hello, everyone. I am Martino, Deputy CFO and Head of Investor Relations, and I'd like to welcome you to our Q1, 2023 results webcast. Before we start, please note our usual disclaimer. On the call, I am joined by Sebastien, Mark, Guy and Jono. Today's call will follow our usual format, where we'll first go through the quarter's highlights, then the financials. And finally, we'll walk you through our operating results by mine. We will try to be as quick as possible to leave time for questions at the end. And now I'll hand it over to Sebastien to walk you through our Q1 highlights.
Thank you, Martino, and hello, everyone. 2023 is an exciting year for Endeavour, and we are pleased to be delivering against our key objectives. Driven by last year's strong operational performance, we began the year with financial strength, which provides the flexibility to deliver against this year's capital allocation priority, which is to maintain an attractive shareholder returns program, while unlocking our growth potential. Given that the Sabodala-Massawa expansion and the Lafigue greenfield builds are expected to both increase the Group's production and lower our cost base, they will further enhance our capability to reward our shareholders. As such, our goal is to increase our shareholder return program once our organic growth projects are completed, thereby ensuring that our efforts to unlock growth immediately benefit all our stakeholders. We are therefore pleased to report that both projects are progressing on time and on budget with first production expected in Q2 of next year for the Sabodala-Massawa expansion and shortly afterwards for the Lafigue project. And looking further ahead, our exploration program continues to provide us with a strong platform for future growth. Further drilling at last year's Tanda-Iguela discovery in Cote d'Ivoire continues to demonstrate its potential to become another cornerstone asset, and we will provide a resource update later this year.
On the operational front, we're tracking in line with our guidance, as we expect production weighted towards the second half of the year due to mine sequencing across the Group. On the financial front, our business continues to operate with low leverage, and thanks to our strong balance sheet, we were able to settle the principle on our $330 million convertible notes in cash, thereby minimizing shareholder dilution. Meanwhile, we are continuing to progress on our ESG initiatives, which have been well received by external agencies.
Over the next slide, I'll touch upon our progress against this year's strategic objectives, starting with our safety performance. So looking at the next slide, safety remains, of course, our top priority. And while our lost time injury frequency rate remains industry-leading, we are continuing to put significant emphasis on our zero harm target. Anytime we have construction activities, the potential for incident increases as the nature of the work changes and more man hours are worked, as there are significantly more people on site. It is for these reasons that we are amplifying our safety campaign and training to ensure everyone gets home safely. Turning to next slide, you see our quarterly production and cost trend. As mentioned, we're tracking in line with our guided trend, as we expect production weighted towards the second half of the year. As we entered '23 with considerable financial strength, we were able to implement the optimal mine sequence to take advantage of the dry season in the first half of the year and accelerate stripping activities. This meant mining in Q1 was focused on the lower-grade areas, specifically at Sabodala-Massawa, where we started to develop the Sabodala pit for in-pit tailings deposition and started developing new non-refractory pit at Massawa, as you can see in the call out box on the slide. Mark will detail performance by mine later in the presentation.
Speaking of Sabodala-Massawa, we see on Slide 9 that its expansion project is progressing on budget with 70% of the $290 million initial capital cost now committed. It is also tracking on schedule with first gold from the BIOX plant expected during the second quarter of next year. On this slide, you can see a picture of the processing plant construction progress, but I'll let Mark provide further details on the project build within his section. Of course, we are extremely excited about this project because of its strategic and financial benefits. Once this expansion is completed, the Sabodala-Massawa mine will rank as a Tier 1 asset capable of producing over 400,000 ounces per year, thereby increasing the quality of our portfolio and further diversifying our production base.
Moving to our next growth project, which is our Lafigue greenfield development in Cote d'Ivoire. As a reminder, Lafigue will be another cornerstone asset for the company with an envisaged annual production of over 200,000 ounce over the initial 13-year mine life at a low all-in sustaining cost of below $900 per ounce. Its construction is also progressing on budget, as 46% of the initial CapEx has been committed and pricing is in line with expectation. It's also progressing on schedule with first gold expected beginning of the third quarter of next year.
Thanks to the two growth projects within just over 12 months from now, we will have more lower cost production from Sabodala-Massawa in Senegal and another cornerstone asset in production with Lafigue coming online in Cote d'Ivoire. I will let Mark walk you through a more detailed update later on.
