© 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's Third 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 Corporation. Thank you. Mr. de Montessus, you may begin.
Thank you, operator. Good morning, good afternoon, everyone. Thank you for joining Endeavour Mining Q3 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 the usual legal statements, and the statement is here. We will be adopting the usual format today. And here with me are Jeremy, Vincent and Patrick. I'll start by talking you through some of the highlights from the quarter before the team go into the financials and operations in greater detail. We will then open the call for questions. So here is a reminder of our operational pillars and how we track against them at the end of Q3. And I'm pleased to say that it has been a successful year so far. As you all have seen from our release, we remain on target to meet full year guidance for both production and cost, and we are at the right end of the range for those -- for each, towards the top for production and towards the bottom for cost. You will have noted also that construction of the Ity CIL development is now tracking ahead of target while remaining on budget. We are now expecting their first gold pours on 2 months early. Our exploration program has enjoyed considerable success. I hope you saw the maiden resource figures from Fetekro that we released a few weeks ago. We are also looking forward to publishing a maiden resource from the Kari Pump exploration campaign at Houndé in the coming weeks, which we have previously announced in May. Since the last time I talked to you, we have also announced the sale of the Tabakoto assets, and that transaction is expected to close in the current quarter. As you will notice in the upcoming slides, Tabakoto has been classified as a discontinued activity and does not appear in our P&L or on our balance sheet anymore. Of note, however, Tabakoto is still consolidated in our cash flow statement in compliance with IFRS rules. And all this has been achieved safely. Our record here continues to be strong and construction at Ity continues with not a single LTI. This is because of the constant focus that we've placed on the safety of our people. Everyone deserves to go home safely at the end of every day, and we will continue to make that as a priority for management. I mentioned earlier that we are on track to meet guidance at the higher end for production and lower end for costs, and this slide break out where we stand in a little more detail. All our mines are on track, some at the high end some at the lower. But this just reinforces the benefit of having a portfolio with multiple mines. Looking at cost, we are particularly pleased with where we stand. As you know, the target set in 2016 was to have a group all-in sustaining cost below $800 by 2019. Our strategy is not about how much we can produce, but rather it's about focusing on high-margin ounces. It is great to see that our cost from continuing operations are already achieving these targets, while next year, we will also have the benefits of the Ity CIL project coming onstream at very low all-in sustaining costs.Production from continuing operations in Q3 was 76% higher than a year ago, thanks in part to Houndé entering commercial production, which is the primary reason for the jump in the bar from Q3 to Q4 last year that you see here. And while there has been a slight decrease in Q3 over Q2, this is typically at this time of year during the West African rainy season. Just to come back to production. One of the reasons we are confident of the full year outcome is that as you know, we are now leaving the rainy season and moving into Q4, which is traditionally our strongest quarter. If we were to have the same production in Q4 as in Q3, which was our lower quarter, this would already place us in the top half of our production guidance range. And therefore, expecting a record quarter in Q4. And on costs, this slide provides the bridge between where we were this time last year and where we are now. From over $900 an ounce, the portfolio improvement we have seen over the past 12 months has seen as still higher cost assets such as Nzema and Tabakoto. Furthermore, the cost reduction programs launched across of the group and the addition of Houndé to the portfolio has driven costs down even further, leaving us at the current all-in sustaining cost of $759 per ounce for the year-to-date. I think you will agree that represents a significant increase in value for our business and for shareholders. As you've seen on this next page, it means that all-in margins have significantly increased. At $134 million so far this year, we are already ahead of where we were at the same time in 2017 due to higher production and higher gold prices. As previously mentioned, Q4 is a very important quarter in terms of production, but also cash flow generation. Therefore, we expect to finish the year at a considerably higher level compared to the previous period.And so to the Ity CIL construction, as I mentioned and you will have seen, thanks to a great effort by the team, we continue to make significant progress and are now tracking 2 months ahead of schedule with more than 3 quarters of the project now completed. In the chart on the right, you will see the total CapEx remains at $412 million. Of that, just $148 million remains to be paid and with $26 million of undrawn equipment financing, the cash outflow for the remainder of the development spend of $122 