Endeavour Mining Corporation's CEO Discusses Q4 2013 Results - Earnings Call Transcript

Mar.20.14 | About: Endeavour Mining (EDVMF)

Endeavour Mining Corporation (OTCQX:EDVMF) Q4 2013 Earnings Conference Call March 20, 2014 11:00 AM ET

Executives

Neil Woodyer – Chief Executive Officer

Attie Roux – Chief Operating Officer

Christian Milau – Chief Financial Officer

Analysts

Brock Salier – GMP Securities

Chris Thompson – Raymond James Ltd.

Operator

Greetings, and welcome to the Endeavour Mining’s Year End 2013 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 Endeavour Mining Corporation. Thank you Mr. Woodyer, you may begin.

Neil Woodyer

Thank you, operator. Good day to everybody. With me I have Attie Roux, our COO, Christian Milau, our CFO and we also have Doug Reddy, Business Development on the phone as well.

Earlier in the year January, we announced our production for the year and we announced in fact, that we were within the guidance on the costs when we gave our guidance after 2014 and now we’re able to get into a lot more detail. So looking at Page 4, when we look at the highlights we generated revenue of about $440 million and we have an all-in sustaining margin of $93 million for the year. And as I said, we met our production guidance we produced about 325,000 ounces and we also had an all-in sustaining cost of just under $1,100 an ounce.

In addition to meeting those guidance criteria, we’re also had a very good year in terms of the projects that we develop. We completed the construction of Agbaou ahead of schedule and on the budget in fact, we have the first gold pour in November, we had a mine that been going up to commercial production in the end of January, and we had a press release couple of weeks ago saying that we were producing above plan and we have a good recovery rate. So we were fully ramped up in Agbaou which is obviously a good cash contributor to this year.

In addition, in the first half of the year we completed the expansion of the mill at Tabakoto from 2,000 tonnes to 4,000 tonnes a day and able to get additional production. We also completed the Feasibility Study on Houndé we completed that in November and that showed a very viable project which we’ve now put into permitting, we put into permitting in November we would expected permitting to come through six to nine months later. So we had a very good year in terms of production, cost and also the development of Agbaou and other projects. If you look to Page 5, we outlined here our outlook for 2014. And I’m restating the guidance we gave previously of 400,000 ounces to 440,000 ounces, the increase of course mainly coming through Agbaou coming into production. And reducing their all-in sustaining cost to just about $1000, $985 to $1070 is our guidance.

As I said Houndé is in for permitting and it has the potential to add about 180,000 ounces a year at an all-in sustaining cost of under $800. So a very significant and potential contributor to us and a 1,250 gold it has an IR of about 20%.

We also focused in 2014 on finishing the optimization of our present operations and the main one being the optimization of Tabakoto. We’re spending about $20 million to complete the ramp-up at Segala, the underground mine, our second underground mine that we expect the stoping development by mid-2014 with first order into production order in the second quarter of this year. We’re spending $30 million on the cemented rockfill plant, tailings storage, and other items and very importantly, in terms of cost saving, we are in the process of transitioning for underground and owner mining, two other mining with Tabakoto spending about $2 million to $5 million upfront including an addition to that we also have an $18 million lease.

So that’s a lot of capital investment in Tabakoto, but it should give us a very good an optimized going forward and we should be able to get the benefits of that from the second quarter, third quarter and fourth quarter of this year. Our exploration budget this year is we’ve got $10 million allocated so far, we’re looking primarily the extension of mine lives particularly Tabakoto.

That is a quick overview of this last year’s successful performance and the kind of criteria we’ve set out for this year. And, I’ll hand over to Attie now to take you through the big success we had at Agbaou.

Attie Roux

Great, thanks Neil. I just wanted to give a quick update on the Agbaou mine and how that goes. As Neil mentioned earlier, Agbaou was completed ahead of schedule and well under budget. And you can see the details of the capital spend on the – insert on the slide showing a significant under expenditure on the capital. The mine quickly achieved and sustained good design capacity and is currently fully ramped up. We declared commercial production in late January and Agbaou is now a significant cash flow generator for the company with forecast of production around 85,000 ounces to 95,000 ounces at the cash cost of between $730 per ounce and $780 per ounce.

You can turn to Page 7. This table shows comparison of recent projects in terms of achievement against completion rates and capital spend, and it shows how the Agbaou project rates very favorably against the other projects of our peers.