Turning to Slide 11 to touch upon our ongoing exploration efforts. We continue to be very pleased with our results, which have yielded over 15 million ounces of discovery since 2016. This year, we have a $70 million budget and have already used 1/3 of it during the first quarter to drill intensively ahead of the rainy season. As you see in the top left pie chart, the largest focus has been on drilling the major Tanda-Iguela greenfield discovery we made last year. In addition, we're continuing to focus on extending the mine lives of our producing assets. Overall, we are thrilled to remain on track to discover our target of between 15 million ounces to 20 million ounces of indicated resources by '25 with already 6.5 million ounces discovered over the last two years. Given its increasing importance, I'd like to touch upon Tanda-Iguela on the next slide. Based on the ongoing drill results, we are more and more convinced that it will not only be another flagship asset for Endeavor, but it also has the potential to be a Tier 1 asset in the region. So far, we have 1.1 million ounces in the indicated category and another 1.9 million ounces of inferred, all achieved in less than 15 months at a cost of less than $10 per ounce. Last year, we drilled 60,000 meters, and this year, we are planning to drill a further 70,000 meters. And based on what we are seeing, we might increase our drilling budget as well. As shown with the yellow dots on the map, our main goal this year is to infill drill and extend the resources at the Assafou deposit, and in Q1, we completed over 40,000 meters of drilling. Based on this drilling, we expect to publish an updated resource later this year, which will form the basis of the first study on the property.
In addition, we are also seeing good success by drill testing other highly prospective targets identified on the property with similar structural and geological settings. Beyond the exploration potential, what is nice with Tanda-Iguela is the fact that it appears to be amenable to open pit mining and that the metallurgical test work indicates high gold recovery rates of more than 95%.In addition, it is located near a good infrastructure, as both the main road and grid power are nearby, and there are limited relocation requirements. So given everything that I just said about Tanda, I feel obliged to reiterate that it would be difficult for us to justify buying the project and paying over $1 billion for 3 million ounces, 4 million ounces when we are capable of discovering something similar directly in our backyard.
On Slide 13, you can see details of our shareholder returns program, which is a capital allocation priority for us. Last year, we delivered nearly $300 million of dividends and share buybacks, which will double our minimum dividend commitment of $150 million for the year. We paid out our H2 '22 dividend in March of this year and expect to announce and pay the H1 '23 dividend during the third quarter. Given the strong gold price environment and a healthy balance sheet, we again expect to pay out more than the minimum dividend -- commitment, which was set at $175 million this year. In addition, we've been continuing to supplement our minimum dividend commitment with share buyback. During the quarter, we bought $11 million worth of shares, which on a cumulative basis means that we have repurchased $244 million worth of shares since the program began two years ago. On Slide 14, you can see that at the end of last year, our shareholder returns program had already delivered $633 million in the form of dividends and buyback or $200 for every ounce of gold produced. And this amount is expected to surpass the $800 million mark by the end of this year. On a similar theme, in order to minimize shareholder dilution, in February of this year, we settled our convertible notes of $330 million in cash for the principal amount. We also issued 835,000 shares worth $20 million, an equivalent of 0.3% of shares outstanding for the in-the-money option value, as you see in the pie chart on Page 15. The convertible note ended up being a low-cost financing solution, which had a 3% coupon and an implicit cost of capital of less than 4% over the life of the note once incorporating the value of the in-the-money option.
Turning to Slide 16. You see that our business continues to have low leverage despite the cash outflows experienced during the quarter relating to the shareholder return payment, growth capital and the contingent payment made. Thanks to our strong cash flow generation and disciplined capital allocation, we expect to maintain low leverage throughout our current construction phase.
Turning to Slide 17 to provide a quick update on our ongoing sustainability initiatives given that there are many initiatives, it's nice to have the opportunity to describe a few of them on each webcast. Starting with the top left, we have a big focus on diversity this year with a target of 15% female new hires to try and address the perception that the mining industry is for men, we launched our WoMines initiative, which is an outreach program focused on promoting mining as a carrier to young women. This event has -- was held at our regional office in Abidjan and was very successful with over 230 students attending. Staying with the education theme, we also launched the start of a 6-month vocational training program near our Lafigue project. This will improve their employability and we also hope to hire some of them. Moving to the top right. As you know, plastic weight is an issue. Waste is an issue in West Africa, and we are playing a part in reducing the consumption of single-use water bottles. We organized a big awareness campaign in Dakar with our NGO partners, Plastic Odyssey, who are developing recycling technologies that can be used by entrepreneurs. Now the fun part. We've mentioned many times that mining has the potential to be one of the most impactful industries in contributing to improvements in living standards, particularly in West Africa. And it is now very rewarding to see that our gold is being used by the jewellery industry for the same reason. We are delighted and extremely proud to have supplied the gold [worn] by Michaele Coel, Wakanda Forever on the red carpet at the Met Gala in New York last Monday. Both she and Emefa Cole, who crafted the jewellery have West African origins and we're keen to use fully traceable and [ethically] sourced gold, which we provide through the single-mine origin initiative. The goal came from our Ity mine and a specific QR code has been developed, which takes the consumer on a journey from the mine to the end product.
In addition, last week, we were pleased to host jewellery designer, Fernando Jorge, who also uses single mine origin gold in his jewellery pieces and Vanity Fair at our Ity mine. It was a great opportunity for them to see firsthand our high standards and the social and economic benefits that we provide to our house communities. We hope that efforts such as these will help raise awareness for the importance of responsibly sourced gold. We already have several jewellery brands that have adopted our gold, such as Messika, and we're excited to see others wanting to follow. A lot more ESG initiatives will be detailed in our sustainability report, which will be published later this month.