million, well within the $213 million of liquidity sources that we have available to us. That is obviously a very good position to be in. In Q4, we intend to spend between $50 million to $60 million, bringing the remaining spend in 2019 at less than $70 million and therefore, allowing us to maximize cash flow generation in 2019 once Ity CIL construction is completed.As you've seen in this next slide, because we're tracking ahead of schedule, we are intending to spend a lot more in 2018. Rather than $180 million, we are now expecting to spend approximately $260 million. This has been possible due to our strong balance sheet and liquidity sources, which give us the financial flexibility to progress the construction quicker. The fact that we are 2 months ahead is expected to lead to substantial benefits for us in 2019. As you see on the right-hand side of the page, Ity CIL is expected to have an annualized production of 250,000 ounces for the first year at an expected cost of $407 per ounce. This means that extra -- that 2 months extra production in 2019 representing roughly 40,000 ounces more for 2019. Assuming the gold price of $12.50, this represents $35 million of additional all-in margin generated in 2019, thanks to the project being ahead of schedule. As you would have seen, therefore on the previous page, the project completion stands at over 75%. I'd like to thank the team for their hard work and excellent progress achieved so far. The experience that our in-house construction team has gained from our previous builds in the region. The early installation of the ball and SAG mills, combined with the excellent progress made during the rainy season, has been key factors, which have helped advance the Ity CIL construction ahead of schedule. Looking at the pictures, starting with the top left, you'll notice the process plant. Its construction is over 70% complete, tracking ahead of schedule as the ball and SAG mill installation commenced 3 months earlier than initially planned. The structure hold, mechanical piping and electrical installation work is well underway. In the top right, you can notice the 29-megawatt power station, it's construction and the 91 kV transmission line are progressing well and on schedule with over 70% completed here too. The first power drawdown is expected in Q1 2019. At the bottom left, you have the resettlement program, which is progressing well against schedule with over 90% already completed. And at the bottom right, you'll notice the haul road bridge to access the Daapleu pit, which is 92% complete with substructure concrete completed. For other photos, please reference the press release published a few weeks ago. You will notice that the tailings storage facility earthworks progressing well against schedule, with again, 70% completed. And the installation of the rubber lining has already commenced.In essence of time, I won't go through the full details in this next chart. Suffice to say that the large critical path items are now behind us and it is now the final stretch to the first gold pour, which is expect to occur in early Q2 next year.Finally, before Vincent goes through the finances and we look at each individual mine, a quick word about our exploration activities. I would like here to thank Patrick and the exploration team for the hard work done this year. With over 350,000 meters drilled so far this year, the exploration effort has been huge and we're excited to share our results. Moreover, Patrick's unique approach brought from the oil and gas industry of ranging targets and building a 5-year exploration program based on strategic prioritization is proving to be effective. We will highlight more of this at our upcoming Investor Day.As you can see, we've committed $46 million to exploration so far this year with a significant proportion at Houndé and on Greenfield properties. In total, we have drilled almost 350,000 meters so far this year and in the third quarter, despite the rainy season, we drilled 54,000 meters. In essence of time, we've added an exploration page on each asset in the appendix, and we'll provide additional information during our Investor Day in few weeks' time. Today, I would like, however, to focus on Houndé and Fetekro on the next 2 pages.On Houndé, as mentioned, Houndé has been the strongest exploration focus for us in 2018 with more than 165,000 meters drilled since the start of the year. As you recall last year, we announced the Kari Pump discovery, and in May of this year, we announced further drill results for Kari Pump as well as the discovery of 2 additional nearby discoveries named Kari West and Kari Center. In Q3, drilling focused mainly on infill drilling, the Kari Pump target, where we expect to publish a maiden resource in the coming weeks. This is expected to be a big catalyst for Endeavour since based on the amount of drilling done, which now stands at over 200,000 meters over the last 18 months is expected to be material. In addition, we see 3 advantages. The first one is that it is expected to have higher grades compared to Vindaloo. Second, while Vindaloo is 90% transitional ore, we expect Kari Pump to have more oxide material. As you know, oxide material is typically less costly to mine and process. For reference, in Houndé's first months of operation, it was processing only oxide material and it's resulting all-in sustaining costs were below $400 per ounce. And the third advantage is that the infrastructure is already planned as part of the nearby Bouéré