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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for standing by, and welcome to Endeavour Mining's Q3 2021 Results Conference Call. [Operator Instructions] Today's conference call is being recorded and a transcript of the call will be available on Endeavour's website tomorrow. I would now like to hand the call over to management. Please go ahead.
Hi, everyone. I am Martino De Ciccio, Vice President, Strategy, Investor Relations. I'd like to welcome you to Endeavour's Q3 results webcast. Before we start, please note the usual disclaimer. On the call today, I am joined by Sebastien, Mark, Joanna and Patrick. Today's call will follow our usual format. Sebastien and Joanna will start by discussing the Q3 operational and financial highlights, and Mark will then walk you through the details mine by mine. We'll try to be as quick as possible to leave time for questions at the end. I will now hand it over to our CEO, Sebastien, to walk you through the highlights.
Thank you, Martino, and hello to everyone from Burkina Faso, where I'm currently. 2021 is shaping up to be a tremendous year for Endeavour, and it was particularly pleasing earlier this week to be able to host our Board members on-site to show them the progress being made. I would note 4 recurring themes, which I believe are the hallmark of us becoming a resilient and reliable business. First is our continued strong operating performance. We are on track to, again, beat our full year production guidance for the ninth year in a row and produce over 1.5 million ounces. Second is our continued balance sheet strength with a close to 0 leverage ratio. Third is our focus on shareholder returns, which has seen us return nearly $225 million to shareholders since just the beginning of the year. And fourth is our success in advancing a robust organic growth pipeline, the Sabodala-Massawa Phase 1 is on track for completion in the fourth quarter. We have a number of studies currently underway, and we recently announced our exploration plan to discover up to 20 million ounces over the next 5 years. Moving to Slide 7. We have provided a snapshot of our key operational and financial results, and we will go into more details on these in the following slides. As the third quarter is typically the rainy season, comparisons to our record second quarter results is not necessarily the best reference point, I think a better comparison is to analyze the performance versus Q3 last year and year-to-date versus last year, specifically on a per share metric, given the recent transactions that were completed. You can see here that production has doubled versus the same year-to-date period last year, while costs have decreased by 4%. But more importantly, the cash flow per share has increased by over 30% and the adjusted net earnings per share have increased by over 50%. On Slide 8, you can see our strong performance across our key operating metrics. Our production performance to date has put us well on track to achieve the top end of our guidance range while keeping all-in sustaining costs within our guidance range. Turning to Slide 9. Endeavour takes pride in our focus on safe work practices and systems, and our ultimate aim is to achieve zero harm performance. As many of you know, we reinforced this by having a group safety KPI in the annual bonus scheme every year. Our lost time injury frequency rate remains low compared to industry standards, 5x lower. In fact, then the industry average was just 2 LTIs during the quarter and the lost time injury frequency rate of 0.21x for the past 12 months. However, we will always make it a priority to drive that figure even lower. Alongside our focus on safety, we've also been supporting the COVID-19 vaccination campaigns in our host countries. This started a bit later than in the U.K. and Europe, and I'm pleased to report that over 50% of our employees are vaccinated with that number increasing every week. Following a record second quarter, the rainy season in Q3 had a limited impact on production. This quarter, we actually performed better than initially projected, and we're particularly pleased with the performance of Houndé and Sabodala-Massawa. Houndé is benefiting from the high-grade ore from the Kari Pump deposits, while Sabodala-Massawa grades increased due to higher grades from the Sofia main pit. Compared to last year, we increased Q3 production by 138,000 ounces, driven primarily by the integration of the Teranga assets into our portfolio and higher production at both Houndé and Ity. All-in sustaining costs increased simply as a result of the scheduled higher sustaining capital spend during Q3. This year, our diversification is stronger with 7 mines in production spread across 3 countries, accounting for an increase of [ 537,300 ] ounces year-to-date compared to 6 operating assets in 2 countries in 2020. We've also seen a drop in our all-in sustaining cost of $36 per ounce on a year-over-year basis, which is a strong achievement given the industry inflationary pressure. Turning now to Slide 12. Touching up on our cost and inflation controls, we thought it would be helpful to share a bit more color on the subject. Following the SEMAFO and Teranga transactions, we've been able to leverage our collective strength as the largest mining company in the region to renegotiate longer-term contracts with price variation provision for key consumables such as fuel steel reagents and tires. By using our increased group tender volumes, we've been able to secure contract terms that give us greater cost certainty well in 2022, and in some cases, as far out as '25. In some instances, we've achieved significantly better prices compared to what Teranga and SEMAFO were paying. We have also increased our efforts on managing our supply and stock containment across the group. Given we have many operations in West Africa, we can assess our spare part inventory as a region and not in isolation at the mine site level only. These efforts have helped us navigate through the cost inflation with the industry -- that the industry have seen. Moving to the next slide. Our all-in sustaining margin continues to be very healthy and mirrors the trends seen on the previous slide. Given our low all-in sustaining cost per ounce during the quarter, we had an all-in sustaining margin of $858 per ounce at an average realized gold price of $1,763 per ounce. That's a high margin of over 50%. Compared with the Q3 last year, our all-in sustaining margin has increased by more than $90 million, and this is partially due to stronger production at our legacy mines and of course, the acquisitions of SEMAFO and Teranga assets. On Slide 14, we can see -- you can see the trend of our operating cash flow, which increased by $110 million over the third quarter of 2020. We saw strong cash flow in the third quarter compared to the second quarter of '21, despite lower realized gold price and sales. And this is because Q2 is typically the quarter where we pay higher taxes. On the following slides, Joanna will take you through our financial performance into more detail. Joanna, if you want?
