IAMGOLD CEO Discusses Q3 2010 Results - Earnings Call Transcript

Nov. 5.10 | About: IAMGOLD Corporation (IAG)

IAMGOLD Corporation (NYSE:IAG)

Q3 2010 Earnings Call

November 5, 2010 11:00 a.m. ET

Executives

Stephen J.J. Letwin – President and CEOP

Carol Banducci – EVP and CFO

Gordon Stothart – EVP and COO

Bob Tait – VP, IR

Mike Donnelly, –Senior Vice President, Exploration

Jeff Snow – Senior Vice President, General Counsel and Corporate Secretary

Analysts

Dan Rollins – UBS Securities

Steven Butler – Canaccord Genuity

Josh Wolfson – Stifel, Nicolaus & Company

Don MacLean – Paradigm Capital

David Haughton – BMO Nesbitt Burns Investment

Barry Cooper – CIBC World Markets

Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to IAMGOLD Corporation's 2010 third 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 Friday, November 5, 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, welcome to IAMGOLD's third quarter conference call. Earlier today, we published a news release outlining our operating performance and financial results for the second quarter. The accompanied financial statements, notes, and MD&A have been posted to the, and the company's Web site at IAMGOLD.com.

Joining me today are Steve Letwin, President and CEO of IAMGOLD; Gordon Stothart, VVP and Chief Operating Officer; Carol Banducci, Executive Vice President and Chief Financial Officer; Mike Donnelly, Senior Vice President, Exploration, and Jeff Snow, Senior Vice President, General Counsel and Corporate Secretary.

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, this call is being recorded for playback purposes, and at this time, I'll turn the call over to our president and CEO, Steve Letwin.

Steve Letwin

Well thank you, Bob, and good morning everybody. As you know, this is my first week as President and CEO of IAMGOLD, and therefore, my first quarterly conference call. And as most of you know, for the last few months, I’ve been eager for this opportunity to lead IAMGOLD. It’s a company with a proven track record of financial and operational success.

And as I said to many of you, a company with further potential to grow and become a major gold producer in the industry.

In the last few months, I’ve been very engaged, both here and in Denver, and I’ve met with many, but not all of you. As you get to know me, I think you’ll find that my communication style is very forthright, open, and transparent. And I do look forward to meeting all of you over the next couple of months.

I believe that positive first impressions are communicated through our actions, and I believe we must deliver what we say we will. During my 30 years of experience in the energy industry, a very highly competitive sector, I’ve cultivated very meaningful relationships that have directly contributed to the achievement of record earnings and cash flow.

I’m equally proud of my record in developing a culture of health and safety, and partnering with communities in which I have operated and enhancing the reputation of the companies that I’ve worked for.

I bring this experience expertise and leadership to IAMGOLD. While needless to say, it’s been an exciting first five days, and I’ve seen the highs of a record quarter of production, and unfortunately, some of the challenges of an interruption at our new Essakane mine, more of which you’ll hear from Gord in a few minutes. But underlining all of it is a company with great assets and suburb growth potential that I’m excited to be part of.

Our strategy is to grow the company with aggressive organic growth and targeted acquisitions to add value for our stakeholders. To achieve our growth targets, we also need to keep an eye on cost, and my guidance to our employees is very simple, treat the company’s money as if it were your own. As I get out there to meet with existing shareholders, the impression that I want to leave with each investor group is that we are aware of the rising cost, that we have a proactive plan in place to reduce our cost, and that we will take swift action to address such.

My goal is to visit each IAMGOLD site within the first 100 days. I’ll be meeting with as many employees as possible to gain a better understanding of our current operations, our strengths, and the opportunities for improvement.

I also plan to reach out personally to our larger shareholders, key government officials in regions where we operate, our business partners, and other key stakeholders. Only after that, when I am armed with a greater understanding of the business and a collective incite of all of our key stakeholders, we’ll commence a very proactive investor relations program of road shows, conferences, and investor meetings.

If you talk to anyone in the investment community, in Niobium and the energy business, you will know that I am a strong advocate of inactivate investor relation program, and I will put that into action here.

Last year I did over 80 investor trips, and I will continue to do that here at IAMGOLD. I believe our path forward lies in setting and communicating realistic goals and then in executing other plans to meet or exceed those goals. I have been and continue to be, impressed by the strength and experience of the existing executive team that guide me, and further understanding the path, it’s operations, it’s future potential. And keeping with my confidence in the team, I plan to involve them into a greater degree in the investor relations programs starting today.

So here to discuss our Q3 results are CFO Carol Banducci, COO Gordon Stothart, and our Senior Vice President of Exploration, Mike Donnelly. I’ll now turn the call over to Carol.

Carol Banducci

Thank you, Steve. Turning to the financial highlights, I’d first like to acknowledge the record production of 256,000 physical ounces at [inaudible] in the third quarter. On the gold side, we achieved three important production milestones, including the commencement of commercial production at Essakane. The installation of four additional CIL tanks at Rosebel, two of which were commissioned in Q3, and the initiation of batch processing at Mouska.

As expected, cash cost decreased in Q3 largely due to lower cost at Rosebell as we are able to increase the production and access higher grade or after the raining season.

Notwithstanding initial production of ramp up impacts, Essakane also contributed to reducing our overall cash cost performance. Our consolidated revenues increased 8% to $254 million from $235 million in the third quarter of 2009, benefiting from an increased gold price.