development, which we are completing now. So as you can tell, we're excited to announce this discovery and to then move on to drill the other 2 nearby targets next year in addition to several other ones on the property. For this reason, we believe that Houndé is a Tier 1 asset, and we will probably prove it very soon. And now on to Fetekro. We have said before that one of our 4 priorities is to identify areas for Greenfield exploration, where we can develop standalone new projects. You will hopefully have seen the maiden resource recently announced, the Fetekro property in Côte d'Ivoire, which is looking very promising. It's used to belong to be La Mancha and was injected into the Endeavour portfolio in late '15 along with the Ity mine. While we knew that the Lafigué target was prospective before embarking on a larger exploration campaign, we analyzed the geology, which highlighted additional nearby targets. The potential of Lafigué along with the other nearby targets then gave us the comfort for Fetekro to potentially have the scale to become a standalone, multiple pit operation. As such, Fetekro was ranked as the top priority extensive target for doing the strategic exploration review completed in late 2016 by Patrick and his team. And since then nearly 32,000 meters were drilled, mainly focused on the highly prospective maiden Lafigué target. As you would have seen, the Lafigué maiden resource stands at over 700,000 ounces at a grade of 2.25 grams per tonne, including some very high grade pocket. Endeavor has spent roughly $6 million on Fetekro since owning it, representing a discovery cost of $12 per ounce based only on indicated resources or $8 per ounce based on M&A Resources and inferred. This discovery cost is in line with our full year target exploration target of finding 10 million to 15 million ounces of indicated resources at a cost of less than $15 per ounce. The initial analysis of its ore characteristics and ore body shapes -- shows it could be amenable to open pit mining as mineralization start at surface, while the preliminary metallurgical tests were done suggests the potential for high gold recovery rate. And there is additional potential upside as the delineated resources based on 2/3 of the total mineralized area designed today and is open at depth and in multiple direction. As previously mentioned, 14 additional nearby targets have been identified. And since announcing the maiden resource, more drilling has started excited on the Lafigué target and drilling on some additional targets will begin next year. And with that, I'll hand over to Vincent to walk you through the Q3 numbers into more details. Vincent?
Yes, thank you, Sébastien. I will start by commenting on Slide 18, the production bridge between the end of the third quarter last year and today. Starting at the left hand side, we have removed the figures for Nzema, which has already been sold, and Tabakoto, which is being held-for-sale at present. This give us a 252,000 ounces for continuing operations up to the end of Q3 '17. So notably, for the first 9 months of '18, we can see a slight decrease in production from Agbaou as a result of the lower grades that we have stockpiled for using the mill as we focus on waste capitalization activities as planned. We can see as well an increase of production at Ity primarily due to higher grades coming from Bakatouo pit, but also high recovery rate and a slight decrease at Karma. As expected, the majority of the impact came from the introduction of Houndé, which contributed 201,000 ounces of production in the year-to-date, taking total production to 438,000 ounces.On the next slide, I will walk through the main line items from revenue to all-in margin. So the top line increased, as I just explained, and I want to note just a couple of other points. So the gold price average takes as usual into account the streaming financing for Karma. Otherwise, the realized gold price without Karma would have been $1,282 per ounce year-to-date. As you see in Note 3, sustaining capital increase as a result of the increased waste capitalization activities at Agbaou, but also increase at Tabakoto and the addition of Houndé mine. Tabakoto net impact year-to-date on all-in sustaining margin is minus $4 million.As you can also see on Note 4, the non-sustaining capital increase versus last year can be attributed to Agbaou with the waste capitalization that has been done for the pre-stripping of West Pit 5 in Q1 and Q2. And you have seen that there was no non-sustaining CapEx in Q3 for Agbaou. The pre-stripping as well of Kao pit at Karma mine, which has continued and intensified Q3. And last new mining equipment for the underground mine, which had been received in Q3 for Tabakoto.And later on you will see that our non-sustaining exploration spend also increased as a result of the enhanced exploration focus. So that leads to the 1/3 increase in the owning margin that Sébastien talked about earlier. On the next slide, here you can see the cash flow over the period compared to last year starting from the $134 million all-in margin I mentioned earlier. The increase in working capital is explained at point 1. And here, it relates to a number of specific items. Overall, we expect some items in the working capital to reverse in Q4, but also into early '19. As I go through the specific details, you will see why. First is, there was a receivable outflow for $12 million due to timing as we sold the ounces shortly after quarter end. This item has therefore already