Iamgold Corp Q3 FY2023 Earnings Call

Thank you for standing by. This is the conference operator. Welcome to the IAMGOLD Third Quarter 2023 Operating and Financial Results Conference Call and Webcast. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. At this time, I'd like to turn the conference over to Graeme Jennings, VP, Investor Relations and Corporate Communications for IAMGOLD. Please go ahead, Mr. Jennings.

Thank you, operator, and welcome everyone to our call this morning. Joining me today on the call are Renaud Adams, President and Chief Executive Officer; Maarten Theunissen, Chief Financial Officer; Bruno Lemelin, Chief Operating Officer; Tim Bradburn, Senior Vice President, General Counsel and Corporate Secretary, and Jerzy Orzechowski, Executive Project Director, Cote Gold. Before we begin, we are joined today from IAMGOLD’s Toronto office, which is located on Treaty 13 territory on the traditional lands of many nations including the Mississauga of the Credit, the Anishinaabe, Chippewa, Haudenosaunee, and the Wendat peoples. At IAMGOLD, we believe respecting and upholding indigenous rights is founded upon relationships that foster trust, transparency, and mutual respect. Please note that our remarks on this call will include forward-looking statements and refer to non-IFRS measures. We encourage you to refer to the cautionary statements and disclosures on non-IFRS measures, including the presentation and the reconciliations of these measures in our most recent MD&A, each under the heading non-GAAP financial measures. With respect to the technical information to be discussed, please refer to the information in the presentation under the heading Qualified Person and Technical Information. The slides referenced on this call can be viewed on our website. I'll now turn the call over to our President and CEO, Renaud Adams.

Thank you, Graeme, and good morning, everyone, and thank you for joining us today. This is really an exciting time for IAMGOLD. Over the summer, we saw the Cote Gold project make significant strides to where it is now, with our owner's team taking over the project, the mobilization of construction teams, and pre-commissioning activities ramping up towards production early next year. As we approach a production start at Cote, our intention is laser-focused on managing the ramp-up of the operation, with the goal in mind to make Cote one of the most successful large-scale mining start-ups to date in our industry. The importance of Cote Gold to IAMGOLD is clear. This is a project that is critical for the repositioning of this company. Once operational, IAMGOLD will have a higher production base, lower cost profile, with a strong foundation and long life of cash flow generations and growth opportunities in Canada. Turning to the quarter itself, I'm proud of the work that was achieved this year, with attributable production from continuing operations of 329,000 ounces, which puts the company well on track to meet its annual production guidance of 410,000 to 470,000 ounces. We continue to see the resiliency and professionalism of our Essakane team, with the mine on track for guidance this year despite the complexities within the region. At Westwood, our team's efforts to rebuild the mine underground are beginning to show key improvement. We will walk through the quarterly operating results in more detail in a moment, but I want to be clear that our short-term goals for IAMGOLD are the following: Bring Cote online with a focus on achieving a steady and sustainable ramp-up of operations. Second, manage operations at Essakane and Westwood with a focus on improving profitability while ensuring the safety of people and the community in which we operate. In the longer term, our goal remains that we want to become a low-cost, high-margin intermediate gold producer with a strong operating base in Canada. Financially, we will prioritize returning our 70% position in Cote with our partner, Sumitomo, as well as use our cash flows to optimize our balance sheet and ensure the company has a more efficient and balanced capital structure. With that, we will now dive into the operating and financial results and highlights for the quarter. Starting with health and safety, the company has seen an improving trend year-over-year, with the days away restricted transfer duty rate of 0.36 and the total recordable injury rate of 0.66. This is all based on 200,000 hours worked. Ensuring all hard fleets and contractors go home safely is always a primary focus for our income. As we like to say, every gold ounce produced must be done safely, and our goal continues to be zero-harm. Zero-harm for the people, but also the places where we operate. On production, in the third quarter, the company produced 109,000 ounces of gold on an attributable basis, slightly higher than the previous quarter, bringing our year-to-date production to 329,000 ounces. The production results were driven by Essakane performing effectively to plan despite continued pressures on the supply chain and an increase in tons from recently rehabilitated underground at Westwood. Despite these achievements, the third quarter saw a further increase in costs, with IAMGOLD reporting third quarter cash costs of $1,400 an ounce sold and an all-in sustaining cost of $1,975 an ounce. On guidance, this brings our year-to-date cash costs to $1,288 an ounce and an all-in sustaining cost to $1,803 an ounce, sitting above our prior guidance targets, which you can see here on the bottom. As a result, we have revised our cost guidance higher, with cash costs now forecast to be between $1,250 and $1,325 an ounce, and all-in sustaining costs to be between $1,750 and $1,825 an ounce. This increase in cost trend and forecast is due to continued cost pressures at Essakane resulting from the security situation, which we will elaborate on further. Furthermore, we have seen sustained elevated prices from the recent inflationary period, and we are now seeing some signs that prices are beginning to ease. However, the rate of easing does not match the pace of increase. Looking at our outer guidance rotations, we have reduced our sustaining capital forecast for Essakane and Westwood. For Essakane, if you will recall, in the first quarter, we were unable to complete the planned stripping program due to supply chain issues, which was rectified in the second quarter when the stripping program was back in line with the plan. This last quarter, we were able to start to recoup the shortfall from Q1. However, it does not appear we will be able to do so in time for the calendar year-end. The spending will continue in 2024 in support of our 2024-25 production plan. Likewise, at Westwood, we have reduced our sustaining capital as a result of increased visibility into end-of-year underground development and rehabilitation rates. With that, I will pass the call over to our CFO to walk us through our financial results and position. Maarten?

