© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Greetings, and welcome to the Endeavour Mining Second Quarter 2018 Webcast. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Sébastien de Montessus, CEO of Endeavour Mining Corporate. Please go ahead, sir.
Good morning, good afternoon, everyone. Thank you for joining Endeavour Mining's Q2 2018 results presentation. I'm Sébastien de Montessus, CEO of Endeavour Mining, and it's a pleasure to be talking to you once again. Please note on the following slide, the usual legal statements and disclaimers here. Here with me today participating, Jeremy Langford, our Chief Operating Officer; Vincent Benoit, our Chief Financial Officer; and Patrick Bouisset, our EVP, Exploration and Growth. As usual, I will begin by taking you through the highlights from the quarter with the help of Jeremy and Patrick. Vincent will then take you through our financials, followed by Jeremy, who will provide more color on each individual mine and project. We will then open the call for any questions. As you can see here and to recap on our activities from the first half of the year, we've made strong progress across each of our 4 strategic pillars. We're very much on track operationally, and our projects are advancing well. Ity CIL construction is progressing on time and on budget, and we are expecting an updated feasibility study on Kalana by Q1 next year. On the exploration front, we were also quite busy with more than 292,000 meters drilled across the group in the first half of the year. We believe that with the new discoveries made, most notably the Kari area at Houndé, we will continue to build on our track record of unlocking exploration value. On the portfolio management front. Following a strategic assessment of Tabakoto, the mine was deemed to be noncore, and a sale process was launched. This move is in line with our capital allocation strategy, which I will discuss in more detail in an upcoming slide. Lastly, we continued to manage our balance sheet carefully as reflected by our strong liquidity sources, which has us well positioned to fund our growth projects. As always, I want to reiterate that safety is an utmost priority for us. At Endeavour, no job is so important and cannot be done safely. We're delighted that our group level safety record remained better than the industry average during the first half of the year with LTI for H1 of 0.22. In terms of our construction track record, as you may be aware, we previously completed Houndé and Agbaou with no lost time injuries, and that excellent track record continues at Ity. As a reminder, Houndé has now more than 10.3 million hours without LTI, and even Agbaou had only 1 accident since it started its construction back in 2012 about 6 years ago. On the next slide, as you can see here, we had a very strong first half of the year, beyond our safety track record, which I just noted. We are pleased that our performance across the group is well on track to meet the full year guidance. 358,000 ounce produced in H1 at all-in sustaining cost of $825 per ounce. It's important to highlight that both our group production and all-in sustaining costs are on pace, both inclusive of and without Tabakoto. And you will note in particular that without Tabakoto, our all-in sustaining has been for H1 at $732 per ounce. We can go into more detail on these items in the following slides. Tabakoto. Key pillar of the strategy that was set back in early 2016 is to actively manage the portfolio to increase its quality over time. As you know, we've been focused on divesting assets that do not fit our magic box criteria of low all-in sustaining cost and long mine life. Based on this criteria, it is no surprise that both Youga and Nzema were divested. Viewed through this strategic lens, we undertook a strategic assessment of Tabakoto, which was completed in Q2. This assessment demonstrated the potential to reduce Tabakoto all-in sustaining mainly through capital investment to renew the underground operation. As some of you may recall, in 2015, the company transitioned from contractor mining to owner mining, but at the time did so with a secondhand fleet, which suffers from poor availability and high maintenance costs. We are talking below 40% availability. And despite this, the team has been doing a fantastic job on site. About $40 million of capital is required to fix this. And our view is that these investments do not fit Endeavour's capital allocation criteria. As such, Tabakoto was deemed noncore, and the sales process has commenced. We believe the asset is better suited for the portfolio of another company with an alternative strategy, allowing us to continue to focus on lower-cost and long-life assets. We have already received nonbinding offers and are confident to close the transaction before year-end. As you will see in the following slides, Tabakoto has been classified as held for sale and included as part of Endeavour's discontinued operation. Looking across the group, the benefit of Houndé ramp-up has lifted production from continuing operation by 75% versus Q2 last year. In white, you can see the previous production from Nzema, which was sold last year. In gray, you can see that, inclusive of Tabakoto, group production amounted to 173,000 ounce of gold in the second quarter. The all-in sustaining cost for the second quarter amounted to $878 per ounce with Tabakoto and $780 without Tabakoto. As expected, the all-in sustaining cost increased over the previous quarter as Houndé benefited from stronger grade in the first quarter. I've previously mentioned that our focus was to decrease our all-in sustaining cost to below $800 per ounce in order to maximize our cash flow generation. On this slide, we can see the impact of both the portfolio management and the project development activities. Between H1 last year and this year, we sold the high-cost