been turned into cash in October, and we plan to offset this outflow in Q4 cash flow numbers. The second item is $43 million of outflow in inventories due to the buildup of stockpile and consumable at Houndé, which has performed above nameplate in which needs to structurally build its inventories. But also an increase of off the pile at Agbaou and Karma for $12 million and an increase in consumable at Karma and Tabakoto. Looking forward, the stockpiles are expected to be consumed across of the group in the coming quarters for all the mine except Houndé, which will continue to slightly increase and continue to build its stockpile in line with the DFS strategy. The consumables should also reduce across the coming quarters. The working capital also include prepayment outflow for $8 million mainly due to strategic spare parts at Houndé. Lastly, the working capital include the trade payable outflow of $25 million, which is mainly due to the buildup of payable at Agbaou at the end of '17 driven by a regulatory issue in paying a key supplier. This has been paid in Q1. And since then, Q2 and Q3 don't show any major changes.At Note 3, you can see an increase in the interest paid as a result of increased debt due to the construction of the Ity CIL plant. And you see the $231 million project capital at Note 4 is comprised mostly of the Ity CIL as we would expect. And you can see the impact of our convertible issue and debt management in Note 5 and 6 leaving us with a cash outflow of $85 million year-to-date. On Slide 21, you see the improvement of our overall portfolio quality with Houndé now onstream, which has led to a significant improvement in cash flow from $1.49 per share last year to $1.94 per share so far in '18. That represents an improvement of 30% on the cash flow per share.On Slide 22, you can see the funding source, and this all leave us with a well-funded to cash our additional growth activity and ambitions. While our net debt position has increased as a result of the CIL advancing much quicker than forecast, our financing remain strong, and we expect to generate significant free cash flow in Q4 with a significant increase next year. So we should see a quite rapid deleveraging of our balance sheet when the Ity plant will start next year. We have a $180 million undrawn within our RCF and $33 million in cash. With expected inflows from the sale of Tabakoto for $60 million, that as well the remaining payment for Nzema of between $20 million and $25 million, plus of the future cash flows in Q4 and coming quarters, we'll have significant sources of funding available to us before the completion of the Ity CIL.On Slide 24 (sic) [ Slide 23 ], you see the change in cash based on alteration of cash flow metrics IFRS standards. You will see here we started the year with $123 million of cash to which operating activity added a further $119 million. We have invested significantly during the period $366 million particularly on the growth capital where we have spent $231 million but also $59 million on capital expenditure and ongoing operation and up to $38 million in exploration.As you can see, the amount invested into our business to improve the portfolios quality are quite important. These investments efforts would not have been possible without the balance sheet management effort done over the past 2 years. Going into '19, despite having invested massively, we expect to start benefiting from all the investments made.Last slide on Page 24 to round off the finance section. This slide gives in the net earnings breakdown. As you had some questions last time, we give you more detailed commentary on the P&L regarding depreciation, financial results and tax this year. I would like to highlight 4 items. Year-to-date depreciation increased compared to last year mainly due to the increase in Houndé as well as some adjustment in depletable ounces in '18. Quarter-on-quarter, it has decreased by $8 million versus last quarter due to the decrease in production. The year-to-date gain on financial instrument is mainly related to the $17 million (sic) [ $18 million ] gain on the goal of revenue protection product, but also $20 million unrealized gain on the convertible senior bond, which was offset by foreign exchange loss. On finance costs, the finance cost remains equivalent to last year. As well, we have paid more interest in this year. We have also allocated a higher percentage of interest which has been capitalized in the Ity CIL project. Finally, current income taxes was $46 million year-to-date compared to $7 million a year ago. The increase is primarily due to the increase of Houndé in '18, where we have recovered $30 million of tax as well as higher taxable income at Ity. Q3 '18 current tax is fully compared to Q2. Lastly, you all have seen that we have a loss of $59 million for Tabakoto discontinued operation, which embeds $42 million impairment depreciation following the disposal signed with BCM for $60 million.On a year-to-date, adjusted basis for continued operation, Q3 earnings per share were negative $0.01 per share and amounted to a profit of $0.31 per share year-to-date against $0.05 per share, 9 months -- for the first 9 months of last year. As you know, the adjustments were mainly due to 4 factor: losses from discontinued operations; deferred income tax recovery; prior period adjustment; gain on financial instrument and stock-based expenses. And at this point, I will hand over to Jeremy who will take us through the individual mine operations. Jeremy?
