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Executives

Neil Woodyer – Chief Executive Officer

Christian Milau – Chief Financial Officer

Attie Roux – Chief Operating Officer

Analysts

Andrew Mikitchook – GMP Securities

Mark Bentley – MAB Trading

Nicholas Campbell – Canaccord Genuity

Endeavor Mining Corporation (OTCQX:EDVMF) Q4 2012 Earnings Call March 28, 2013 10:00 AM ET

Operator

Greetings and welcome to the Endeavor Mining Year-end 2012 Results Webcast. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder this conference is being recorded. It is now my pleasure to introduce your host Mr. Neil Woodyer, CEO of Endeavor Mining Corporation. Thank you, Mr. Woodyer, you may begin.

Neil Woodyer

Thank you operator and thank you ladies and gentlemen for joining us. With me on the phone is, Attie Roux our Chief Operating Officer and Christian Milau, our CFO. If I can take you page four to look at the 2012 recent highlights. We had a successful year delivering on performance. Nzema, Youga, and Tabakoto in total, for the full year, produced 311,000 ounces against the guidance of 282,000 to 300,000 ounces.

Our two mines that we had for the full year Nzema and Youga produced 200,000, exceeding the guidance by about 10,000 ounces. The cash costs for the year was at $701 compared to our guidance that we gave of $670 to $690.

We completed the acquisition of Avion in fourth quarter, which added the Tabakoto Mine and two very attractive projects, Houndé and Kofi. We got the mill expansion back underway very quickly after the acquisition and it’s nearly complete now and we expect to ramp it up in April.

In December, we moved into a major reorganization, restructuring program at Tabakoto as we believe it was underperforming due mainly to the lack of working capital, poor management structures, the overuse of contractors, and excessive site staffing.

Houndé is now into feasibility study with the potential to add 160,000 ounces a year in 2016. Kofi will be a major focus of our exploration in 2013. So when we look back on the Avion acquisition, we have work ahead of us bringing the cost at Tabakoto under control, but the overall assets that we acquired have a lot of potential both at the mine site itself and also in the development projects.

In addition to that, we are carrying on with the construction of Agbaou, which is proceeding on schedule. So far, we have awarded all major construction contracts and we are recently awarded a five-year contract for the mining. All those contracts are within line with the budget; and we are about 65% of our $160 million total construction budget committed.

Turning to the next page, page five and looking at the highlights for 2012. I think it’s important that we improve the transparency and the understanding of our financial performance for our shareholders and also for our government partners in West Africa. So we are providing all-in sustaining cost per ounce and all-in sustaining margins and we will also be reporting some of the key metrics on a per ounce basis.

The audited accounts for the year to December 2012, only include Tabakoto for the 75-day period after its acquisition on the 18th of October. So on a consolidated accounting basis, our gold production was at 220,000 ounces and our gold sales was 219,000 ounces.

The cash cost per ounce that we record is $767 an ounce and we generated a mine cash margin of $179 million. On an all-in sustaining cost basis, our sustaining cost was $1,077, that’s after all operating costs, royalties, sustaining capital, corporate and near-mine site exploration. And that generated an all-in sustaining margin of $130 million. Net margin was 36%.

In terms of investment, we are investing last year $106 million in new mine development and exploration and we ended the year with a positive free cash flow of $25 million. At the end of the year, we were holding 27,000 ounces of gold and approximately $45 million and $106 million of cash and we had drawn down the $200 million corporate facility.

Looking briefly a quick overview of our mines’ performance for the year and where we stand today, if you turn to page six.

Youga generated $86 million of operating cash flow last year. So strong cash generation from Youga and it continues to meet its 2013 production and cost targets. Its production guidance for this year is 75,000 to 85,000 ounces at a cash cost of $740 to $780

In the case of Nzema we had a delayed access to Adamus pits in the last quarter of last year, which led costs to increase slightly to $722 for the year compared with our guidance of $680 to $700. Access has been improving in the first quarter of the year. However, mining of the higher grade portions not anticipated into the second quarter.

This has resulted in the low-budget and cash costs are expected to be elevated slightly in 2000 and in the first quarter of 2013, before we improve them later in the year in the second quarter when we get to the higher grade material. We’ve maintained our production guidance at 100,000 ounces to 110,000 ounces. But in recognition of the Adamus situation, we have revised the cash guidance by adding $70 to $80 a tonne bringing it up to $850 to $900 an ounce, sorry at an ounce not a tonne, that would be good.

If we turn to the next page, page seven, Tabakoto in the period of the 75 days produced about 20,000 ounces at a cash cost of $1,250. In-line with standard industry accounting practice, Endeavour has changed some of the accounting definitions at the mine sites to a more prudent judgment being applied to certain expenditures, applying them with operating cost rather previously as Avion’s management doing in their presentations as capital cost.