Thank you, Renaud, and good morning, everyone. Looking at our Q3 financials, revenues from continuing operations totaled $224.5 million from sales of 116,000 ounces at an average realized price of $1,937 per ounce. Adjusted EBITDA from continuing operations was $57.8 million for the quarter, translating to an adjusted loss per share of $0.01. In terms of our financial position, IAMGOLD ended the quarter with cash equivalents of $548.9 million and a fully undrawn credit facility equating to total liquidity of approximately $1 billion. As noted in our MD&A, the company entered into a one-year extension of its credit facility yesterday, extending the maturity to January 31, 2026, from January 31, 2025. As part of the extension, the credit facility was reduced or right-sized to $425 million based on the company's requirement for a senior revolving facility on its overall business. The extension allows for the credit facility to be available as non-current during 2024 should we require additional liquidity when Cote is commissioned and ramping up. We note that within cash and cash equivalents, $70.68 million was held by Cote Gold and $54.6 million was held by Essakane. The company declared a dividend from Essakane of $120 million in the second quarter, which was received in the third quarter, net of minority interest and withholding taxes. The company has to fund an estimated $325 million of the Cote project expenditures during the remainder of 2023 and into 2024 as the project is completed and commissioned and plans to use the available cash and cash equivalents, undrawn amounts under the revolving credit facility, and the remaining proceeds from the sale of the Bambouk Assets. As we look forward to 2024, the gold prepayment is coming into focus. According to the arrangement, the company has to physically deliver 150,000 ounces over the course of 2024 with a collar range of $1,700 to $2,100 per ounce on 100,000 of the gold ounces that will be delivered and the company will participate in the gold price within the collar range. The company does not participate in gold price upside with the remaining 50,000 ounces of gold ounces that we need to deliver. While the gold prepayment arrangement reduces operating cash flows in 2024, the company could potentially roll forward a portion or all of the arrangement should the need arise. And with that, I will pass the call back to Renaud. Thank you, Renaud.

