Endeavour Mining's CEO Discusses Q2 2013 Results - Earnings Call Transcript

| About: Endeavour Mining (EDVMF)

Endeavour Mining Corporation (OTCQX:EDVMF) Q2 2013 Earnings Conference Call August 20, 2013 1:00 AM ET

Executives

Neil Woodyer – Chief Executive Officer

Christian Milau – Executive Vice President and Chief Financial Officer

Adriaan Roux – Chief Operating Officer

Operator

Greetings and welcome to the Endeavour Mining Second Quarter 2013 Results Call. 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, Neil Woodyer, CEO for Endeavour Mining. Thank you, Mr. Woodyer. You may begin.

Neil Woodyer

Thank you, operator. So thank you everybody for joining us on this management presentation on our second quarter results. With me I have, Attie Roux, our Chief Operating Officer and Christian Milau, our CFO. And we could turn to start with to Slide 4, which gives the highlights of the quarter. It also shares a nice truck delivering some mining equipment to Agbaou in August. But from a point of view our production, we delivered 75,000 ounces in the second quarter, and therefore in the first half year produced 149,000 ounces. And based upon our production and also for our projections for the second half year, we’re on track for our guidance of 310,000 ounces to 345,000 ounces for the full year.

One of the major activities under way is the cost reduction program, which is taking effect, which we started with Tabakoto acquisition last year, and we’re projecting that we produced an all-in sustaining cost in the second quarter of 10.38 per ounce, which compared to 10.83 per ounce in the first quarter. And we’re on track for our guidance of about 10.55 per ounce to 11.55 per ounce for the year.

In fact looking forward based upon the cost reductions that we’re doing we’re targeting about $1,000 an ounce for 2014. This would include some underground development expenses at operating mines that we’re now treating as investment, but from next year onwards we’ll be looking at our operating mines underground and we should have Tabakoto and the expansion of Segala coming within about $1,000 an ounce target.

During the second quarter of this year, we invested $59 million in new mine development, including $40 million at Agbaou. We were also able to increase our corporate debt facility to $350 million, $300 million of which is available to us now and additional $50 million when we complete Agbaou and that is with a syndicate of leading global mining banks. Previously, we have the $200 million with one bank, but we now have five banks in our syndicate. And as of the end of July, we actually drew down the incremental $100 million for a cash balance of over $150 million.

If we turn to the next slide, looking at all-in sustaining margin generation, I’ll hand over to Christian to take us through that.

Christian Milau

Thanks Neil. Just to give you an idea of the all-in sustaining margin for the quarter in both millions of dollars and gold ounces. $101 million of gold revenue we generated, down slightly from the $117 million in quarter one, mainly due to the gold price fall that happened in April as well as at the end of June, but generated a mine cash margin of just over $30 million at $30.7 million which is a 30.4% margin, which again is down slightly from the first quarter that was 39%.

And corporate EBITDA of $26.7 million or 19,200 ounces of gold and an all-in sustaining margin after sustaining capital and exploration of $25.4 million, which is a 25% margin, which is down slightly again from first quarter of about 33%. And overall for the six months to June we generated an all-in sustaining margin of $64.4 million or 30% on average.

Turning over to Slide number 6, it gives you an idea of the reconciliation of our cash position and where we spent the cash for the quarter. So we started at March 31st with $85 million, adding in the all-in sustaining margin of just over $25 million and the proceeds from the sale of the gold bullion that we held at the end of the year at last year of $37.7 million and adding in proceeds from the sale of Namibia Rare Earths so our total stake in that equity investment of $5.3 million.

We used that money to invest in new mine development, which was $59 million, which you can see broken out there on the bar graph on the right. Most of that is expected to spend $40 million on Agbaou construction, which leaves us with roughly $60 million or so to spend for the rest of this year and leading into 2014. Also, the two other major things we spent money on, our Tabakoto development of just over $10 million and Nzema development of $5.2 million.

After that, there’s some money spent on working capital and corporate taxes paid. Our Youga taxes for 2012 were paid in the second quarter. So that makes up most as a corporate tax paid. And then some other minor items to end up with cash and equivalents of $62.2 million and when you add in marketable securities almost $63 million. And then when we add the $100 million from the new facility that was drawn, over $150 million currently. That gives us maximum sort of liquidity and flexibility at this point in time.

Turning over to Slide number 7 now. One of the major things that you may have noticed in our financials for this quarter is a non-cash after-tax impairment charge which was totaled $225 million. That eliminated all of our goodwill and this impairment charge we used the long-term and short-term gold price of about $1,300 which we believe is a fairly prudent price in today's market and it’s a little more prudent than some of our peers over the long-term. I think the ranges were between 1250 and 1400 and we use 1300 on average.

As well the Nzema write-down was $142 million almost as a result of the gold price, the non-inclusion of the Sulphides in the asset model that supported the valuation and slightly higher costs. And then the other small parts of the write-down were $25 million at Youga primarily related to long-term gold price and some non-core exploration of $5.6 million which was totaled $225 million.

I’ll pass over to Attie Roux for Slide number 8.

Adriaan Roux

Okay thanks Christian. Let me take you through the operating summary for Tabakoto in Mali. If we look at the tons processed, quarter-on-quarter we’ve gone up in tons, mainly due to the month of June seeing the full effect of the mill expansion project, the tonnage coming through as the mill has now ramped up to nameplate capacity. The average gold rate has come down quarter-on-quarter and that's mainly due to speeding up on the mill, adding some stockpile material to the underground and the surface deposit that we have.