In our view as I said, Tabakoto was underperforming due to a lack of working capital, management structures, excess staffing and contractors. In November, one month after the acquisition, we closed the corporate office in Toronto and eliminated all corporate management positions. The mine management now report directly to Endeavour’s COO and operations team in Accra

In December, we started a major cost restructuring program and we’ve had a 20% reduction in staffing levels in the first quarter of this year so far. We terminated the open pit mining contractor in January and we are now doing owner mining. We are also implementing a new cost and budgeting and mine operating systems, as the old systems that existed or where they existed were inadequate. So those improvements are taking place now with about a couple a months before that’s finished.

Looking at the overall situation and profit improvement plan that we have, we have maintained our production guidance of 135,000 ounces to 150,000 ounces for the year. But due to the time lag of implementing and realizing the benefits of some these cost reduction measures, we have increased our guidance of cost by $50 an ounce to $850 to $920 for the year.

We have seen cost improvement per ounce in January and February of this year as the program starts take into effect and we anticipate seeing further improvement as we go forward over the next few months.

Turning to page eight. This year we are talking of our production increasing from 310,000 ounces to 345,000 ounces as a result of the ramp up in April at the Tabakoto mill. The continuing profit improvement plan at Tabakoto and containing, managing costs at Youga and Nzema, the construction completion of Agbaou, with its first production in the first quarter of next year.

So our overall corporate guidance is 310,000 ounces to 345,000 ounces at a cost guidance of $840 to $880 per ounce. Using the mid-guidance and the $1,600 gold price, we expect to generate about a $160 million of all-in sustaining margin for the year. And we are in strong financial position to complete Agbaou construction, other internal growth, including Houndé over the next three to four years.

That’s the overview of where we stand and tasks we have ahead of us. So I’d like to hand over to Christian to take you through some of the numbers that make up this.

Christian Milau

Thanks, Neil. Turning to slide nine. This is the slide that probably many of you’ve seen before, but just to highlight the growth that we anticipate seeing here and particularly on the right-hand side. All of our growth there leading up to 2016 is internal growth and beyond the 2013 period of the Agbaou and the Houndé mines coming into this production profile.

And we anticipate being able to fund this through managing our cash flows and continue with cost containment plans to maximize our cash flows and I want to take you through the 2012 performance in a little more detail and also 2013 outlook.

So turning over to page 10, as Neil mentioned earlier, we’ve been looking at what investors want to see and certainly transparency has been one of the top items on the list and our all-in margin, our all-in sustaining margins is something that we’ve laid out in details, and quite a bit of detail here for you to see in our press release and our presentation.

Also, we have started to report certain metrics in gold ounces, which you will see as well and we put those in parallel with our margins here. And the second key item I think that we are looking at is our cost control and improvement plan and Neil highlighted key items and I think Attie will take you through a lot more of the detail at the Tabakoto site in particular.

So looking at this slide, on slide 10, the net operating margin from Youga, Nzema and then Tabakoto, just for the 75-days, which is the period we own them in the fourth quarter, gold revenues of $365 million, then deducting royalties and cash costs for the ounces sold, we end up with a cash margin of almost $180 million, then deducting our corporate G&A which is about 75% of the total corporate G&A, which is $17 million of EBITDA, corporate EBITDA of just over $160 million. Then we have deducted $16 million of sustaining capital and $16 million of near-mine exploration end up with an all-in sustaining margin of $130 million, which is 36% of the revenues.

And we believe this will be key for us in the future now that we have both open pit and underground mines. There will be no mixing up between the sustaining capital and the operating cost now with all in our margins. And as well for the governments, particularly as we negotiate agreements in West Africa I think it’s more appropriate to be looking at this margin with all the costs included.

And looking at the right-hand column, just want to briefly highlight here, looking at our results in gold ounces. So we’ve got revenue and production here of just over 218,000 ounces and then we’ve got a margin of about 107,000 ounces out of the 218,000 produced. And at the bottom-line, the all-in sustaining margin or the ounces left to invest in the future of our business are 78,000 ounces. So we spent 141,000 ounces of the total of 219,000 that we produced for the year to maintain and operate our three operating mines.

So where do we actually spend that? So we flip over to slide 11. You see the graph there on slide 11 on the left-hand side the large bar, $130 million of all-in sustaining margin, which is 75,000 ounces equivalent, where we invested it was a major investment about a third of that is invested on Agbaou, $40 million, then Nzema development, which includes Salman Adamus pits some road access as well.

The Tabakoto Mill expansion, Segala underground development about $14.8 million, roughly split 50:50 between the two, $13.9 million on our projects being Houndé, Nzema Sulphides and Ouaré and then almost $14 million on regional exploration and then another $5 million which makes up the rest of our corporate G&A to end up with the net free cash flow of almost $25 million.

