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IAMGOLD Corporation (NYSE:IAG)

Q2 2010 Earnings Call Transcript

August 11, 2010 11:00 am ET

Executives

Bob Tait – VP, IR

Peter Jones – Interim President and CEO

Carol Banducci – EVP and CFO

Gordon Stothart – EVP and COO

Larry Phillips – EVP, Corporate Affairs

Mike Donnelly – SVP, Exploration

Analysts

Sabrina Grandchamps – HSBC

Don MacLean – Paradigm Capital

Haytham Hodaly – Salman Partners

Dan Rollins – UBS Securities

Steven Butler – Canaccord Genuity

Barry Cooper – CIBC

David Christie – Scotia Capital

Izuro Sanivi [ph] – Equinox Partners

Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to IAMGOLD Corporation's 2010 second quarter financial results conference call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. (Operator Instructions) I would like to remind everyone that this conference call is being recorded on Wednesday, August 11th, at 11:00 a.m. Eastern Daily Time. I would now like to turn the call over to Mr. Bob Tait, vice president, investor relations. Please go ahead, sir.

Bob Tait

Thank you, and good morning. Welcome to IAMGOLD's second quarter conference call. Earlier today, we published a news release outlining our operating performance and financial results for the second quarter. The accompanying financial statements, notes, and MD&A have been posted to the SEDAR, EDGAR, and the company's Web site.

Joining me today are Peter C. Jones, president and CEO of IAMGOLD; Gordon Stothart, executive vice president and chief operating officer; Carol Banducci, executive vice president, CFO; Larry Phillips, executive vice president, corporate affairs; and, Mike Donnelly, senior vice president, exploration.

Please note that management's remarks will include forward-looking statements related to this news release. I'll refer you to the cautionary language regarding forward-looking information in the release and advise you that the same cautionary language apply to our remarks during the call. We have prepared slides, which can be viewed via our Web site. And at this time, I'll turn the call over to our president and CEO, Peter C. Jones.

Peter Jones

Thanks, Bob, and good morning, everybody. As the price of gold remains high, IAMGOLD realized healthy margins, strong net earnings, and robust cash flows in the face of higher cash costs in the second quarter. On a year-over-year basis, second quarter adjusted net earnings rose 24% to $39.1 million or $0.11 a share, while operating cash flow rose 32% to $51.4 million or $0.14 a share. Revenues declined 5% when compared to the second quarter of 2009 due to lower gold production.

Our realized gold margin increased 25% to $577 an ounce in the second quarter, up from $461 a year ago. Costs have increased year-over-year due to anticipated lower grades of Rosebel, Sadiola, Yatela, and Mupane; lower levels of gold production, and higher royalty and energy costs.

Gold production in the second quarter of 2010 was 190,000 ounces to our account, down 59,000 ounces or 24% from a year ago. The decline is mainly due to the closure of the Doyon mine in December 2009, and the ongoing stockpiling of ore at Mouska for batch processing in the fourth quarter.

Niobec, our niobium mine, continues to perform well. On a year-over-year basis, production increased 18% to 1.1 million kilograms in the second quarter. Sales also rose 11% to 1.058 million kilograms in the same period. And we continued to realize a steady margin of $19 a kilogram.

We're also revising upwards our guidance for 2010. With the startup of Essakane and the completed expansion at Niobec, we now anticipate that gold production will range higher between 980,000 ounces and just over 1 million ounces this year. And niobium output will jump to between 4.5 million and 4.7 million kilograms. We expect gold cash costs in the range of $530 to $550 an ounce. Several initiatives are already underway to lower cash costs. And we're confident that improvements will be realized in the second half of the year.

Let's take a closer look at the financial details. As I mentioned, total realized revenues were down 5% to $240 million in the second quarter, compared to $225.3 million a year ago. Lower gold sales were partially offset by 35% increase in the realized gold price and an 11% increase in niobium sales.

Adjusted net earnings rose 24% to $39.1 million or $0.11 a share, compared to $31.5 million or $0.09 a share a year earlier. This takes into account an adjustment of $7.4 million on the unrealized derivative loss on gold hedging and other normalizing adjustments. IAMGOLD benefited from higher earnings from equity interests, lower taxes, lower corporate expense, and lower depreciation.

As you can see from this slide, second quarter operating cash flow climbed by $12.5 million to $51.4 million or $0.14 a share as IAMGOLD received dividends from its equity interests. Development, capital expenditures were $90 million in the second quarter, including $25.8 million at Westwood and $46.6 million at Essakane.