Gold ounces produced quarter-on-quarter is marginally down mainly due to April and May during the commissioning issues which we sorted out and we saw 12,500 ounces come through in June. And 15,000 ounces produced in July. Obviously the carryover from June as well, but production is on track now. If we look at the cash cost, that will start to come down as the ounce profile improves over the next period. Segala, the main decline is progressing very well and is well over a kilometer from the portal now. With underground development ore starting towards the end of this year and stoping ore starting to produce towards the middle of next year.

Turn to Page 9, the operating summary for Nzema. Tons milled marginally down, mainly due to June being the peak of the rainy season in Ghana. The average grade is marginally up and that includes the purchased ore. Ounces are nicely up quarter-on-quarter, mainly due to improved recovery and higher grade. And the cash cost will start coming down as the ounce profile improves in the second half of the year. As we mentioned, the recovery rate has gone up quarter-on-quarter mainly due to the increased tonnage from the Adamus area and the decrease of the lower recovery settlement material in the total mix.

Then we turn the page to page 10, the operating summary for Youga mine, Youga again had a very steady quarter, slightly up on tons. Grade roughly in line with the projection at about 3 grams per ton and very good ounces produced for the quarter again, giving us very good cash costs overall for the quarter and for the half year.

Turn the Page to Page 11. I’ll give an update on the Agbaou gold project. Up-to-date we’ve spent $100 million on the project and the project is physically over 80% complete now with the ball and SAG mill installations just about complete, with gearboxes the mill is being floated and clusters on the site plans have been completed, the gravity concentrator installed and the lubrication systems installed on the mill. All civil work has been completed and the last item now that takes most of the (inaudible) is the electrical infrastructure, the 15 kilometer power line 91KV and it’s actually progressing very well and it should be on track in time for the schedule.

Turn to Page 12, continuation of the Agbaou project. All the buildings have been completed with the reagents stores, the heavy vehicle maintenance workshops, the laboratory and the remaining structural steel is all on-site is currently being erected. And that includes the gold room and all the conveyer structures. As Neil mentioned earlier, some of the mining equipment therefore readily arrived on site, with some additional equipment deliveries expecting in the next couple of weeks in preparation for the mining to commence in the schedule.

I’ll now hand over to Neil, who will give the conclusion.

Neil Woodyer

Thanks Attie. So if you look at the production schedule on Page 13, we produced as I said 149,000 ounces in the half year, at a cash cost of $888 per ounce. In the second half year, we’re projecting about a 15% increase, primarily due to the expansion of the Tabakoto mill, which we completed in June and also the anticipation of higher grades coming out in Nzema.

So we’re looking at a 165,000, 180,000 ounces at a cost of $790, $820, bringing us up to our year's guidance of 315, 330 at the cash cost of about 840 to 880. So we’re very much on target there having done the expansions that were anticipated.

If we turn to Page 14, we’re really focused on the cash flow from the company at the moment. And as I said we’re meeting our production and cost guidance. We’re delivering cash from our operations. Our all-in sustaining cash margin for the first half of the year was $64 million. And the current prices we can project an EBITDA for the year of approximately $150 million.

The Tabakoto mine has been expanded on schedule. It has increased production and it is reducing our operating costs. As Attie said, Agbaou is very much on schedule for the first quarter of next year. It should position us to reduce our average cost as it’s a relatively low cost producer.

The Houndé feasibility schedule is going ahead and we’re expecting completion of that during the fourth quarter of this year. And so far there are no large surprises from where we thought the PA was. But as I said, it's not yet finished and we'll have to face what decision to make when we have a better feel for the market and a little bit more precision on the numbers. So that's the decision we'll have to look for in the future.

We are undertaking a long-term profit improvement campaign to reduce costs. Our all-in sustaining cost for the second quarter was $1,038. We’ve reduced the number of employees quite dramatically. Tabakoto, we’ve reduced them by 25%, including a large expat contingent. Youga 9%, Nzema 23%. So from the people point of view, we’ve been focusing on that over the last several months.

We’re also looking at each operations long-term plans to identify sustainable cost savings such as joint purchasing, re-tendering of major contracts, reducing dependency on sub-contractors and possibly increasing owner mining that we're doing. We’ve successfully done that at the Tabakota open pit and now we’re considering a possibility of doing it in other areas.

We have restricted our exploration to mine site resource and reserve improvements. We have reduced our land packages that we have that we’re not intending to pursue. And as Christian said, we’ve spun off some of our excess exploration properties. We’ve established a very strong target for next year for our planning purposes for $1,000 all-in sustaining cost per ounce including, underground development of developed mines.

Very significant I think as we say, we are generating cash and through the increase credit facilities we have the financial resources needed to complete the construction of Agbaou and also to invest in other capital projects that could offer the benefits of economics and reduce operating costs and help de-risk the business. So we're in a strong financial position despite the markets to withstand lower gold prices and to carry out the expansions and profit improvements that we have.

That ladies and gentlemen is the formal part of the presentation and I would now ask the operator to come back online so that we can go through any questions that anybody may have.

Question-and-Answer Session

Operator

Thank you, ladies and gentlemen. We will now be conducting a question-and-answer session. (Operator Instructions). There appear to be no questions at this time. I would like to turn the floor back over to management for closing comments.

Neil Woodyer

Thank you very much, operator and thank you everybody for attending. We appreciate that we had the results a few days ago and since then the team has been talking to many analysts and many shareholders. So I think we’ve covered an awful lot of questions in that period of time. And we look forward to continuing to achieving our guidance and continue with our construction and cost reduction plans and look forward again to speaking to you at the next quarter to give you an update then.

Thanks very much everybody, appreciate your time.

Operator

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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