Turning over to slide 12. We show a reconciliation of our cash for the year. We started out with a $115 million at the end of 2011. When you add in the $25 million of free cash flow, as described in the previous slide, where have we invested it? Three probably major items worth noting, we’ve tidied up the balance sheet by repaying the Banque Atlantique loan for $27.9 million, which was inherited with the Avion acquisition with cash settled all of our 2013 gold hedge positions for $17.3 million.

And we have also purchased 27,000 ounces of gold bullion for $46 million. The totals of three are almost $90 million and that’s really offset by a $100 million draw down on our debt facility, on our corporate debt facility, which tidies and cleans up our balance sheet. And then the other more minor items in the list, some money spent on working capital, interest for our loan, reclamation deposit, which is cash backing for a bond with the Ghanaian government for our EPA bond locally.

And also some proceeds from issuances of some shares on stock option exercises of $6 million. And that left us with a $106 million of cash at the end of the year, plus the gold bullion of 27,000 ounces, plus some marketable securities, which leaves us with almost $160 million of cash bullion and marketable securities at the end of the year.

Turning over to slide 13, looking at our income statement and the adjusted net earnings reconciliation for the year for 2012. We had a loss of $15 million for the year, adjusting the first two items which are non-cash non-operational items which is the unrealized gain loss on our hedge as well as the change in the fair value on our Canadian dollar warrants. We add back – we deduct $26 million.

Then we have some one-off items and one-off corporate costs which is the arbitration settlement for the BFMS case, which is a case from the Youga Mine from about four years ago. It was settled successfully and we paid off the original bills that we’re owing there. As well the acquisition cost, the $5.8 million related to the Avion acquisition, the gold reserve settlements for $1.5 million and a non-cash deferred income tax add-back of $30 million.

The 2013 gold hedge settlements of $17.3 million are one-off items and as well, we had some loss on marketable securities and a write-down of our mineral resource investment which again are non-cash items for almost $14 million which ends up with an adjusted net earnings of almost $36 million or $0.13 a share.

Turning over to slide 14, looking at our guidance for 2013 here in a little bit more detail. So for 2012, we produced around 220,000 ounces and for 2013, you can see there the range as to 310,000 ounces to 345,000 ounces. And looking at the actual cost per ounce versus prior years, royalties are in the same ballpark at around $90 an ounce. Then the cash cost as you can see have about a 10% to 12% increase to $840 to $880 for 2013.

However, that’s somewhat offset by our corporate G&A, sustaining capital and near line exploration which have stayed virtually flat for 2013 and actually results in a 30% reduction on a per ounce basis. We end up with a range of $1,055 to $1,155 per ounce for all-in sustaining cash cost guidance.

Turning over to slide 15, the forecast 2013 all-in sustaining margin, again looking at on a dollar basis as well as on a gold ounce basis, we expect to have gold revenue of $524 million, assuming a $1,600 gold price in the mid-point of our guidance range for gold production, les royalties and cash costs, we end up with cash margin of $213 million.

And then less corporate G&A, we end up with a corporate EBITDA of almost $200 million or 38% and after that, we’ve deducted the sustaining capital and near-mine exploration to end up with an all-in sustaining margin of $166 million or 32%, which is down slightly from the 36% margin in 2012.

And on a gold ounce basis on the far right side of the table, the mid-point of our gold production range of 327,500 ounces. We are left with an all-in sustaining margin of just over 100,000 ounces after paying all the cash costs and the sustaining capital in the near-mine exploration out of the produced ounces.

And then what will this leftover sustaining margin be invested in, turning over to slide 16, we have a pie chart there for you just to get a feel and I think we’ve shown this previously on our last presentation. So I won’t spend a lot of time on it. But the Nzema development and the Adamus pit access results in $29 million which includes the resettlement that’s ongoing at the Anwia-Teleku Bokazo sites.

Tabakoto development, $7 million, Tabakoto Mill expansion of $7 million, which is just about completed, Neil mentioned at the end of this month March and it is trending to be just on budget. Then there is $29 million we spent at Segala and Tabakoto underground ramp and access developments, a small amount of corporate G&A which we’ve allocated to this development activity.

106 million on Agbaou construction, $12 million on the Houndé feasibility we expect that later this year and then some regional exploration of $5 million. So the total is, about $200 million on investments, plus the sustaining and near-mine exploration, which brings us up to almost $230 million invested in the year.

Turning on to page 17, I’ll pass it over to Attie Roux.

Attie Roux

Okay, thanks, Christian. I think you could have a bit more detail on the various mines. Neil mentioned some of the data on slides six to eight, but looking for some more detail. Talking about Nzema Gold Mine in Ghana, tonnes milled for the year was 2.1 million tonnes, which generated 190,000 ounces, which was in the guidance of 102,000 to 112,000 ounces. That included 10,200 ounces of floating material.