Turning to Slide 19 now, given we are approaching our two year anniversary of our listing on the premium segment of the LSE, we'd like to share a few stats. We're very pleased with our listing given that approximately 40% of our trading volume has occurred in the U.K. over the last 12 months. This is a great outcome given that we didn't issue equity into the U.K. along with our listing. As you see on the chart, getting included in the FTSE 100 has clearly helped drive appetite for our stock. The volume increase is also reflective of the change in our shareholder base, which has seen U.K. and European shareholders claimed by the register. And now I'd like to formally welcome Guy to the team and hand the webcast over to him to run you through the quarter's financial performance. And what a perfect day for you to start, Guy, so may the force be with you.
Thank you, Sebastien, and hello to everyone. I'm very pleased to have joined Endeavour, it's such an exciting time for the company. It's now roughly my second month in the role, and I've had the opportunity to visit some of our mines and regional offices that has allowed me to see firsthand the potential, which remains to be unlocked throughout the business, as well as the quality of the teams across the Group.
Let me turn to our Q1 results, Slide 21 summarizes both our operational and financial highlights for the quarter and underlines our previously communicated expectation for second half weighted production profile in 2023. Rather than spending too much time on this slide, I'll take you through the detail in subsequent slides, starting with our operating cash flow before working capital on Slide 22. As depicted in the chart, we continued to generate strong quarterly cash flows of $242 million during the first quarter despite lower volumes. The 14% decrease from the prior quarter is broadly in line with the lower gold sales and partially offset by the higher realized gold price. If we could turn to Slide 23 to review the operating cash flow variances between Q1 and Q4. Our operating cash flow for the quarter was $206 million, which is a decrease of some $105 million versus Q4 last year. Looking at the variances from left to right, we benefited from a $128 higher realized gold price, offset by 43,000 ounces of lower gold sales due to our production, again being weighted towards the second half of the year. Lower production meant that cash operating expenses were also lower in absolute terms. Income taxes paid increased by $25 million, largely due to the prior period, including tax payment deferrals across Boungou, Ity and Sabodala-Massawa. And finally, working capital was an outflow of $67 million and a reversal of the prior quarter's inflow, largely due to lower trade and other payables, an increase in stockpiles at Sabodala and an increase in VAT receivable due to the timing of sales.
Turning to the next slide, you see that we continue to have a very healthy financial position, ending the quarter with $50 million of net debt and a low leverage ratio of 0.04x net debt to adjusted EBITDA, well below our target of 0.5x. Taking a look at the waterfall chart, you see the net debt bridge between Q4 and Q1.
During the quarter, we generated $206 million in operating cash flow, of which we invested some $200 million to fund both our mine capital expenditure and growth. On the financing side, we used $186 million to settle our convertible notes for $330 million and paid $100 million in shareholder dividends. In addition, we paid $46 million to Barrick Gold for Teranga's acquisition of Massawa, which had a three year look back gold price-linked contingent payment component. As a result of the timing of these cash outflows, we drew down $360 million on our RCF to manage short-term offshore cash flows. And finally, owing to the appreciation of the euro against the U.S. dollar, the value of our cash on hand increased by around $9 million.
Moving to Slide 25 and our debt structure. As Sebastien detailed earlier, during the quarter, we improved our capital structure by settling the principal of our convertible notes in cash, locking in a 4.1% cost of capital over the life of the notes. Our capital structure is now composed of our $500 million 5% senior notes and our $645 million unsecured RCF, which we upsized from $575 million during the quarter, while maintaining the same favorable terms.
While our gross debt position hasn't changed significantly, we have a clear capital structure in place with long-term visibility and no upcoming maturities. Our debt structure, therefore, positions us well to deliver our near-term growth with significant liquidity headroom.
In terms of profitability, Slide 26 shows our quarterly adjusted EBITDA. In Q1, we delivered $279 million of adjusted EBITDA, which compares favorably with our performance in the last 2 quarters, as the higher gold price, strong earnings from mine operations and lower share-based compensation offset increased exploration costs and lower volumes sold. Our strong EBITDA has helped maintain our attractive margins close to 50% that remains competitive, not only within our peer group, but across other sectors as well.
Moving to Slide 27 and our net earnings, rather than focusing on each and every line item, I'll just touch upon the key items, which we circled on the slide. Regarding the loss on financial instruments of $73 million, this includes unrealized losses on gold hedges of $41 million, losses on the settlement of the conversion option on convertible debt of $19 million, realized losses on the gold collars and forward contracts of $6 million and losses on foreign exchange contracts amounting to some $7 million. Secondly, adjustments in the quarter were $67 million and included the unrealized losses on financial instruments and a loss on other expenses, which is partially offset by a gain on non-cash, tax and other adjustments. It's also worth noting the NCI portion decreased by $11 million, while the adjusted net earnings decreased by only $6 million. This is due to the impairment add back in the prior quarter, resulting in higher earnings attributable to non-controlling interests. Overall, this meant that adjusted net earnings per share amounts to $0.28, which represents an increase of $0.02 per share over the prior quarter. This is due to the benefits of the higher gold price, lower total costs, lower taxes and share-based expenses, which were offset by the increase in exploration costs.