Thanks, Sebastien. Moving to Slide 15. We bridge our Q3 operating cash flow over that of the second quarter. Q2 performance was not fully representative of the operating performance due to our tax installment payments, which are always higher in the second quarter of the year. And you see here that this was the largest factor in explaining why operating cash flow was better in Q3 versus Q2, despite lower production as we paid $51 million more in Q2 for tax payments. This largely offset the lower realized gold price of production with details provided in number 1 and 2 on the slide. Regarding working capital, it was a decrease of $14 million in Q3 2021 compared to an increase in Q2 2021, mainly due to a decrease in accounts payable at Bantou, Ity and Mana due to the timing of payments in the 2 quarters. This was partially offset by a decrease in inventories resulting from the unwinding of the fair value adjustment to stockpiles at the Sabodala-Massawa and Wahgnion mine as well as the decrease in inventory stockpiles and finished good balances at Houndé and Ity. Slide 16 shows how our liquidity has evolved during the quarter. Financing activities during the quarter included repayments on long-term debt of $80 million, $100 million of shareholder and minority interest dividends and $35 million on share buybacks. Investing activities included a $55 million spend on sustaining capital expenditures, $42 million on nonsustaining CapEx and $11 million on our growth projects. At quarter end, Endeavour's liquidity remains strong with $760 million of cash and significant headroom with $370 million undrawn on our credit facility. After the end of the quarter in October, we also restructured our long-term debt. We refinanced our existing bridge loan that was used to repay the Teranga higher cost debt facilities when we acquired Teranga with a $500 million fixed rate senior bond offering. The bonds have a 5% coupon and mature in 2026. We also refinanced our existing RCF with a new $500 million unsecured RCF. The new RCF has an interest rate of 2.4% plus LIBOR and is due in 2025. The proceeds of the notes, together with our cash on hand, we used to repay all amounts outstanding under the company's existing loan facilities and to face these expenses in connection with the offering of the notes. Our new long-term debt facilities extend the maturities of our debt as well as providing enhanced financial flexibility and additional liquidity headroom. Turning to the next slide. Page 17 shows our balance sheet continuing to strengthen as our leverage ratio is close to 0 at 0.05x net debt-to-adjusted EBITDA. This quarter, we generated over $300 million in operating cash flows. And despite paying a $70 million dividend and buying back $35 million worth of shares, we were still able to continue improving our balance sheet and maintaining our net debt at around $70 million. In fact, if we wanted to, we could have been in a net cash position by now. With our capital allocation framework, we are taking a balanced approach where we are continuing to strengthen our balance sheet while also continuing to invest in our exploration, our growth projects and crucially in rewarding our shareholders. Moving to Slide 19. We have a detailed breakdown of our net earnings over the past 2 quarters. As usual, I will go through every line here, but we'll address a few of the most significant items. Our corporate costs and our acquisition and restructuring costs were significantly lower during the quarter because of the slightly elevated costs in Q2 related to our listing on the London Stock Exchange and the completion of several integration projects related to the trend of transaction in Q2. Our net earnings and adjusted net earnings were lower during Q3 2021 due to lower earnings from mine operations, due to lower gold sales at Ity, Karma and Wahgnion due to the anticipated lower production during rainy season as well as a lower realized gold price of $1,763 per ounce in Q3 compared to $1,791 per ounce in Q2. I'll now hand it back over to Sebastien so that he can comment on our shareholder returns program. Sebastien?
