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Ladies and gentlemen, thank you for standing by, and welcome to Endeavour Mining's Q2 and Interim 2021 Results Conference Call. [Operator Instructions] Today's conference call is being recorded and transcript of the call will be available on Endeavour's website tomorrow. I would now like to hand the conference over to the management. Please go ahead.
Hi, everyone. I am Martino, Vice President, Strategy and Investor Relations, and I'd like to welcome you to our Q2 2021 results webcast. On the call, I am joined by Sebastien, Mark, Joanna and Patrick. Before we start, please note the usual disclaimer. Today's call will follow our usual format. Sebastien and Joanna will start by discussing the Q2 operational and financial highlights. Mark will then walk you through our detailed results by mine. And finally, Patrick will give you a brief overview of our half year exploration results. 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 our CEO, Sebastien, to walk you through our Q2 highlights. Sebastien?
Thank you, Martino. It's definitely been a busy year so far, and we have achieved several important milestones, including our LSE listing back in June. To recap the quarter, I would summarize in one sentence. We've had a strong business performance, which has underpinned our ability to deliver excess shareholder returns. And you see on the left top box that we delivered a record operating performance with production up 18% compared to Q1. We produced over 400,000 ounces during the quarter, and that's an annualized run rate of over 1.6 million ounces, while this year's guidance is 1.4 million to 1.5 million ounces. As a result, we are on track to achieve the top end of our production guidance, and our costs are also on track.Our strong operating performance has, of course, translated into a very robust set of financials, our operating cash flow increased by 44% -- 45% over Q1 to reach roughly $300 million, and our adjusted net earnings nearly doubled to reach roughly $180 million. So yes, we are generating a lot of cash, and we are allocating that cash to continue to strengthen our balance sheet, exploration, growth and, of course, shareholder returns. We overall reduced our net debt this quarter with our leverage ratio now standing up near 0. This put us in a very strong -- good position to deliver excess shareholder returns. This started earlier this year when we paid our maiden dividend of $60 million for the 2020 fiscal year. And today, we are pleased to announce the dividend of $70 million for H1 '21. Our minimum commitment for this year is $125 million. So as you can see, today's dividend demonstrates our intent to pay more than the minimum.In addition, given the attractiveness of our stock price, we've been actively buying back our stock since the program was launched in April. To date, approximately $70 million has been purchased, and we intend to keep the program going as long as we see our share price undervalued. This cash flow also allowed us to continue to aggressively explore with $50 million spend this year already. And given the strong results, we will be announcing in the coming weeks. I can already confirm that the group is on track to deliver, again, over 2.5 million ounces of indicated resources this year, thanks to Patrick and his team.Moving to Slide 7. You can see our key performance indicators tracking through the year-to-date. Our safety performance has continued to track well ahead of our industry peers, and we have enhanced several safety programs with our ultimate goal of 0 harm. Despite being busy with corporate activity during the first half of the year, we are very well positioned in terms of production relative to our target for the full year. Our performance to date has put us well on track to the top end of our guidance range, with the inclusion of Wahgnion and Sabodala-Massawa for the full quarter having a positive impact.Similarly, all-in sustaining costs are on track, and during the first half are in the bottom half of our full year guidance range.On Slide 8, you can see our production and all-in sustaining costs for the past 5 quarters, with the consolidation of Sabodala-Massawa and Wahgnion for the full quarter, we've had a strong improvement in our production, which is up 18% as well as solid performance on cost controls. Our portfolio moves over the last year have had a clear benefit, with production up by more than 2.5x, while unit costs have declined by 9% compared with the prior year quarter.As we look to the individual contribution of our operation, you can see that Ity, Hounde and Karma are all contributed positively compared with Q1. We saw an anticipated decline at Boungou due to grade sequencing, while Mana was essentially flat. In addition, we had the full quarter consolidated benefit of Sabodala-Massawa and Wahgnion.On Slide 10, I'd like to draw your attention to how our results compare with the first half of 2020, not only in terms of production and all-in sustaining cost, but also in terms of assets and geographic diversification. Our business has changed significantly with the left pie representing our general portfolio and the right pie representing our current portfolio. We produced 433,000 ounces more ounces of gold, while all-in sustaining cost declined by $56 per ounce. Not only that, our portfolio is well diversified with 7 different operations across 3 different countries with one flagship mine in each of those countries with Sabodala in Senegal, Ity, in Cote D'Ivoire and Hounde in Burkina. On the following slides, Joanna will take you through our financial performance in more detail. Joanna?