IAMGOLD remains well-positioned to fund its remaining 2010 capital requirements of $158 million in the second half of the year. We hold $228 million in cash and bullion, and have an available credit facility of $350 million. As gold production from Essakane grows, we anticipate that our financial position will strengthen further and allow us to pursue additional growth opportunities.

The second quarter of 2010 marked a significant step for IAMGOLD with the startup of our second flagship operation, the Essakane mine in Burkina Faso. We announced that processing rock through the mills started on June 25th, some six months ahead of the original target of year-end 2010. Based on results to-date, we expect commercial production to be declared effective as of mid-July.

The total project cost is now estimated at $453 million, compared to our earlier estimates of $443 million. This slight increase is due to higher infrastructure and shipping costs. The final amount may change depending on what the expected commercial production startup date is finally determined to be. A total of 5.2 million tons of ore has been stockpiled by the end of the second quarter, which represents about six months of mill feed.

The mill operating department received intensive training. And a large contingent from the Doyon mill is on site supporting the permanent crew.

Essakane is expected to produce more than 500,000 ounces of gold from startup through the end of 2011, at an average life of mine cash costs of $400 to $410 an ounce. We're excited about the future prospects of Essakane and continue to explore the significant potential of the entire land package.

We experienced much higher than normal rainfall at Rosebel in the second quarter, which had a negative impact on our production levels. Access to the higher grade zones was limited and required re-sequencing of the ore mining. As a result, nearly 20% of the mill feed was sourced from lower-grade stockpiles, and attributable gold production declined by 21% to 82,000 ounces, compared to 104,000 ounces a year earlier. A 31% decline in the high grade to 0.9 grams a ton from 1.3 grams a ton played a significant role in the variance. Cash costs per ounce rose 54% to $567 an ounce in the quarter, compared to $367 a year ago due to lower production, higher royalties, and higher energy costs.

Looking ahead, we've already began mining the higher grade ore at Rosebel and anticipate that production costs will return to normal in the second half of 2010. Year-to-date cash costs stand at $508 an ounce and production at 175,000 ounces. In adjusting our production guidance for the year, we've also taken into account our expectation of higher recovery rates at Rosebel once the additional leach tanks are commissioned early in the fourth quarter.

Attributable gold production at Sadiola is down 17% for both the second quarter and for the year, due to a 25% drop in the gold rate from 2.8 grams a ton in the second quarter of 2009 to 2.1 grams a ton last quarter. The decline stems from a shift in primary mining from the main Sadiola pit in 2009 to satellite pits in 2010. As a result, cash costs have continued to move upward, averaging $636 an ounce in the second quarter, compared to $424 an ounce a year earlier. Higher royalties from a higher realized gold price and a significantly higher strip ratio, along with lower grades have pushed costs upwards.

Looking ahead, the addition of a second centrifugal gravity concentrator in the third quarter is expected to improve recoveries by about 1%. Work also continued on the feasibility study at the Sadiola sulphides, which will be delivered in the fourth quarter.

At Yatela, gold production also decreased by 42% to 15,000 ounces in the second quarter, compared to 26,000 ounces in the same period a year earlier. Mining at the bottom of the main pit has been completed. And mine production has shifted to a longer-haul satellite pit. However, the exploration team reports encouraging drill results on extensions to the Yatela pit and from neighboring exploration targets.

Higher waste stripping, which is being expensed and lower grades have resulted in a decrease in the contained gold, compared to a higher-grade fresh ore that was mined a year earlier. As a result, cash costs are up substantially to $697 an ounce, compared to $334 in the second quarter of 2009.

Sadiola and Yatela distributed dividends of $50 million to IAMGOLD's account in the second quarter, compared to $25 million in the second quarter of last year.

The Doyon mine was shut in December 2009, but we've continued to stockpile ore at Mouska for back-processing in the fourth quarter. This is part of our cost reduction initiative. The 2,000 ounces of ores produced in the second quarter originated from the cleanup of concentrate thickener base load. To further extend the life of Mouska, we implemented a paced backfill program that has opened two lower levels. We expect to produce between 25,000 ounces and 30,000 ounces this year.

At Mupane, we recognize that costs will remain high. Hence, we continue to work with local management to maximize cash flows going forward as the mine approaches the end of its life. IAMGOLD also has hedge option contracts in place to protect the portion of the mine's outputs, and in the second quarter option contracts to 12,000 ounces of gold expired without being exercised.

In the second quarter, IAMGOLD received a $9.5 million dividend from Tarkwa. No dividend was paid in same quarter of 2009. We also received a loan repayment of $15.4 million. In addition, we received a dividend from demand for $5.7 million, compared to no dividend payments in the second quarter of 2009.