Although we had record production of the quarter, we are not able to convert all these balances into fails, and that impacted revenue, earnings, and operating cash flow in Q3. Production ounces exceeded revenue by 46,000 in Q3 for three reasons. A 23,000 ounce buildup of base load in [inaudible] inventory, as production started up in Essakane and Mouska. 15,000 ounces of poor but not sold ounces from Essakane, and 7,000 ounces of inventory built at Rosebel.

We anticipate approximately 20,000 ounces of this production, while materializing sells in Q4 as Essakane normalizes along with the timing of year-end shipments at the other sites.

We have benefited from the increased gold price as margins per ounce has increased by over $150 year-over-year to $660. The higher gold prices in the past year has allowed us to maximize the cash contribution from our near end of life mine as we continue to produce lower grade and higher cost ounces.

With Essakane and Rosebel performing a much larger part of our production going forward, we will see this margin grow significantly in the coming quarters, and ultimately driving our cash balances up.

Niobec, our Niobium mine, continues to perform well. On a year-over-year basis, production increased 8% to 1.1 million kilograms in the third quarter. As we begin to realize that the benefit of the implementation of the pace backfill and no expansion projects.

Sales growth 1% to 1.1 million kilograms in the same period, and we continue to realize a steady margin of $19 per kilogram. Now let’s take a closer look at the financial details.

Our consolidated revenue is increased 8% to 254 million in the third quarter of 2010 from 235 million in the third quarter of 2009, mainly as a result of a 29% rise in gold prices. We also experienced a marginal increase in Niobium sale prices in Niobium sales volume. This is partially offset by a decrease in gold sales of about 30,000 ounces. This is primarily due to the completion of mining at doyon in December 2009, batch processing of ore at the Mouska mine and lower grades at Yatela. In addition, there was a buildup of inventory at Essakane, as discussed previously.

In the third quarter of 2010, net earnings were 40.8 million or $0.11 per share as compared to 64.9 million or $0.18 per share in the third quarter 2009. Adjusted net earnings of 50 million or $0.13 per share decreased 3% compared to Q3 2009 adjusted net earnings of 51.7 million or $0.14 per share.

As you can see on the right side of the table, we had a $21 million strength in earnings due to foreign exchange. As you know, we maintain a proactive hedging strategy that protects against economic impact of foreign exchange fluctuation. However, these are accounting foreign exchange translation losses, more specifically, in the third quarter 2010, we incurred a foreign exchange loss of 9.3 million, mainly related to the translation of future income tax liability of foreign operations which are denominated in the currency other than U.S. dollars.

In the third quarter of 2009, there was $11.6 million gain arising from foreign exchange variation, on cash held in Canadian dollars, resulting from the equity financing during the first quarter of 2009.

I also want to bring to your attention, the impact in Q3 of taxes on our net earnings. The effective tax rate increased to 43%, mainly due to fluctuations in exchange rate for foreign currency and no jurisdiction where the tax currency is not the U.S. dollar, as well, you have to look at the relative mix of income earned in each taxable jurisdiction.

Notwithstanding, are effective cash rate is 37% on a year-to-date basis. Our cash tax rate remains around 34 to 35%. [inaudible] cash flow, in Q3 cash flow from operating activities, decreased by 24.4 million to 64.9 million or $0.17 per share compared to 89 million or $0.24 per share in the same period last year. The decrease is mainly due to the investment and inventory, and supplies for the new Essakane mine.

I also want to point out, the cash flow from operations more than offset the investment in mine assets and exploration and development expenditures in the quarter. As initially planned, with the equity funds, raised in 2009, we have invested in building the Essakane mine and developing Westwood without accessing our credit facility.

IAMGOLD remains well positioned to fund its remaining 2010 capital requirements of $100 million in the fourth quarter. Earlier this year, we increased our available credit facility to 350 million. At the end of Q3, we held 243 million in cash in bullion market as compared to 228 million at the end of Q2.

As gold production from Essakane grows, we anticipate our financial position will strengthen further, and allow us to pursue additional growth opportunity. Gordon will now talk to you about our operations.

Gordon Stothart

Thank you very much, Carol. On August 19, we announced that the Essakane gold mine had achieved commercial production effective as of July 16, 2010. We began to process material in the plant to wet commission circuits in [inaudible], reaching a throughput production and other operational criteria to meet commercial production requirements to the necessary 30 consecutive days to declare a commercial production.

Throughput at the Mill is ramping up and averaged over 17,000 tons per day in September with peaks of 23,000 tons per day. The current objective is to average over 24,500 tons per day when processing soft rock in the initial years of the operation. This site produced 47,000 ounces of gold during its first production quarter. Sales were somewhat lower than expected as a result of the timing of shipments and the fact that the operation was still in ramp up phase.

We are experiencing normal start up issues at Essakane, and currently have an electrical/mechanical issue with the [inaudible] mill, which has been down since November 1. We are assessing its issue and will have it resolved as quickly as possible. But as the nature and the timing of the resolution of the issue are uncertain, the company’s production guidance for the year has been adjusted downwards, based on the assumption that Essakane will not be operational for a period up to 3 weeks.

The company will make an announcement once the issue is resolved, or should it extend beyond the 3 weeks.

The total project cost for the initial Essakane construction is now estimated at $455 million compared to our earlier estimate of $443 million. We are waiting for the final bills to come in, and the completion of work on the pressure, which while not official until we start processing hard rock, was part of the original capital project.

On October 20, 2010, we announced our launch of a feasibility study to evaluate the opportunity for an expansion of Essakane. The decision to proceed with the study was based on positive results from the ongoing drill campaign, and on the timings of the recently completed conceptual study.