Thank you, Joanna. Moving to the next slide. I would like to reiterate our commitment to shareholder returns. Already this year, we've delivered over $220 million in shareholder returns and this remains a key capital allocation priority for us. We are keen to reward shareholders, which is why we outlined a 3-year minimum progressive dividend outlook earlier this year. Our minimum commitment for this year is $125 million and is expected to increase to at least $175 million by '23. I say, this is a minimum dividend because it will be supplemented with additional dividends and share buybacks provided that the prevailing gold price remains above $1,500 per ounce and that our leverage remains below 0.5x net debt to adjusted EBITDA. During Q3, we paid our H1 interim dividend of $70 million, which is over half of our guided fixed minimum dividend for the full year. So shareholders can expect more than the fixed minimum of $125 million to be paid for this year. In addition, we're continuing share repurchases. And since launching the program in April, we've bought back $94 million of shares. We still believe our share price is significantly undervalued and makes a good capital allocation to continue buy back our shares, given our strong cash flow generation. As you can see on this chart, our attractive shareholder return program has us very well positioned versus senior gold peers from a yield perspective, in particular when you add up our dividends and the active buyback program. Looking at growth. We are fortunate to have built a robust pipeline, which is able to compete for capital. The immediate priority is to complete the Phase 1 expansion at Sabodala, which is on track to be completed next month. We are currently commissioning 5 out of the 6 packages with the gravity take to be added in December. And I can comment about it because we just visited the progress on site yesterday. We are also making good progress towards completing the definitive feasibility studies for Sabodala-Massawa Phase 2, Fetekro and Kalana. As we have had so much exploration success this year at Sabodala-Massawa and Fetekro, we will finalize resource updates at these 2 projects in the coming weeks and incorporate the new resources into the DFS. We expect to publish the results from all 3 studies in Q1 next year.Moving now to exploration. Those of you who have followed our story closely since 2016, not just how important exploration has been to our value creation success. We have already discovered 8.5 million ounces in a short timeframe. This has allowed us to not only extend the mine lives of core assets to beyond 10 years, but also to discover a new project as well. This year, we are on track to discover a further 2.5 million ounces of indicated resources as we have had very good exploration results from the drilling programs at all 3 of our cornerstone assets meaning Ity, Houndé and Sabodala-Massawa with new discoveries at each site expected to be published in the coming weeks. Following the acquisition of SEMAFO and Teranga, we've been busy developing a new 5-year exploration program to prioritize our exploration efforts and integrate the new assets. We've applied the same unique ranking and screening methodology, which has underpinned our success and the conclusion is that we remain extremely bullish on the prospective nature of our portfolio. As you may have seen a few weeks ago, we published our new exploration strategy, which is targeting to discover between 15 million to 20 million ounces of indicated resources over the next 5 years at less than $25 per ounce. This represents discovering more than 2x our annual mine depletion at a cost that is over 3x lower than the global average discovery cost. At each of our assets, we see a potential to more than replace depletion. Achieving this goal will not only provide us with production stability, but also strategic flexibility as we advance our pipeline projects. What this outlook is also showing is that when factoring in historic production, Sabodala-Massawa, Houndé and Ity, all have the potential to be over 10 million ounce endowment and are expected to account for the bulk of our future discoveries. Because it is very unusual in the industry to publish discovery targets, we've been asked over the recent weeks, why take the risk and publish this ambitious targets? Well, first, we believe that, yes, while ambitious, these targets are achievable. These are not arm-waving numbers. We've done a lot of work to assess our potential and spend by these. But beyond this, the other reason is because we want to be accountable and transparent with our exploration investments. Just like our operations team is accountable for production and cost or our project team is accountable for timelines and CapEx. So our exploration team is also accountable for the money they spend and the answers that they discover. It's important for them and for me to be able to compete for capital within our capital allocation framework. And of course, they keep finding higher-grade ounces and new projects for less than $25 per ounce. We will, of course, continue to be more than happy to invest further and further in their success. Before I hand it over to Mark, I just wanted to touch on our listing on the premium segment of the London Stock Exchange in June. We've increased our liquidity significantly in the U.K. as we are seeing strong demand and growing interest from U.K. and European generalist funds. About 1/4 of our volume is now traded on the LSE, and nearly 20% of our shares outstanding have migrated over to the U.K. These are strong stats for just the first few months of trading, particularly when compared to some of our dual-listed peers. In September, we were included in the FTSE 250 and the FTSE oil share indexes, which we expect to continue to drive both direct demand and passive demand as investors start to take note of our index inclusion, which should continue to boost our liquidity on the U.K. line. As our share price continues to perform well, we have site on becoming eligible for other indices. Next up could be the FTSE 100, which has a market cap review date on 30th November. As of right now, we are just between the 90 and 100 positions, so we're watching that closing.I will now hand over to Mark for a detailed review of our operations. Mark?