The cash cost as Neil mentioned $722 versus the guidance of $680 to $700, slightly above the guidance and that was mainly due to the slightly higher than expected cost in quarter four due to the longer than expected period of transition into the Adamus pit area which was previously known as the Anwia pit.

That resulted in us being having a mix and clearly a mix issue and we had to close this a bit more of the material from the Salman trend which has transitioned and lowest recovery material. The mining and the processing of the material from the Adamus pit has started in the first quarter of this year and the initial material was lower grade than we expected.

But, we have started seeing some grade come through and as the year progresses, we will get into the better grade portions, especially in quarter two, three and four of this year. Neil mentioned the guidance being revised to $850 to $900 and that’s mainly due to the slow start in the Anwia Adamus pit. The production guidance remains the same at between 100,000 ounces and 110,000 ounces.

If we turn to slide 18, talking about Youga Gold Mine, tonnes milled was a record tonnes of just over 1 million tonnes for the mine, generated 91,000 ounces which was above the guidance that we provided between 85,000 ounces to 90,000 ounces. Our cash cost was modeling about the guidance, but just about per tonne.

Youga is a mine that’s now in the mature stage of its life and it had a very strong performance year, generated $86 million of operating cash flow from the mine for the year compared to the previous year, very, very good.

2013 guidance is between 75,000 ounces and 85,000 ounces at the cash cost of $740 to $780 per ounce, that’s mainly due to the decline in production, due to the grade decreasing overall on the Youga Mine with the completion of the main pit, which is the high grade pit. We mentioned ongoing cost containments and cost management processes on all the mines.

Turning to slide 19, we will be reporting on the period under our control. Tonnes milled were 150,000 ounces, 150,000 tonnes generating 20,000 ounces at a cash cost of $1,250 per ounce.

If we look at 2013, the 2013 mine budget was brought up, as the year ago budget and in-line with the Endeavor accounting standards and practices. It shows increased production in 2013, after the expansion of the Tabakoto Mill is completed and that’s very close to completion now.

So the second half of the year as production that is higher than the first half, obviously with the result of the higher throughputs and the cost-cutting measures that start taking effect in the second quarter. The Segala underground development has been restarted late last year. And in this quarter, we overcame the difficult ground conditions and the ramp development has now improved significantly in the first quarter and is expected to be advanced and developed in our gold mining to commence towards the end of the year.

Turning to slide 20. Neil mentioned some of the restructuring and reorganization initiatives that we have started at Tabakoto. I’ll mention a few and that’s exclusive. We have started with the prioritization of underground resource along with some rigorous planning on the underground mining per se.

We have also started negotiations with the underground mining contractor. They are the terms of reference so that we can’t get a longer term, more cost-effective contract from them. We have terminated the open pit mining contractor in January and we have initiated owner mining, but currently with rented or partially rented owner fleet. We will evaluate that in due course and will make a decision on the way forward.

We looked at the effective use of people and we manage to in the first tranche reduced the total workforce from close to 2000 to about 1,575 at the end of February. And we believe that once the mill expansion is complete and all the construction contractors and the owners’ staff are leaving sites, we will get the workforce down to below 1,450 as a second phase.

We start a major business systems upgrade as we need this information to deliver to run the mines properly. People need to have timely access to production and cost information to run the mine properly.

Let’s turn to page 21 continuance of the initiatives, we have embarked on a program where we have reduced reliance on the use of ad hoc contractors. All the power at Tabakoto is generated on-site with diesel-driven generators and we’ve seen a potential to reduce power consumption and power generation costs by introduction of smart switch gears and additives and what we sort of think that you can do.

We’ve started optimization of vehicles especially light vehicles, which will reduce that costs as far as fuel, repairs and maintenance concerns. On commercial and administration costs, we started looking at catering and camp management activities and the merging of the two offices to Bamako, Avion and the Endeavour office.

We also started program of reviewing the working capital with a specific focus on inventory management and VAT receivable and especially in the French countries. We also looked at the initiatives on determining the potential of joint purchasing initiatives with the other Endeavor mines which we can buy on the whole platform mines which certainly will be some benefits.

Getting on to slide 22, let’s talk about the Tabakoto Mill expansion project. We have restarted the project in the last year and started fast tracking it with the aim to get it complete in the first quarter of this year which we have managed to do. Currently, the commissioning is happening as we speak and which will start ramping up in the next week and we anticipate the mill to be on full capacity during the second quarter.

Turn to slide 23. An update on the gold project in Ivory Coast. As at the end of December we had construction committed to the 65% of the total cost and about 50% of physical installations completed. All the major contracts, including the EPCM both and the mining contracts have been finalized and signed off.

The major component deliveries have been checked and first mill is on at the moment and construction is complete and we have roughly 900 contractors on-site at the moment with a number of owners’ people as well.