At this point, I’m handing over to Christian Milau for the financial update.

Christian Milau

Thanks Attie. Turning to Slide #8. The full year 2013 all-in sustaining margin and cost, so just to highlight numbers the gold revenue of $443 million was based upon almost $1,400 per ounce gold price that’s a record production and a record revenue for the year. Looking down the table there as well, corporate EBITDA of almost $120 million which is about 27% margin, and then the all-in sustaining margin was just over $93 million which is 21% margin and that equates to almost or just over 67,000 ounces for the year. Below the all-in sustaining margin not on the sheet, but obviously for the year there was an impairment in Q2 and there was a small addition impairment in Q4 of just over $50 million net of tax.

Looking down the table there on Page 8, breaking down the numbers, the all-in sustaining cost per ounce sold was $1,099, which is right in the middle of that guidance range of $1,055 to $1,155. One number worth maybe highlighting there is also the corporate G&A that we attribute there of almost $50 per ounce, which is a fairly attractive number based on the number of ounces produced in the sales level of the whole Endeavour Corporation now.

Flipping over to Page 9. A reconciliation of our cash position for the year, the opening balance was almost $106 million and we added to that $93 million all-in sustaining margin. We spent just over $200 million on new mines and development obviously the majority of that was the Agbaou construction of almost $131 million. We moved the reasonable amount of capital out of 2014 and completed the mine in 2013 and relentless spending probably $7 million, $8 million in 2014 with most of those costs accrued on the balance sheet as of the year-end. So, fairly clean start to 2014.

Below that we drew down on the corporate debt facility, we’ve got proceeds from the sale of gold bullion which was in the first four months of the year. As well some proceeds there of $23 million from non-sale, non-core assets majority of that $17 million was related to the Finkolo sale and a couple of others small disposals. One number that jumps out as well below that is the VAT receivable increase at Tabakoto of $22 million for the year. Going forward, now as we moved to owner mining that VAT number will be cut significantly potentially upto half by employing all the employees, ourselves and rather than paying a contractor bill every month.

And, we’re getting encouraging signs from the government that they may start to repay this year as well. That leave us with an ending cash balance of $73 million. Just to, as well to couple of factors that affected the cash balance at the end of the year, we note at the very bottom it was the accelerated spending on Agbaou to complete it so it was sort of $25 million that we pushed into 2013 from 2014. We also started to buy the underground equipment for Tabakoto, which is approximately $7 million payment in November, December of 2013. And as well, we had just over 6,000 ounces of gold at Agbaou that were unsold but yet they were produced and poured in 2013.

Turning over to Page 10, looking at the 2014 operating outlook. Just the guidance ranges are provided there it totals to 400,000 ounces to 440,000 ounces. Nzema and Youga will be producing similar amounts to last year maybe Youga slightly lower at 65,000 ounces to 70,000 announces, obviously the big addition there is the Agbaou mine which is approximately 90,000 ounces for the year.

And if you see Tabakoto will be moving up from 125,000 ounces to over 140,000 ounces based upon the expanded mill for the full year. And the all-in sustaining cost range there of $9,85 to $1,070 be slightly higher cost in the early part of the year as we move from contractor mining to owner mining and get into full production order at Segala towards the end of Q2 so, the cost will decrease over the year.

Looking on the right-hand side, the non-sustaining capital to give you a flavor for that is just over $50 million for the year. Segala ramp-up and pre-stoping development is $20 million then with the expenditure at Tabakoto also including the Segala mining fleet which is sort of $25 million to $30 million there. We’ll be leasing some of the underground equipment as you see the $18 million that we paid in the lease to fund some of that and then few smaller items including the exploration to total to $54 million to $59 million. And then $1,350 gold price using our mid-2014 guidance our all-in sustaining margin will be approximately $135 million and for every $100 move in the gold price would move that margin by roughly $40 million give or take.

I’ll pass back to Attie for Slide 11.

Attie Roux

Yes, thank you Christian. Getting on the Slide 11. I’ll give you the operating summary for the various mines and we start with Tabakoto in Mali. If we look at the tonnes with the expansion of the mill during the year, the quarter and the full year tonnage now would expect to increase more capacity and show good increase in tonnes.