Thanks very much, Vincent, and good morning, good afternoon to everyone. Looking at the operations, turning to Houndé first. Houndé continued to perform well specifically compared to the feasibility study estimates. The plant continue to perform roughly 30% above nameplate at present, and production is expected to decrease slightly in the previous quarter as the rainy season to get access to some of the higher grade areas. Once done, cost mining increased mainly due to the lower unanticipated grade, which is a bit of a combination from drilling block and mine dilution, et cetera. And then the high unit mining and processing costs, which were partially offset by the lower unit G&A costs and the lower sustaining capital. Due to its strong indexed performance, we are currently on track to meet the top end of our guidance at the Houndé asset. Over to Agbaou. Agbaou in 2018 continues to be a transitional year with a focus on mine capitalization, which will then give us access to the higher grade ore areas. Production remained at lower level in Q3 as mining continue to be constrained to low-grade areas and the low-grade stockpiles continue to supplement the mine feed.In other words, we're on track to meet the low end of the production guidance for Agbaou, and most importantly, the lower end of the all-in sustaining cost guidance. Over to Ity now. When we talk about Ity, we generally talk about the main horse in the stable out, we have the CIL project. But I'm very pleased to say the existing Ity's operation continues to perform strongly. So we took the decision last quarter to mine opportunistically based on the equipment availability and the progression of the CIL project itself. As a result, we have beaten guidance here pretty well. Production declined, however less than initially planned, over the previous quarter due to lower grades stacked and a lower recovery, which was partially offset by the increasing tonnes stacked overall. We expect production to decline in Q4 and the all-in sustaining cost to increase slightly as the greater proportion of the low-grade stockpiles are expected to be processed at the heap leach operation winds down by year-end. Turning to Karma now. And looking at Karma, as expected, production increased in Q3 despite the rainy season, due to the higher grades and better recovery rates associated with, predominantly, the Kao oxide ore. All-in sustaining cost, pleasingly, decreased mainly due to the increased production, lower processing costs and G&A costs overall, which were partially offset by the higher unit mining costs we have fallen from second to away now and the higher pumping costs during the rainy season. What's pleasing for me, and I guess, for everyone is to look at the all-in sustaining cost curve on the Karma asset and it's progressively decreased over the last 5 quarters. Certainly, we're reaping the rewards of our hard work. Trying the more oxide material, we can now start seeing the benefits of the plant optimization work that was being done last year. And we continue to improve.Finally, just closing up on Tabakoto. I'm not going to spend too much time on Tabakoto. Production remained flat, despite the impact of the heavy rainfall, as the slightly higher mill throughput was offset by just a slightly lower grade. On the cost side, the issue remains the equipment availability and the need for some additional underground fleet at Tabakoto and the Segala underground assets. In light of the capital allocation decisions, these investments will upset Endeavour and we're convinced that the miner employees will benefit from the new buy strategy. With that, I'll pass over to Patrick now to walk you through the Kalana asset. Patrick, over to you, mate.
Thanks, Jeremy. Good morning, good afternoon, everybody. For the Kalana project, we have been quite active especially the reading of 48,000 meters in the first semester. As you may know, it's a high-grade, quite complex deposit, and we have been achieving a significant amount of reading to prove and to confirm and to refine the geopolitical model, which is quite okay right now. Unfortunately, we have been fast-pacing some quite important delay in the lab analysis due to the rich ore analysis we are conducting on all the samples due to the high-grade characteristics of the ore. That being said, you know we are, right now, working on the resource evaluation. It's complex with a lot of vein being mobilized and rented, and coalition and domains. And actually, we expect to publish updated resource quite soon now. Now back to Sébastien.