I'd now like to hand over to Mark, who will go through the details of our operations on a mine by mine basis.
Thank you, Guy, and hello to everyone on the call. Before I talk through the operational performance slides, I would like to share a few insights from more than seven weeks spent in West Africa so far this year. We have a very strong group of general managers to run our operations and also a good pipeline of talent coming through, who get the opportunity to act as GM during [Indiscernible] brakes.
Following the decision of one of our GMs to step down for an extended period for health reasons, we've moved a number of people around and also promoted another West African into a GM role with 3 of our operations now managed by West Africans. All of these moves have been seamless with each operation continuing to perform as good as, if not better, than before. The other benefit is that our GMs have knowledge of multiple Endeavour minds, which means that they can also support each other with decisions around people, equipment, other assets and various challenges that may be faced. Looking at the portfolio's performance, as a whole, I am pleased to say that we are on track to achieve our full year production and cost guidance. Production is expected to be stronger in the second half of the year at five out of six of our mines. As in general, we were focused on stripping in quarter one to open up high-grade mining areas for later in the year, particularly ahead of the wet season, which starts in late quarter two. This trend is not something that is new to us. As in three years out of the last 4 years, our production has been weighted towards half two. The benefit of managing a diverse portfolio is that we can stage our mine plans to ensure we are well prepared for the wet season.
On the next slide, you can see the production variance compared to quarter four of last year. It is very clear in this waterfall chart that the main reason for the quarter-on-quarter production decrease was driven by the 42,000 ounce decline at Sabodala-Massawa. In addition, we had lower production at Hounde, Boungou, and Mana, which was partially offset by stronger production at Ity and Wahgnion. I will detail these variances further in the following slides, starting with Sabodala-Massawa.Moving to Sabodala-Massawa in Senegal on Slide 31. As mentioned, during the first quarter, there was an increased waste development at the Sabodala pit cutback to access the remaining ore blocks, as the pit approaches the end of its economic life and the commencement of mining at the Massawa north zone satellite pits in accordance with the mining plan. This resulted in lower processed grades and lower production for the quarter. Later in the year, we expect to finish mining at the Sofia North and Bambaraya pit and commissioned the Niakafiri and Delya pit, which would help increase processing grades and production as the year progresses. At the Sabodala-Massawa expansion, I'm pleased to see the construction of the BIOX plant and associated infrastructure progressing very well and is on schedule for a quarter 2 2024 startup. We have now committed around 70% of the initial capital and costs are in line with our expectations.
The project will add around 200,000 ounces per year of refractory ore for the first five years of production, bumping the complex up to Tier 1 status at an industry-leading all-in sustaining cost. As you can see from the photos, we have made significant progress since we launched construction in [actual] last year. Bulk earthworks are complete and civil works are nearly complete. In the top left image, you can see that the BIOX reactors and the neutralization tanks have now been constructed to full height, whilst the foundations for the thickeners have also been laid. In the top right image, the power plant expansion is well underway with the earthworks and concrete foundations for the Engine Hall completed. Foundations for the mills and the CIL tanks have been completed, as you can see in the lower image, and the priorities for the remainder of the year will be the progression into piping, electrical and then instrumentation. We look forward to keeping you updated each quarter, as the project approaches completion early next year.
Turning to Slide 33, and our Hounde mine in Burkina Faso. In quarter 1, we were focused on stripping activity at the high-grade Kari Pump pit to unlock access to the next phase of ore mining be. At the same time, we've been feeding ore predominantly from the lower-grade Kari West pit. As a result, the processing head grade of 1.2 grams per tonne and production of 47,000 ounces were lower quarter-on-quarter. As the stripping activity at Kari Pump advances, we expect ore mining there during quarter two, which will drive progressively increasing grades through the year. At our Wahgnion mine, we saw production increase quarter-on-quarter to 39,000 ounces and all-in sustaining costs improved as well, as we are starting to benefit from the mine establishment work undertaken last year to open up the Samavogo pit to access higher-grade reserves there. Head grades were stable quarter-on-quarter, and we expect increased feed from Samavogo through the year. At the same time, we are completing planning to establish infrastructure to open up the Stinger satellite pits later this year. This will add further high-grade ore sources and are expected to drive continued improvement in the grade and production profile in addition to improving all-in sustaining costs through the year.