Thank you, Sebastien, and hello to everyone on the call. I'm joining this webcast from the Ity gold mine, where we have made great progress this year on so many fronts, including recently receiving the final approval to allow us to start mining and processing ore from the Le Plaque deposit. As you can see on Slide 26, this past year has been a very good one for us. We are on track to beat our full year 2021 production guidance and deliver record production for the group. Production increased by over 131% year-to-date versus 2020 due to the full benefit of consolidated production from Sabodala-Massawa and Wahgnion. And the strong operational performances, most notably at Ity and Houndé, while the group all-in sustaining costs have remained fairly flat. Moving to Slide 27. Production at Sabodala-Massawa increased in the third quarter of 2021 compared to the previous quarter, mainly due to the good grades being mined in the Sofia mine pit at Massawa. Thanks to the good progress made on the Phase 1 upgrades at Sabodala, we are progressively able to feed higher grades through the plant while maintaining throughput and recovery efficiencies. Total tonnes mined also increased due to a high proportion of oxide material mined in the Sofia North pit and good productivity of shovels and excavators, all of which contributed to improved mining and processing unit costs during the quarter. Mining in the Sabodala pit was recommenced in the quarter in order to progress the waste stripping program for future years or production. Despite these improvements in all-in sustaining cost per ounce increased slightly during the quarter mainly due to an increase in the strip ratio associated with the waste stripping into north and our highest sustaining capital spend, which was mainly related to the purchase of additional mining equipment. Given its strong performance year-to-date, full year 2021 production is well positioned to be near the top end of guidance. The Sofia mine and Sofia North pits are expected to continue to contribute the majority of all mines for the rest of the year, while waste extraction at Sofia North and Sabodala pit will continue. Advanced grade control drilling is being undertaken at present at the Massawa, Senegal pit along replacement sterilization and push clearing activity in order to be ready for mining next year. On Slide 28, I would like to provide an update on the progress of the CIL plant upgrades at Sabodala-Massawa. We are attracting slightly ahead of schedule for completion of Phase 1 by the end of the year with most packages going through commissioning. The gravity circuit will be the last package commission in early December. The upgrades will allow us to process more of the high grade 3 million Massawa ore through the Sabodala processing plant. The definitive feasibility study for Phase II is well underway with early works focused on derisking the project schedule, including additional engineering design and procurement of long lead equipment. Following successful exploration drilling, resource updates are expected to be published in quarter 4 and will be incorporated into the study, which is scheduled to be published in early 2022. On Slide 29, you can see the photographic evidence of progress on Phase 1. The picture at the top left shows the additional electrowinning cell, while the top right picture is of the carbon regeneration building and elution tank. The bottom left picture shows a different view of the carbon regeneration and area tanks. Lastly, the bottom right picture shows the top of the additional leach tank. On Slide 30, production at Houndé is on track to be near the top end of guidance, thanks in large part to the success of Kari Pump. Better-than-expected mining productivity during the prescribing phase and some positive resource reconciliation in high-grade zones have reset production to help lower all-in sustaining costs. Total tonnes mined increased marginally, but the start-up of Kari West and continued waste stripping at Kari Pump and Vindaloo mining. Ore tonnes mined decreased significantly as scheduled to limit mining as a flat, if you can carry up oxide ore during the rainy season. We focus on pre-stripping of the Kari Pump Phase 2 pit. [indiscernible] increased slightly and were sourced from Kari Pump and Vindaloo center pit and supplemented by stockpiles of Kari Pump built up during the prior quarters. Overall, slightly lower grades resulted in lower production quarter-on-quarter. All-in sustaining costs increased due to a combination of drawing down stockpiles in quarter 3 compared to building stockpiles in quarter 2 and increased capital associated with waste stripping. Moving to Ity on Slide 31, where we have also had a very strong year-to-date. Production is on track to be near the top end of guidance. Strong performance has been down to a combination of higher throughput grade and higher recoveries based on ceding more packet high-grade ore rather than a semi refractory per high-grade ore, which has a low table. The mine has also benefited from details of the -- and simplification of the ore stockpiling and blending arrangements, coupled with the use of a mobile crusher and power screen to create a more homogenous oxide product, which is factor the surge as opposed to the main draw crusher and which allows us to get the higher throughputs that we've been achieving. During quarter 3, production decreased as guided due to the lower average process save and tonnes of ore mine as we focus on stripping activities back to Ity and Colline Sud pit, all was mainly sourced from Bakatouo and Daapleu as well as the heap stockpile supplemented by all from the Ity and Colline Sud pit. We started mining at Le Plaque during the quarter and expect to start feeding ore from there during quarter 4, which would contribute some higher grades and increased our blending optionality. All-in sustaining cost per ounce increased due to much lower ounces sold compared to the