Nzema mine and now intend to sell Tabakoto. Combined, these actions have decreased our all-in sustaining cost by about $75 per ounce. The much larger impact has been the successful ramp-up of production at Houndé. With its all-in sustaining cost of $521 in the first half of the year, its impact on the group is noticeable. All-in sustaining costs from continuing operation was $732 per ounce for H1. By this time next year, I would like to point out the Ity CIL project will be in production. Ity's all-in sustaining cost is projected to be below $500 per ounce, further enhancing the overall quality of our portfolio and continuing to lower our group all-in sustaining cost even further. As such, I believe that we are very well positioned to meet our 2019 strategic objective of us achieving an annual production of above 800,000 ounces at all-in sustaining cost of below $800 per ounce and with the visibility of more than 10 years at each mine asset in early 2016. You can see on this slide the direct impact of greater production and lower cost on our all-in margin from the discontinued operation -- which includes, sorry, the discontinued operations. In the first half of the year, we achieved the margin $116 million, which is almost double what was achieved during the equivalent period last year. On Ity CIL, as mentioned, the project is our next large growth catalyst, and we are very pleased with the progress being made as it is on budget and on time for our first gold pour in mid-2019. On the CapEx front, we have already committed over 85% of the capital. Looking at the chart on the right, you will see that the remaining CapEx to be incurred now stands at $221 million. With $30 million of equipment financing remaining to be drawn on, this brings our remaining cash outflow requirements to $190 million. With nearly $340 million of liquidity sources available, we are obviously very well funded. I have to say that I was on site doing a project review last week, and I wish you could see the amazing job the team is doing there. But now we'll hand over to Jeremy to talk through the progress being made in more detail.
Thanks, Sebastian, and good morning, good afternoon to everyone. As mentioned, the Ity CIL project is tracking on time and on budget and is 50% complete to date. During Q2, we reached a major milestone with the ball and SAG mills arriving on site some 3 months earlier than initially planned. Just some major achievements during Q2 to add for the list. 85% total capital cost has been spent as Sebastian commented on. All 8 of the CIL tanks have been constructed. [ Launders ] are going in now, and 4 of the CIL tanks are currently in hydro test. Pleasingly, there's over 2,100 people on site, and 95% of the people are local. Over to the next slide and just some pictures looking clockwise. Obviously, the 4 CIL tanks were the 4 behind and the 2 detox tanks in the foreground there. The slide on the right is the process plant milling foundation steel and the mill foundations with 1/2 of the ball [ move ] shows there. Just below that is the haul bridge construction, which is going on really well at the moment. This haul bridge connects the Daapleu and Gbeitouo pits to PE26 with the main processing facility. And lastly but not least, the crushing facility or the crusher vault. Pretty common with Houndé and Agbaou, very similar design. We certainly are benefiting from commonality in the design. On the next slide, we've provided the upcoming milestones for reference. In essence, the time line will go through these details, but we'll continue to track well against the schedule we've laid out. I'm going to hand over to Patrick now for a review of the exploration activities. Over to you, Patrick.
Thanks, Jeremy, and good morning, good afternoon, everybody. So as far as exploration is concerned, you can see on the slide that this illustrate our continued strong focus on values exploration program. As you can see with the amounts presented in the table, we have been very, very busy in H1 2018. And all in all, we spent something around $35 million spent in exploration in the first semester, out of which, $15 million were spent in Q2 alone. This is, I would say, quite normal since we have an intensified drilling ahead of the rainy season where we normally slow down a little bit, and we'll start again later on as soon as the rainy season allows us to speed up. The main focus, indeed, of H1 was dedicated to the Houndé area where we announced recently confirmed Kari Pump discovery and announced 2 additional discovery over the border of Kari anomaly. We have been also working on very strongly the -- especially the first quarter but also in the second quarter at Kalana, where we have undertaken a very intensive exploration program within the deposit. Our target is to publish an updated resource by sometime in Q3, which will feed into our updated feasibility study of that project later on. At Ity, we have been continuing to work a lot on the Le Plaque discovery where we communicated early on this year. We continue to see good result in the expansion of Le Plaque. And I said previously, we expect an updated resource to be delineated within the end of the first quarter of next year. We also are very happy because we are overseeing significantly on our greenfield exploration package. 2016 and '17 was mostly dedicated to work on our mine to increase the mine life. And starting last year, we started to accelerate our greenfield exploration effort, which we confirm this year, and we are quite active. And we are busy on several target to explore them, and we expect to publish some things, some result later on this year once we have some more full result. And with that, I would say that's all for me for this part, and we will move on to financial. And I will hand it over to Vincent to go through the next section of the presentation. Vincent?