Thank you, Vincent, Jeremy and Patrick. So to conclude, we have had a strong 9 months performance, and I hope we've given you the flavor that we have much more to come, in particular in Q4. Our operations are performing well and in line with the guidance that we gave you earlier in the year, with production at the top end and all-in sustaining cost at the bottom end of the ranges. This places us on a solid financial foundation for 2019. The CIL project at Ity continues to progress well, and we look forward to the first gold pour early in Q2 of next year, allowing us to have a strong 2019 full year production. And do look out for our next announcement, the Maiden resource from Kari Pump since, as Patrick said, is expected to be a strong catalyst. Longer term, our ambitions remain unchanged, and we continue to work well to grow this company and create more value for our shareholders. I will leave it there, but we'll remind you that we're holding a Capital Markets Day on November 28 in Toronto. I hope as many of you as possible would be able to join us on the today or listen in, and I look forward to talking to you again very soon. So before I go, we'd be happy to take your questions.
[Operator Instructions] We will now take our first question from Justin Chan of Numis Securities.
My first question is on Houndé. It's now running above nameplate comfortably for some time now, including through harder ore. Are you now in position to update the market on what your thoughts are for a sustainable throughput rate there? And what are you expecting next year in that regard?
Thanks, Justin. I think we'll give some flavor to the market when we'll be releasing our 2019 guidance. And we'll be at that time in a position to give some more strong statement going forward on how we're expecting Houndé to behave vis-à-vis its nameplate capacity. Jeremy, you want to add something?
No, we've always said -- I guess, as part of any nameplate, if there's any change in nameplate you generally go to debottlenecking study and we look at the whole asset over and above just one -- just the mills and what are the throughput of the mills. So certainly, we need to lay out a number of different factors before we change any key metric of that.
Yes. So I think to complete the answer, Justin, clearly, up to now, Houndé has been operating at 20%, 25% above nameplate capacity. I think that we'll see where it close its first full year of operation. And on that basis, we'll give more guidance in the 2019 guidance on how to look at it going forward. But obviously, it's positive. And looking ahead, we're expecting to hopefully maintain this type of operation -- of performance.
Okay. My second one is more of just a high level strategic, and it might be kind of infringing on the territory and your CMD coming up. But you've now kind of gone through the major divestments and your build pipeline, it fits well alone. Kalana is coming. What should we be thinking on the strategy right now? Are you relatively happy with the portfolio? Is it full? What are your -- I guess, what are your thoughts with regards to that?
Well, I think that our objective was to demonstrate our ability to deliver on the full pillars of our strategic plan: operational excellence, project development, unlocking exploration value and also portfolio and balance sheet management. I think that at the end of the year, with the sale of Tabakoto completed and Ity well on track to its first gold pour, we'll basically have delivered all the key items of the first 3-year strategic plan. And therefore, we'll be, going forward, thinking in the coming few months with the board at our next 3-year strategic plan. But I think this next 3-year strategic plan will be based on the same lines, which is continuing to grow our business along with, I would say, low all-in answers in order to really be focused on cash flow generation. And looking at quality of production rather than just -- production for the sake of production. So let's finish and complete this year. This will end up ahead of schedule, our 3-year strategic plan, and we'll be able to prepare ourselves and present to the market the next 3-year strategic plan.
And just my last one is on Kalana. I realized the new feasibility study isn't out yet, but can you -- do you have any update at all with regards to your thoughts on the size of plant you're looking out there and what your view of the project is?
No, I think it would be a bit too early. The -- in fact, part of the debate we will have once the numbers are out is when is the right time to launch the construction of the project, depending also on the exploration upside that we see in the short term. The -- in 2018, Patrick's team have been focused on mainly doing infill drilling on the existing resources that were in the previous owner's feasibility study to check and build our own resource model. Our objective for next year is really to start drilling and expanding the exploration base. And therefore, question will be on whether we wait for those results in order to grow the size of the plant or whether we go ahead. And I think that we've been insisting that for us, 2019 should be an important year in terms of cash flow generation. And therefore, let's see what the feasibility study will show so that we can make the right call on when is the right time to launch that construction, and therefore, with what size of plant.