Niobium production rose 18% to just over 1 million kilograms in the quarter due to higher grades. And revenues increased 11% in the same period due to higher sales volume. The operating margin remained constant at $19 a kilogram this quarter, compared to a year ago, as the stronger Canadian dollar somewhat offset higher sales volume.

The paced backfill project was completed last quarter. And will enable us to mine more mill body at lower levels by using mill tailings mixed with binding material, which reduces the need to leave ore pillars behind.

The mill expansion project is also on schedule for completion during the third quarter, and will increase mill throughput by about 24%. Coupled with the fact that Niobec has exceeded expectations in the last two quarters, we've decided to increase production guidance for Niobec for 2010.

IAMGOLD remains focused on continuously improving safety performance. However, Niobec previously reported, with great sadness, an accident, which resulted in the death of an employee. As part of our zero-harm program, all sites have been increasing safety prevention activities that are expected to improve the company's success in preventing injuries.

The next major development project on the horizon is the Westwood project. It's on schedule to start up early in 2013. We've completed several key milestones in the second quarter, including the implementation of a 2,000-ton silo, a permanent ventilation system, and the installation of two hoists.

At the end of June, the mine shafts have been extended to a depth of 926 meters, with a plan to reach 1,220 meters by the end of the year. At the end of the second quarter, 2,810 meters of underground development have been completed. Exploration drilling and valuation drilling totaled 17,476 meters in the second quarter. And a total of 71,500 meters are planned for the entire year.

Project expenditures in the second quarter totaled $25.8 million, and have reached $50.3 million for the first half of the year, a further $50 million expenditure for Westwood for the second half. Westwood remains an important component of the near term growth profile for IAMGOLD. We are committed to growth. And a large component of that growth will be driven by aggressive, organic exploration.

Due to the promising results to date and our strategic directive to significantly increase reserves and resources, we're increasing our exploration spend in 2010 by $9.1 million. These additional funds increased IAMGOLD's overall exploration budget by 12% from $77.7 million to $86.8 million, which we're using to convert resources to reserves and to develop a robust pipeline at Greenfield and near-mine exploration projects. The additional funds increased the amount of reverse circulation and diamond drilling planned for 2010 by 16.5% for a planned total of over 360,000 meters.

With the testament to the potential of our existing mine sites, we're directing almost half of this budget increase and more than half of our annual exploration budget to near-mine exploration, which would enable us to lever the existing infrastructure for any increase in reserves and resources that result from the exploration activity. The Greenfield budget was increased by 13% to $39.6 million in response to encouraging results in the second quarter and the decision to accelerate exploration at three of our sites.

Before we open the call for questions, let me update you on the CEO search process. As I indicated at the investor day in June, the Board has narrowed the list to two potential candidates. Both candidates have extensive track records in the natural resources sector and have impressive business experience. We anticipate being in a position to make the announcement in the short term.

In the meantime, IAMGOLD is being run by a very capable management team, a team that has an impressive collective resume of success, the motivation to quickly put plans into action, and the confidence to build a sustainable future. IAMGOLD has a great stable of long life assets, including Essakane, Rosebel, Sadiola, and Niobec; assets that have a great potential to be profitable throughout the price cycle, the mineral resources to expand in the future, and the operating teams to execute our mining plans and the financial capacity to add much more production.

And finally, IAMGOLD has a strong growth pipeline, a pipeline that includes the quality development project of Westwood, an aggressive exploration team that would drill 360,000 meters this year, and an active acquisition group focused on accretive opportunities. IAMGOLD is not sitting still and is a compelling investment.

And now, we'd be happy to take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Okay. Your first question comes in from Sabrina Grandchamps at HSBC. Please go ahead.

Sabrina Grandchamps – HSBC

Hi. Good morning. I have only a question regarding your CapEx increase at Essakane. Could you provide more specific details on what caused the increase? And is there any potential that whatever caused it could result in an impact on your operational costs ongoing for the mines?

Peter Jones

Well, CapEx, no, there really isn't. We had increases in deliveries, costs at some of the local infrastructure. But everything we see, so far, points to the fact that we're going to be operating at that – our indicated costs.

Sabrina Grandchamps – HSBC

And the pressures that you saw in the shipping loan flow through or continue when you're operating?

Peter Jones

No. Remember in the shipping, we're bringing in a lot of equipment in a very short period of time.

Sabrina Grandchamps – HSBC

Okay.

Carol Banducci

I can add to that, too. We can actually mine a lot more material as well, so that's added to the cost. And that'll eventually move into inventory. And we spent a bit more money on community services. And that's factored into the increase.

Sabrina Grandchamps – HSBC

Okay. Thank you.