Thank you, Patrick. Good morning, good afternoon, everyone. So I will start this section by looking at the production bridge between H1 this year and last year. So when you look on Slide 16 at the chart and starting at the left-hand side, Nzema and Tabakoto production had been removed to obtain H1 '17 production from continuing operations. So overall, on a comparable basis, production has increased from 173,000 ounces to 299,000 ounces. You then see that Houndé has more than compensated for the lower production at Agbaou, which is in line with its life-of-mine plan, which now integrates harder rock and that Karma, which decreased due to the lower recovery rate associated with treating the GG2 transitional ore in the first half of '18.And Ity's production increased, and all-in sustaining cost decreased there mainly due to the increased stacked tonnage and higher grades from the Bakatouo pit, which more than compensated for lower recovery rate. Jeremy will come back in a minute on technical explanations. Overall, this led to total production from continuing operation to 299,000 ounces, which paces very well and well on track to meet our full year guidance as Sebastien has reminded earlier. On Slide 17, I will walk through the main line items from revenue to all-in margin. The top line increase, as I just explained, and gold sold amounted 305,000 ounces. I want to note just a couple of other points. The gold price are already taking into account the streaming financing from Karma, and it has increased compared to the year ago, as you have noted. As you see on Note 3, the all-in sustaining margin significantly increased to $116 million (sic) [ $166 million ] versus $64 million (sic) [ $99 million ] last year due to the successful start-up of Houndé, higher realized gold price and an increase in gold sold at Ity which more than offset for the all-in sustaining cost increase at Agbaou. At Point 4, the non-sustaining capital spending increased versus last year due to a $6 million increase at Agbaou for its waste capitalization activities. On Point 5, the non-sustaining exploration costs increased as we are well advanced in our drilling program as explained a moment ago by Patrick. In total, we spent $30 million in exploration in the first half '18. And we are well in advance compared to the full year budget as we are drilling more before the rainy season as Patrick was explaining. Finally, this resulted in an all-in margin from all operation of $116 million for H1 this year versus $64 million last year. Page 18, here, you will see a more detailed breakdown of the movement in cash flow over the period compared with the year ago. As shown on Point 1, there was a significant movement in working capital variation during H1, $55 million negative. This is due, firstly, to an increase in stockpile at Houndé and Karma. And secondly, due to the prepayments for regions at Houndé. And thirdly, due to the increased outflow from trade and other receivable driven by gold sales received at Houndé. This working capital variation, it is expected that by the second half, it turns positive with inventory and region consumption. As shown in Point 2, interest and financing fees increased due to the increase in debt outstanding related to the construction of Houndé and Ity CIL. As shown in Point 3, we spent $153 million on the Ity CIL, inclusive of these, associated working capital, but we spend as well $5 million for a new group IT system and $5 million on the Kalana construction. As shown in Point 4, we received $330 million of proceeds following our convertible notes issuance in the first quarter. And as you see below, $280 million has been repaid for the revolving credit facility in Q1. And then in Q2, we have drawn down $70 million for the construction of Ity, bringing the net amount repaid this year to $210 million.On Slide 19, you can see here this strong increase in the cash flow per share, operating cash flow per share, due to the significant improvement in our portfolio asset quality, representing an uptick of $0.30 -- 30% (sic) [ 35% ], sorry, to a hundred -- to $1.52 per share. On Slide 20. So on this slide, you know it very well as it shows our capacity to fund our CapEx and our growth CapEx. So you see that it leads us with a very well position to fund -- a good position to fund the remainder of the capital expenditure required to complete Ity. We have $340 million in available liquidity, comprising $79 million of cash and $260 million of undrawn RCF. On top of this, we have the remaining proceeds from the Nzema sale, the remaining equipment financing at Ity and, of course, the cash being generated by the operation. So all those resource are more than enough to fund the remaining Ity CapEx, which amount to 200 going -- $200 million going forward. On Slide 21, we quickly look at the cash variation from an IFRS standpoint, which, of course, match with the previous view. We started the year $123 million in cash. Net cash flow from operating activities amount $108 million, which include a negative $55 million working capital valuation as mentioned before. Investment activities amounted to $247 million comprised of $163 million of growth project and 7 -- $65 million of sustaining and nonsustaining operating capital expenditure, including exploration. Financing activity amounted to $98 million, which include, as previously mentioned, the issuance of the convertible notes and the repayments of the RCF. That results, at the end of the period, at the end of June, with a current cash position of $79 million at the end of the second quarter. Slide 22. Of course, the strong operational performance during H1 led to a strong adjusted EPS increase, which was up $0.31 per share. As usual, on this table, on the right, you can see the many item and adjustment which had been made so it's always the same one: losses from discontinued operation that had been removed, deferred income tax recovery, gain on financial instruments, stock-based expenses. So that leads to this $0.31 per share, EPS.And with this, I will hand over to Jeremy in order he goes through the operational performance by mine.