The feasibility study is scheduled for completion of the third quarter of 2011. The current mine plan includes processing a soft rock for the first 3 years at a nominal rate of 9 million tons prior year, followed by approximately 9 years of processing hard rock. This study is expected to demonstrate that the hard rock capacity of the mine could be expanded to process approximately 10.8 million tons per year, doubling the current time capacity of 5.4 million tons per year around hard rock. The expansion would not only increase production from the current estimated life-of-mine average production of 315,000 ounces per year to an estimated 450 to 470,000 ounces per year.

Assuming a positive outcome of the study, construction would commence in the fourth quarter of 2011, to be completed in early 2013. We’ve committed $14 million to complete the feasibility study, including a provision to place advance orders for some long lead time equipment, and an expansion of the [inaudible].

A significant portion of the study budget has been year marked for drilling to bring additional [inaudible] in to the reserve category.

Moving to Rosebel, gold production during the third quarter 2010 was 5% lower compared to the same period last year, primarily as a result of lower head grades. However, gold production was 23% higher than in Q2 of 2010, as grades improved considerably with the advent of the dry season, allowing access to higher grade zones.

Gold recoveries were higher than the prior year quarter. Four additional leach tanks have been commissioned during September and October and already having positive impact on gold recoveries.

Cash cost per ounce were up in the third quarter of 2010 versus a year earlier, due to lower gold production for lower gold grades, higher royalties from a 28% increase in realized gold prices, and higher energy cost.

Cash cost in Q3 were now significantly compared to Q2 of this year. We expect production and cost to improve in the fourth quarter, with improvements in the gravity circuit and the commissioning of the additional leach tanks, as well as accessing additional higher grade ores.

At Sadiola, attributable gold production decreased in the third quarter of 2010 compared to the third quarter of 2009 as a result of lower grades. The mine processed higher quantities of oxides in the current quarter as compared to the prior year quarter which resulted in higher throughput and recoveries. The minute continued its waste stripping effort during the quarter.

Cash cost per ounce of gold rose during the 2010 third quarter compared to the third quarter of 2009, primarily as a result of lower production from lower grades, higher energy costs, and higher royalties from higher gold prices realized.

At Yatela, attributable gold production was lower by 59% in the third quarter of 2010 compared to the third quarter of 2009 as a result of the grade of ore stacked in prior periods. After the completion of mining in the bottom of the main pit in early 2010, mine production at Yatela has shifted into a longer haul satellite pit which resulted in lower grades and higher waste stripping.

As a result, gold stacked decreased in the third quarter of 2010 compared to higher grade ore mined in the prior year.

Cash cost per ounce at Yatela was significantly higher during the third quarter of 2010 compared to the third quarter of 2009, primarily as a result of higher waste striping cost and an increase in the mining contractor fee structure.

Lower gold production from lower grades and higher royalty costs from higher realized gold prices.

Sadiola, distributed dividends of $14.5 million to IAMGOLD account in the third quarter, as compared to 3.8 million in the third quarter of last year. No dividend was distributed from Yatela in the third quarter as compared to $10 million in the third quarter of 2009.

At Tarkwa, attributable gold production in the third quarter of 2010 was higher compared to the third quarter of 2009 as a result of higher gold grades from ore stacked on the heap pads in the prior periods.

Cash cost in the third quarter of 2010 were up compared to the third quarter of 2009 as a result of higher energy costs. At Damang, attributable gold production during the third quarter of 2010 increased from the third quarter of 2009 due to higher grades and higher throughput as a result of commissioning the secondary crusher circuit.

Cash costs were up during the third quarter of 2010 compared to the third quarter of 2009 due to rising contractor costs. For both Tarkwa and Damang, royalties were lower during Q3 as we adjusted the royalty rate back to 3% for 2010. The increased rate of 5% will only take effect in March 2011. No dividends were received from either operation during the third quarter of 2010 or the conformable period in the prior year.

Moving to the Doyon division in [inaudible], I’d like to start with as a result of a cost reduction initiative, the ore mines for Mouska during the first 8 ½ months in 2010 was stockpiled to be batched processed. Mouska started processing its ore in September of this year, and is expected to complete processing its ore stockpile before the end of the year.

In the fourth quarter of 2009, we approved a program to extend the life of the Mouska mine to early 2012, through the use paste backfield produced from the Doyon paste plant. The paste backfill program allows us to open two additional mining levels below the previous design. We expect to produce between 25,000 and 30,000 ounces at Mouska 2010, and exploration on some additional potential resources is ongoing.

At Botswana, gold production was 45% higher during the third quarter of 2010 than in the third quarter of 2009 as a result of higher mill throughput with improved plant performance. Cash cost per ounce at Botswana was higher than the third quarter of 2010 compared to the third quarter of 2009, primarily as a result of higher strip ratio, higher energy costs and higher royalties on increasing gold prices.

At Mupane, we recognize the cost will remain high. Accordingly, we continue to work with local management to maximize cash flow going forward as the minute approaches its end of life, exploiting the current high gold prices. Given the short life and high base line cost, IAMGOLD has hedge option contracts in place to protect a portion of Mupane output. In the third quarter, option contracts for 10,000 ounces of gold option, expired without being exercised.

Moving to Niobec. Niobium production rose 8% to just over 1 million kilograms in the quarter due to higher grades. Revenues increased 1% in the same period due to slightly higher sales prices and volumes. The operating margin remain constant at $19 per kilograms this quarter compared to a year ago, has a stronger Canadian dollar somewhat offset higher sales volumes.