Operator

Your next question is from Don MacLean of Paradigm Capital. Please go ahead.

Don MacLean – Paradigm Capital

Hello. Good morning, guys. I think a number of us out here would certainly benefit from some review of your outlook for the longer term cash costs of the various projects given how sharply the costs have gone up. It's pretty rare that we see such a large increase in costs across the board. So it's probably leaving a number of us, certainly me, a little unsettled in terms of what to expect with the longer term cash costs. And while I realize you can't tell us specifically what they're going to be, maybe Peter, you and Gord, can give us some sense of the direction you would expect them to go and some rough sense of the magnitude in the – looking longer term, not just Q2, but use Q2 as your benchmark.

Peter Jones

Why don't I start off with Rosebel? And then, turn it over to Gord to talk about West Africa. I'm assuming you're not referring to Niobec at all, which has had a great run.

Don MacLean – Paradigm Capital

Yes.

Peter Jones

And Rosebel has been very much driven by grade. And we anticipated, in the first half of the year, lower grade. And particularly, in the second quarter, which is the peak of the rainy season for us, we had 25% increase in rain in the second quarter, particularly in the latter part of the quarter, which prevented us from getting the higher grade material that we anticipated. So our grade dropped from an expectation of over 1.1 grams to slightly over 0.9 grams, which is pretty significant. And we don't expect to see that going forward. So we think that we should be able to lower Rosebel's costs significantly in the second half of the year and going forward from that.

Gord will talk about West Africa.

Gordon Stothart

Okay. Looking at West Africa, with respect to Sadiola – we start with Sadiola. We knew that this year was going to be a higher cost year for Sadiola. And under the existing mine plan through the existing resources – outside resources there, the grades are – should remain more or less in the same area we are. So we saw a jump at Sadiola, but they are on plan.

Obviously, at Sadiola in the longer term, our expectation, depending on a positive result from the feasibility study on the Sadiola sulphides, moves us into a much lower cost regime in the longer term as well on the of the back of the success we're seeing right now from the exploration work. Our expectation if that there will be additional outside resources and reserves at Sadiola in the longer term.

Yatela is in a different place this year than it was a year ago. Last year, we are mining in the main pit, and not only mining in the main pit, but higher grade material in the bottom of the main pit. This year, we're mining at the satellite Alamoutala pit. It's lower grade. It's got a higher stripping ratio, plus a longer-haul, all of those contributing in the costs. Again, we're exploring Yatela. And we have hopes for further expansions. But in a way, we're already mining on borrowed time at Yatela having pushed half the original closure date at the end of last year.

And Tarkwa and Damang have set themselves up well. And the cost structures at Tarkwa and Damang are primarily on the back of increased fuel costs, and some increased power costs, and certainly the increased royalty costs; all of those contributing to their costs. Where we see those going, generally, stabilized at the current levels. Obviously, they'll continue to work on optimizing certain aspects.

At Tarkwa, they already have fairly attractive unit-operating costs. But it's a fairly low-grade operation. So the uptakes have significantly changed the costs there – are not huge. At Damang, the completion in the second quarter of the secondary crushing plant will allow us to treat a much higher proportion of higher grade hard ores going forward through the same plant, which will certainly help offset costs.

Mupane, as Peter discussed, the mine is at the end of its life. So it doesn't affect our overall costs in a big way. It's not a large proportion of our costs. And we're working with the local management there just to maintain positive cash flow in the current high price environment, and carry that project through the end of its life profitably.

Peter Jones

I think the key determinant of that cost going forward might be Essakane, which is a significantly lower cost produce; and starting later in this quarter, but absolutely in the fourth quarter, will have a significant effect on that cost structure.

Don MacLean – Paradigm Capital

Maybe the specific – this is an important question on Rosebel. If we look at the longer term cash costs for Rosebel, do you think it is capable of getting in about mid $400 range or upper $400? Or are we going to still – are we seeing a move because we're seeing across the board companies suffering cash cost increases? Are we really into a $500-plus regime for it?

Gordon Stothart

No, absolutely mid $400s.

Don MacLean – Paradigm Capital

Terrific. Okay. Thanks.

Gordon Stothart

(inaudible) here.

Peter Jones

Life of mine average grades at Rosebel is significantly higher than we thought in the second quarter. And that's really the determinant. They've got very attractive unit operating costs, and the throughput Rosebel is going to gain by that. It's truly a great effect that you're seeing there. And we will be working, as we do every year, to improve our response to the rainy season. This one was an exceptional rainy season, which really cost us.

Don MacLean – Paradigm Capital

Maybe one last thing on the demand cost with the additional – the changes to the plant, can it get itself under $600 or even under the $500 range per ounce.