Thanks, Vincent. So we've already talked about [ how pleasant it was ] at Houndé and how it's performing compared to the feasibility study. As expected, production was lower than previous quarter mainly due to an expected decrease in the average head grade fed to the plant. So the operation continued to perform ahead of expectation, and throughput has increased from 20% to 30%, above nameplate. Houndé now tracking at about 3.9 million tons a year in annual throughput compared to 3 million tons of its nameplate. We do, however, remain cautious and conservative here expecting the throughput to come down just a touch in the upcoming quarters the wet season may be in effect. AISC mainly -- increased mainly due to the lower processed grades as well as the high unit costs and the increased sustaining capital spend.As highlighted by the others, Houndé continues to make strong contribution to the group. It's performant, and it's well on track to meet full year guidance. Over to Agbaou. And 2018, as we've mentioned quite a few times, continues to be a transactional -- transitional year with a focus on waste capitalization, which gives us access to the high-grade ores over the longer term. We did see production slightly increase over the previous quarter due to the high grade of the material milled as low-grade stockpiles continue to supplement the mine feed. Good news is that the waste capitalization efforts are continuing to progress well.Overall, Agbaou's on track to meet full year guidance as production is expected to increase in the latter portion of the year, and costs are expected to trend towards the guided range as the hard ore blend and the strip increases.Over to Ity, and we talked about this a number of times, actually. When we talked about Ity CIL project, we tend to forget that we have an existing heap leach operation, and it continues to operate very well year-to-date. It's on track to meet its guidance. Production increased significantly over the previous quarter due to the high-grade stack as the mining activities at Bakatouo have produced higher grades as well as increased recovery rate. As previously mentioned, 2018 is a transitional year for Ity, as greater focus is given to the CIL build. Open pit mining activities for the heap leach operation are expected to continue until the end of Q3 2018. The aim is to create stockpile sufficient to feed the stacking requirements for the latter portion of this year. Short mining campaigns may then be conducted based on equipment availability and progression of the CIL ramp-up or preproduction, if you like.Over to Karma. As guided, production at Karma decreased over previous quarter due to a lowering stacked tonnage despite an increase in grade and recovery. Tons mined increased as expected as mining activity ramped up in anticipation of the rainy season for this year Q3. Mining at GG2 pit was completed in the quarter, and mining increased at the Kao pit where mining began in late Q1 2018. Interestingly, the front end that at Karma, since the new plant has been put in, performing very well. Even looking at the H1 numbers, the plant's producing at nameplate to slightly better. And we expect it to improve in the second half of the year. Looking at Tabakoto. Production decreased over the previous quarter mainly due to lower average head grades. This is due to the depletion in the higher-grade open-pit deposits. Following a strategic assessment, it's clear that the key to reducing the mines' all-in sustaining cost is to upgrade the fleet, which would allow for increased tonnage to be extracted. This comes at lower mining costs with significantly less maintenance costs as well. Big investments, in our opinion, require [ another ] company that can run 2 profitable underground mines with, obviously, exploration potential. I'd like to hand over to Patrick to have a chat about Kalana and give you an update. Patrick?