Construction of the mill expansion was completed during the third quarter with expenditures of $22.9 million in 2010 compared to an estimate of $24 million. The mill is already ramped up from an average throughput of 210 tons per hour to the designed 260 tons per hour on an intermittent basis. And commissioning continues with completion as a related circuit modifications or stabilization of the circuit.

The mill expansion is expected to increase mill throughput by 24% with the design to match throughput to the mine hoisting capacity.

We began backfilling following the completion of the construction of the paste backfill plant at associated underground infrastructure which occurred during second quarter 2010. Before finishing the paste backfill project, we were recovering just 35% of the total potential deposits at lower levels. The paste backfill system allows us to extract almost 90% of those resources.

At Westwood, the next major development project on our horizon, we’d like to declare that we are still on schedule for startup early in 2013. At the end of September, the mine shaft has been extended to a depth of 1,030 meters with a plan to reach 11,000 meters by the end of the year. This is below the original target of 12,020 meters that we spoke about in August, due to the design of – redesign of a primarily loading platform and a necessity for additional estimation initiated in some of the shaft stations. At the end of the third quarter 4,429 meters of underground development had been completed. Exploration drilling and evaluation drilling totaled 14,720 meters in the third quarter and year-to-date a total of 54,500 meters were drilled of the 71,500 meters planned for the entire year. A revised resource estimated plan for year-end.

Project expenditures in the third quarter total $19.2 million and reached $69.5 million for the first 9 months of this year. A further $28 million is budgeted for Westwood in the fourth quarter. Westwood remains an important point of our growth profile.

As you can see, we scaled back our production guidance for 2010. The primarily reason for this is the uncertainty around the nature and timing of the resolution of the issue of the [inaudible] mill at Essakane. We continue to be confident we bring this mine back to full capacity shortly, but need to resolve the issue with the [inaudible] mill before we can feel confident about higher production numbers for this year.

As I mentioned, for the purposes of guidance, we have estimated the mill could be down for up to 3 weeks, and accordingly, we have revised our gold production guidance down slightly from a range of between 900,800 and 1 million and 10,000 ounces per year to arrange of between 940,000 and 970,000 ounces.

As a result of lower production guidance, primarily from a lower Essakane operation, our cash cost per ounce guidance has moved higher. We have revised our guidance for the average cash cost for gold from a range of between 530 and $550 per ounce to a range of between 565 and $585 per ounce. And now, I’d like to hand this call over to Mike Donnelly to give us an update on exploration, Mike.

Mike Donnelly

Thanks, Gordon. We’re committed to growth, and a large component of that growth will be driven by aggressive organic exploration. IAMGOLD exploration efforts remain focused in West Africa, select countries of South America, and in Canada’s provinces Ontario and Quebec.

In the third quarter of 2010, IAMGOLD incurred 18.5 million on exploration projects. As the 31% increase from 14.1 million in the third quarter of 2009. The 2010 third quarter expenditures included near-mine exploration and resource development expenditures of 8 million, and that full year program includes Rosebel, where we have an estimated 91,000 meter, $14 million resource expansion, and delineation drilling program at Essakane where we have a 50,000 meter, $9.6 million drill delineation program and Westwood where we are spending 9.5 million for nearly 72,000 meters of exploration and resourcing expansion drilling.

Updated resources assessments for these operations and projects, incorporating the results of these drilling efforts will be completed for year-end. Greenfield exploration of 10.5 million conducted at 16 projects including 2 advanced exploration sites, in 11 countries in Africa and the Americas are also part of IAMGOLDs long-term commitment to reserve through [inaudible] and organic growth. At this point, I’ll turn this back to Steve to conclude our remarks.

Steve Letwin

Thanks Mike, while with a record production, and the initiation of significant development projects at Essakane and Rosebel, and the restart of the plant in Mouska, we’ve accomplished a lot in the third quarter. We’ve also got a serious issue at Essakane which we’ve been front and center about and we are confident that we will overcome, is a normal part of the production ramp up. Now that I’m on board, I’m even more confident about the future of IAMGOLD, let me tell you why.

We just reported record production and with Essakane ramping up, we see production rising even higher in the immediate future. We have already begun a feasibility study to look at expanding Essakane. We are doing a feasibility study to look at expanding Sadiola. We have a very robust $87 million exploration program that is giving us confidence about the future potential, particularly near-mine exploration of our key assets at Essakane, Rosebel, and Westwood.

The development at work at Westwood is progressing well and on schedule for early 2013, and we have a number of reasons to expect strong cash flow in the fourth quarter. Increasing production in sales from Essakane, [inaudible] and selling the quarter 4 batch production from Mouska, improving recoveries from the gravities circuit in the new leach tank at Rosebel, and benefiting from the backfill project and mill expansion at Niobec and last but not least, a higher gold price.

And now, we would be pleased to take your questions, thank you very much.

Question-and-Answer Session

Operator

(Operator Instructions) We do have our first question coming in from Dan Rollins at UBS. Go ahead please.

Dan Rollins – UBS Securities

Good morning, Steve, et.al. I was wondering if we could maybe get into the details of the Essakane electrical issues there. Gordon, maybe you could give a little bit more color on what is the actual problem with the mill?

Gordon Stothart

Yes, I’d be happy to do so. The issue with the mill is to do with the variable frequency drive, or VFD, which is the unit that delivers the power to the motor which drives the mill. So it’s basically the connection between our generating station and the mill. We had a power down due to a failure of one of the generators, which happens occasionally earlier this week, and at that time we were able to restart the ball mill with no problem. When we attempted to restart the sag mill, we – the VFD failed to initiate.