Moving to our Ity Mine in Cote d'Ivoire on Slide 35. During the first quarter, production increased due to higher volumes milled, as we processed a higher proportion of soft oxide material, which supported increased use of the surge bin and higher mill availability, as well as improved recovery rates. All-in sustaining costs decreased due to the increased volume of gold sold, as well as lower mining unit costs, which benefited from mining high volumes at Bakatouo and Walter pits and lower processing unit costs resulting from less fresh ore in the feed. For the remainder of the year, we expect a slight decrease in throughput, as we move into the wet season. Mining will start waste stripping activities to merge the Bakatouo and Walter pits, as part of our updated mine plan, which will bring additional ounces and should benefit operating costs and efficiencies. Last year, following strong performance at Ity, we identified the opportunity to add a [re-cyanide circuit] to improve recoveries, optimize costs by lowering cyanide consumption, potentially recovering additional gold and silver and reducing cyanide in the tails. The project is progressing well and is expected to be fully commissioned in the second half of 2023.
At our Boungou Mine, production decreased during the quarter due to lower tonnes of ore mined and milled at lower head grades. This came as supply chain challenges had an impact on operations, particularly on the mining side, where we reduced activities during the quarter. Unit costs and all-in sustaining cost per ounce were higher as a result. For the remainder of the year, processing and mining activities will be focused on -- sorry, mining activities will be focused on stripping in the West Flank pit to open up zones of higher grade ore for processing later in the year. As previously guided, production is expected to be weighted to the second half of 2023, with increased volumes of higher grade ore expected to be sourced from the West Flank pit.
Turning to Slide 37. Production at Mana decreased during the first quarter, as we prioritized underground development to open up the third portal into the Wona underground to provide an additional source of ore. In order to provide supplemental feed for the mill, we've [feed] an increased tonnage of lower grade ore from the Maoula open pit. In the second quarter of 2023, ore will be sourced primarily from the underground Siou, whilst production gradually ramps up at Wona, with supplemental feed continuing from the Maoula open pit. Processed grades are expected to increase throughout the year, as higher grade underground stope production is expected to progressively represent a larger portion of the mill feed with the bulk of production weighted towards the second half of the year.
Lastly, on Slide 38, I am pleased to report that the construction project is progressing very well at Lafigue. We launched this project early in the fourth quarter of 2022 and to-date, approximately $205 million or 46% of the total growth capital has now been committed with pricing in line with expectations. One positive aspect of having two growth projects underway at the same time is that we have seen both good sharing of information and some competitive tension between the two teams.
The Lafigue team are performing very well, particularly when we consider that it is a greenfield project, where we are having to construct an entire operation, including TSF, water harvest and water storage dams, upgrade access roads and a 225 kilo volt power line in addition to the administration, mining and processing facilities. As the bulk of the earthworks are nearing completion, we are starting to turn our attention to the tankage and other structural mechanical and piping work in the processing plant, power line construction and TSF. In the top left image, you can see the foundations for the primary crusher are advancing well. In the lower image, our construction team are celebrating the successful completion of the CIL tank foundation concrete [pours], whilst in the top right image, the substation civils are progressing well.
At Lafigue, we are on track for the start-up in quarter three next year. And to that end, we are working hard to train over 500 local potential employees with vocational and educational programs, so that we have a good skilled local workforce available to work at the mine when it is up and running.
I will now hand back to Sebastien.
Thank you, Mark. In summary, we are diligently executing our strategy to continue delivering operating excellence, while we grow the business to increase stakeholder value, all while preserving our financial strength. Over the next 18 months, our efforts to unlock near-term growth through the completion of the expansion of Sabodala-Massawa and the build of Lafigue will further increase the quality of our portfolio, increase our production, lower our cost and enable enhanced cash flow generation. This, in turn, will allow us to further increase our returns to all stakeholders on a sustainable basis. I look forward to providing further updates, as the year progresses. As always, I'd like to thank my team for their continued hard work and dedication. Thank you for joining us. I will now hand over to the operator for Q&A.
[Operator Instructions] We would take our first question. And the first question comes from Fahad Tariq from Credit Suisse.
On Slide 29, you talk about the all-in sustaining costs and how it's tracking for each mine. Can you maybe just walk through -- it sounds like, for most of mine, the grade improvement will result in all of these costs falling within the guidance range. I'd be curious to know, are there any mines, where it sounds like it might still be above the top end of the range?
Yes, I mean, I think we're comfortable that all the mines are on track. As we said, there is a lot of production weighted towards H2. And therefore, a lot of the improvements on the all-in sustaining costs will be seen, as we move from Q2 to Q3 and then to Q4. Overall, very comfortable with the current quarter, and as we head, I mean to the rest of the year.
And then maybe as a follow-up, just on the underlying cost, it sounds like on the expansion projects, costs are coming in as expected, pricing coming in as expected. On the OpEx side of things, can you maybe just provide some commentary on what you're seeing in terms of inflationary pressures easing, or is it more or less the same? Any color there would be really appreciated?
I think on Q1, we have been continuing to see the same pressure that we had on cost as in Q3 and Q4 last year. But we were expecting that this will start to ease, as we move into Q2 and in particular, in Q3 and Q4. So, so far, I mean, things are in line. If we take fuel, for example, we've got some slight increases in some countries and already some decreases in others. So overall, we are about slightly below what we had in Q4 last year. And we would anticipate that this should start, I mean, to drop more significantly, in particular in Q3 and Q4.