Thanks, Sebastien. Moving to Slide 11. Our all-in sustaining margin has continued to trend upwards. The combined benefit of increased consolidated production, reduced all-in sustaining costs and a modestly stronger gold price, have resulted in a 19% increase on a quarter-over-quarter basis. Compared with the prior year quarter, our all-in sustaining margin has increased by more than 250%. This is due to stronger production at our legacy mines as well as our acquisitions of SEMAFO and Teranga.On Slide 12, you can see the trend of our operating cash flows, which increased by 51% over Q1 2021 by more than 400% compared to the prior year quarter. When looking at this metric, this is our second best quarter ever following the strong performance of Q4 last year, where the gold price was roughly $50 per ounce higher. Our Q2 performance is not fully representative of the operating performance of the company due to seasonality of our tax installment payments, which are always higher in the second quarter of the year.As such, moving to Slide 13, we have tried to illustrate a few of the key factors behind the variance in operating cash flows between Q1 and Q2. The waterfall chart starts with our Q1 cash flow of $198 million. You then see that the largest portion was driven by an increase in gold sales, as noted earlier in the presentation. The second quarter is when we normally pay most of our corporate income taxes, leading to the outflow for taxes paid. We also benefited from an inflow and changes in working capital of $14 million. While last quarter, we had an outflow of $58 million, which was driven primarily from the working capital acquired in the Teranga acquisition.We also got some modest help from the gold price in the quarter. For reference, we had put a few details on the right of the page. And of course, there's more fulsome notes in our MD&A.On Slide 14, we show how our net debt position has continued to improve since the start of the year. We are now sitting at a very healthy leverage ratio of 0.07x net debt to last 12 months of adjusted EBITDA despite absorbing the Teranga debt as well as repaying nearly $120 million of gross debt. Our cash balance remains high at $833 million. We reduced our gross debt during the quarter by $120 million, and we will assess opportunities for further reductions given our large cash position.Slide 15 illustrates the strength of our balance sheet. Despite $59 million of buybacks during the quarter, we have been able to reduce our net debt down to $77 million and our leverage ratio down to 0.07x. We have demonstrated a steady trend of debt reduction aside from Q1 of this year, where we assumed $332 million of net debt from Teranga. In Q2 alone, we reduced our net debt by $85 million and our gross debt by $120 million.Moving to Slide 16. We have a detailed breakdown of our net earnings for the past 2 quarters. At the bottom of the slide, you can see a 46% increase in our adjusted net earnings per share from continuing operations compared to the prior quarter. As usual, I won't go through every line here, but we'll address a few of the most significant items. Earnings from continuing mine operations increased due to stronger production, the full consolidation of the Teranga assets and a slightly better gold price, while costs remained in check. Corporate costs and acquisitions and restructuring costs were higher than usual due to the heightened corporate activity, as you are all well aware. Current income tax expense decreased relative to Q1, despite the inclusion of the new mines acquired for the full quarter due to adjustments related to the prior year taxes upon filing of our tax returns, as well as the decrease in tax expense in the quarter based on the lower effective tax rate on the company's taxable earnings in the quarter. Overall, this translated into net earnings of $149 million and adjusted net earnings of $182 million.On Slide 17, you can see how our adjusted net earnings per share has trended over the past several years. Overall, we are very pleased with the trend here, and we made more than 9x as much per share in Q2 2021 relative to Q2 2019, which is quite remarkable.I'll now hand it back over to Sebastien, so that he can proudly comment on our shareholder returns program.
Thank you, Joanna. Moving to Slide 18. Before discussing our interim dividend that we have declared today, I would like to reiterate our commitment to shareholder returns. And remind you of all our new shareholder return framework that we launched earlier this year. We're targeting a distribution of at least $500 million over the next 3 years minimum, if gold remains above $1,500. This is aligned to our expected production growth. So we are rewarding shareholders with a growing dividend, both in nominal terms and, of course, on a per share basis. As you can see on this chart, our friendly shareholder return program has us very well positioned across senior gold peers from a yield perspective, specifically when you sum our dividend and the active buyback program. Although to be clear, our intent is not to compete with Russian gold producer or single mine companies, who either need high yields to attract investors or do not have growth potential to invest in their portfolio. Before handing it over to Mark, just a quick word on the U.K. listing, which was recently achieved. This was a large milestone for us, and we expect to start seeing the results once we are included into the FTSE index and the MSCI indices. But before discussing U.K. indexation, I wanted to acknowledge our dilution from the S&P/TSX composite, which occurred mid-June, while we didn't expect this to occur, we were pleased to see that the outflow provided natural liquidity for U.K. and European long-only funds. In fact, on the rebalancing date, we traded approximately 10 million shares, and our share price still finished up.Not that this overhang is completely removed, but it places us in a good position to benefit from the expected inflows related to FTSE indexation, MSCI indexation and which are expected to be larger than the S&P and TSX composite outflows.On this page, you see our expected pathway to indexation as we didn't expect our liquidity to shift to the U.K., we decided to redomicile the company to the U.K. This allows us to have a very low liquidity threshold to be eligible for the indexation.I will now hand things over to Mark, who is currently on-site at Ity, and who will go through the details of our operations on a mine-by-mine basis. Mark, over to you.
Thank you, Sebastien, and hello to everyone on the call. As Sebastien mentioned, I am currently on site Ity to spend some time with our General Manager, Riaan and his team, who have put together a fantastic first half, but more about Ity shortly.I'll begin the operations review with Sabodala-Massawa, which we acquired from Teranga in February 2021. We transferred our General Manager, Cristo from Hounde to Sabodala in May, and he's settled in very quickly to the new role. There's a great team on site, and they've handled the transition well, putting in a strong first half. Production increased this quarter compared to Q1 due to higher grades coming from the Sofia main pit with the Massawa area now contributing all of the millfeed, which is expected to remain the case for the remainder of the year.On Slide 23, you can see an overview of our ongoing Phase I expansion, which is well underway. The purpose of this expansion is to install the gravity circuit, increased leach residence time and increase the carbon management to better handle the higher grade Massawa or through the existing CIL plant. The project is tracking ahead of schedule and the additional electrowinning cell is now in use. The DFS for Phase II is underway and on track for completion in Q4 2021. As a reminder, this phase will see the construction of a new bio oxidation processing plant to treat the high-grade refractory ore from Massawa.On Slide 24 are some recent pictures highlighting the good progress we are making for Phase 1 upgrade. Starting