Thanks, Jeremy. As far as the Kalana is concerned, as I said, we have been working a lot on Kalana in the first part of the year with an intensive, I would say, exploration and resource program that was finalized in Q2 on the Kalana and Kalanako deposit. Most of the work that was done was performed at Kalana deposit. The main goal was to confirm the overall geological model, which was accomplished. We found and we solidify a little bit the geological model with the following and the mapping of all the [ indiscernible ] that were deemed to occur, and they occur. We also did, especially, in-filling drilling, which is expected to convert a portion of the previously classified inferred resource in the northeastern part of the deposit. The remaining result from the last leachwell gold assay are expected in the coming weeks, actually very soon, following bottleneck encountered in the lab because leachwell analysis take a much longer time than the classical fire assay. Our goal is to rebuild completely the geological model, which is being currently done now based on the drilling done by the previous owner and that which we completed this quarter while using a much more, I would say, conservative top-cut assumption and ordinary kriging geostatistical approach that's usually what was done previously. In total, we are going to use more than 2,200 holes, and more than 221,000 assays will be used to build the geological model, which will form the basis of the updated feasibility study.Firstly, it's been a long and a lot of work, which will give us -- reassure some confidence in the new model that we are going to deliver. At the Tabakoto -- at the Kalanako deposit, sorry, drilling has confirmed the continuation of the mineralization, and we expect to convert a portion of the previously classified inferred resource and even increase the size of the deposit as it was done earlier on. And this deposit was not included in the previous DFS that was made by Avnel. We expect the updated result to be published sometime in Q3, probably late Q3, depending on the timing required to compile everything and to build the resource model. And then, we'll transmit the updated feasibility that will be completed sometime in the first quarter or next year. That's it for me. Now back to Sébastien.
Thanks, Patrick. So to conclude, this was a very strong second quarter for Endeavour, and we expect to continue building on these foundations for the remainder of the year and over the long term. Throughout this presentation, you heard that we remain on track to meet key production and all-in sustaining cost metrics and guidance, with and without the inclusion of Tabakoto. Our near-term growth prospects remain strong with Ity CIL construction tracking well, and we're progressing at the Kalana project. Longer term, our focus on exploration and the recent success of our reinvigorated program continues to give us confidence of significant future upside. Most importantly, this keeps us clearly on track to deliver upon a 5-year strategy and objective. Let me conclude by thanking my team. Their commitment and focus have us very well positioned to meet our objective for 2019. Collectively, we have enhanced the quality of our portfolio and successfully improved its balance sheet by focusing on lower-cost, long-life assets. I would probably point out that one number for the entire presentation, $732 all-in sustaining cost for the continuing operation for the first half of the year. And now the team and I would be happy to take any questions. Operator, can we have the first question, please?
[Operator Instructions] We will take our first question from Michael Stoner from Berenberg.
My first question is on Tabakoto. Could you clarify whether you consider spending any capital on Tabakoto ahead of a sale to kind of slightly improve performance or kind of kick off that optimization to optimize a better sales price?
Yes, Michael. Good question. I think it's fair to say that we continue to operate Tabakoto as if we were the owner of this asset until any completion of a transaction. And as mentioned, the potential transaction is probably end of Q3 or Q4, which means that we will continue in the meantime to invest in the asset and ensure that we can improve production and all-in sustaining cost during the period.
Okay. Then having a look at the exploration spend, that's tracking kind of annualizing H1 quite high. Are we still looking for the $40 million to $45 million total exploration spend guidance implying a kind of much less spend H2?
Yes, that's -- you're talking about the full exploration budget for 2018, I guess?
Yes.
And I think the big driver that has pushed us to maintain that pass in target for 2018 is in particular the discovery at the Kari area at Houndé. And as we mentioned, we want to publish significant, hopefully, indicated resources in Q4 at the Kari area at Houndé. And therefore, we're putting all efforts required to come up with those numbers.
Okay. So it's kind of success is driving kind of an acceleration of efforts there?
Yes. Yes, exactly.
Okay. And then just trying to get some of the nuance around the outlook you put in the release for Houndé. You've pointed to a softer H2 on grades, presumably throughput through the rainy season and in terms of cost strip ratio. Would you -- you're tracking well ahead on an annualized basis. Do you think you're still tracking for the upper end of guidance? Is -- would that be kind of fair to say?