[Operator Instructions] We would take our next question. And your next question comes from the line of Anita Soni from CIBC World Markets.
Actually, Fahad asked a couple of them already, but I would just want to get an idea of the cadence of how you expect the rest of the year to progress. So would -- is it fair to say that you think Q2 is going to be higher than Q1 or is there anything that we should be focused on going into Q2?
We expect, I mean Q2 to be mostly in line, I mean, with Q1 and then Q3 improving and then a strong Q4. Again, that as we walk away from the rainy season in Q3 and get into dry season, most of Q4, then we've got strong pickup in terms of mining rate processing. And we've got to also access, I mean to new pits that we've been developing in Q1 and Q2 with higher grades that will have impact in Q3 and in Q4.
And then at Ity, that one is it's, I guess, delivering ahead of plan at this stage. And so is that a function of -- I think it was -- there was softer ore feed there. Is that going to reverse in the second half of the year?
So Ity is probably the one mine that in terms of sequencing had a much higher quarter than the other mines in Q1 because of the sequencing of the mine plan with higher feed grades in Q1. It's clear that when you look at Q4 last year and Q1, I mean, Ity is just massively, I mean, performance at Ity is massive. We should see, I mean, some slowdown in those Ity rates in Q2 and Q3 and pick up again in Q4. So yes, I mean, very happy with Ity current performance, but clearly also linked to mine plan sequencing and current high-grade areas.
And then just a final question on the commentary that you provided about picking up the shareholder return program after the completion of the 2 organic growth projects that you have. Could you just give us -- is there any further color that you can provide on that? I mean, would we expect that like immediately, assuming these projects come on time and on budget? Or would this be more of a 2025 endeavor?
Well, a bit like when we came out of the construction phase of Hounde and Ity in a row, it took us about 12 months, 18 months, I mean, to maximize, I mean, the cash on the balance sheet and be in a position after that, I mean, to start for the first time our dividend policy. Our expectation is that this year, we should be at minimum at the level of where we were last year, which is about a $200 million dividend versus the initial $175 million, which was committed for '23. So my expectations would be that in particular, if we continue to have a strong gold price environment to be able to increase again, that dividend policy starting in '24 and onwards.
Starting in '24 and onwards. Yes, I was wondering about the gold price and how that played in. And then just -- I guess, I have one -- one last one. In terms of the capital allocation priorities, you do have some debt, you do have the cash to offset that obviously. But where would you slot that in terms of debt reduction versus shareholder returns?
So the bond repayment is 2026. And I think we came out, I mean, to do the bond quite at the right time when we did it in -- on the back of our listing in London because we are at a 5% coupon, which probably looks quite attractive today versus the market. And I think it just shows also the discipline that we have on the management of the balance sheet the same way we did, I mean, with the convertible bond when we came out with a 3% coupon to finance our construction projects in both Cote d'Ivoire and Burkina Faso.So right now, I mean, we are ensuring that we can -- continue to manage the buying -- I mean, buying back our shares and generate strong returns and at the same time, manage the overall gross debt. So I would expect that progressively, as we finish the completion, I mean, of the 2 projects, a big part of the gross debt, and in particular, the RCF will be completely paid down and start really piling up some cash for better returns.
We would take our next question. And the next question comes from the line of Ovais Habib from Scotia Bank.
Hi, Sebastien, Endeavour team. Congrats on the Q1 beat. A couple of questions from me. Sebastien, in the Q4 conference call, you kind of talked about potentially divesting out of some of your non-core assets. Any sort of progress on that sale process or any color that you can provide to us?
I think as we've previously mentioned, the Boungou and Wahgnion mines are becoming increasingly non-core for the Group, simply because of their slightly higher cost, shorter mine lives and lower production versus the rest of the portfolio, in particular, looking at the two upcoming projects and looking at the size of what Tanda-Iguela could be also. So typically, we've -- in the past, I mean, you know that we've timed the sales of assets with bringing on board new assets and better production. So the current build of Lafigue and Sabodala are progressing well. They are expected to come online towards the Q2 '24. We haven't started any specific official sale process, although we've been receiving some inbound inquiries from several -- several companies. I would say that if something was to happen on one of the assets, it would be rather towards the end of the year. And so that it is in sync with the increased production from the two upcoming projects.
And just moving on to exploration. I mean, you guys are -- have been very aggressive on exploration, especially in Q1. You did about 110,000 meters of drilling. Focus looks like it was on Tanda-Iguela, where were the remaining meters drilled. Were they mostly in and around the existing operating mines -- or do you have any other Tanda-Iguela's in your back pocket?
I'll let Jono, who's on the call to comment on where else they've been drilling.