We will now take our next question from Jack Garman of Pareto Securities.
And my first question was concerning Fetekro and whether or not you have a target minimum resource sites to develop the sort of standalone operation. And secondly, are you able to provide an update on the Randgold JV?
Thanks. Well, on Fetekro, and I think our target is now on all greenfield operation is to target at least 2 million ounce indicated resources to start having an attractive feasibility study for us. And this is why we are investing on Fetekro because we believe that there is potential to further grow beyond the 700,000, 800,000 ounce of indicated resources that we have currently. So for that, we just need to let the exploration team to continue to drill the existing Lafigué target and to start drilling the other targets that were already identified. On the Randgold joint venture, Patrick, do you want to give -- I think we intend to do -- to give some information on this during our Capital Markets Day end of November as we have the board meeting with the joint venture partners in the next 2 weeks. Patrick?
Yes. One, the joint venture is progressing quite well. Well, it was the first year since we signed this JV. It was -- the JV has 1-year of existence. Who have been -- the JV has been concentrating on the northern part of the Mankono license of Randgold and some mineralization was encountered and we are trying to, right now, to extend this type of mineralization in the southern part of the Sissedougou license that we brought to the JV. So I would say that it's still early days. We have interesting showing. A lot of geological work has been done, including a lot of geophysical activity. I think Randgold will report on their activity because they are operator of this JV. So far, for us, I would say, so good. Things are progressing interestingly, but it's still early days to say whether or not the outcome will be positive.
One further question on Ity HL guidance for Q4 now that you've already met your full year guidance and what you indicated.
Well, yes, I think that, as Jeremy said, for Q4, we're still expecting the heap leach operation to run. And therefore, if I look at the previous quarters, we should have something slightly lower as we go, I mean, into the end of this operation. But I think something around 15,000 ounce is probably a good assumption for Ity heap leach for Q4.
We'll now take our next question from Mark Bentley of ShareSoc.
I have a couple of questions. First of all, on the taxation, you explained why it has risen substantially in this quarter, but it now seems to be around 50% of earnings. Is this a one-off spike? Or can that be expected to continue?
Yes. So no the -- you have detail because there are some situations very different from one mine to the other. So you have in the segment reporting note of the financial statement, all the details about the tax. For the moment, we are not paying tax still at Agbaou. We still -- we start to pay quite a higher level of tax in Ity this year compared to last year. Karma is also paying tax, but we are more or less at around the normal corporate rate. And at Houndé, there is a higher rate of tax paid, which is due to some adjustment between the accrual of '17 and what has been the final tax return of '17. So yes, there are some adjustment in the -- in this quarter for Houndé, in particular. But overall, I just want to make one comment, is that it's very difficult to follow the tax on the quarterly basis because it's less complexity and you don't have a rate -- if you make the decision, you don't have a steady rate. So what we will do is probably by the end of the year is to give you a full detail of the reconciliation of the tax rate per mine to tell you what are the different items between the normal -- the corporate tax rate and the effective tax rate. So we'll do that once a year. It's difficult to comment on every quarter because you have, from one quarter to another, some adjustments. But keep in mind that for the moment, again, Ity, Karma and Houndé are paying tax. Agbaou is not paying tax. It will pay tax next year. And that will -- overall, we have a tax amount which is between $10 million and $17 million per quarter.
So from that, I understand that going forward, we wouldn't expect it over the course of the full year to be as high as that as a proportion of earnings?
No.
One technical question on the MD&A. It indicates that you have 100 -- this is on Pages 27 and 28 of the MD&A. It indicates that you have 100 million ordinary shares authorized, but it says that 107.8 million have been issued. I don't understand that.
Let me see on that one, I need to go back. May I answer to you off-line once we have seen this point?
Sure, okay.
We will now take our next question from Geordie Mark of Haywood Securities.
Yes, just a few questions, a follow-on from previous -- if you could just move on to Houndé there. Can you remind me what the sort of cutoff grade is it for Houndé versus -- now versus the feasibility and the stockpiling strategy?
Jeremy?