So currently we’ve gotten in the variable frequency drive, we’re bringing in an expert technician from the manufacturer to help us with the assessment. This is a modular unit. It’s comprised of six modules, five of which are required to operate at full power, but only three of which are required to operate on a reduced-power basis, which is really all we require at this time with softer rock.

So it’s an issue with the variable frequency drive. It can be – the module can be repaired [inaudible]. We’re expecting to have to replace a couple of capacitors and byriskers. This is not an issue with either the mill itself or the mill motor, really just the electrical system.

Dan Rollins – UBS Securities

Okay. And could you maybe provide an update on where the status of the technician getting there is?

Gordon Stohart

I just received an – we’re looking to get him there this weekend and in the meantime, we’re doing a number of other maintenance projects and are looking at a Plan B to allow us to restart the sag mill on reduced tons using the drive from the ball mill and taking the ball mill offline a Plan B.

Obviously, if the technician gets there and it’s a short repair, that won’t be required, but we’d like to be processing rock here.

Dan Rollins – UBS Securities

Okay. Sorry, could you just repeat about the ball mill, you said you actually just – was that you’d use the ball mill to process?

Gordon Stohart

No, the – we can’t bypass the sag. The backup plan would be to feed power from the ball mill drive into the sag mill and take the ball mill offline for a period of time.

Dan Rollins – UBS Securities

Okay. With the sag down, will you be able to advance any of the prestriping on the pit, or will you sort of hold back on the mining activities?

Gordon Stohart

No. Actually, that was the subject of few emails yesterday. I’m asking the mine to continue to drive downward, looking for some higher-grade rock that they see on the next couple of benches. So no, mining has not stopped in any way, shape or form. The effort will be to try and recoup this period as quickly as possible once we’re up and running.

Dan Rollins – UBS Securities

Okay. And just any idea what one of these module units cost to replace in full?

Gordon Stohart

Sorry, Dan, I don’t have that number available. I can – I’ll look into it and get back to you. I believe the full price for the VFD, all six modules combined should be in the neighborhood of $800,000 to $1 million.

Dan Rollins – UBS Securities

Okay, great. And just jumping over to Mupane, it’s not a big driver of production but you see the 964 cash costs up from 887 at quarter before and up from 744 year over year. What are you actually – what’s the plan for Mupane? Is it just sort of just let this thing run out and just try to maintain costs or is there an active, you know, real kind of trying to cut the costs here because there is a potential life extension here?

Gordon Stohart

Actually, we are cutting costs at Mupane. The issue on the cash cost has been higher-than-planned striping. Higher-than-planned striping was to expose additional ore that wasn’t within the reserves for this year. So we identified some additional ore. Obviously, at the current metal prices at the end of Like Mine, going after those additional resources is [inaudible].

If I look at the cash from Mupane on a cost-per-ton mine, or cost-per-ton mill basis, we’re actually beating our budget by around 8 to 10% in both of those area year to date. So cash-per-ton of coal produced us up, basically just from additional striping.

Dan Rollins – UBS Securities

Okay, great. And just on Rosebel, good increase quarter over quarter, just the normal range. Are you look for another Q4 to be better than Q3?

Gordon Stohart

Definitely. Q4 is definitely in our targets to be a great quarter at Rosebel. The new leach tanks are online now. We’re realizing higher recoveries as well as some gravity circuit modifications that are delivering higher recoveries. The mine is dried out and is accessing higher-grade ore, so very definitely, we’re looking for a big Q4 from Rosebel.

Dan Rollins – UBS Securities

Okay because the recoveries I guess in Q3 were 94 – what were you sort of hoping when you bench-scaled this? What did you get with the additional leach tanks and the alterations of the gravity plant?

Gordon Stohart

Well, you know, in justification for the investment to the board, we laid out an increase of 2% recovery on any given type of ore. It’s highly variable depending on where we’re resourcing ore from. With the new tank in place, the data to date is showing that we are exceeding that increase, that planned increase.

Dan Rollins – UBS Securities

Great. Well, thanks for answering my questions, Gordon. And gentlemen, have a good day.

Gordon Stohart

Thank you.

Operator

And our next question comes in from Steven butler with Canaccord Genuity. Go ahead, Steven.

Steven Butler – Canaccord Genuity

Good morning, Steve, et.al. Guys, a question for you, Gord, on Niobec. The throughput there will get up to capacity at what point? Q4 or is it more Q1?

Gordon Stohart

Our expectation is that we will be consistently up to capacity by the end of this quarter.

Steven Butler – Canaccord Genuity

Okay. That’s good. And Gordon, your experience, or Denny’s experience, this variable frequency drive issues, have you ever experienced it before? It sounds like it’s obviously a very small price for this equipment. I don’t know, I’m not sure necessarily if one would be available to replace in a timely basis, or obviously the first look at is to see if you can solve the issues, but any comments there?

Gordon Stohart

You know, there’s a lot of things can happen during a start-up period, especially in a remote operation and we’re hardly happy with the event. That being said, you know, in a normal course of events, these kind of things do happen. Obviously we’ll get into the root cause analysis and how to prevent it in the future, we’ll look at a number of different options including having the appropriate spares in place, having backup plans that allow us to continue processing this at reduced rates. Obviously, some additional training of both our own technicians and our own operators as well as probably looking into arrangements with the suppler to have help available on short notice.

Steven Butler – Canaccord Genuity

Is your estimate, Gord, of three weeks inclusive of the five days already that – five or six days now that it’s been down?

Gordon Stohart

Yes, yes it does.

Steven Butler – Canaccord Genuity

And your estimate of three weeks is based on discussions with the resource supplier in terms of their troubleshooting from the phone line as to the ability to get this issue solved?