at the top left, you can see the additional electrowinning cells in position in the gold room, in the second picture in the top right, you can see the new carbon regeneration kiln is installed. On the bottom left, you can see the infrastructure for the additional acid wash and elution columns. In the last slide, you can see the rolled steel segments of the new leach tank, which are welded together in situ, 1 straight after another until the tank reaches the design height. Turning to Hounde, where production increased significantly this quarter over Q1, making it a key contributor to the group's strong quarterly performance. A new General Manager, Lawrence, has already proven to be a great replacement for Cristo and has a strong mining background. The sharp increase in production was attributable to higher processed grades and recoveries due to the increase in the proportion of high-grade oxide ore from Kari Pump with further benefit coming from positive grade reconciliation in some of the higher grade zones. Processing performance was also very good with improved daily throughput. This resulted in a strong half and puts Hounde on track to meet the top half of its full year production guidance.Turning to Slide 26. Ity had a similarly strong performance, and is on track to achieve the top half of its full year production guidance. Q2 was a busy quarter at Ity with the successful transition from owner to contract mining. In addition, the projects team completed the third wall wave on the TSF. Two river diversions and the haul road out to the plant. Construction of a leach tank to increase residence time on account of the high throughput was also commenced. The team has been working to open additional mining areas to enhance flexibility, which has paid off with higher production over the second quarter as the average process grade and gold recovery increased. The ore was sourced mainly from the Daapleu and Bakatouo pits, which are both higher grade. Recovery rates increased as a proportion of Daapleu ore in the blend was lower than the previous quarter.Looking at the full year, while we expect grades to decrease expected during the blend, we are planning to commence mining of the plant, which will see ore production in the last quarter of the year.Moving on to Boungou, which has now completed its third full year -- third full quarter since the restart of mining operations last year, following a strong Q4 and Q1, production declined in Q2 as a greater focus was placed on waste extraction and mining was constrained to lower grade areas. In contrast, during the previous 2 quarters, production was focused on mining of a higher grade ore block during the ramp-up of the mining fleet. Issiyakou General Manager of Boungou, has done a great job to ensure that SFTP, a mining contractor, has been able to increase mining volumes to catch up on the shortfall from last year. Mining extraction activities continue to focus mainly on the West pit with the new phase of the pit further to the North commencing as well. Pre-stripping activities continued during this period. The mining sequence will continue like this for the remainder of the year. Mill feed is expected to remain broadly consistent with the first half, along with average process grade, while recovery rates are expected to decline slightly due to the ore characteristic. The rate of the TSX was largely completed during -- by the end of the quarter. Overall, Boungou remains well positioned to meet its full year production guidance.Moving to Mana on Slide 28, which is also on track to meet guidance for the year. Based on a robust half 1 performance, driven by strong mill throughput and grades. During the quarter, production decreased slightly due to a reduction in average process grade, which resulted from a decrease in the proportion of ore from the higher grade underground mine, where the focus was on development and backfilling of stopes. It is worth highlighting that following the detailed review of the 1 and more stage 4 cutback economics, and given the success of Siou underground, the decision was taken to forgo the next cutback and rather develop the Wona pit as an underground operation. We expect this to start in the coming months. Open pit mining will continue at Wona pit by which time the Wona underground will reach production level.Martin, who has been our GM at Mana for the past 5 months, has done a great job to refocus the team, improved operation efficiencies and reconfigure the operation away from open pit mining for a period until some of our open pit satellite deposits are proven, which Patrick will discuss in the next section. Moving to Wahgnion now. On a full quarter basis, production remained relatively stable as higher throughput offset the lower grade. Ores sourced mainly from the North Valley North and North Valley South mining areas, and was supplemented with ore from Fourkoura when mining commenced earlier this year. Tonnes milled increased allowing planned maintenance carried out in Q1, looking to increase mill availability in Q2. The Northeast blend was similar to Q1 with minimal transitional ore and a 60-40 split between oxide and fresh.Paul, our GM at Wahgnion has been at the mine since commissioning and has done a great job in leading the team through the transition from Teranga to Endeavour and ensuring that the mining operations keep pace with the processing plant, which is running well above [indiscernible]. Given its strong half 1 performance, Wahgnion is well positioned to meet its full year guidance. Mining is expected to continue at Nogbele North, Nogbele South and the Fourkoura pit with significant waste development continuing throughout the year. Construction of the second cell of the TSF will continue through 2021 and will be completed in half 1 in 2022.Turning to Slide 30. Karma has also had a solid quarterly performance, placing it on track to achieve full year guidance. While Karma is the smallest mine in the group, and there are only heap leach, Adama, our GM, has done a great job in leading his team to improve efficiencies, reduce costs and continue with advanced grade control drilling around the pit to extend mine life. Production increased during the quarter due to the higher grade stack, thanks to some higher grades coming from Kalana pit which also had a positive impact on recovery due to setting a higher proportion of ore from the same period.Looking at the rest of the year, mining activity is expected to focus on the GG1 pit as a result, processors and recoveries are expected to be lower, while stacked grade is expected to decrease in Q3 due to the wet season before returning to normal levels in Q4 2021.Before handing over to Patrick, I would like to take you through our development projects, which are all progressing very well. I touched on the Sabodala-Massawa Phase 1 and 2 expansions earlier. Phase 1 is on schedule, and we expect all the work packages to be commissioned by the end of the year. The Phase 2 DFS is also on track to be completed by year-end. At Fetekro, the DFS is progressing well, all metallurgical and geotechnical test work was completed during Q2, and the mining permit is expected to be awarded shortly. At the same time, our exploration team are doing further drilling around our Lafigue resource, which will be the main pit for this project, along with follow-up drilling around near mine target, which Patrick will talk about later.At Kalana, optimization of the study continued, with a particular focus on investigating ore sorting as a method to produce -- to both reduce the volume of ore to be processed and increasing the feed growth. The DFS remains on track to be completed in Q1 2022. As you can see, performance across our operations has been strong in quarter 2, and the group remains on track to achieve its production and all-in sustaining cost guidance for the full year. This is a testament to the overall quality of our portfolio and the capabilities and great work of our operating team.And with that, I'll hand over to Patrick.