Peter Jones

I think $600 would be a very aggressive target for them. I would like to see them down there. And we certainly support Gold Fields' efforts in that regard. It isn't the most grade operation in the world. They do have some longer term opportunities there. They are looking at making some investments now that they've increased the life, perhaps some mining equipment capital, perhaps some additional changes to the processing circuit that can help bring costs down. However, I think – I would be happy if I thought at $600.

Don MacLean – Paradigm Capital

This is demand.

Peter Jones

Demand.

Don MacLean – Paradigm Capital

Okay. Thank you.

Operator

(Operator Instructions) Our next question comes in from Haytham Hodaly at Salman Partners. Go ahead, please.

Haytham Hodaly – Salman Partners

Good morning, everybody.

Carol Banducci

Good morning.

Haytham Hodaly – Salman Partners

Just a few simple questions, let's start with Essakane. I guess, how much of the 500,000 ounces that you budgeted between now and the end of 2011 – or 500,000-plus I guess, would you realistically expect to come up this year?

Peter Jones

I think we'll be in the $150 to $160 range.

Haytham Hodaly – Salman Partners

And what do you think are your costs associated – I mean will you be able to bring costs down to the level as you're hoping to get them to immediately? Or do you see any – some initial cost pressures?

Peter Jones

Well, the first quarter of operations, obviously, that includes the run off to a commercial operation level. But there's no reason why in Q4 they shouldn't be at an offering range.

Haytham Hodaly – Salman Partners

Okay. And then, let's move on just to your guidance that you gave, I guess your revised guidance, 980,000 1.01 million. Does that incorporate 100% to that base we've had on a consolidated basis or is that – take the – your shares of Rosebel and Essakane?

Peter Jones

That's our account.

Haytham Hodaly – Salman Partners

That's the 95% of Rosebel and 90% Essakane

Peter Jones

Correct.

Carol Banducci

Correct.

Haytham Hodaly – Salman Partners

Perfect. And last question, just housekeeping, your effective tax rate, Carol, in terms of what you're expecting for this year so far.

Carol Banducci

It's in a range around 35% to 36%.

Haytham Hodaly – Salman Partners

How much of that do you expect to be deferred?

Carol Banducci

Fifteen percent, 15% to 20%.

Haytham Hodaly – Salman Partners

Perfect. That's it. Thank you.

Operator

Your next question comes from Dan Rollins with UBS Securities. Please go ahead.

Dan Rollins – UBS Securities

Thanks. Peter, I was wondering if you could expand on your commentary regarding CEO search, regarding an announcement in the short term.

Peter Jones

No, I don't think I can. It's in a very delicate stage. And I just have to stick by the fact that it will be short term.

Dan Rollins – UBS Securities

Okay. So you're waiting for the candidates, if there's been a chosen one, to (inaudible) induction before making an announcement.

Peter Jones

Right. You know how the damage goes?

Dan Rollins – UBS Securities

Yes, for sure. Another question for you, you had mentioned earlier in the call that you've already started initiatives to lower costs at all the mines. Could you maybe focus on what are the key cost initiatives you're currently focused on?

Peter Jones

Yes, I'll let Gord do to that because he is – it's his focus now.

Gordon Stothart

Yes. Well, starting with Rosebel itself, in addition to the increased rates we were looking for in the second quarter, we have a number of projects looking to improve recovery. The most important one is the construction of some additional leach tanks. That will be completed later in the third quarter, commissioned early in the fourth quarter or hopefully even sooner. But beyond that, we've been doing some enhancements of the gravity circuit that are already starting to bear a fruit. We're looking at our current management system and think we can squeeze some additional recovery out of that.

On the mine side, they've been working on improving ore dilution through adjusted blasts and digging practices as well as the mines have some cost programs on fuel entire cost.

At Sadiola, we talked about the second gravity concentrator coming on line in the third quarter. That will improve recoveries. Obviously, that's free revenue at no cost, so that's – or almost no cost. As well in Sadiola, they're really starting to look at tighter control of the mining contractor by the site management and oversight with the objective to improve their total mine cost performance.

Mupane is not a significant player, but it's certainly a lot of our higher cost operations. At Mupane, they've improved the recovery already at the mill by a move, which is grinding in cyanide. Currently, they're looking to improve the residence time through the use of a previously decommissioned flotation circuit for leaching capacity.

Niobec, even Niobec has had a great year. But again, we're starting to look at opportunities for cost management. Increased production with the startup of the new plant in Q4 will obviously help us on the fixed cost portion. The paced drilling costs was really just moving in an optimization phase now, now that plant up and running. And as it moves into full productivity, we're really looking – managing those cost downwards. As well in the converted plant, we're looking at increasing the productivity to another operational announcement.