Difficult to comment. I would just say that, so far, so good, Houndé is performing well. Even July has been a good month. It all depends on how the rainy season is going to impact potentially the operations, but we're pretty confident that we should be well on track to meet the guidance and probably the higher end of the guidance.
Has Jeremy's team taken the kind of learnings from Agbaou and your other operations on how to maximize kind of a strong Q3 through a rainy season?
I think it's fair to comment that. Jeremy, you want to?
Yes, thanks. Thanks, Seb. Thank, Michael. Look, we set about some -- having a strategic plan as we move through the wet season. We have enough stockpiled material to get us through any event where we get [ indiscernible ], Houndé in particular. And I guess, we spent quite a bit of capital during the build with diversion trenches, hydro, geotech and pit dewatering. So we're pretty much, with Houndé and Agbaou, very well protected from any rainy event of note. But God's power is God's power, so we'll leave that as is. But by and large, the assets of -- the reagents are pretty much an island during the wet season, if you like, and they're self-sufficient. So yes, we're pretty happy with how they're running through at the moment.
We will now take our next question from Rahul Paul from Canaccord Genuity.
Seb, at Kari Pump, it looked like you indicated that you expect to have enough drill density to have a meaningful portion of that resource in the M&I category. So that being the case, should we expect the next reserve update to incorporate some of Kari Pump material as well? And so can we expect an updated mine time as well, maybe at the -- with the year-end results or sometime in the near future?
Yes, well, you know, Rahul, that we publish our updated reserve with the year-end results in March. So if we have indicated resources on the Kari area by, let's say, November or December, we should be able to come up with updated numbers on the reserve side for the year-end results.
Okay. And I guess, I'll ask because it looks like you've done quite a bit of drilling. Based on the exploration success that you're seeing right now, is your plan with the upcoming mine plan to increase grade to the plant and to maintain the higher grade profile for longer? Or are you at that point where you might start looking at a middle expansion as well?
I think it's too early to say. We want to see first the level of indicated resources that Patrick will give us in November, but it's clear that we're all very excited, and we believe that this area could be somehow a bit of a game changer for Houndé going forward.
I agree. And just last question. From a permitting standpoint, do you have some of the permits? Or is it going to take a little -- how long do you think this could take to move through the permitting process?
Well, we have a number of items that we are launching already on that area, which is helping us also is that we've got Bouéré, which is just nearby and on which we are building up the infrastructure, so the road from Bouéré to the plant which goes through the Kari area. So this will help a lot. In terms of permitting, I think that, overall, the mine plan since day 1 was to ensure that you should recall the Houndé feasibility study had the first 4, 4.5 years pretty strong in terms of production and all-in sustaining. And then Vindaloo pit with a drop of grade was going down in production and up in all-in sustaining cost. So since day 1, the objective with this exploration program was to be able to bring much earlier to probably until year 3 some new high-grade deposit. And it seems that the strategy seems to be working well with this upcoming Kari Pump resources.
We will now take our next question from Justin Chan from Numis Securities.
My first question is just around tax for this quarter. The effective tax rate was quite high and a lot higher on the income statement than cash tax was in the cash flow statement. I was just wondering if you can explain some of what's going on there and what your thoughts are on the effective tax rate for the full year.
Vincent, want to give an update on that?
Yes. The thing is that you have to notice that when you look at Tabakoto-specific P&L, you have a tax, which is $4 million, which is mainly a tax assessment at Tabakoto. It's not an income tax, and this is linked with the penalties on the withholding tax that Tabakoto has been adjusted for the year '14 to '16. So it also include a minimum tax expense for 1% of the revenue. But overall, the main explanation is because of this provision on the accrual, let's say, on Tabakoto tax.
Yes. So it's a one-off adjustment, Justin, linked to Tabakoto past audit. In fact, that was even before we joined as the new management.
Right. Okay. Just to clarify it, that's included in the current income tax or deferred income tax expense.
In current income tax.
Okay. That's very helpful. So do you have any expectation in the next quarters of any similar impact, or is it that it for the year?
No. That actually, as Sébastien is saying, is a one-off, and we should come back to normal Q3, Q4.
And I must say, Justin, that we have reinforced significantly also the way we are preparing the tax filing with the authorities. We have now a dedicated tax manager in country for that to avoid we go into mistakes as the previous management had.