Thank you, Maarten. Turning to Essakane, the mine reported third quarter attributable gold production of 84,000 ounces, bringing the year-to-date total to 264,000. This was down slightly from the 88,000 ounces produced in the second quarter on modestly lower throughput and rate. Mining activity totaled 10.6 million tons in the quarter, down from the prior quarter, as the mining fleet did not operate at full capacity during August due to disruptions in fuel supply resulting from the region's geopolitical issues, including the coup in Niger, as well as the continued challenges due to the ongoing security situation within the country. The situation improved toward the end of the quarter with the mining fleet operating at capacity during September and October. Average ore grade remained effectively flat in the quarter at 1.1 grams per ton, which is below the reserve model grade as mining activities worked through the upper benches of Phase 5 of the pit and mine ore were blended with lower grade stockpiles. We are seeing potential indications of grade improvement in the pit through September and October as activity began to advance into lower benches of Phase 5. On a cost basis, we reported cash cost of $1,370 per ounce, approximately $100 per ounce increase from the prior quarter due to higher volumes of operating waste resulting from increased strip ratio as the mine enters new phases, the impact of the security situation resulting in higher landed fuel prices, transportation and camp costs, as well as higher labor costs due to depreciation in local currency. Additionally, power generation costs increased as heavy fuel used normally was periodically substituted with more expensive light fuel to maintain operations when supply was limited. As mining activities improved into the fourth quarter, it is worth noting that at Essakane there were sufficient fuel supplies on hand to maintain normal levels of operating activity. Furthermore, IAMGOLD Essakane is expanding its fuel storage facilities by approximately 50% to mitigate the impact of potential limited fuel supplies in the future. Despite the disruptions in August, Essakane was able to increase sustaining capital expenditures quarter-over-quarter, spending $36.6 million in the third quarter in support of the 2024 and 2025 production plan. While we revised our sustaining capital expenditure downwards to $125 million following a challenging first quarter and disruptions in August, we are encouraged that the capital spending program was able to be deployed over the last two quarters. As a result, our all-in sustaining costs for the quarter were relatively high at $1,798 per ounce, reflecting the higher production costs and expanded capital program. The company continues to plan to file an updated technical report for Essakane that would also include an updated mineral reserve and mineral resources before the end of the year. Turning to Westwood, gold production was 25,000 ounces in the quarter, bringing the total production year-to-date to 65,000 ounces. This was an interesting quarter for Westwood as we saw mining rates from underground take a step up, resulting in a step down in cash costs. After the last 18 months of essentially rebuilding the underground mine, it is becoming clear that Westwood can take the next step in production and cost reduction as we exit the year. Mining activity in the third quarter totaled 310,000 tons of ore while underground contributed with 79,000 tons, which was the highest level we have seen since the reopening of the mine in 2021. This increase in underground tons is attributed to the continued progress in rehabilitation and the development of underground activities, which has led to an increase in production. The mill throughput in the third quarter was 283,000 tons, an increase from the prior quarter when the operation was impacted by early summer forest fires. The head grades increased to 2.94 grams per ton, benefiting from the increased proportion of higher-grade ore feed from underground, in addition to the introduction of higher-grade material from the Fayolle pit. Accordingly, cash costs stepped down in the quarter to $1,506 per ounce sold, which notably includes an estimated $127 per ounce of cost related to the development incurred at the Fayolle that was expensed due to the short life of the department. Our all-in sustaining costs of $2,138 per ounce remain above the spot gold price, as the sustaining capital program continues to include development and rehabilitation work in support of the 2024-2025 production plan. We noted in our MD&A that in September, Westwood reported a major achievement of breaking even on an all-in sustaining cost basis. Looking ahead, Westwood is well on track to achieve the upper end of the 70,000 to 90,000 ounces of guidance this year. Production levels and unit costs are expected to continue to improve into the fourth quarter, benefiting from the continued advancement of underground development, providing access to more and higher-grade ores. We are really excited to see the progress at Westwood. I would also like to note that we have deferred the release of our updated life of mine plans for Westwood into 2024, as the plan needs to be optimized based on the performance of the operation now that we are able to start mining in previously closed areas of the mine. Turning to Cote Gold, I will pass the mic to our Executive Project Director in a moment to provide some highlights on the current status of the project. But first, I'd like to draw your attention to the bottom of the slide. Since the commencement of the construction of Cote Gold and up to the end of September, $2.54 billion of the planned $2.965 billion of project expenditure has been incurred, with $425 million left to be incurred on a 100% basis. The project remains in line with the budget. It is important to note that this total is for project completion, which includes modularization of initial production. Accordingly, we have noted that a portion of the project expenditures are expected to be incurred during commissioning and ramp-up next year. After accounting for the Sumitomo mandate agreement at 60.3%, the working capital and leases, IAMGOLD has the remaining funding requirement to complete Cote of $325 million. And as a reminder, IAMGOLD ended the quarter with cash and cash equivalents of approximately $549 million and total liquidity near $1 billion. Thus, the company is well positioned to fund the remainder of the construction, commissioning, and ramp-up of Cote. With that, I will hand the call over to Jerzy.