And sitting above that at the corporate level, we have – we're in the midst of instituting a corporate live energy management program, really looking for opportunities in power savings from the key operations this year and the other operations moving forward to improve tracking and instrumentation. For 2010, we're concentrating on Niobec, Rosebel, and Essakane. And one example would be the installation of additional instrumentation at Niobec that will allow us to better balance the demand factor on startup of large equipment.

Dan Rollins – UBS Securities

Perfect. And just help me confirm, you mentioned on the call here that you're spending – is it correct, a $158 million in CapEx in H2?

Peter Jones

That's correct. We were front-end loaded this year mostly because of Essakane, but also projects in Niobec.

Dan Rollins – UBS Securities

And does that include any capitalized exploration?

Peter Jones

Yes, this is not very much, but yes, some.

Carol Banducci

Yes, a very minimal amount.

Dan Rollins – UBS Securities

Okay. And how much of your exploration budget are – for the full year is basically related to Rosebel?

Peter Jones

That's a good question. I'll ask Mike that.

Mike Donnelly

It's $12.5 million directed at Rosebel. And then, we have an additional, roughly, $7 million elsewhere in (inaudible).

Dan Rollins – UBS Securities

Okay. Does that include the recent find to the north of the mine?

Mike Donnelly

It does.

Dan Rollins – UBS Securities

Okay. Perfect. Thank you.

Operator

Your next question comes in from Steven Butler with Canaccord Genuity. Go ahead, please.

Steven Butler – Canaccord Genuity

Hello. Good morning, Peter, Gord, and Carol. A question for the guys on Rosebel, you talked about 20% of ore feed coming from the low grade stockpile. What was the grade of that stockpile or roughly because I didn't know?

Peter Jones

That's actually a good question, Steve. I believe that stockpile runs typically around 0.7.

Gordon Stothart

That's correct.

Steven Butler – Canaccord Genuity

Okay. And were you forced away from higher grade areas of the pits for – obviously, the water issues, rain issues, or – and of course, the lower grade pits? Or was that part of it? Or was it mostly explained by having done the analysis to see if it is all explainable by the stockpile grade? Is it also explained by other areas that several mines?

Peter Jones

We couldn't get in to develop higher grade areas because of the rainfall. And so, we took more from lower grade stockpiles, which lowered our overall grade. It was 20% of the – all came from the low-grade stockpiles.

Steven Butler – Canaccord Genuity

I guess (inaudible) question about whether higher grade or if the pits were also restricted in your – forced into lower grade areas, or does that – or was that not necessarily an issue?

Peter Jones

We were mining low – we have planned to mine the lower grade in the first and second quarters. And in the last month of the second quarter, we were supposed to transition to higher grade areas. And we couldn't do that.

Steven Butler – Canaccord Genuity

Okay. And Gordon, I think you mentioned – or Peter, the rain was particularly stronger in the latter part of the quarter. So there's the question that if indeed you've had a trickle, no pun intended, effect into Q3 or is it largely resolved. And what grades are you – have you been mining in the first month and change of Q3?

Gordon Stothart

Our production for July, for example, was pretty much as for our forecast. So we're starting to – we're certainly starting to see the grades pick up strongly. And the rain – the rain conditions are continuing. And they're working hard at it, but they are really starting to dwindle. And we've got a big push on over the next while to a get into the (inaudible) and move that material to develop.

Steven Butler – Canaccord Genuity

Okay. Lastly, just on Niobec, Gordon, the guidance raised, which is nice to see just to deliver very well. The Niobec guidance of raise, is it partly the – it must be the grade-related or versus your original plan? Or is it expecting your expansion of the – in operation as you alluded to in the – your answer to the question in the latter part of Q4 or early middle part of Q4 on the expansion? Thanks.

Gordon Stothart

Both. The first part of the year, we've enjoyed somewhat better grades that we had forecasted, positive reconciliation on the slopes that we had been mining for that period of time, a little bit of throughput than we had planned so far this year. But you're right on. A lot of the additional production will come from an earlier than originally planned completion to the mill expansion. And we're anticipating a pretty ramped up schedule in the longer term plan. I think we're a little conservative on our ramp-up schedule. And as we've started back and analyze it, I think we can certainly hit that plant quite a bit harder than fourth quarter.

Steven Butler – Canaccord Genuity

Okay. Thanks.

Operator

(Operator Instructions) The next question comes in form Barry Cooper at CIBC. Go ahead, please.