The Preparations for connection into the national grid – the power grid is performing – is going on quite advanced, with the transformers are expected to delivered in July and the overhead power line contractor has mobilized the site and will start installation shortly. The mine is both at near access road from the main power route in the mine to bypass the local villagers. With tailing storage facility and water storage dams are nearing completion and the construction is proceeding very well.

We have started recruiting the operations personnel and in fact the General Manager has been recruited and he is in site already. One of the positive aspects of this project is that we have strong community support of the Agbaou village. We are feeling confident that the project will be completed on schedule.

Going to slide 24, a quick update on the Houndé Feasibility Study. All the individual studies for the feasibility are on-schedule and due for completion in the fourth quarter of this year. We have done an extensive in-fill drilling program drilling 41,000 meters to fill in the resource and to generate enough samples for the metallurgical test work.

We have some very good intersections, as you can see 74 meters at 5 grams and another 38 meters at 6 grams and if you look at the details on the net mixed ore, you can see some significant intersections. The metallurgical testing is happening at the moment and it’s well underway.

Geotechnical drilling is completed and that is full information on the design and for infrastructure construction the plan play degree and also have to identify suitable area for the storage dam construction.

The collection of environmental baseline data is ongoing and the inquiries for the environmental impact requisition has been initiated. So the project is on target or completion for the feasibility study by the fourth quarter of this year.

I think at this point, I’ll hand over back to Neil for the completion.

Neil Woodyer

Thanks, Attie. I am looking at slide 25. So I hope we’ve taken you through the results of the year with much more transparency and clarity. And our focus for 2013 is squarely on our operational improvements, the completion of expansion of the Tabakoto Mill, the reduction of costs at Tabakoto, to manage and contain the costs at Youga and Nzema and to generate about a $160 million of sustaining margin.

In addition, we should complete the construction of Agbaou and complete the final feasibility study on Houndé and be in a position to transfer the Agbaou team – construction team to Houndé in the beginning of next year. The 2013 is the year of hands on steady operational improvements, management, working capital and our cash.

That, ladies and gentlemen, finishes the formal part of our presentation. So if I could ask the operator to come back on to take us through the Q&A session. Thank you very much.

Question-and-Answer-Session

Operator

Thank you, sir. (Operator Instructions) Our first question is coming from Andrew Mikitchook from GMP Securities. Please proceed with your question.

Andrew Mikitchook – GMP Securities

Good morning. So maybe if you could just walk us through a little bit on these Q4 costs, you did provide a little bit of detail that there was a delay in getting to higher grades both at Nzema and at Youga. But the grades mined in Q4 weren’t significantly different from the rest of the year and cost in both cases went up significantly. I think you did mentioned that you experienced lower recoveries from transitional material at Nzema, but how should we think about Q4 and how would this or not extend beyond into 2013?

Neil Woodyer

Okay, Attie?

Attie Roux

I’ll answer part of the question. If you look at the mine grades, or if we look at the treated grades, sorry, at Nzema for quarter four and for the year it is higher than or it’s on target for the year but the material that we actually mined which has gone on to the top bar is lot lower grade. It is material from the Salman range which is the transition zone and it also has significantly lower recovery because of the semi-refractiveness of this material.

So, we continue treating material from the stockpile, which was higher grade and slightly better recovery and that has – this material that has been treated in the first quarter and we have seen the lower ounces yield in the first two months of the first quarter now.

I am happy to say that the March month is looking significantly better. Now that we have gone through this slug of material that was sitting on the stockpile and we’re also now mining a better mix of Salman and Adamus material. We have in the last periods of last year we were mining the higher proportion of the lower recovery transition materials.

Andrew Mikitchook – GMP Securities

Okay and so that the answer there is as well, that there was some sort of a inventory lag or the average inventory costs were coming up as you added this low grade material and then you were pulling it out of the inventory at a higher cost than you actually mined it? Is it just an accounting issue that there is a slight lag in between grades milled and cost reported?

Attie Roux

Yes, it’s a better, if this is off of the effective – you are slightly out of sequence with the mining and the extra processing for having a very good stockpile at one stage.

Andrew Mikitchook – GMP Securities

Great.

Attie Roux

The other is obviously the – moving into the Anwia area or the Adamus area, the cost is going up because it’s a lot further to calculation period and we have the lower grade from that area during the initial stages. So it’s a bit a double effect.

Andrew Mikitchook – GMP Securities

Okay. And then at Youga, again, we observe the same thing that the grades weren’t significantly different, but the costs went up significantly. How should we think about that?

Attie Roux

Yeah, Youga has got the particular problem that it is now entering the last stages of its life. The pit, the main pit that had higher grade material is slowly getting worked out and it will be finished by the end of this year. So we are seeing an overall decrease in grade for 2013 and that’s why the ounce so far has been dropped on the mine plan and we expect it to happen. It was always there, but that always these ounces and the cost stay in the – cut marginally (inaudible) dollars per ounce.