Okay, excellent. No, that's very helpful. And then just on Kalana. What are your latest thoughts on -- and I realize that the resource is being prepared in Q3. But in terms of the size of the plant there, can you give us a sense of what your latest thoughts are from the prior DFS at 1.3. And I think your thinking earlier was around 1.7. Is there any update or change there?
No, I think it's a bit early, Justin, to be able to state. We always said that our objective was to redo the DFS once we have comfort on the resource level. And I think the resource should come up in the next few weeks, probably 2, 3, 4 weeks maximum. Then the project team will look at it. We always said that our objective was to be able to increase that from a 1.6, 1.7 to 2 million tons. So it will all depend on what's the best in terms of total return in cash flow.
Okay, excellent. And then just the last one. On Tabakoto, could you give us a sense of what you're looking for in terms of the sale there? Would you -- do you have a preference for cash or just total valuation? Or just trying to get a sense of what to expect there.
No, we're looking just for cash, not interested in shares, and that's for sure. And we've been very clear with the different candidates that have put nonbinding offers on the table already. And then in terms of valuation or amounts, it's probably too early, but in any case, if you look at our accounts, we probably have at least the book value for Tabakoto, which is in.
We will now take our next question from Tara Hassan from Raymond James.
Just a couple of questions on the ops side. First, on Houndé. Obviously, an expectation for mining cost to go up as you move into a greater mix of harder rock, but there's also some commentary on higher fuel prices. So can you just provide some guidance on sort of what you're seeing on fuel prices in Burkina and what your expectations are for the rest of the year for mining cost, please?
Jeremy, you want to take this one?
Yes, so -- Seb. Thanks, Tara. Look, Tara, to answer your question, we are seeing a bit of a price hike in fuel having a little bit of a Q1, Q2 effect across the Burkina Faso assets in particular. And I'm looking at all the mining costs at all 5 assets at the moment, and we're still tracking to the -- well within the full year guidance. Houndé will smoothen out towards the latter part of this year and likewise with Karma. Interestingly, the -- another 2 highest-cost mining operations are the [ heavy contract input ], and the iron mining operations that we're mining at are still very low and below $2. So it's very pleasing today.
Okay. So we're modeling in that range of $2 per ton for the remainder of the year. That's a good number to say then.
Yes, that's fine. Yes.
Okay. And then just on -- I guess, as well on the fuel price, are you seeing it regionally or just in Burkina in a in terms of increases?
No, we are seeing it regionally. Like I said, Burkina a little bit more than the others. All the different states have different subsidies and different taxes, so the unit costs are -- or cost per liter of fuel is different in Mali, Burkina Faso and Côte d’Ivoire, slightly. And we are seeing the, I guess, the crude oil price going up and the net result falling onto us.
Okay. And then just on Karma...
I'd just -- probably fair to say, Tara, that we've been quite lucky up to now that, given that we've been adding some operations and big operation, we've been centralizing more and more some of the buying and being able to get some discounts thanks to volumes with our suppliers.
Okay. That's great. And just on Karma, there is commentary on sort of a change in stacking as your -- or characteristics change. Is that largely in line with what you expected on that change from GG2 to Kao? Or is there variance from what you were expecting?
Yes, Tara. It's something we've been working on for quite a while now. In the original feasibility study, we often had 3 lifts per cell, 30 meters vertical. So we've done some test work through the latter part of last year, first half of this year. And it looks as though we've got a significant kicker in terms of being able to go up and have a lift or 2. So we're just looking at a, I guess, an optimized stacking plan with the minimal amount of conveyor shut, et cetera, that impact the operation. So we'll be working through that through H2 this year.
Okay. That's great. And then just to follow-up on the previous question on the Tabakoto sale. Obviously, Sébastien, you indicated cash is a preference. Are you willing to do a similar structure as we saw in the Nzema where you've got sort of staged payments or payments aligned to production targets or resource targets?
Could be in some of that. But ultimately, I prefer 100% of the cash on the closing. So we'll be fighting mainly for this.
We will now take our next question from Geordie Mark from Haywood Securities.
Good results coming out of Houndé. Please, to expand on some of Tara's questions at Houndé there. Just looking at how your mining is going in terms of grade reconciliation, and what's your assumed sort of mine dilution?
Jeremy, you want to comment?