Gordon Stohart

I mean, the estimate of three weeks is based on a conservative evaluation of what could go wrong. We’re obviously – if we can get it up and running sooner, we will.

Steven Butler – Canaccord Genuity

Okay, Gord, thanks very much.

Gordon Stohart

Thanks, Steve.

Operator

Okay, our next question is from Josh Wolfson at Stifel, Nicolaus & Company. Go ahead, Josh.

Josh Wolfson – Stifel, Nicolaus & Company

Hi. Thanks for taking my question. Just based on the scoping results you talked about for the Essakane expansion. Could you give some further details on what the CapEx would be, or what the potential is for reserve additions?

Gordon Stohart

You’re sort of pushing me beyond what disclosure allows me to talk about. What I can say is we’ve seen positive results from the drilling we’ve done year to date. We – for the purposes of the concept study, you know, we assumed conversion of improved resources to viable reserves, and we have assumed some reasonable expansion to the existing ore body.

I would invite you to look at our resource statement and add the improved resources into your thinking and perhaps a little bit more than that. And that’s what the concept study was based on.

Capital costs, we’re effectively talking about a doubling of the mill plus some additional mining capacity. It doesn’t mean that I’m talking about a doubling of the 455 million capital expenditure, but certainly a significant portion of that. You know, until we get into some further studies, and in fact, until we analyze whether a doubling is the appropriate size or perhaps even something bigger, we’re not really prepared to be talking too much about capital. But I point to what we spent before with some sort of a reasonable proportion of that.

Josh Wolfson – Stifel, Nicolaus & Company

Okay. Sounds good. And then just on Yatela and Mupane, what sort of mine lives are you expecting for them?

Gordon Stothart

Well, we’ll talk about Mupane first. The current mine life with the current reserve pushes us into 2012. As I said, we did identify some additional resources this year that prompted us to strip a little bit more. We’re not looking for major extensions beyond 2012 at Mupane.

Moving to Yatela, Yatela was supposed to be closed last year. So we’re already working on additional ore detail. And the stuff we are currently mine at Yatela wasn’t even in resources at the end of last year. So we’re not looking for a huge light there. There is some interesting expiration potential. We had some good news, at least technical success with the drilling we’ve been doing there, but I would sort of reserve any comments about Yatela until the end of this year when we come forth with new reserves and resources.

Josh Wolfson – Stifel, Nicolaus & Company

That sounds good. And then last question, just for now back in 2011, any sort of idea what throughput you’re expecting there for production?

Gordon Stothart

Looking ahead at 2011 for Niobec as a throughput should be in the order of about 2.1 million tons if you take the 260 tons per hour and roll it out and apply availability factors. The next couple of years are heavy development periods, so you’re not going to see a 24% increase in Niobec for the output for a couple of years while we process lower-grade development ore. But certainly, it will pick up from current levels.

Josh Wolfson – Stifel, Nicolaus & Company

Great. Thanks so much for taking my questions, Gord.

Gordon Stothart

Thanks.

Operator

Okay, our next question is from Don MacLean at Paradigm Capital. Go ahead, Don.

Don MacLean – Paradigm Capital

Good morning, guys. And Steve, all the best to you as you pick up the reigns in this. I just wanted to ask about the Essakane cost. The did – that was pretty respectable for a start-up and maybe this one is to Carol.

Does it reflect the full operating costs in the quarter, Carol, or is there maybe some carryover of things that, you know, in the construction phase?

Carol Banducci

No, it doesn’t reflect any carryover, it’s the full operating costs for the quarter, Don.

Don MacLean – Paradigm Capital

Okay, terrific. And then maybe a few for Gord here. You know, we’ve talked about the quarter; how did October go before you ran into this electrical problem, Gord?

Gordon Stothart

We’re just getting sort of the primary – the preliminary reports. October for Essakane was a very good month production wise. They met their forecast, met their budget and we were on track on ramping up the mill grades as well. I don’t have the financial information yet, that will come out probably on Monday, or come to us on Monday. But our expectation, given the gold production is positive with respect to cost.

Also within the circuit, we continue to draw down the process inventory. We got the sales that we were looking for to the refinery, so October at Essakane was certainly a very positive month. Beyond that, what we see for the remaining two months, obviously once we get around this VFD issue is the primary crusher and stacking system is ready to be commissioned. We’re making some modifications to the tailing bumping system and we’re really looking toward improvement, both in throughput and in availability. Throughput with the tailing bump and availability of avoiding problems with oversize rock once the primary crusher’s on line.

So for the remainder of the year, once we get it back up and running, we’re going to be hitting – hitting Essakane very hard.

Don MacLean – Paradigm Capital

Maybe without getting into the financial side, can you share with us what the production looked like in October and what the mill availability was like?

Gordon Stothart

I’m getting people – I’m getting some dagger stares. I’d love to share it with you. I’d say it’s positive.

Don MacLean – Paradigm Capital

Okay. Well, then maybe we’ll move to another simple question. Is the VFD such a unique piece of equipment on this that it would have to be remade, or are there replacement modules?

Gordon Stothart

There are replacement modules. As I described, it’s actually a modular unit and we don’t need all six modules operating in order to operate the drive. We can do it with as few as three. We can – I mean, they’re not an abundant unit. They’re – we can get spares but not on short notice. We’re currently obviously working the source, availability of spares and spare parts both from the production line and from other users of this equipment. As well, we had a spare on order from a couple of months ago, a spare module that is and that is in [inaudible], it’s like by coincident it arrived this week. So that’s going up to the site. It’s a brand new unit, which had been ordered as a spare.