The grade for the last quarter was down against the spend and it’s mainly due to the fact that the expanded mill during the last two quarters that we did the high grade stockpiles at the mine and where we started to building up the mill with lower grade and period from the stockpiles.

We also had a lower grade area in the open pit which we faced some issues that’s back to normal again. If you look at the ounces, basically down because of a lower grade, but also a lower recovery during December and it was in the period of from an unexpected layer of graphite that we experienced in the open pit. We’ve mined through that and the recovery is back to normal again. We will see the grade and ounce profile increase in the second half of this year when the Segala comes online and we should start getting some shape in tonnes and ramping up during the latter part of this year.

Turn to Slide 12. An update on Segala. And this is a current status update at the end of February. We see the decline about maybe 200 metres below surface. With over 1,200 metres development in the decline. And over 2,500 metres of lateral development on the four levels into the ore body – on the access to the ore body. Segala will commence production in the stops in the latter part of the second quarter of this year, and we hope the recent element fleet and in term of the Q2 to do the mining.

Turn to Slide 13, of the operating summary of Nzema. Nzema has a steady performance during the year and milled just on 3 million tonnes for the year, very good performance on that. We show a nice increase in the high grade in the fourth quarter, compared to the first three quarters and that was due to – during the first few quarters we had the – we had at the Adamus pits in the period that was lower grade at the top due to some depletion of the small scale mining. And as expected, we got into the higher grade in the fourth quarter when we went through that layer and we’re mining some good grade now. The grades also affected by the inclusion of some higher grade purchased ore from third-parties.

So all in all, Nzema contributes good ounces for the quarter and for the year 103,000 ounces for the year and you can see the cost in the fourth quarter started coming nice there.

Turn to Page 14. Summary for Youga mine. Youga gaining at a very steady quarter 1 million – just over 1 million tonnes, a big range contributing 89,000, $730 per ounce, a very capable performance for Youga.

Turning to Slide 15. An update on the Houndé Project. The feasibility study was completed in late 2013 are showing driven probable reserve of 25 million tonnes at 2 grams for 1.5 million ounces. The project – the feasibility study based on the frequent at $3 million tonnes in a typical SAG/Ball circuit producing 180,000 ounces per year for a period over eight years. The project has got excellent infrastructure with post proximity through the main [indiscernible] as well.

It requires some upfront capital of $315 million and it’s based on owner mining, at $1,300 gold price and showed – tracked by an IRR of 22.5% with 2.8 years payback period which is very feasible. The mining permit [indiscernible] in November already which process that normally lasts six to nine months and it would take us in the latter part of this year for the drilling process to be completed.

At this point, I will hand back to Neil for the conclusion.

Neil Woodyer

Okay Attie, thank you very much. So in summation, we had a year that we’re very proud to be able to report to you. We met our guidance for the year, we carried on some significant project development and we optimized and consolidated the business. We are also in a position this year where we are focusing on our four operations now. We stated our guidance in the excess of 400,000 ounces and we expect that the optimization at Tabakoto should be complete by about the mid-year that is Segala and the Youga mining. And that will mean that our all-in sustaining cost in the second half year should below 1,000, slightly above in the first half year but we hope to be averaged just under 1,000 ounces for the year. So we’re in a position now of being competitive and being near to pretty good optimization of our existing assets where we are generating cash and post for growth in the market.

So that ladies and gentlemen, is the formal part of our presentation. And I’ll ask the operator to take us soon to the Q&A session. Operator, are you there?

Question-and-Answer Session

Operator

Yes, sir. Thank you.

Neil Woodyer

Thank you.

Operator

(Operator Instructions) Our first question is coming from the line of Brock Salier with GMP. Please proceed with your question.

Brock Salier – GMP Securities

Thanks very much for the call gents. A good question with the Houndé permitting coming through mid-year, I understand you’re always open to the opportunity of bolt-on acquisitions, so at any given gold price are any of the bolt-on acquisitions that you are evaluating stacking up for a better or worse than Houndé I mean, given that now acquisition cost of Houndé how does that compared to other potential acquisitions?

Neil Woodyer

Well, as we said Houndé has a 20% IRR at 1,250 or 22% slightly higher it’s a project that stacks up very well against other West African projects. It’s a project that I think we prove when we’re capable of building. We just don’t know where the gold price is going to be in well – four or five, six months time when we would expect to get the permit.