Thanks, Mark, and hi to everyone on the call. As you can see on Slide 33, it's been really very busy semester for us. With overall more than 300,000 meters drilled across our property to date in 2021, amounting to a total spend of over $50 million. With our year of exploration effort and good results to date, as already mentioned by Sebastien, we should be on track to add more than 2.5 million ounces of new indicated ounces in 2021, which is close to our target. Following on from our significant exploration success since the beginning of the year, updated resource estimate are indeed expected to be published in Ity, Hounde, Sabodala-Massawa and also Fetekro.Going on to Slide 34. Starting now with our new flagship operation, Sabodala-Massawa. We are very excited by all the remaining exploration opportunities we see over this relatively still underexplored property. We are focused in 2021 in identifying additional non refractory targets within the Massawa, which are located less than 30 kilometers away from the Sabodala mine. In the first semester, our exports were mainly focused on Samina, Tina, Sofia and other undeveloped and especially non refractory target. Because of the change so far in 2021, we have been quite successful, and we expect an update resource estimate for all of the H1 address exploration target to be published later on in 2021. At the Sofia North Deposit, we initially focused on delineating its previously identified north zone extension. This extension has been tracked and is now extending over 800 meters along strike and is 150-meter wide and remain open at depth. [ mining ] conducted also at the Samina deposit focused on increasing the formerly known 500 meters mineralized strike lengths to over 900 meters, and it too remains open. At Tina deposit, finally, initial drilling mainly focused on expanding and converting previously known Inferred resource defined in 2019 into Indicated resource in 2021. Then you have 2 -- 3 slides with the main cross-section issue from the main target that have been addressed at the Sabodala-Massawa deposit. Due to time, I will skip over, but this is just for the purpose of illustrating the good quality of the mineralization encountered in these 3 deposits. On Slide 38, at Hounde, our H1 exploration efforts were mainly focused on Vindaloo South, Mambo. And the intersection between Kari Gap and Kari Center where our initial and previous exploration effort did not yet close the mineralization extension. We will discuss the new Mambo discovery in more detail on the following slide, but it must be firstly noted that additional exploration in the Kari area and Vindaloo South performed during the first semester concentrated on delineating new mineralized extension and will be the subject of additional exploration effort later in 2021.On Slide 39, you can feel that the drilling results at the Mambo target have indeed generated significant internal excitement as it may be considered as a significant discovery now. Geologically speaking, Mambo is located in a very attractive setting at the boundary between volcanic and granitic intrusion. It's mineralized trend now extends over more than 800 meters with pending results expected to hopefully extend these strike lengths to over 1.0 to 1.2 kilometers. Mineralization appears to be still open to the Northeast, Southwest and also at depth, since it has been only tested down to approximately 100 meters. Drilling in the second half of the year will target lateral extension of Mambo and also an initial maiden resource is expected to be published before year-end.Slide 40 shows Section A from the northern part of the deposit, where a quite thick and very continuous mineralization occurs within the granitic intrusion.While on Slide 41, the Section B show -- is located in the southern part of the Mambo deposit at the boundary between the Granite and the massive volcanic, where the mineralization also appears to be somewhat thinner than in the north, but more importantly, much higher grade, as shown, for example, in the whole 350.Moving now to Ity, our exploration first semester efforts were mainly focused on the Le Plaque South area on what is now known as a new discovery named west Flotouo on Daapleu deep, on Yopleu-Legaleu extension and also on the area located as the junction between Bakatouo and Walter deposit. Full geological reinterpretation of all the whole area led us to aggressively drill the west Flotou to our target, which is located immediately below Verse Ouest waste dump. This led us to validate and extend significantly the discovery of a series of continuous high-grade mineralized lands, located in the immediate proximity of the Ity plant. Delineation is presently going on aggressively. And this new discovery, which is still open to the north, south and also at depths, we'll have a new maiden resource published before the end of the year.Very positive deep drilling also -- was also conducted at depths at Daapleu. And this clearly confirm that mineralization continues at depths according to our model and now extends at least 300 meters down deep of the deeper securing pit design. Finally, drilling conducted at the junction between Bakatouo and Walter deposit confirmed the continuity of the overall mineralization existing between these 2 both Skarn type deposits and illustrates the global continuity of mineralization, all around the [indiscernible]. On Slide 43, we have a close up of our H1 exploration activity within the Le Plaque area with some of the best selected Intercept part per target. The Le Plaque deposit has been extended laterally and at depths, like in its south end extension outside our 2020 research speed design. And the Yopleu-Legaleu previous discovery has also been positively confirmed and significantly extended.On Slide 44. We have some illustration of our success in extending high grade mineralization, laterally and the depths in the Delta extension area, clearly demonstrating the possibility of extending our present plan pit, laterally and also downward and even enabling us to consider a potential underground upside for this very attractive [indiscernible]. Now going on the Burkina Faso on the Boungou mine. The exploration was focused in the first semester on very near-mine targets in the area located in between the East and West pit and within the Southwest, Southeast and the Northwest Natougou area. At Natougou northwest, [indiscernible] mineralization was identified and follow-on with a higher grade mineralization extending over 700-meter and remaining open to the north. We also have identified some interesting mineralized trend at Natougou Southeast, Natougou Southwest, West Flank and Boungou Northwest, and we will focus on extending later on these and evaluating additional resource on those targets.jumping now -- going on Boungou mine. Slide 46, briefly illustrates some of the best selected intercept from our H1 drilling program around Boungou. Unfortunately, due to time, I'm going to have to jump over this slide, but without too much detail. Next, we move quickly to tackle the Mana mine where we have been very active during the first semester. On Slide 47, you can see the target that were addressed in the Mana area during H1 and on the general map, that is also exhibiting some of our best intercept obtained presumed during this semester. The exploration effort, we are mainly focused on several open pit oxide targets, such as, for example, Maoula 1 and on evaluating underground target at Siou and Nyafe. I will discuss the drilling at Maoula on the next slide, but before I do so, it is worth noting on this slide that deeper drilling conducted at North intersected higher grade mineralized zones adjacent to the planned underground development. On Slide 48, drilling conducted by Maoula clearly extended the mineralization, which within the exploitation license is now made of 2 East and West mineralized branches. The mineralized trend also now extends to the southwest within the neighboring exploration license. On the Slide 49, we -- it shows that cross-section to the northern part of the Maoula mineralized trend, which is