Neil Woodyer

We did also, Andrew, have an exceptional performance bonus as well they had a very good year that was put through in quarter four which wasn’t spread over the year. So there will be an impact from that. And we are seeing in the first quarter of this year and they have only done mines, but we are seeing them tracking right plan for costs based on the guidance we’ve given you.

Andrew Mikitchook – GMP Securities

So looking at the future, the exceptional, on a dollars per tonne basis, the increase in Q4 doesn’t automatically extend itself into 2013?

Neil Woodyer

No.

Attie Roux

No.

Andrew Mikitchook – GMP Securities

Okay. And the Agbaou, how quickly two questions right, the remaining money is it evenly spent over the year or is that chunky? And then next year when you start the ramp up, is it, what are you budgeting in terms of timeline to get to the full capacity. I am assuming it’s at least six months?

Christian Milau

I’ll take the first part of that, at anyway on the cash flow you are asking about Andrew. We are certainly seeing, I think, in Q2 and Q3 is where the biggest amount of cash flow and spend is happening.

There has been a lot of commitment and that’s sort of just lagging now with the actual invoices and the spending coming. But you will be seeing a much higher spend rate over the next sort of six months. And then in the Q4, it sort of falls off obviously and there is a residual amount will be going through in 2014. But it’s certainly the next sort of four, five, six months, you will see the bulk of the spend coming or sort of the $106 million projected for this year.

Attie Roux

Yeah, if you look at the committed money, this is actual spent up to now, it’s been about half of the committed. That will – let us see that will ramp up really quickly now for the next six months period. As the material and the big, small items that they will be invoiced, up to now we’ve only paid partial payments to secure.

During the last quarter of this year and into the first quarter of next year, we will see a slowdown as we – mainly on things like retention payments and so forth with certain guarantees and so on. And then, the majority of the operating costs will start getting incurred in the last quarter of this year but it will be budgeted in the current budget and then by the time, we start operating early in the New Year, we will be basically on a new constrained cost budget.

Andrew Mikitchook – GMP Securities

Great and then the ramp up in 2014 what’s the conceptual plan for timeline?

Attie Roux

We don’t believe in long ramp ups. When we start up early in the New Year, we will commission and if the base ramps we will discuss production. We will take – I would guess a good – maybe the first quarter to get right up to full production but it won’t be more than that.

Andrew Mikitchook – GMP Securities

Okay. I think there are lots of questions. So I’ll let other people ask some. Thank you very much for your help.

Neil Woodyer

Thanks, Andrew.

Operator

(Operator Instructions) Our next question is coming from Mark Bentley from MAB Trading. Please proceed with your question,

Mark Bentley – MAB Trading

Good afternoon gentlemen. I am Mark Bentley speaking. I am a shareholder in the company. I have questions in three areas. The first relates to the overall sustaining costs and taxes. As I understand, 2013 is a bit of a transition year, your big cost reduction programs, plans and all the factors that you’ve described, therefore I would expect the exit rate of sustaining costs to be lower than the rate we have at present. What sort of level of sustaining, total sustaining costs are you targeting approaching the end of the year assuming constant labor rates and raw materials costs?

Christian Milau

You are asking on a – it’s Christian here, as you are asking on the dollar per ounce basis I think probably earning more towards the bottom end of the range that we provided, where I think you will see in the first part of the year will be towards the upper end of the range or maybe a little higher to start to Q1 certainly has the pre-mill expansion period where we are not getting the benefits of the sort of economies of scale of having the larger mill and we are doing a lot of these cost reduction programs in Q1 and leading into Q2. So, probably not a bad idea to think of it is being closer to the bottom end later in the year and the upper end or a little above maybe in the early part of the year.

Mark Bentley – MAB Trading

Okay. So on a – if one has to look at things on a long-term basis, looking at the lower end of the range you are currently quoting it’s realistic again seeing levels been in close?

Christian Milau

That’s correct.

Mark Bentley – MAB Trading

Thank you. Again, looking at the value, the other factor that of course has to be taken out of earnings is taxation which clearly varies across the country, but just on an average basis, what sort of level of tax rates would I be assuming?

Christian Milau

Well, certainly at Youga and Burkina, we are fully taxable at 17.5% and so a fair assumption going forward there. For this year, really we don’t expect to pay a lot of corporate income taxes in our other two mines in Ghana and Mali due to capital allowances and historical losses.

Mark Bentley – MAB Trading

But look in front of the forward, what as those operations continue, what sort of average rate should I be assuming going forward rather than specifically this year?

Christian Milau

Okay, okay, in Mali, 30% will be the tax rate – corporate tax rate and then in Ghana, they’ve increased in this past year up to 35%.