Barry Cooper – CIBC

Yes, Gordon. Just wondering, I listened to your explanation on the cost there, the one operation that doesn’t seem to make a lot of sense to me is Sadiola and I’m referring to quarter-over-quarter here because the throughput was basically the same. The strip ratio was a little bit higher but not that much. The grade was identical, the recovery was actually up in the quarter and yet the cost went up $100 an ounce. And even if you’re looking at royalties, royalties only account for $4 of that. So I’m a little perplexed as to what actually went on there that caused those costs to go up by that much.

Gordon Stothart

I don’t have a detail analysis specifically of it, but there were a couple of factors going on. One, although we treated a higher grade through the mill, the strip ratio did go up as it typically does there during the rainy season as we move on to lower ore benches and into the upper benches.

There was higher stockpile movement, so we were putting material into the mill from stockpiles, which slashes the cost from quarter to quarter at Sadiola. We did treat a bit of sulfide ore in the second quarter. We did not treat the first in the first quarter on that. That comes to combat a higher operating cost. It does come at a high operating cost.

Barry Cooper – CIBC

Is that reagents for the sulfide?

Gordon Stothart

Yes, both reagent and power.

Barry Cooper – CIBC

Right.

Gordon Stothart

And yes, there is a recovery effect there as well.

Barry Cooper – CIBC

Yes, although the recover seemed to be, as I say better in Q1 – or in Q2 than in it was in Q1. So that doesn’t jibe with that issue.

Gordon Stothart

The recovery is more higher on – it’s the grades split. In the first quarter, the grades were coming from the lower grade oxides which tend to get a better recovery but not as good as iron grade oxide. Some of the sulfides coming in have been in the lower grade offset by higher recovery. It’s more or less equivalent. It wasn't a huge effect, that one.

Barry Cooper – CIBC

Is it fair to say that your stockpiles or inventories are carried at a much higher cost than what you’re producing at right now under normal circumstances?

Gordon Stothart

You see quarter-to-quarter fluctuations. They’re not carried at a lot higher cost, but depending on how much you’re putting in or pulling out stockpiles in any one quarter. You will see effects to the cash stock number.

Barry Cooper – CIBC

Okay. Well, I’m still a little bit perplexed on that one anyway.

Gordon Stothart

Well, think of it this way, Barry. In the first quarter, we mine heavily on ore typically and put a lot more into stockpile. In the second quarter, we mined more on waste and we’re pulling out of those stockpiles. So that goes to cash cost with material going into stockpile in the first quarter and tend to heap up in the second quarter.

Barry Cooper – CIBC

Yes. Okay. I was just looking at the total material mined, and it’s pretty close, Q1 versus Q2.

Peter Jones

Barry, we'll give you a breakdown and get back to you offline.

Barry Cooper – CIBC

Okay. Then on Rosebel, what kind of changes on the recoveries are you anticipating with the additions there? Is that like 1% or 2% that you're anticipating?

Peter Jones

Two percent and 3%, I would say.

Barry Cooper – CIBC

Two percent to 3%. Okay. Thanks a lot.

Operator

Okay. Next question comes in from David Christie at Scotia Capital. Go ahead, please.

David Christie – Scotia Capital

Good morning, guys. I'm with Barry also, it seems a bit confusing. So if I can get some clarity, that'd be great. You mentioned the exploration about – to increase because you've had some good results in various places. I was wondering if you can give me a little more info on that. And just maybe on Essakane, you didn't really give a lot of details on how it's actually working there. And I was wondering how many tons of costs to the mill, and what kind of recoveries or reconciliations you're getting.

Peter Jones

Well, as you can imagine, when startup mode, we've only really been operating for three weeks.

David Christie – Scotia Capital

About a month now, is it now, right?

Peter Jones

So it's all over the place, but we've been getting good recoveries, I will say that, variable, but well into the 90s. But I'll let Mike talk about exploration.

David Christie – Scotia Capital

The mill had been operating since June 24th, right?

Peter Jones

No. We're obviously going through it, but we've only been operating for recovery of gold since mid July.

David Christie – Scotia Capital

Okay.

Mike Donnelly

I'll say a few words about the exploration. We have an additional $9 million. And that's almost evenly split between the Greenfields portfolio and the brownfields or the near-mine. We have additional mining going into Rosebel and Mouska, and also the Essakane mine. And this is primarily a resource conversion, for the most part, at Rosebel and some exploration on the new zone at Mouska. And we just want to accelerate some of the work around Essakane. And so, that money is pretty well split evenly.

And then on the Greenfield side, we want to take advantage of the dry season in the fourth quarter. And we did a lot of work in the first part of the year. And so, we have the capacity just to keep right on working through the fourth quarter on our JVs in West Africa as well as additional work at Charmagne in Suriname.