previous period, despite lower operating and capital costs, but through the drawdown of stockpiles during the main season, which also has a negative impact. Moving on to Slide 32. At Boungou, production remained in line with the previous quarter as the greater throughput and recovery rates were offset by lower grades. Total tonnes mined decreased in quarter 3 following the accelerated mining activity in the first half of the year in order to catch up on the waste mining shortfall from 2020. The focus was on ore mining in the lower-grade Phase 2 of the West pit and waste stripping in the East pit and Phase 2 of the West pit. All-in sustaining cost per ounce decreased compared to the previous quarter due to the decrease in sustaining capital resulting from less stripping at the West pit and a decrease in unit mining and processing costs due to shorter haul associated with the mere Phase 2 stripping and increased throughput. Houndé is expected to achieve its full year 2021 production guidance, which would mark a good year following the mines restart. On Slide 33, at Mana, production for 2021 is well positioned to be near the top end of guidance on account of maintaining a similar branding profile of fresh ore from both the one open pit and Siou underground. Total open pit tonnes mined decreased compared to the previous period as [ Wona ] South stage 2 and 3 pits merged into a single bit of debt. With the strip ratio progressively decreasing through to the planned end of mining by mid-2022. Total underground tonnes of ore mine decreased as a result of a lower contribution from development matings as the mine is now largely developed, which was offset by a higher contribution of soy production. All-in sustaining costs increased slightly due to higher processing maintenance costs and much lower pre strip waste capitalization compared to the previous period, though offset by a buildup of ore on stockpile. In the last quarter of 2021, production will continue at sea underground mine with progressively lower development, which will be offset by commencement of decline development from the new Wahgnion underground. Open-pit mining activities continue to wind down through to completion by the first half of 2020. Moving to Slide 34 now, which is also on track to achieve full year guidance. Production decreased during the quarter as lower new throughput and lower recovery rates resulted from processing a higher proportion of pressure material, with less high most content oxides processed during the wet season to minimize plant blockages. Both total tonnes and all tonnes mined decreased in quarter 3 due to the impact of the wet season and the increased focus on waste stripping, all were sourced from Nogbele North, Nogbele South and Fourkoura pits. All-in sustaining cost per ounce increased compared to the previous quarter, mainly due to higher unit mining and processing costs and continued focus on TSF construction and less ounces sold in the period. Turning to Slide 35. At Karma, we are well positioned to meet full year production guidance as well. During the quarter, production decreased due to the lower average grade as well as the expected lower recovery rates, which resulted from the higher proportion of high copper and carbon content or from the -- that was stacked from the GG1 pit. The all-in sustaining cost per ounce increased, despite lower mining costs due to less ounces sold compared to the previous quarter. Looking forward, mining activity will continue to focus on GG1 pit in the last quarter of 2021, supplemented by ore from the Rambo pit. Overall, quarter 3 was another strong and consistent quarter across all of our operations, despite the wet season, where we continue to improve our performance through better planning and mining sequence. As a group, we are well positioned to beat our full year production guidance and retail all-in sustaining cost. As Sebastien mentioned, this will be the ninth year in a row that we've met our guidance, which is something that we are incredibly proud of and is a testament to the quality of our assets and the strength we have. And with that, I'll pass back to you, Sebastien.
Thank you, Mark. Before we close, I just wanted to reiterate that our business remains resilient and is on track to deliver its ninth consecutive year of meeting guidance, as mentioned again, Mark. It is this ability to consistently deliver on what we say we are going to deliver on across all aspects of our business that has granted us a strong social license to operate, and it is why we believe we are a trusted partner to all our stakeholders. Our resilience as a business is what also enables us to continue to invest in organic growth through our successful exploration program and our exciting development projects opportunities while ensuring we are able to continue to return capital to shareholders over and above our guided minimum. Before we move on to questions, you can see our key upcoming catalysts listed here, which we have described throughout the presentation. Interestingly, this call is made through multiple locations. I'm calling from Ouagadougou in Burkina Faso, where I will be meeting the Prime Minister tomorrow and after 2 days of Sabodala. Mark is calling from Ity in Cote d’Ivoire. And Joanna just came back to London after 3 days at Sabodala. This is not a sign of traveling arrangements easing and reopening after 2 years of COVID. This is what we do on a continuous basis, including during the COVID and lockdown period. Being on the ground with our host countries and at our mine sites is how we've been growing this incredible platform in West Africa and that we will continue to develop irrespective of COVID or security perceived restrictions. On that closing note, I would like to thank our team once again for their hard work this quarter and look forward to presenting our results at year-end. With that, I would like to thank you all for dialing in and open the line up to questions.