Thank you, Renaud. The third quarter once again saw considerable progress, with great advancements in construction. What was most noticeable was the change in tone in the comeback as the activity began to shift from major construction to finalization, pre-commissioning, and commissioning. At the end of the quarter, the project was estimated to be 90.6% complete and reconstruction at approximately 92%. I believe we hit peak complexity in the quarter, and since then, we have seen our numbers decline as certain contractors are being demobilized. Despite the crowds, our construction teams, contractors, and subcontractors continue to do a great job, as evidenced by the 13.2 million hours worked with a total recordable injury frequency rate of only 0.68. Looking at the site and moving from left to right, top to bottom, we have a bird's eye view with the open-pit mining operation in the top right picture. During the third quarter, the primary earthworks contractor was demobilized, successfully handling dewatering and overburden stockpile activities to IAMGOLD operations mining teams. There are now 14 CAT793F autonomous haul trucks commissioned, and autonomous drilling began in the quarter with four pit vipers now in operation. Owner mining has progressed well with nearly 1.6 million tons mined in the third quarter. The stockpile surpassed 4 million tons at the end of October and is well on track to target a build-up of 5 million tons by the end of the year. In the top center is the southwest view of the tailing management facility. The second phase of the TMF is well on track, with the bulk of the material in place and at the target elevation with sand bedding and liner work completed. At the end of October, we now have 1 million cubic meters of water accumulated in the TMF, approaching our target of 1.1 million to 1.5 million required for our machine. Next, in the top right, is a view of the north side of the plant, the high voltage substation in the center. The primary power substation is operational, and the organization is moving through the plant distribution network to the pit for shuttle electrification. The bottom left shows the conveyors and the crushing section, which are complete with the first equipment testing that started in October. The bottom middle is grinding, where installation of the ball mill liners is complete, motors and salt plates are set, and the mill has been turned on. However, during testing, it was determined that the alignment on the ring gear of the ball mill was out of tolerance, so we have the OEM service team on-site to address the problem. Finally, the bottom right is the thickener and leach tank farm. Completion of the leach tanks is making progress following some delays. Leak testing commenced last month, and we are working through the progressive hydro-testing of this facility. Turning to the timeline, Cote Gold continues to track well to the updated project schedule, with initial production set for the first quarter of 2024. Our focus this quarter is on the foundation of the processing plant and the ramp-up of pre-commissioning and commissioning activities. We are working closely with our partners and contractors to ensure that Cote is built safely, on time, and within the current budget and scope. With that, I will turn it back to Renaud. Thank you.

Thank you, Jerzy. I would like to add that our focus is on pushing to get the first gold bar out of Cote as early as possible, while ensuring that all the necessary preparations are in place for a smooth ramp-up of the project in the first half of next year. Our goal is straightforward: we want the ramp-up of Cote to be among the most successful project starts. We hosted an analyst and investor tour at the end of last month, which showcased that we have hired people with the right experience and technical expertise for the commissioning, ramp-up, and operation of Cote. This team has done it before, and I believe we are well positioned to take the next steps of the project. Of course, when discussing the future, we need to continue to highlight Gosselin. At the end of last month, we announced the results of an additional 21 diamond drill holes at Gosselin that targeted the expansion potential of the deposit's depth, specifically below the east and west sections that had a gap between these areas. The results confirmed the extension of gold mineralization in multiple drill holes, reaching up to 20 meters vertically below the previous resource pit, over an approximate 1-kilometer strike length. The value accretive potential of Gosselin is clear. The deposit is immediately adjacent to the Cote pit, with a main resources estimate of 3.4 million ounces of indicated and another 1.7 million ounces of inferred, showing high potential to grow this resource further. Next year, as Cote ramps up production, we will continue to advance the testing of Gosselin, including metallurgical testing, along with mining and infrastructure studies in order to begin reviewing alternatives for potential inclusion of the Gosselin deposit into a future Cote Gold life-of-mine plan. Cote Gold today is a project, but we believe strongly that this is the start of a mining camp that will provide a strong foundation for sustainable development for many years to come. With that, I would like to pass the call back to the operator for the Q&A portion of the call. Operator?

Thank you. We will now begin the question-and-answer session. Our first question comes from Anita Soni with CIBC World Markets. Please go ahead.

Good morning, Renaud and team, and thanks for taking my questions. Firstly, regarding Essakane, you're talking about processing the stockpiles built up there, approximately 9.9 million tons over the life of the mine. I understand you are going to release a study on that. Could you remind me what kind of grades you would expect to see there? I know in the original heat bleach, it was likely four times as much tonnage, but at a lower grade. So I was wondering if you were going to selectively upgrade that 9.9 million tons of stockpiled material.