simply illustrating the 2 opposite deeping Eastern and Western Maoula mineralized branch that remains still to be fully delineated.Moving to Wahgnion on Slide 50. We have first global map of our exploration and exploitation licenses within the Wahgnion area, showing the entire area where we'll be fully active during 2021. The exploration really only started during Q2 at Wahgnion and it is right now speeding up and focusing on Nogbele north and Nogbele South deposits and targeting the continuation of mineralized structure between the pit. Exploration efforts in the second half will accelerate and we clearly -- and we'll continue to focus on the extension of the good evening mineralization as a whole, the continuation of the Fourkoura deposit and testing also some extension at this inside target. Organization drilling at various attractive targets such as Kafina West and Korindougou will also be completed later this year. Slide 51 shows an illustrative cross-section of Nogbele South. We saw interesting mineralized ore. It's still early days on this exploration, and I will skip over this cross-section also due to time constraint.Moving to Karma now on Slide 52. In the first half of 2021 exploration work was implemented as part of an advanced grade control type drilling, as mentioned by Mark, targeting the immediate extensions of the currently mined mineralization at Kao North and accelerating their natural incorporation into the current and very short-term mine plan. On Slide 53, we are moving now to Fetekro, which was again our largest greenfield exploration focused during H1 2021. The map to the right of the page, indicates all the first semester drilling in small yellow circles and highlight some of the best in selected intercept and quartered since the beginning of the year on Lafigue. With more than 50,000 meter drilling having been completed since the last resource update last year, an updated resource estimate is not expected to be published in late 2021. Lafigue announced, a small part of the exploration program focused on converting some of the remaining inferred resource into indicated resource.But really, most of the activity really focused in the area located in between Lafigue Center and Lafigue North deposit with the result of this aggressive drilling activity being extremely successful and demonstrated the continuity of the mineralized system with the occurrence of shallow, subparallel and tact mineralized lenses that were previously located outside of the 2020 resource pit. All these newly discovered mineralization will not be included in the new mineral resource estimate which will support the ongoing DFS. And finally, Slide 54 exhibits more or less the north-south section of the area that has been intensely drilled in between Lafigue North and Center, illustrating the extent of the newly discovered mineralized lenses that are clearly located now outside of our previous 2020 resource picture, shown in the extreme northwest of the section.And now Sebastien, back to you.
Thank you, Joanna. Thank you, Mark, and thank you, Patrick, for your overviews. As you can see with this quarter's results compared to a year ago, we now afford more complete investment proposition with a high-quality portfolio, a strong social license to operate, a healthy balance sheet, a robust organic growth pipeline and a friendly shareholder returns program. Overall, we firmly believe that having a resilient business and having a disciplined capital allocation framework are key to be able to deliver long-term value for shareholders.And finally, to conclude on Slide 60, you can see our key upcoming catalysts, which we have described throughout the presentation. With that, I would like first to thank my team for this very solid quarter, and in particular, Mark's team and our GMs, who have been pushing on all fronts and keeping the house in order, while some of us were busy on the corporate agenda with the listing and the integration of SEMAFO and Teranga people and assets. I think this quarter is a demonstration that the integration is now completed and that we have strong foundations for the future.Last but not least, thank you all for dialing in, and I will now open the line up to questions.
[Operator Instructions] Our first question came from the line of Fahad Tariq from Credit Suisse.
You reiterated the 2021 cost guidance, but I didn't hear anything, and I apologize if I missed this, but I didn't hear anything on inflationary pressures, which is kind of the most common theme we're hearing from some of your peers. Maybe talk a bit about if you're seeing any labor wage inflation or any other inflation? And how we should be thinking about costs maybe in the second half of this year?
Thanks, Fahad. I mean we haven't commented too much on this because we don't have that much impact. So compared to our peers, I mean, we probably have a bit of a different situation. I think the fact that we went through a massive renegotiation with the SEMAFO acquisition and then with the Teranga acquisition on all our main key contracts on the supply chain and logistics side. We have locked in over the last few months, contracts which are lasting 6 months, 12 months, 18 months, 24 months, with minimum increase, in some cases, even some reduction. If I give the example of cyanide, we've locked in, I mean, our prices for '21, and we've got even a reduction in '22 of several percentage. So we don't -- we're not seeing yet inflation cost rising. The only one which is obviously important, and we keep monitoring is LFO and HFO, depending on where the oil price is and the impact translated in countries where we operate, which depend on lot of the taxes that we are paying in country.The only one which I would be careful on our side is to see how we will be impacted on CapEx for 2022 when we will finalize the DFS in particular, for the next 2 projects that will go into construction. So mainly Sabodala-Massawa Phase 2 expansion and also Fetekro. And obviously, we would expect some increases compared to our initial source due to steel prices. But at the same time, we might see a bit of -- we might see steel prices to start coming off a bit towards the end of the year. So we'll wait to finalize the DFS and come up with the real CapEx numbers for those 2 projects to comment on inflation cost or not.
Your next question came from the line of Ovais Habib from Scotiabank.
And congrats to Sebastien and Endeavour team on a solid quarter and a clean beat. Just a couple of questions from me. The first one, Sebastien, you produced around 756,000 ounces in the first half, implying around 740,000 ounces in the second half. That's according to the top end of guidance. Now in regards to your outlook provided on your key mines, looks like second half is going to be better than the first half. Are you just being conservative on guidance? Or am I missing something here?
You know the rules. On the promise of a deliver. So I think it depends on a lot of parameters. First of all, we know we pushed a bit in Q2, because we were also lucky to have a rainy season that started later than the year before. So when this happens, this is where you want to push as much as possible because then the impact that you can have in the future, you've already backed in, I would say, as much as possible ounces. So rather than having pressure on big Q3 and big Q4. We have now derisk, I would say, the production profile, I mean, for the full year. So that's the positive side. We have -- I mean, we don't know how the rainy season is going to be in Q3. So we tend to have -- depending on when the rainy season starts and how long it goes for, we tend to have lower Q2 and lower Q3 versus Q1 and Q4. So with a strong Q2, it's again, derisk our Q3. And the other element is you should be producing as much as you can when gold price environment is positive. And clearly, with gold price around $1,800, this is where you want to be producing a lot. So we've been pushing what we could. Q3 and Q4 will be good quarters. I have no doubt. And therefore, if we can go until the upper end of the guidance, I think and the contract will be done.