Yes, so -- thanks, Geordie. Look, the reconciliation for the year had a bit of a spike when we started blasting at the latter part of Q1. Now it's a smooth dip right about now, and we're getting a pretty good reconciliation between the [ DOM ] and the grade control model. And what we are seeing is slightly more tons and a slightly higher grade. So the 8%, I guess, lower from the grade control model in tons overall but resulting in 9% more ounces. So it's kind of -- the net result is 0 at the moment. The main difference is between Vindaloo and Vindaloo Central. And we're just -- we're learning the ore body more now, now that we're operating, of course, from the feasibility study. And yes, we're pretty happy with the results today.
All right. Excellent. And in terms of stockpile strategy going into the wet, where do you stand at the moment in terms of the amount of stockpile? And can that help you offset, obviously, the higher throughput rates you're achieving at the moment to continue those through Q3?
We're in good shape with stockpiles, Geordie. We've got some -- obviously, with Houndé with the mine plan -- probably, in the mine plan, we do need to stockpile more the lower-grade material to get access to the 2-point-plus gram-per-ton ore. So in terms of the fallback, we've got well over 45 days of stockpile materials that we could mill if we couldn't get access to the pit for whatever reason. So we're pretty happy with that. We'll keep stockpiling. We strip a little bit more during Q3 as we're trying to get a hold of this high-grade ore towards back end of Q4 to come home with a wet [ towel ]. So yes, we're pretty confident that Houndé will roll 24/7.
If I can understand -- one more question and moving over to Karma on the material characteristics. Are you getting issues in terms of ponding or irrigation flow rate, issues there in terms of lower stacking. And obviously -- I'm guessing you're getting lower flow rates through the ADR?
Yes. No, look, I'll just clarify that. The material -- I guess the characteristics of the pregnant solution going through the back end of the plant is the same for any ore type. Where we did get a little bit of a, I guess, a speed bump was when we started processing just the Kao material only. And so it's got a little bit [ of cleaning ], Geordie. And when we didn't -- we GG2 going through with it, so it hit the throughput on the shoulder a little bit for a short while. We get buck shoots in certain different places, so we've -- we're operating the plant slightly differently on this material now. And it does show increased throughput with a blended -- a slight blend with the stockpile material that we have a truckload of as you know. So certainly, in terms of material characteristics, there's no problems in processing the material at all.
Right, okay. And obviously, you expect flow rates and recoveries -- well, not recoveries -- recovered gold rates, I guess, to improve going in through H2.
Yes, we do. We've had a pretty big start to the wet season out there actually and caught 2 or 3 pretty big thunderstorms. So like any heap leach plant, as you know, once you start getting a little bit of, I guess, dilution from the heavens on the pad, you see a different solution, so -- on, sorry, gold concentration coming through the ADR. But at the moment, yes, we're tracking in line with our expectations, and the assets will come home [ bright ] pretty much in terms of guidance.
[Operator Instructions] We'll take our next question from Dan Rollins from RBC Capital Markets.
I don't want to focus on the financial too much here, but just factor that account, that question on tax. You didn't highlight that Tabakoto was part of the cause, but my understanding of the financial statements is that Tabakoto is no longer included in continuing operations. And the continuing operation tax expense seems still to have been fairly high with fairly chunky moves at both Agbaou and Ity. I was wondering if you might be able to comment on that or, if better, take it offline.
No, I would -- actually, I would -- because there is a -- the reason for -- there is a [indiscernible] Tabakoto was in the discontinued operations. And for the tax, when you look at the tax for the continuing operations, that's true that there is an increase, but it's also due to the fact that we have increased withholding tax at Ity as well. As you can see as well on the [ same months ] reporting, you'll see that the tax at Ity are increasing, which is not the income tax, which is [ 0 tax ], related to, again, [ withholding ] tax because you have $9 million profit before tax at Ity for the 6-month period. And you have $9 million of deferred and income tax. So that explains the abnormal level of tax at Ity, explains this increase at the group level. But again, it's a one-off for the second quarter. So I agree with you.
Okay. Perfect. Can you confirm just at Agbaou, you won't be paying cash taxes there until 2019? That's when the current agreement expires, correct?
It expires in -- at the end of '18, yes.
It appears there are no further questions at this time. Mr. de Montessus, I'd like to turn the conference back to you for any additional or closing remarks.
Thank you very much, operator, and thank you all for joining us for this quarter 2 results. And again, thanks to my team, and have a nice and lovely day. Bye.
This concludes today's call. Thank you for your participation. You may now disconnect.