I'll ask Bruno to comment on that one, Anita.

Yes, the stockpile for the bleach was to be pegged between 0.4 and 0.6 grams per ton. We're currently studying the capacity to process that material to the CIL. That's the reason why we want to rejuvenate the technical report to take this into account.

Okay, but wasn't that material around 43 million tons at 0.4 grams per ton? I thought you were only taking 10 million tons of it. So I was wondering if you're going to selectively upgrade it.

I can come back to you after this call.

Yeah, I'm not sure, but the intention is to process all this material in a conventional way rather than building capacity, and only the higher-grade portions of the stockpile will be separated for processing.

Okay. Or could it be that the 43 million tons is now just 10 million tons that you've used over time? Anyway, we can take that offline. Regarding Westwood, I was just wondering about the underground mining costs. Could you tell me what they were on a unit cost basis this quarter? I did notice a significant improvement in unit costs, and I wanted to get that into my model.

Maarten?

The mining cost was about $28 per ton for the total tons before stripping and is about $90 per ton after you take that to the development tons.

So $90, is that just the underground portion?

Yes.

Okay. And then regarding the deferrals of CapEx at Westwood…

Anita, apologies. That is the total mining cost, including for the other areas. I don't have that separated right in front of me, but we can get back to you on that as well.

Okay, thank you. Regarding the deferrals of CapEx at Westwood and Essakane, would those move into 2024? I think you mentioned at Westwood there might be savings, but Essakane I'm not sure what's going to happen there considering the shortened mine life. Is there a thought that you probably won't do that stripping, or is that ultimately going to be done in 2024 and 2025?

Yeah, I think that's what we're going to be addressing. If you look at the last three years, the mine has been systematically more on a strip ratio between two and three. As we mentioned in the belt, there is an effort now to increase that in catch-up and some. So yes, you should expect ‘24 and ‘25 to show an increase and the higher strip ratio to catch-up so we could unlock further years of reserves in the mine.

Okay. What was the strip ratio like? Overall, how was it supposed to have been? And it was lower, I guess you said two to three. So it should have been more like a four or five. Is that what it is?

Yes, correct. We intend to be more in the four or five range over the next two years.

Just note that before the end of the year, we will have an updated 43-101 which includes the full life of mine plan.

Okay. All right, moving to Cote, my apologies to my colleagues, but there are a few questions I wanted to get down. Maybe this is a question for Jerzy—the CapEx guidance for the remainder of completion. I noticed it went from $825 million to $875 million up to $875 plus or minus 5%, which would imply a high end of the range now at $919 million. I'm wondering why that increase, if it is indeed an increase, and what are the components of that? Second part of that question, how should we think about, first off, what remains in 2024 to be spent, like the breakout between Q4 and then 2024 for initial capital of that $875 million? Secondly, what kind of sustaining capital are we looking at for Cote in 2024?

I think we'll pass it to Maarten for that.

Hi Anita. When we guided at the beginning of the year, we had a range, and the $875 million was the high end of that range. That amount, based on what we've spent up to the end of 2022, would have gotten us to the $2.965 billion at 100% that we presented in the technical report. Now, as of November and close to the end of the year, we are indicating that we are still trending in line with the budget of $2.965 billion, and that the $875 million gets us there. We have not just updated because we're closer to the end of the project. We still have to incur $425 million at 100% to reach the $2.965 billion target. If you look at the amount we incurred in Q3, it was $317 million, so we will continue to incur at that rate. As we get closer to 100% completion, that tapers off, and that's why we are seeing what will be incurred in Q4 at around the same level as Q3—maybe slightly lower—and then the remainder will taper off into Q1 of next year.

Okay, sustaining capital question. Can we get an idea of what it's going to look like in 2024 now?

We are working through our budgets on sustaining capital for next year. So, we are still guiding towards the technical report with adjustments for inflation, but we will provide a detailed update on production costs and sustaining capital early next year when we provide our 2024 guidance.

Okay. All right. Thank you very much. I'll leave it there.

Thank you, Anita.

Seeing none, I'll hand the call back over to Graeme Jennings for closing remarks.

Thank you very much, operator, and thank you to everyone for joining us this morning. As always, should you have any additional questions, please reach out to Renaud or myself via phone or email. Thank you all. Be safe and have a great day.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.