And just in terms of the rainy season, how is kind of July fared out? Is it kind of normal rain? Or is it above average, below average, any comment?
Mark, with that Ity could comment live. But so far, it's been pretty good. So on the positive side, but while I'm saying that, Mark might tell me that he is under heavy rain. Mark?
Yes. So what I would say is Ity had a pretty good July, actually, it's lower than normal. Whereas in Burkina Faso, it's been pretty normal. So it's actually good to [indiscernible]. We don't want it to be delaying too much. So the guys have managed well through July. And as I said, it seems to be a bit slow on the wet season.
But Ovais, we are cautious because sometimes what we see is with a late start, I mean, in the rainy season. It can mean also that the rainy season goes over into part of Q4. So let's be cautious. I mean, it's good to have this significant advance compared to our target for the full year, which gives us room to deliver the high end of the guidance.
Perfect makes sense, Sebastien. And just one more question for me. Regarding Fetekro, you're going forward with the release of the feasibility study by the year-end. Patrick's team continues to drill out these new targets and new zones and continues to expand federal how should we be looking at the feasibility study? I mean, in terms of the cutoff on exploration, obviously, it looks like there's -- there could be a lot more upside on Fetekro than what we're going to see in the feasibility study. Am I on the right track on this?
Well, the way we're looking at it is the reason why we've been pushing, and Patrick's team has been continuing to drill is what we need to be clear is on the size of the plant for the DFS. And you might recall the Ity story. We started with PFS at 1.5 million tonnes, then we moved to 2 million tonnes, then 3 million tonnes, launched the construction for a few million tonne plants and ended up with a 5 million tonne CIL plant so we just want to get a bit more information. Obviously, we're not going to complete, I mean, all the drilling programs that we wanted, but we're going to take a view at the end of the year with the project team and with Mark and Patrick on -- based on what we see, what's the right size for the plant. And we always said that what an Endeavour project looks like is about 200,000 ounce annual production for about 10 years at 850 or below. And I think we are on track on that. So let's see the results at the end of the year.
The next question is from the line of Anita Soni from CIBC World Markets.
First off, congratulations on a really solid result this quarter. And I guess the questions on operations, kind of hitting the top end have been already asked by Ovais. So I'm just going to stick to the financials. The restructuring costs that you had this quarter and the depreciation revaluation again for the Teranga acquisition. Could we expect that to now be behind us, and we won't see any more restructuring costs or any kind of fair value adjustments at this stage?
Joanna?
Sorry. Thanks, Seb. The restructuring costs, we would expect to go down significantly or be nominal moving forward because we would complete the majority of that with the completion of the Teranga acquisition and the completion of the London listing. And with respect to the fair value adjustments and the depreciation adjustment, we have not yet finalized the Teranga purchase price allocation. So that might happen -- that we expect that to happen in Q3. So there could be some minor changes, although we don't expect them to be material, similar to what happened this quarter with the finalization of the SEMAFO PPA.
Yes. And then just if you could just provide, Joanna, a little bit more clarity on what that adjustment was. Was it just with regards to the inventory, rather -- so was that I guess, just related to things that were on the pads? Or was that actually sort of related to the actual sort of physical assets?
Do you mean the gold inventory changes? Or...
It just said your depreciation adjustment was related to inventory. So I'm just not quite sure if you could provide some color on what that was related to.
I think -- yes. It's related to gold inventories that moved from 1 quarter to the second one. But I'll ask Martino to call you back on this with the details.
The next question is from Carey MacRury from Canaccord Genuity.
So you've got the Sabodala-Massawa feasibility study expected to be done by the end of the year. And just in light of Patrick's comments around a new resource update there. Should we expect a reserve and resource update with that study? Or is that sort of too late to make the cut for the DFS?
Yes. You should expect definitely some update on resources and reserves alongside with the DFS, Carey.
Okay. Great. And then maybe just on the balance sheet, you've got over $800 million in cash, but still quite a bit drawn on the revolver. Just wondering any color on why keep such a high amount still on the credit facility?
Sure. So we said as part of our Capital Market Day that the objective was first to close the integration of Teranga and SEMAFO and do the listing. And we are now ready to work on credit ratings for the company, and based on that, to restructure the balance sheet. So that's something that would happen in the second half of the year or beginning of next year.
Okay. Great. And then maybe just 1 more for me. I know you mentioned that Mana going to sort of 100% underground. Just wondering what that's going to look like and sort of how quickly that's expected to happen. So like sort of the underground currently, I think, is only about 1/3 of the mill feed. So should we be expecting the underground to expand overall? Or is the plant going to run at a lower but higher grade level going forward?
Sure. So the plan, and we're still working on it. I mean, we completed a PFS and we'll probably provide to the market with some technical report updates for Mana in the coming months. But the objective is to be able to shut down the Wona open pit. And transition to the Wona underground. The Wona underground, alongside with Siou underground, should allow to give a good solid profile for the next 4, 5 years for Mana with about 100,000 ounce provided by each underground mines. So between 180,000 to 200,000 ounces annual production for the asset over the next few years.The objective through that is to give a strong production basis to allow in parallel, Patrick's team to work on the exploration side. So that in 2, 3 years' time, once all the key targets that we wanted to drill are done, we can then decide the future of Mana. So yes, happy to have a plan for the short term, while Patrick's team will be drilling heavily in the area to get us a better picture on the future of Mana.
Got it. Got it. That's helpful. Any thoughts on what the all-in sustaining cost there would look like for a range?
Not at this stage, Carey. I mean, we just completed the first PFS. So we'll wait, I mean, for the final results probably in September, October. So I guess we would provide visibility as part of our Q3.
The next question is from Wayne Lam from RBC.