[Operator Instructions] The first question is from the line of Ovais Habib from Scotiabank.
Congrats, Sebastien and the Endeavour team on a solid quarter and a clean beat, despite the rainy is. Just a couple of questions from me. Starting off year-to-date, you -- Endeavour has produced around 1.14 million ounces and really achieving the top end of guidance implies about Q4 production of at least 350,000 ounces of gold. Now you produced 380,000 ounces in Q3, about 409,000 in Q2. Now Q4 is typically Endeavour's strongest quarter. Should we expect Q4 to be around the Q2 level? Any kind of color you can provide on that?
Thanks, Ovais. I knew you would ask the question. I think what we safely said is, we are on track to reach the top and potentially, obviously, beat the upper end of the production guidance for the year. I think that there are a lot of work going on, and as you know, we are embarking in a strong capital investments in '22 and '23. So I would simply say that we will be on track in Q4 with similar numbers as Q3 and Q2 -- in between Q3 and Q2. The objective is not to overshoot in terms of production. There is a lot of work to be done. There are also a lot of work to be done at some mine site in order to open up new deposits and do some pushbacks to prepare for '22 and '23. So I think what we want is to be consistent and make sure that we prepare properly for '22 and '23.
Sounds good, Sebastien. And then just based on that in terms of sustaining capital, now -- how do you see sustaining capital kind of going into Q4? Is it expected to decline quarter-over-quarter as most of your stripping campaigns for the year are complete or about to be complete? Essentially, just trying to gauge the expected free cash flow for Q4.
I would say that the I think we've demonstrated that. If you put on-site, some specific one-off items on taxes and so on, which we paid mainly in Q2. What we're trying is to be consistent at current gold price environment in getting around the $150 million to $200 million of net free cash for the business. So that's what we will be again trying to target, ensuring that we prepare properly '22 and '23. But in terms of sustaining capital, we will be in line with around what we had in Q3. There were some big capital that we have done in Q1 and Q2, but as I said, I want to make sure that we do prepare properly also '22 and '23.
And just a final question for me. In regards to the FTSE 100 inclusion or potential inclusion, I believe that's based on market cap. On that end, are you already above the cutoff mark? Or where is that spend?
Say that again, sorry.
In regards to the FTSE 100 inclusion, I believe that's on -- based on the market cap of the company, are you already above the cutoff mark?
So the way it works is, you need -- there are quarterly reviews, I mean, for the FTSE 100 inclusion. When you are below -- I mean, in the top 90, you are automatically included in the indices. If you are between 90 and 100, then it depends on how long and how stable you've been into a certain period for a certain period into this 90 to 100. If we look at the last few days based on the increased share price and on the back of gold price, we are currently just below 100. So we're now into the 90 to 100 top companies in the FTSE. So it will really depend on how things evolve over the next, I would say, next 3 to 4 months to see whether we're able to either get into the top 90 or remain on a sustainable basis in terms of number of days within this 90, 100 to be able to get included into it. So we're getting there, and I think that we don't have any rush. We're just pleased to see that progressively. Shareholders and investors are recognizing the strong quality of the business that we've been developing, in particular, after the successful integration of Sabodala, Teranga and SEMAFO.
The next question is from the line of Dan Shaw from Morgan Stanley.
Just one question for me. Another strong performance from an operational standpoint, and you're flagging some upside risk to the guidance. Can you just outline from your perspective, what the main factors have been driving that outperformance relative to perhaps your budget assumptions? And are these things that can potentially carry on over into 2022? Or are they more one-off in nature?
Sure. Well, I think that as we tried to highlight is, we've been doing a stronger Q3 compared to the budget we expected. Usually, Q3 has some risk because of the rainy season. I think this year was well prepared, but we had some concern on some of the recently acquired assets. But I must say that there was a strong production at Sabodala-Massawa and also strong production at Houndé, which allowed us to have this stronger Q3 than initially anticipated. So that's a good news. The 2 main factors, I mean, for those increased production, in particular, Sabodala and Houndé, we're clearly the higher grades that we are getting from both Kari Pump, Houndé and from Sofia for Sabodala-Massawa. So Mark, do you want to comment on top of that? But overall, very pleased with the Q3 and going very strongly into Q4.