The bulk of our next amount of drilling and exploration has been around Ity and at Sabodala-Massawa, mostly on the mine permits. The mine permits are very large at [Indiscernible], and we've got a very large holding again in Ity. So we continue with our off-mine permit or greenfields exploration. But it's advancing those targets in the brownfields is what we're pushing.
So we won't comment yet on the new discovery that's a surprise for later.
We would take our next question. And the next question comes from the line of Daniel Major from UBS.
Thanks for questions, and perhaps a good quarter. Yes. Some might have already been answered, but the first one on the exploration side, it looks like the run rate of spend is running a little ahead of your full year guidance. If you are able to deploy more exploration dollars at Tanda-Iguela, does that mean that you will sort of take parts from elsewhere of the exploration budget, or should we expect that if you can deploy more this upside to the $70 million?
Well, I think it's -- somehow it's a good thing that we are a bit ahead. I mean we always try to do as much as we can during the dry season. So this is why we usually have a big push in Q1 and then during Q3 and Q4. Quite excited, I would say, by overall, the results that we're getting and in particular, at Tanda-Iguela. So I think we'll review at the end of Q2, where we stand. And if required and if we continue to have strong results in particular, at Tanda-Iguela, then might be a good news if we decide, I mean to increase the exploration budget. But not on the agenda yet, it's something that we will review in -- at the end of Q2.
And the next one, you built some working capital this quarter, part of that was, I think, some receivables for some of the gold you sold to directly to Burkina government. Is this something that's kind of in discussion to be ongoing? Was it a one-off? And can you just give us a sense of the kind of working capital impact on cash flow through the remaining quarters?
No, I see that more as a one-off. And ultimately, I mean, it was less than $10 million. I mean the gold that was sold, I mean, to government of Burkina. So I don't expect this, I mean, to be repeated, I mean, frequently. Overall, I mean, it's been very small compared to the entire turnover for the quarter. I think part of it is also, as we build some of the two big projects you still have a lot of equipment and others going into working capital. So yes, nothing which is particularly to be highlighted there.
We will take our next question. And the next question comes from the line of Harmen Puri from Bank of America Securities.
Thank you for taking my questions and thanks for the update. Earlier in the presentation, I think when [Sebastien] talked about Tanda-Iguela, you mentioned it had the potential to be a flagship asset, but also potentially a Tier 1 asset. Can you sort of remind us what sort of throughput or plant sizing you're looking at when it comes to potential economic studies for the asset, obviously, later next year thereafter?
Harmen, I think that we're just at the beginning of the exploration program there, so difficult to give some numbers. But I would say that from an exploration -- purely from an exploration standpoint, I mean, if we are able, I mean, to get above [5 million] ounce, then resources, then we are obviously getting in territories of a potential Tier 1 asset, and that's what we are currently targeting.And then for us, I mean, the Tier 1 asset would mean above 400,000 ounce annul production and lower in sustaining costs. So let's see. It's been just the first drilling campaign last year. Things are looking pretty good. But we'll get more by the end of the year. I just see Jono around the table smiling and the team excited about this asset, which doesn't happen very often. So I still believe that this is [Technical Difficulty]…
And my second question is just on Ity. It looks like the throughput and the recoveries in Q1 were quite strong. Can you sort of guide us on where we can expect them for the rest of the year?
Yes [Technical Difficulty] throughput during the dry season [Technical Difficulty] in the wet. So there will be a reduction just through the wet season. From a recovery perspective, with the commissioning of the pre-leach tank is going very well. And also what we've done is we've taken the [Indiscernible] semi refractory ore out of the mix. So when you look at that, it certainly had a positive on recovery, and we are expecting recovery to remain pretty much in line throughout the rest of the year.
Thank you. We will take our next question. The next question comes from the line of Don DeMarco from National Bank Financial.
Well, thank you, operator, and good morning, Sebastien team. So the Sabodala-Massawa expansion commenced in April last year. We're almost a year into it. It’s two year growth project. Yet only $90 million of the $290 million budget has been spent. So can you just comment on why spending has been lighter in the first year? And what's going to drive the increase in the [home stretch]?
Yes, Don, it's a fair point. In fact, we've got the committed part, I mean, is extremely high, but the cash outflow, I mean, is much lower than what we expected and that's simply timing of payments. You're not going to believe it, but a lot of the suppliers aren't sending their invoices. So contracts were awarded and the work is progressing well on the ground, but a lot of those suppliers haven't sent the invoices to get the cash. So that's why you've got this slight difference or discrepancy between the committed part and the cash outflow.
So we'll see that reconcile over the coming quarters then. And can you just remind us to what are the bottleneck guidance in terms of schedule over the next 12 months?
So Mark, I mean, do you want to comment for Sabodala.
The critical [parts] at Sabodala has always been the BIOX reactors because of the amount of stainless steel tankage and then piping and so forth, [if you've got cooling] coils and quite a lot of other complexity within that. And so that's certainly been the key focal point. Everything else is tracking well around that.