Peter Jones

Maybe I can just say a few more words about Essakane. I think we said on this call last quarter that mineralization continue to the north and south of the main pit. We have also done some near-mine exploration, picking up additional material on the east planks and below the pit, and not prepared to release any numbers yet, but just say that the indications are significant increase in resource in that immediate mine area, including indication of resource to the north of the pit.

And on the Greenfields area, we've got a couple of plays in Maui that – Mike's a pretty steady guy for an exploration guy. He's really excited on this.

David Christie – Scotia Capital

On the Essakane extension to the north, is this the area that was already populated around the town or is this further north than that?

Peter Jones

No, this is across the river.

Mike Donnelly

Yes. It's immediately across the river. And the mine folks, as far 50,000 meters, have done pushing that mineralization envelope directly north of the design. And on the exploration side, we've picked up where they left off, and continue to pursue that same mineralization in the – in that Essakane anticline to the north. We're not out of it yet. It does plunge in that direction. But we want to pick up on that work after the rainy season.

David Christie – Scotia Capital

So is this where the river is now or where it's been moved to? Sorry.

Mike Donnelly

Where the river is now.

David Christie – Scotia Capital

Okay. That's great. Thanks.

Operator

Your next question is from Izuro Sanivi [ph] at Equinox Partners. Go ahead, please.

Izuro Sanivi – Equinox Partners

Good morning, guys. Question on Essakane, at this point, you must have moved everybody – all the people there on site or could you give us a sense of how much that whole relocation process cost?

Peter Jones

Around $44 million, $45 million.

Carol Banducci

$4.5 million.

Peter Jones

Or $4.5 million, rather.

Izuro Sanivi – Equinox Partners

Okay. And is that process complete now or would you expect further work in that sense?

Peter Jones

No, that's all done. People were moved in by February.

Izuro Sanivi – Equinox Partners

On an ongoing basis, the social development work that you have to do, is that included in the cash – operating cash process unit? Or is that going to go into the capital side of things?

Peter Jones

No, no. The ongoing thing is part of our operating cost.

Izuro Sanivi – Equinox Partners

Okay. Thanks, guys.

Operator

Okay. We do have a final question from Dan Rollins at UBS Securities. Go ahead, please.

Dan Rollins – UBS Securities

Yes, just one more question, just on what you're seeing at (inaudible) picture. Has there been any more clarity or alignment of the bureaucracy in Ecuador? I'd like to say a lot of (inaudible) a little quicker than – has it been waiting back and seeing what other people in the area are going to be doing?

Peter Jones

Dan, you're really breaking up there.

Dan Rollins – UBS Securities

Right. Just on Ecuador, has there been any more clarity on how – what's in the line with the mining code or how the bureaucracy is evolving there to encourage mining?

Peter Jones

No. But I'll let Larry Phillips speak to that, and–

Larry Phillips

Yes. Thank you, Peter. Dan, the overall framework is fairly well set in terms of the mining code and regulations. What we're working towards now is the specifics of an agreement, the mining agreement relating to our projects. And the timetable for that is somewhat in the government's hands because they want to create a model or a kind of agreement or a template in order to sit down with the key players that would certainly include ourselves with our Quimsacocha project.

So we continue to lead in those discussions and move forward. We're certainly anxious to get an outcome on those mineral agreements and the timetable that our host government is putting forward. It's in the nature of the third quarter this year, certainly, before the end of the year. And once we get that clarity, it will make it easier to proceed on finalizing feasibility and knowing exactly where we can go with the project and how quickly.

Dan Rollins – UBS Securities

Okay. Great.

Operator

Okay. That was our final question over the phone. I would now like to turn back the call over to Mr. Bob Tait. Go ahead, Bob.

Bob Tait

Yes. Thank you. Larry, did you – was there something you wanted to add?

Larry Phillips

Just with respect to Quimsacocha and Ecuador, we were pleased to receive our water permit, which was initiated with – we've been working with our host government closely for the last really 8 to 10 months. And that was received recently. So that is an indication of a positive step forward for the project.

Bob Tait

Okay. Thank you, Larry. The only information we've had from the Web is what is realistic production and proper tons milled on the short and long run basis for Essakane. And I think Peter has really already answered that it's too early to tell.

Peter Jones

Yes. Our long run is still $400 to $410.

Bob Tait

Yes. So that's the end of the questions. And I want to thank you all for your participation in the call today. If you have any follow-up questions, you can reach me at 416-360-4743 or at bob_tait@iamgold.com. Thank you.

Operator

Thank you for joining. That concludes the webcast.

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