Yes, sure. I guess there's a couple of factors. So for example, at Ity, with what we were doing through the search feeder being able to sustain a very good throughput in the processing plant above what we had targeted. And as Sebastien mentioned, to be able to sustain that through the wet season was something that we were particularly proud of. For Houndé, the Kari Pump has performed well. And for Sabodala, the Sofia has performed well. And then Mana has been very, very consistent through both the South and the underground. That would be the main contribution to the strong performance.
The next question is from the line of Don DeMarco from National Bank Financial.
Congratulations on a great quarter. Just a couple of questions for me. First of all, on your share buybacks, do you plan to maintain these? Or was this more of a tactical move recognizing at a time when share prices were lower?
Thanks, Don. Well, no, I think we -- the way we're looking at it is really through the layers of capital allocation. So we see today that I mean we believe that we are still strongly undervalued.
Don, as Sebastien is just reconnecting, perhaps I can jump in here. So what Sebastien was saying was that we're looking at the share buybacks as part of our capital allocation strategy and ultimately, it's competing against other investments in our business. So as long as we continue to see a strong return that's competing with the 20% IRRs that we're seeing on projects, we can continue to buyback. As you would have seen within our Q3 results that we did about $35 million in Q3 alone and $94 million for the year-to-date.
Yes. Okay. Maybe I'll just give it a second to see if Sebastien reconnects otherwise I'll continue with my next question.
Perfect. I mean the team with Mark and Joanna are also available to take questions. So given he's in [indiscernible] suggest we continue and Sebastien will join us as soon as he can.
Okay. Sure. Well, with that, so we have the Sabodala DFS completed next month, as was indicated, per guidance, we're modeling nonsustaining CapEx increasing into Q4, we'd expect this to continue into 2022. Two questions then. For Phase 2, can you remind me of any potential scope changes that we might expect versus the previous Teranga study? And inflation has been topical across the industry, do you have any preliminary comments on inflation pressures as you're preparing this DFS?
Sure. So on the Massawa Phase 2, we run many trade-off studies and ultimately, decided that the DFS route was the best one. Perhaps, Mark, if you can comment more on what we're seeing on the project side?
Yes. So it is too early to give any sort of hard numbers on any inflationary impacts, though we certainly know that there will be just some of the indications on steel price and shipping costs and a few other aspects. In terms of -- from a state perspective, probably one area that we're really focusing on was just looking at how we deal with the transitional -- started at the top of the pit you've got oxide or free milling ore and then you've got the full year refractory, but then there's zones that alter between the different lenses of the ore bodies, but also a different debt that will be transitional in nature. So we've been looking at how we would best do that, which is most likely through the flotation circuit and then the folk tail going to the CIL plant. So that's been probably the main difference, if you like, to the Teranga study.
Sorry, I apologize. My line was cut off.
No problem, Sebastien. That's okay. I've asked my 2 questions. I'll just pass it off to the next person. Congrats again on the quarter.
Thank you, Don.
The next question is from the line of Justin Stevens with PI Financial.
Congratulations on a good quarter. Obviously, it's nice to see, despite the rainy season with everything is ticking along well. Most of what I was looking for has already asked and answered. The only thing I was just wondering if you could give us -- obviously, with the DFS for Fetekro and Kalana coming down the pipe, what's the sort of rough timeline you'd expect in terms of permitting before you'd be looking to potentially make a construction decision once the studies are in hand?
Sure. Justin, well, I think on both projects, whether Fetekro or BIOX plan for Sabodala-Massawa, we do have all the licenses in place. So it's now just about a decision for construction, which is required, which will be made on the back of the publication of the feasibility studies. Both feasibility studies should be completed by year-end, beginning of next year. So again, we'd expect a construction decision for both projects sometime in Q1. And it's about an 18-month construction period for those projects.
Great. And can you remind me about Kalana as well?
So Kalana, we've been waiting, I mean, to see the DFS for Kalana. But what we said is that we would build only 2 projects in parallel at the same time. Right now -- and again, providing there is no changes during the feasibility studies release, we clearly see the BIOX for Sabodala-Massawa and Fetekro to be stronger projects in the short term than Kalana, which is somehow good because then it will give more time for Kalana to do more exploration and be able to grow the project. If you look at the pre-feasibility study for Kalana, we've been looking at something which is more around 150,000 in annual production for 10 years. While we are looking for projects, I would say, that are significantly above 200,000 ounce annual production per year, which is the case of Fetekro and obviously, the Sabodala-Massawa project, which is critical for bringing Sabodala-Massawa into Tier 1 territories. So yes, I would say that without having yet the DFS, I'm pretty convinced that the outcome would be construction decision on the back of DFS for Sabodala-Massawa and for Fetekro and give more time for Kalana in order to continue to build the pipeline so that Kalana would come in the rest of the pipeline in 2 or 3 years down the road once the further exploration is done and that we're able to continue to grow the kind of project.