Just curious at Massawa in terms of the mining from the various deposits. How long do you expect ore to be sourced solely from Sofia and when might you begin stripping and sourcing ore from the central zone?
Wayne, thanks. Mark, do you want to comment?
Yes, sure. I thought I'd just start and say that just as we were talking about the wet season, just as we finished that, it started raining here a bit. Moving on to Sabodala. Yes. What we're looking at is starting up stripping and getting everything sorted to start mining central zone at the end of this year, so that it will become a production feed for next year. And then we're also looking at the option of recommencing the Sabodala pit next year as well just to provide -- just looking at the longer-term profile. So yes, at this point in time, it's mainly -- it's all Sofia, but then it will be all Massawa and then we'll have some Sabodala coming back in.
Okay. Got it. And then just with the exploration focus on the nonrefractory ore. If there's significant exploration success and much more oxide material found, would that impact the timing of the construction in the BIOX plant?
So it wouldn't, Wayne, impact the construction. I think it just gives us more flexibility to ramp up the BIOX plant and make sure that we've got everything required. So that's why we're pushing on that front also because this will provide even more flexibility in the coming 24 months.
Okay. Perfect. And then maybe just last question at Boungou. Just wondering what the driver on the higher security cost was this quarter? And just wondering, in terms of the grade profile through the year, as the east pit has kind of brought online, how should we think about the grades trending relative to reserve grade?
Sure. Maybe, Mark, you want to comment on the mining sequence and the grade, and I'll just give a few comments on the security cost.
Yes, sure. I think what we were mining late last year was a nice high-grade pocket, and we did bring some of that forward from this year into Q4. Hence, while we're seeing the trend down that we are, but we are probably trending back towards the reserve grade, which is what you would expect basically through to the end of the year.
Yes. On the security cost, I think it's more a timing of spend and cash out spent on infrastructure that were reinforced around the mine side and also some equipments for all the logistic path. So yes nothing particular there to worry about. Just we continue to monitor closely, I mean, the situation, and we make any adjustments required depending on the environment.
The next question from Don DeMarco from National Bank Finance.
And congratulations, gentlemen, on a strong quarter. Sebastien and team. Yes, I see the stock is up 7% on the LSE right now. So that's a nice sneak preview what we can expect in Toronto. A lot of the questions have been answered, but maybe continue with the theme of the rainy season. Would you expect any impacts at Sabodala-Massawa from potential raining season? We know, obviously, Ity and Hounde are prone to that, but is there any risk also at that flagship mine?
Thanks, Don. I mean, first of all, I wanted to thank you, because I saw in your sales note that you were pounding the table with those Q2 sets of results. So I agree, and thanks. On the Sabodala-Massawa, not really. I mean, the rainy season, you've got a bit of rain over there, but doesn't have, I would say, massive disruption compared to what we see at Ity or what we would see at Wahgnion, which has probably the 2 assets, which are getting the biggest impact from the rainy season. Mark, I don't know if you want to comment more than that?
Yes. No, the rainy season is not is certainly not as strong. And from what I've seen and understand, I think we will be okay.
Okay. Okay, that's encouraging. I mean, obviously, Sabodala-Massawa was a key driver among other assets to the performance we saw in Q2. And just continuing to focus on Sabodala-Massawa for a bit. We saw the grades this quarter quite a bit above the Sofia reserve grades of 2.7. So what should we be thinking about grades for Q3 and Q4 at this asset? I know we've talked about there's been commentary about mining at Sofia, a little bit Sabodala coming into the end of the year, but put back in the end year. But in terms of just magnitude of grade, to me, it seemed like it was a bit of an outlier in Q2 and can we expect this to continue, or will it seize a bit?
Sure, Mark, do you want to comment on the grade profile?
Yes. I do agree. We did have a very good Q2. We had some very nice high-grade in the Sofia main pit. So we expect it to be not quite as strong in Q3 and Q4, but still pretty good.
Okay. Okay. That's fair. Then, of course, we're looking toward the end of the year. We've got the DFS in Fetekro, in Kalana and so on. What are you guys thinking about potential sequencing of development of both of these as well as the Phase 2 expansion at Sabodala-Massawa. Is it possible you could do all 3 concurrently? Or would it be sequenced? And I know this is still subject to final go forward decisions on following the release of these studies. But what can you think about here, obviously you went through very strong quip deleveraging in Q2 gives you some flexibility, but interested in your thoughts as you build out your pipeline into the future?
Sure. Well, I think the view is still the same at this stage, Don, which is 2 projects in parallel is good. 3 would be a stretch for management and would be also potentially a stretch for balance sheet, not that the balance sheet is not going to be strong, but unfortunately, I can't forecast yet what the gold price environment will be in '22 and '23 so I think that progressing 2 of those projects in parallel gives us a first wave of organic growth with Kalana, which gives us a second wave of organic growth after '23 with Kalana having more time to lineup and to get into becoming a full end of a project, which is, as I said earlier, above 200,000 ounce for at least 10 years and below $850 in all-in sustaining cost. So this will give more time, I mean, to work on Kalana and also more time to bring up the next greenfield project or to surprise the market with some expansion at 1 of the existing mines. So the good thing is that what I like with this portfolio is that there is a lot of optionalities. I think we have now a clear next 5-year picture between the existing portfolio and the 2 upcoming projects. The next 2 years will be about preparing the next wave of organic growth. And I think that we'll have, again, few interesting options for this second wave.
Yes, certainly. Okay. Well, thanks for that. That seems prudent. Well, we'll look forward to -- congratulations again. We'll look forward to talking in Q3. And at that point, you should be in a cash surplus position.
The next question is from the line of Lawson Winder from BSA Securities.
Just wanted to ask about some of the exploration stuff going on. So first of all, on Boungou. Patrick, I noted that you were able to do some drilling at Boungou Northwest. Now is that kind of outside of the like safety perimeter area, and would that signal that into the second half of next year, the exploration program at Boungou might be expanding?