And continuing with Sabodala-Massawa, the exploration in 2023 takes a large piece of the budget over 20%. So are the results that you're seeing in Q1 or expect to see, are they [target] -- supporting a potential increase above that 400,000 ounce per year rate? Or is it more about back filling beyond 2027? I don't know, just some kind of color about what's your -- what that exploration program, what insights it might be yielding at this early stage?
Look, with the drilling and the results that we're seeing, we're looking at targeting -- maintaining the 400,000 ounces plus extra on top with new discoveries and growth. It's a very big plant to fill. And fortunately, for us, Sabodala-Massawa is a very fertile exploration ground, lots of targets that we think may have been tested in the past. We're going back over those and reviewing it and there's plenty of opportunities that are coming out, and we're putting the drill bit on them. So we'll see those results later this year.
We will take our next question. And the next question comes from the line of Sandeep Peety from Morgan Stanley.
Good morning, Sebastien and team. I have two left. So firstly, your prior comments suggest that production needs to average around [390 kilo ounce] during 2H to achieve midpoint of the guidance. In that context, are you comfortable to be at midpoint, or are you pointing towards lower end of the guidance range?
[Technical Difficulty] is that right?
Hello. Sorry, can you hear me now?
Yes. You're talking about the production range. Is that right?
Yes. So my question was that your prior comments suggest that production needs to average around [390 kilo ounce] during second half of the year to achieve midpoint of the guidance range. In that context, are you comfortable to be at midpoint, or are you pointing towards lower end of the guidance?
No. I mean so far, I mean, we're comfortable to be in line, so midpoint of the guidance.
And secondly, on dividend policy. So your current dividend policy is coming to end in 2023, and I appreciate the fact that you will provide details on the new policy in coming quarters. But can I ask how are you thinking about it? Are you thinking to switch to earnings, cash flow-based policy similar to other mining companies or are you comfortable with progressive policy that you have in place currently?
So I mean, the objective is to continue to increase the dividend policy, in particular, starting in '24 once the commissioning of the 2 key projects is done. And we're still reviewing what's the best metrics to give more visibility around the dividend policy. But I mean, clearly, the objective is to move forward, increasing that overall return policy to shareholders.
Thank you. We will take our next question. And the next question comes from the line of Carey MacRury from Canaccord Genuity.
Maybe just another question on Tanda-Iguela. I know it's obviously early days, but is there a potential for this project to be kind of shovel-ready by 2026 or so, or is it -- do you expect this to be or it take longer than that?
I think we need to be realistic on the fact that depending on the size of the beast, we would be looking at probably '27. It would be -- if everything goes well, that means that we'd be launching construction, the earliest towards the end of '25, and then it's an 18-month construction, I would guess. So yes, I mean, '27 is probably the earliest, which would mean also that is becoming bigger and bigger. So we need to give time for the team to be able to really assess how big it is, so that we don't make any mistakes in terms of mine plan and plant size.
And I guess, based on what you're saying on the project, it looks like it's pretty much moving to the head of the queue in front of all the other projects that you have?
Well, given, we continue -- I mean, to receive some drilling results. And just as an example, this morning, Jono was telling us 51 meters at 3.2 grams per tonne. So yes, I mean, clearly, on the basis of what we currently see, that will be the most attractive next project for the Group. So the good news is that we've got a strong organic growth pipeline, and that's what we want. And this is why we've been insisting that West Africa was so attractive in terms of region because of its prospectivity. And I think that we're demonstrating day after day that being focused in that region is probably the right thing to do, given all the organic growth we are able to get and discover.
We will take our next question. And the next question comes from the line of Amos Fletcher from Barclays.
Two questions. First one, I just wanted to ask about OpEx for the growth projects. Is there any risk to the guidance do you think from inflationary factors since the feasibility study was set, for example, at Lafigue. So if we were to mark-to-market on inputs and FX, where would you say that the $871 an ounce all-in sustaining cost guidance would move to?
I mean, unless there are some significant changes between now and next year when we go into production, we wouldn't expect some changes. Overall, what we see is that this asset will be producing at below $900 all-in sustaining costs. And that's why we like this asset. We usually -- I mean, if you take the examples of our previous builds, we usually do much better in throughput progressively on those assets, which tends to improve also the overall unit cost and total cost per asset. So yes, I mean, at this stage, pretty confident.
And then, not wanting, Guy, to feel like he's been left out on his first call. Can I ask how do you think about potentially early redemption of the bonds, which I see are yielding 9.5%, which seems pretty attractive to me.
So as we said, may the force be with him. So Guy, if you want to have…
At this stage, I mean, I think as we've tried to outline, the capital structure is very simple and is working for us at the moment. We can continue to consider, as we go forward. But at this stage, no formal plans to look at any kind of early redemption.
Thank you. That will conclude today's Q&A session. I would now like to turn the call back to Martino De Ciccio for any closing remarks.
Thank you, everyone, for joining today's webcast. We remain available for questions off-line, so don't hesitate. Thank you again, 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.