Mark Bentley – MAB Trading

Okay, thank you. My next question relates specifically to the Tabakoto operations. As I understand from the information provided, development is now back on track at the Segala underground operation. I just want to clarify once that new mine area comes on stream will that be additional to the levels of production coming from the Tabakoto underground operations, thus leading to an increase in overall production? Or will it be making up the depletion that’s expected to occur in the current operations?

Attie Roux

I’ll take that Christian. Yeah, the Segala underground operations will be additional to the Tabakoto underground operations. Tabakoto on its own cannot supply enough to solve the new mill capacity. So currently, we have the mill being fit and the expanded mill will be fit by Tabakoto underground and by the Djambaye open pit operation.

But Djambaye obviously is substantially lower grade than Avion’s operations. So, Segala coming online towards the end of the year – next year will be a lot higher grade in the open class mine. So between the three mines, we will feed the best material into the mill and the rest will be top-up material into the stockpile.

Mark Bentley – MAB Trading

So, once the Segala operation is on stream as to say moving into next year, what sort of overall production rate would you expect to achieve from the Tabakoto operation in terms of ounces of gold?

Neil Woodyer

Attie, I was just going to say, we are certainly looking towards the 160,000 mark and I think this year is a partial year and obviously if we can, we’ll be looking at a bit more, but 160,000 I think is something we’ve been looking at.

Attie Roux

Great. I would say the same. If we are looking at the 130,000 ounces to 145,000 ounces this year, but we are having full capacity and essentially doubling the mill but we have a greatest role. We should make 160,000 ounces, or maybe a little bit more than 160,000 ounces in the forthcoming years.

Mark Bentley – MAB Trading

That’s great. Thanks. Then, finally, broader question, are you working on an acquisition pipeline at the moment? How is that looking?

Neil Woodyer

We are not working on an acquisition pipeline at the moment. Our focus is on our operations, get the ounces and the cash at the reasonable cost that they should be producing and building our two present projects.

Mark Bentley – MAB Trading

As a shareholder, I am very pleased to hear that, because I am sure you’ve got your hands very full with the operations that you have and the new mines which are building. Thank you very much.

Neil Woodyer

Thank you.

Operator

Thank you. Our next question is coming from Nicholas Campbell from Canaccord

Genuity. Please proceed with your question.

Nicholas Campbell – Canaccord Genuity

Hey guys, how are you doing?

Neil Woodyer

Hi, Nick.

Christian Milau

Hi, Nick.

Nicholas Campbell – Canaccord Genuity

I was wondering if you could run, I know, we’ve sort of talked about it and I am wondering if you can provide us with little more detailed cost per tonne number in terms of mining cost per tonne that you are realizing in Ghana and Burkina and Mali and also processing cost per tonne and G&A?

Neil Woodyer

Okay, Christian, have you got some numbers handy?

Christian Milau

No I was looking at Mali, I think we are looking at to the open pit we are looking in the sort of $3 to $4 per tonne range, per tonne mined. And then for the underground, I think we are looking more at the $70 per tonne of ore. And looking at processing cost, I think we are more in the sort of $17 to $20 range.

Nicholas Campbell – Canaccord Genuity

Okay. And I would expect that there is, you maybe a little G&A heavy in Mali and that’s going to come down with your cost reduction initiatives, but can you give us a range?

Christian Milau

I don’t have that on a per tonne basis here, you are definitely down, that’s going to be coming down.

Neil Woodyer

I have it here actually, it’s $18 a tonne which is twice as much as anything and yes, we do expect to see a reduction of that as part of our programs. I can’t give you the figure, but we do.

Nicholas Campbell – Canaccord Genuity

Well, it should come down as you ramp up your throughput…

Neil Woodyer

And as we get a better handle on cost too.

Nicholas Campbell – Canaccord Genuity

Yeah, and as you get maybe a little more rational on the personnel side.

Neil Woodyer

Yeah.

Nicholas Campbell – Canaccord Genuity

Do you have the numbers for your other assets?

Christian Milau

I probably do have some here for you. Looking at Nzema, cost per tonne mined, again sort of open pit always we were looking at more in that sort of high threes, I think getting to the $4. And processing, we are looking at sort of more in the $10 range per tonne milled.

Attie Roux

Yeah, that’s for process, I mean, with engineering to our spare parts. That’s right.

Christian Milau

That’s right, maintenance as well.

Neil Woodyer

And Youga, it’s about $3.80, I think for ore mined and processing cost about $20 to $22.

Nicholas Campbell – Canaccord Genuity

Okay. And in terms of your, I know you already talked about this. In terms of your total capital spending for this year, you are going to be pretty first half heavy, correct?

Christian Milau

Yeah, yeah, that’s a fair assessment I think with Agbaou obviously is leading the way in the next sort of three or six months, definitely.