Don MacLean – Paradigm Capital

Great, okay. And then just on Rosebel, grade is going to be picking up you were saying. Can you give us a rough sense, you know, percentage wise or gram per ton wise what that might look like? And then maybe the sustainability of that through next year, especially the rainy season?

Gordon Stothart

I’ll answer the first question. The grades are scheduled to pick up probably three or four percent above what we realized in Q3 at Rosebel. For next year, we’re in the middle of our budgeting process and going around and round. You know, looking at the life-of-mine grades for Rosebel, I’m not really expecting any increases in grades for next year. What I can say, I was at Rosebel three weeks ago for a budget review, is even though they’re just completing the end of a rather rough rainy season for them, a lot of the discussions I had with the mine department and the production people were around the steps that they’re already putting in place, such that they never experience the rainy season downtime as they experienced this year regardless of how much rain comes.

Don MacLean – Paradigm Capital

Terrific. Okay, thank you.

Operator

Okay. Our next question comes in from David Haughton at BMO. Go ahead, David.

David Haughton – BMO Nesbitt Burns Investment

Yes, good morning, Steve, Gordon, Carol. Perhaps, Gord, just continuing on the Rosebel outlook, your annualized throughput is getting up over 3.6 million tons. Can you see that sustainable going forward, or hardness of ore might bring that down? What’s the thought there?

Gordon Stothart

That’s a great question. Actually, annualized output now will be, I mean, the last expansion had phenomenal capacity of 11 million pons per atom based on a 40% hard rock feed. Our actual hard rock feed this year is around 25% and we will likely be exceeding 13 million tons processed this year.

Going forward, the like-mine average on the reserve is about 35 to 40% hard rock. That being said, you know, we’re a greedy bunch. We like the higher throughput in the 12-plus range. So you know, one of the studies being considered next – for next year is to see if we can maintain the production above 12 million tons on a sustainable basis regardless of how much hard rock we process.

So that sort of gives us the best return amongst a number of options that are available. Obviously, if the reserve and resource drilling continues to deliver results, if the expiration project at [inaudible] that Mike and his team are working on, continues to expand, then we can look at a number of other options for Rosebel.

David Haughton – BMO Nesbitt Burns Investment

What sort of things would be required do you think to get the 12 million sustained? Is it the crushing end or the grinding?

Gordon Stothart

Right now it looks like we need some additional driving capacity. The backend is fine. Especially with the leach expansion we’re just mentioning now, we’d like to do some work in the gravity circuit but really the effort would be on core fees, crushing, although it’s less of an issue, but really around the grinding circuit.

David Haughton – BMO Nesbitt Burns Investment

While we’re still on expansions, back to Essakane now. If you were to double the throughput to the 10.8, would you see some sacrifice at grade because I noticed, I just had looked at the MI&I grade and it’s actually holding up pretty well. Would you expect to see lower grade go forward with the 10.8 if it was to happen?

Gordon Stothart

Well, there’s two things at work here. One is obviously the last reserve was done at a gold price, you’re going to catch me out here, but I believe the gold price for the prior year’s reserve was $850 and $1,000 on the resource. With gold prices moving up, that will naturally bring our total operates down and annual fee a bit of a downgrade. But not a significant one. Really, not a significant one.

The other is with the expanding mill throughput, we’re going to get into a slightly improved cost profile, operating cost profile. Again, better cost profile will contribute to [inaudible] lower comp rate.

That being said, I would see it moving down slightly but not significantly. You know, the biggest karat out there, we’re happy with obviously the Essakane names but the big carry out there is the work that Mike and his team are doing on regional exploration. If and when they can start to deliver some addition soft rock reserves, that’s where you’re going to see some really high benefit from this expansion.

David Haughton – BMO Nesbitt Burns Investment

And while still on the expansion theme, Niobec, what is your availability expectation there? Are we talking 90-95%?

Gordon Stothart

I believe they’re budgeted availability for the mill is – the amount that’s popping into my head is between 92 and 94. I think it’s 94 actually. It’s 2.1 million tons a year.

David Haughton – BMO Nesbitt Burns Investment

Okay. Just in the third quarter at Niobec, it looked like the recoveries were a bit low. Am I doing the calculations right there?

Gordon Stohart

The recoveries were low in the third quarter. We got into some stopes with some higher silica values and within our own metallurgical models we were expecting the recoveries to be lower.

David Haughton – BMO Nesbitt Burns Investment

Okay. Just switching continents now, Sadiola Sulfides, what’s the status of that study?

Gordon Stothart

That study is continuing. It’s been delayed slightly, and when I say slight I mean a couple of weeks. It’s our intention to at least be able to present the finding of the study to the CMAS Board early in December and complete the final crossing of T’s and dotting of I’s before Christmas.

David Haughton – BMO Nesbitt Burns Investment

The [inaudible] price, certainly we’re in favor of it.

Gordon Stothart

It certainly does, it certainly does.

David Haughton – BMO Nesbitt Burns Investment

All right, and last one, Westwood, it looked like the spend this quarter was a little bit lower. Do you think it will catch up next quarter or would we expect to see a little bit of CapEx pushed into 2011?

Gordon Stothart

There’s going to be a little bit of cash jump in the fourth quarter. There has been some redistribution into next year, mostly around the [inaudible] that we’re boarding right now. That will completed early next year instead of at the end of this year. But that being said, it’s a fairly steady spend at Westwood.

David Haughton – BMO Nesbitt Burns Investment

Thank you very much for answering all those questions.