Got it. That makes sense. And yes, just to just to confirm there, you'd be happy building, say -- like based on priorities and how the numbers look. But you'd be happy building Sabodala Phase 2 and a greenfield project in tandem, obviously, as long as the gold price hangs in where it is.
Yes, exactly. I mean we -- I mean, as a team, we feel comfortable in running both projects in parallel, in particular, because you've got one which is brownfield with already a lot of the infrastructure and the other one being a complete greenfield, but a complete greenfield in a country where we had already 2 constructions with Agbaou and Ity done. So we know extremely well Cote d’Ivoire, the environment. So yes, we feel comfortable in building those 2 projects in Berlin.
The next question is from the line of Anita Soni from CIBC World Markets.
Most of my questions have been asked and answered. I just wanted to ask a little bit more about cost expectations going into next year. Could you talk -- and I noticed a time you had talked about some of the cost being at the higher end because of security and protocols there. Could you specifically talk about cost pressures at Burkina. And then also just review some of the cost pressures that you have across the operations?
Sure. Well, I think the cost, I mean, is really a function of the grade and the throughput for the different mines. So we've got, I would say, a pretty strong visibility on those for the next few years with the life of mine plan. So what we are monitoring is really the additional inflation pressure that we would see on some of the mines linked to the supply chain. And the good thing is that over the last 18 months, we've been able to consolidate and renegotiate a lot of the key contracts, thanks to new volumes that we added with the SEMAFO and the Teranga acquisition. We had some very strong and positive outcome of all those negotiations, including the most recent one that we've done between June and September. Being able to through that ensure that we would have on current prices and limited inflation cost on our cost base for '22 and for some of those key commodities until '23 and '24. So I feel pretty comfortable for the time being. Given the strong contracts that we have that we shouldn't see any significant impact of inflationary cost for '22 and '23. And in fact, I see still further opportunities for us to continue to improve our cost structure base, in particular with improvement at a number of mine sites. I'll just give an example, but one we acquired from Teranga, there was about 70, 72 expatriate on site. We're now down to about 50 because we've got a very strong program of growing local talent. Taking out 25 expatriates, that's $2 million, $3 million off the bottom line that you're adding and simply by growing local talent, and this gives you a lot of leverage to absorb any small inflation on some of the other costs. So overall, feel pretty strong despite the inflationary theme around limited impact on our cost for 2023.
And then just perhaps a question for yourself or Martino. When you would do the providing guidance for 2022, 2023?
So we usually do that in the third week of January, around the third week of January. Yes.
The next question is from the line of [indiscernible] from Amundi.
I have 2 questions about the investment activities of the firm. The first one is, I read about the initial CapEx of 2 greenfield projects and has the initial CapEx been deployed? Or what's the timeline for the CapEx deployment?
Sure. So the 2 projects that we're talking about are Fetekro -- the greenfield Fetekro in Côte d'Ivoire and Sabodala-Massawa expansion in Senegal. Those 2 projects, we expect to complete the feasibility study by year-end. So the construction decision should occur in the beginning of Q1. So no CapEx has been deployed so far on those 2 projects and are expected to start once construction decision is taken.
Okay. And my second question is, since the company leverage is so low and what's the company's future strategy? I mean would the management continue to look for M&A opportunities? Or what's your target for the maximum leverage?
Yes. So as part of our capital allocation strategy that we presented to the market during our London listing in June -- back in June. The key message around capital allocation was that we don't want to go back to above 0.5x net debt to EBITDA in terms of leverage. So we're currently sitting at above 0, and we expect that strong cash flow in Q4 will put us in a net cash position territory by year-end. And that's what we want to maintain as long as possible. So the objective is even during the construction period of those 2 projects in '22, '23 is not to go at any point over 0.5x net debt to EBITDA.
Okay. 1.5x, right?
0.5.
0.5. Okay. What's the covenant of the leverage?
The covenant is at 3x EBITDA. So we've got ample room. So it's really, I would say, a strategic decision of not leveraging more of the business, ensuring that we are able to maintain a very strong discipline and more going towards actuating a minimum net cash position of $250 million. And that's really because we believe that whatever the gold price environment, we want to have a strong balance sheet to ensure that we are able to continue to deploy on exploration and on building new projects, despite a lower gold price environment.
That will conclude today's Q&A session. I would now like to turn the call back to Martino De Ciccio for any additional or closing remarks.
Thank you, everyone, for joining our call today. That's all the time we have left, but we remain available for further questions by call or by email. Thank you.
And that will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.