Neil Woodyer

And the Tabakoto expansion being completed.

Nicholas Campbell – Canaccord Genuity

So, should we see – should we expect to see 65%, 70% of the capital in the first half of the year or is that too much.

Christian Milau

I would say closer to the $60 if you want to use that range.

Neil Woodyer

Yeah, yeah.

Nicholas Campbell – Canaccord Genuity

Okay. And, at the Youga Mine, I noticed that you had a relatively low price realization in Q4. Is there a reason for that?

Christian Milau

Sorry, can you repeat that Nick? I missed the end there.

Nicholas Campbell – Canaccord Genuity

I noticed that the price – realized price per ounce of gold in Q4 at Youga looked relatively low relative to the spot price and in some of the other operations, it was maybe accountable because of some hedging. But there shouldn’t be any hedges at Youga,. So surprised to see the realized prices are so low.

Christian Milau

Yeah, I know, certainly, there is no hedging there. There could have been because of year end or shipments or to that were sort of bunched together and I can’t remember exactly the profile of gold in the last part of that quarter, but it could have been bunched up towards the end of the quarter there.

Neil Woodyer

Actually, that was 1668 compared with the year of 1585. So it wasn’t by the two.

Nicholas Campbell – Canaccord Genuity

In the quarter, it was…

Neil Woodyer

Three months ended December.

Nicholas Campbell – Canaccord Genuity

Yeah, that was the year average, it wasn’t the Q4 average. Q4 average is over 1700. But that’s fine it’s not a big deal.

Neil Woodyer

Yes, sorry, you are right. I was looking at the wrong column there, yeah. 1660.

Nicholas Campbell – Canaccord Genuity

In terms of when do you expect to pay taxes, you had a tax charge at Tabakoto in Q4 and you are still in the tax holiday there, right?

Christian Milau

I don’t believe we are in a tax holiday. We certainly still have with losses and allowances that we are using. That something as well that we are working on this year is getting a closer handle on all the tax availability and losses to all future profits. We don’t expect to be paying much corporate tax this year at Tabakoto.

Nicholas Campbell – Canaccord Genuity

When should you start, when do you think you should start to pay the corporate taxes?

Christian Milau

I guess, we are anticipating it’s probably sometime during 2014.

Nicholas Campbell – Canaccord Genuity

Okay. And there is a pretty significant non-cash tax charge, I guess that’s associated with closing of your hedge book, or closing of some of your hedge books. Is that going to have an impact on when you start to pay taxes in Nzema in the future?

Christian Milau

No, lot of that relates back to originally the purchase price accounting.

Nicholas Campbell – Canaccord Genuity

Okay. When do you expect to pay taxes at Nzema then?

Christian Milau

Nzema, I think anticipated probably in 2014 again, as well. At some point, yeah.

Nicholas Campbell – Canaccord Genuity

Okay. And can you guys give us just a little more, can you guys give us a bit of guidance in terms of the grades to expect that operation maybe in the first half of the year and then for the year in total?

Attie Roux

I think the – I don’t have the information on I think this year, but we are expecting the grade at Nzema certainly to be slightly lower for the first half of the year. And then as we get into the better material at the Anwia Adamus pit it will certainly improve towards the end of the year closer to the two gram range towards the end of the year.

On Youga, on the other side, Youga will be slightly higher in the first half of the year and then stockpiling towards the end of the year and into next year as the main pit is completed. Tabakoto, for the rest of the year, the grade will be very, very similar in the four gram range although the Segala mine comes online towards the end of the year, early next year. Then the overall average will be up maybe half a gram or in that sort of low buck with the open bit becoming the supplemental pumps in.

Nicholas Campbell – Canaccord Genuity

Are you going to see a drop in the grade when you complete the mill expansion before the Segala and new plan comes online.

Attie Roux

Yes, yes. We shouldn’t think – at the moment with quite a number of tonnes on the stockpile of the early grade of two grams to two and a half grams. So that material will be consumed in addition to the underground from Tabakoto and the material from Djambaye at the moment towards the end of the year. So this is not material to see us through until Segala comes online. But the overall grade will decrease marginally from the end of the year.

Nicholas Campbell – Canaccord Genuity

Okay. Thanks a lot guys.

Neil Woodyer

Thanks, Nick.

Christian Milau

Thank you.

Operator

Thank you. There are no further questions at this time. I’d like to turn the floor back over to management for any further or closing comments.

Neil Woodyer

Well, thank you very much ladies and gentlemen for attending and listening to us and the questions. And as I said earlier, hopefully we are being as clear as we can do in the numbers we are giving and we are focused on maximizing the revenue from the assets that we have for this next year and it’s very much an operation here this year. So, thank you very much indeed for attending and thank you to all participants. Thank you.

Operator

Thank you. That concludes today’s teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.

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