Yes, Geordie. Look, the cutoff grade is assuming we did the resource and the reserve shown in the plan for each year. So we haven't changed it. We're working up the grade control model. And we still mine and stockpile in accordance with the actual plan at the start of the year. So it's generally 0.5, Geordie. But that changes when we start moving away to quarry season, of course.
Okay. Actually, maybe on that theme and moving over to Ity CIL. When do you expect to start your grade control drilling there for the mine?
We've started -- mate, we've started about 6 months ago and well-advanced. It's a big property, as you know, and we've got the heap leach and the CIL overlapping. There's a little bit of a slow spurt during Q3. Interestingly, Houndé, Karma, Tabakoto, Agbaou all have [indiscernible] rain. It'd been an extremely wet season. However, the Ity CIL heap leach region to the east of the Daapleu River -- sorry, east of the Cavally River had 37 less rainfall. So go figure. But yes, we're well-advanced from the grade control. And it's more about whole profiles now and waste their position and stockpile location.
And in terms of HL development, obviously, very nice to have brought that forward. With that [indiscernible] -- of the development time frame, are you still keeping total man-hours constant or just more effective deployment of people?
I think we've pulled the man-hours left during -- when we saw the advantage of having a little bit less rain during the wet season, Geordie. Yes certainly, the 2 months ahead that Sébastien indicated before is pleasing. But it's team effort and it's taking a lot of people at all the other sites and/or rental sites to get this to where it is. So we're at the hard part now. We don't want to lose the advantage. We want to keep pushing in and maintain and deliver on our promises.
Okay, excellent. And maybe one last question on Kari Pump and the other proximal sort of targets to the West and Central. Has drilling reached on those targets? And sort of -- what sort of scale of drilling are you looking at there in terms of the number of rigs and scope of work?
Okay. Right now, no, we don't have -- started drilling. Again, as Sébastien said, you know we just achieved the -- I think in September, end of September, we just achieved the 200,000 meter of drilling, all-included, diamond, RC, ECO, RC stuff. So right now, we are allowing some time to the drilling compactor to refurbish all the machine because we have been drilling on the curve for that stuff. We plan to restart drilling, I would say, at the end of the year in December, and we are still working on the exploration plan. But we think that in 2019, we should be drilling even more meter, all-included, compared to what we have been doing this year. So it's going to be a very aggressive campaign, targeting, as you said, Kari Center and Kari West. But not only that because it will address also some possible Kari Pump extension and also additional target in the vicinity of Vindaloo, but also some marginal targets. So again for next year, Houndé is going to be our first spending RAR for exploration where we are targeting, hopefully, a lot of success at the end of next year.
We will now take our next question from Chris Thompson of PI Financial.
I've just got one question. All my others have been answered. But just looking at Kari Pump at the moment. Wonder if you could just walk us through, I guess, time lines and the type of analysis that you envisage to evaluate the development options for the deposit there.
Well, you know Kari Pump is located on an exploration license. So as soon as we'll have the resource, we'll embark in the process of the exploration license. Meanwhile, we'll conduct a kind of study. Jeremy will take over to -- what we can do with that. For us, the key point is going to be 2019 because we'll have a lot of work to do, especially in Kari Center and Kari West, to try to see how we could unitize these deposits in the future.
I would probably add, Chris, that the objective for us is, if you recall, the life of mine plan for Houndé, there was a decrease after 22, 23 due to lower grade in the Vindaloo pit. So our objective for us is to be able to bring Kari Pump, which will have substantially higher grade and also much better metallurgical given it's mainly into oxide, to bring that, I would say, by 2021, at the latest, so that we are able to bring it as early as possible.
It appears there are no further questions at this time. I would like to turn the call back to the speakers for any additional or closing remarks.
Thank you very much, operator. Well, thank you all for attending this quarterly results. And again, we'll be pleased to host this Capital Market Investor Day on the 28th of November in Toronto, for the one of you that can join us, either physically or by conference call. And I'll be happy to publish with the team, as we said earlier, the Kari Pump in the next few weeks to allow and show the progress on this major discovery for Houndé. Again, thank you all for attending, and thanks again to my team for this great achievement in this quarter. Thank you very much.
This concludes today's call. Thank you for your participation. You may now disconnect.