Gordon Stothart

No problem.

Operator

And the next question comes in from Barry Cooper at CIBC. Go ahead Barry.

Barry Cooper – CIBC World Markets

Yeah, good day everyone. I’m just wondering if, Gord, you could kind of run through – maybe it’s a little bit early, but how’s the grade reconciliation been at Essakane at this point in time?

Gordon Stothart

I’m not going to run through any numbers yet, Barry. But we – it’s the same question that I ask on every phone call when I talk to Essakane. What I will say is with – as with any gold circuit and certainly with a high-nuggetie ore like we have at Essakane, there’s been some strong surprises, both positive and negative in the first couple of months. But – and I do a lot of this even in the head office here, I tell people we need to be patient, we need to get five to six months under our belts. We need to get the circuit fully bedded in and then we can really talk about having some meaningful statistics in hand.

Like I say, we’ve seen both positive and negative shifts, your call versus my call.

Barry Cooper – CIBC World Markets

Right. Okay. And on the VFD, is it covered under warranty or is this something that wouldn’t be covered under normal operating problems?

Gordon Stothart

We are looking at the warranty situation right now.

Barry Cooper – CIBC World Markets

Okay. And then a question on – I was wondering if we could get a bit of an elaboration I guess on just what’s going on at [inaudible] with respect to what kind of grades are you finding, what sort of sizes are you looking at there and what is being done with respect to perhaps thinking about how they might fit in with some mine plan at Rosebel?

Mike Donnelly

Hi, Barry. This is Mike here. Barry, we just finished the drill campaign here, and we’re modeling that resource as we speak. We traced the mineralization for about 1.3 kilometers. It’s a very [inaudible] affair. I won’t speak to the grade right now because that will obviously depend on what kind of cut offs that we use. And that resource will be incorporated into our year-end release on reserves and resources. We’re also doing some preliminary map work on that as well and the idea being once we have some good figures in hand, work with the mine guys to see how that might be incorporated into the longer-term planning at Rosebel.

Unidentified Company Representative

Yeah, I mean, modeling, as with anything we’ll judge it against the other reserves and resources at Rosebel and place it in on the appropriate – in the queue on the appropriate basis of value.

Barry Cooper – CIBC World Markets

And does it look like the grades there are higher than Rosebel?

Gordon Stothart

I think where we’re seeing and you know, we did have some releases earlier in the year of some drill hole. I think what we’re seeing is the same or slightly better.

Mike Donnelly

Barry, Mike here again. I would say it’s comparable to the overall camp grade at Rosebel. And again, depending on what kind of cutoff you use.

Barry Cooper – CIBC World Markets

Right. And then finally, I guess in the past you’ve been marketing on some of your marketing presentations and on your website you had a production profile going forward, which of course in 2011 had a nice bump coming from Essakane and 2013 coming – bumps coming from primarily Westwood, but there could be other stuff in there. But the normal situation was 2012 was a downtick there and I’m just wondering what is being done to perhaps change that, or whether or not that is still the most likely scenario?

Stephen Letwin

Gary, it’s Steve Letwin. You hit the nail right on the head and it’s my focus right now to address it and you know, and there was another related question to that that we got online from Ted Cabala [ph], who asked, and I’m just going to tie this in. He said, have you identified any strategic opportunities that you think might help improve shareholder value; for example, rationalizing assets or being more aggressive on the expiration front.

On the expiration side, you’ve heard about a number of good opportunities which we have in the pipeline that – and a number of organic extensions that we’re going to be pursuing. And we are looking quietly at some acquisitions, bite-sized acquisitions that would help mitigate that drop that we’ll see between 2011 and 2013.

And rationalization may be part of that. I know a number of you have talked to me about your ideas about some of the smaller paths of interest that we might use to leverage financially our position so that we could get something that we – better control operationally, something that we could grow or expand organically as well. So it’s front and center. It – I had my first presentation to the board yesterday. It was the number one topic for me; how we’re going to address it, what we’re going to do to move on it, and I can guarantee you it’s something that we’re going to work on today going forward.

Barry Cooper – CIBC World Markets

Okay, great. Thanks a lot. That’s all my questions then.

Operator

Okay. And that’s all the time we have for audio questions. I will now turn it back over to Bob for questions posed via the web.

Bob Tait

Yeah, thanks, Nick. Steve answered one. We had another one from Andy Shopen [ph] at [inaudible] Securities. At current FX rates, how much of an additional FX-related loss would you expect in Q4? And Carol will answer that.

Carol Banducci

Hi, Andy. What creates the points gain or loss is the fluctuation of the currency relative – like local currency is relative to the U.S. dollar. The currencies remain at the same levels as they were in Q3 so there’ll be no aspect gain or loss.

Bob Tait

Okay. And one final question again from Ted Cabala who Steve referred to already. If you need to replace the complete modular device to restore electrical capabilities, this is obviously at Essakane, how long will it take? If it won’t take long, wouldn’t you be better off to spend up to $1 million as the cost is quite small relative to lost production.

Gordon Stothart

Yes. If a complete replacement of the unit is the appropriate action, yes, I agree with you. It’s a relatively small amount of money compared to everything else. Availability, these are not off-the-shelf items so we would need to work with other owners of this type of equipment to see what they have available and/or work with the factory to try to get our hands on units as they come available off the production line.

Bob Tait

Okay. Thanks Gord. That’s the end of our call, the end of the questions coming in. And I want to thank you for your time today. If you have any follow-up questions, give me a call at 416-360-4743 and – or send me an email. Bob_Tait@iamgold.com.

Thank you very much.

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