Yes. Actually, we've been drilling a little bit outside the fence of the mine to the north, just a little bit. But basically, in 2021, we wanted to finish all the very, very near-mine exploration on the pit and also working a little bit on the junction between the West pit and the tentative underground part to the West. That's the first thing.And yes, second thing, we are working on defining improved security procedure to be able, hopefully, before the end of the year or starting more aggressively next year on doing some more exploration, let's say, the close vicinity from the mine, but at least outside the fence.
Great. And then on the expected R&R update on Sabodala-Massawa, and actually Mambo in particular. Do you have an idea of what the expected split will be between oxide and sulfide on both of those?
So it's still too early to say this kind of things. If you take Sabodala-Massawa, just remember that we incorporated the assets ourselves in the new Endeavour only in March, and it's only a few months ago. So basically, what we have been doing is reshuffling and reprioritizing all the targets that we had in mind. And right now, we are quite I would say, aggressively working on Massawa. Because if you look at what we planned in the pie chart about the spending, basically, we spend less than what we should have just because the start of the project -- exploration project was delayed.So it's still too early to speak about the percentage of oxide and fresh. For Maoula, it's a bit the same. We have been working mostly in extending on Mambo, I would say -- you were talking Maoula on Mana or Mambo.
Mambo at Hounde.
Mambo, our effort was just to extend as much as we could. And now we are only starting to infill drilling. So it's a bit too early yet to say what could be the percentage of oxide versus fresh and so on, on this deposit. Honestly, it's still too early. We should have all that when we position update on the mineral resource.
Great. And then the decision to go to underground at Kona. Now how is that going to impact the reserve? Is there going to be a slight reduction in the total, Wona reserve as a result of that?
No. In fact, Lawson, we didn't comment in detail during the reserve that we published for -- at the end of 2020. But in fact, we already took out some reserves that were on the Wona open pit side, in particular, on the North part, which initially SEMAFO had planned to mine. And it was -- I think it was about 700,000 ounces that we took out, but we were able to add about a bit more than 800,000 ounces of reserves for the underground.So those reserves are already included, and we did it on the basis of our PFS. And as I mentioned earlier, the objective now is to finalize all the studies and be ready for construction, hopefully, at the end of the year.
Okay. Great. And then on the topic of SEMAFO plan. SEMAFO was quite excited about Bantou, and I've noticed that Patrick hasn't been particularly focused on Bantou so far this year. Was that a conscious decision? And what was the thinking around that? And how are you viewing that asset?
Yes, exactly. I think a conscious decision for 2 reasons. One is, we were extremely busy on other areas. And second, we're clearing also all the permitting environment around Bantou. So that's something on the agenda for Patrick's team later this year and in 2022.
Okay. Great. And then just 1 final question, I wanted to just ask about Karma. You'd mentioned some additional drilling success near mine. Perhaps could you quantify that success what it might mean in terms of life extension or number of ounces.
Marginal. And it doesn't change our view, which is that Karma is non core and H1 was pretty busy for the corporate team on integration of Teranga and the listing. So the team is going to be a focus on H2 on potentially divesting Karma.
The next question is from Mark Bentley from ShareSoc.
Thanks very much for excellent delivery in the first half. Firstly, I have a question concerning the possible index inclusion and then 3 questions concerning exploration matters. So firstly, on the index inclusion, I just wanted to clarify the liquidity test of 2.5 basis points of shares traded. Is that the number of shares traded daily or monthly?
So the test, I mean, based on the cutoff date, which was taken is about 40 -- a bit more than 40,000 shares a day.
Great. Then the 3 exploration questions. First of all, the new discovery at Ity West floater where you've found some new mineralized lenses, at roughly what depths are these lenses? Then my second question is you've stated in the results that you expect to add 2.5 million ounces of indicated resources in 2021. How much of that will convert to reserves? And will more of that convert to reserves in 2022 rather than 2021? And then the third question is what are your plans for exploring Golden Hill?
Sure. Thanks, Mark. Maybe, Patrick, you want to comment first on the Ity.
Yes. Yes, on Ity, it's pretty simple. The West is starting at surface. Some of the lens are basically hopping out below the waste dump. So It was a big mistake, but is a historical team to have it let go. So we reinterpreted that. Overall, I don't know exactly what will be the size, but it's starting from surface down to basically, as deep as we could have drilled, we found some continuity of mineralization. So we don't know exactly. We know we target more or less a mineralization in average of [ 200 tonne ] more or less in all this area. So that's for the first question on.
On the second one, Mark, the 2.5 million ounces of indicated resources are predominantly will be coming from the core assets. So Hounde, Ity, Sabodala-Massawa and Fetekro. And if I take our historical conversion rates, I would be expecting between 70% to 80% to be converted into reserves.
And will that reserve addition come in this year's reserve results or will it take until next year before that can be added?
Difficult to say at this stage because it will depend on the drilling campaigns and in particular, infill drilling that we would do in the second half of the year. So -- but what we always said is that, at least we want to ensure that in terms of reserve that we will be adding in '21, at least what we deplete. So you would be expecting at least 1.5 million ounces of reserves that we added.
And then the final part was what are the plans for Golden Hill exploration?
Yes. Patrick, you want to comment on Golden Hill?
Yes, some Golden Hill, that's the same -- a little bit the same issue as on Bantou. Golden Hill is located immediately 30-kilometer south of Hounde. So basically, we are working on evaluating the possibility to connect somehow the Golden Hill mineralization that have been previously discovered. And we are also trying to solve on a natural way, some license issue and renewal and all that stuff. As soon as everything have been cleared, we will be in action again on Golden Hill, but not yet for the first semester.
I will now back -- hand the conference back to the management. Please go ahead.
Thank you, everyone, for attending the Q2 webcast. For additional questions, we remain available by phone or email. Thank you very much, and have a good rest of the day.
That concludes the conference for today. Thank you for participating. You may all disconnect.