So we have to look at that, it does provide a yardstick for any other development and any other project or anything else we may look at. So, we’re just keeping alive to what opportunities are coming in the market, and seeing what’s the sensible value approach to take, obviously is like avocation of capital point of view, Houndé would take us up to about 600,000 ounces, making very significant. It would also reduce our all-in sustaining cost as a corporation which is a good thing. So a good quality to add to our profile we’ll just have to see what’s the best thing to do.

Brock Salier – GMP Securities

Understood. And in terms of your management time in the next six months has the focus on evaluating new bolt-on opportunities or are you looking purely in getting that Tabakoto underground ramping up and getting Agbaou ramping as well?

Neil Woodyer

Well Agbaou has ramped up. We’re quite happy with the way Agbaou is operating. Tabakoto is our first and primary operation. And attention to time, we’ve made the big investment and we’re continuing to make a good investment in Tabakoto because we feel this is a significant asset, both now and in the future. We will have to spend some money shortly and we’re spending some now but some more on exploration, because we think it has a great exploration potential both in Tabakoto and Kofi, so that is certainly a priority as well. So I think our first priority is Tabakoto, getting that to a very good sustainable state and that’s the important thing that we do with these optimizations, but they are sustainable going forward for a number of years. That’s our primary focus.

Brock Salier – GMP Securities

Perfect, thanks very much.

Operator

Thank you the next question is coming from the line of Chris Thompson with Raymond James. Please proceed with your question.

Chris Thompson – Raymond James Ltd.

Thanks for taking my question. Just a little – just a question is relating I guess to operating costs, so firstly at Tabakoto and moving on to Nzema and Youga, what I’m looking for I guess is, is cost or unit cost per tonne milled for those three operations?

Neil Woodyer

[Indiscernible].

Attie Roux

Christian, you got the number or should I?

Christian Milau

Yeah in the quarter I’ll give you, and yes for the fourth quarter.

Attie Roux

Too many pages of paper. [Indiscernible].

Christian Milau

The unit costs are on the appendix that’s on the screen at the moment.

Chris Thompson – Raymond James Ltd.

Okay. All right, excellent. I guess also as far as you’re talking about Segala ramping up basically achievable by mid-year, is that stoping achievable by mid-year, is that correct?

Christian Milau

Did you hear Attie? Attie was a bit quiet.

Attie Roux

We – we are happy that by mid-year we will start completing the first order from the major stops. And obviously a ramping up from the onward stops at the end of the year, yes, by mid-year where we’ll be producing.

Chris Thompson – Raymond James Ltd.

What sort of unit cost on a tonne milled basis should we be modeling I guess for the first half of this year for Tabakoto while we see the benefit of Segala?

Attie Roux

The position of course were unchanged, the dollars per tonne milled will be the same as for the last quarter because we keep on pulling the mill. So, we’re just going to get more growth for the same tonnes and with a higher grade from Segala.

Chris Thompson – Raymond James Ltd.

Okay, so using fourth quarter I guess as a gauge for the stock?

Attie Roux

Yes.

Chris Thompson – Raymond James Ltd.

This year will be good? Okay.

Attie Roux

Yes.

Chris Thompson – Raymond James Ltd.

All right. Thank you. Okay, thanks guys. Thanks a lot.

Attie Roux

Yes.

Neil Woodyer

Thank you. Questions, operator?

Operator

Thank you (Operator Instructions) It appears we have no further audio questions at this time. I would like to turn the floor back over to management for any additional comments.

Neil Woodyer

Thank you very much. Well, I think we have additional comments that after our successful in building here a consolidation last year, this year is a year of making sure the first half year that Tabakoto comes through to our expectations and focusing on the cash flow that we generating and we’re generating for the company and for our shareholder value. And significant questions we’ll have to ask ourselves in terms of capital allocation when we get through the permit for Hyundai and see where the gold price is. But, I think we get into a situation where we have a very cost competitive business, with 400,000 ounces plus a year so that puts us in the strong state to face the markets as we develop the business.

So with no more further questions, ladies and gentlemen, thank you very much for your time. And of course, we are available to answer any questions you may have later. Thank you very much.

Operator

Thank you. Ladies and gentlemen, this does conclude today’s teleconference. Thank you for your participation and you may disconnect your lines at this time.

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