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IAMGOLD Corp (NYSE:IAG)

Q2 2014 Results Earnings Conference Call

August 14, 2014, 8:30 am ET

Executives

Bob Tait - Vice President, Investor Relations

Steve Letwin - President, Chief Executive Officer, Director

Carol Banducci - Chief Financial Officer, Executive Vice President

Gord Stothart - Chief Operating Officer, Executive Vice President

Craig MacDougall - Senior Vice President - Exploration

Analysts

Josh Wolfson - Dundee

Doug Dyer - Heartland Advisors

Brett Levy - Jefferies

Dan Rollins - RBC Capital Markets

Joseph Reagor - Roth Capital Partners

Operator

Thank you for standing by. This is the Chorus Call conference operator. Welcome to the IAMGOLD 2014 Q2 financial results conference call and webcast. As a reminder, all participants are in a listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. (Operator Instructions)

At this time, I would like to turn the conference over to Bob Tait, Vice President, Investor Relations for IAMGOLD. Please go ahead.

Bob Tait

Thank you, Brock, and welcome to all of you to the IAMGOLD conference call for our second quarter 2014. Joining me on the call today are Steve Letwin, President and CEO of IAMGOLD, Gord Stothart, Executive Vice President and Chief Operating Officer, Carol Banducci, Executive Vice President and Chief Financial Officer, Craig MacDougall, Senior Vice President, Exploration and one substitution Jeff Snow, he is going to join us and he is General Counsel for IAMGOLD.

Our remarks on this call today will include forward-looking statements. Please refer to the cautionary language regarding forward-looking information in our disclosure documents and be advised that the same cautionary language applies to our remarks during the call. During our opening remarks, we will refer to the slides which can be viewed via our website.

I will now turn the call over to our President and CEO, Steve Letwin.

Steve Letwin

Thank you, Bob, and good morning, everyone. Well we had a great quarter. Our results show very positive trends in many parts of our business. We are making excellent traction. Gold production increased from the first quarter with Essakane, up 35%. All-in sustaining costs have dropped two quarters in a row. Niobec continues to be a strong performer and Westwood is now in commercial production.

Our operating and financial performance, however, was marred by the death of one of our employees at Rosebel. The accident occurred in the area of the minesite that was being cleared for future mining. While this incident did not interfere with our current mining operation, this fatality was a blow to everyone at IAMGOLD and a harsh reminder as to why safety must always be our top priority.

These next few slides outline what we do with the top catalyst for change in our gold operations. At Rosebel, work continues towards targeting soft rock within the joint venture area. On the Sarafina option property, exploration targets have been identified and drilling is proceeding. You will hear more about this from Craig MacDougall. We are having discussions with third parties about other prospective properties within the joint venture area and we will provide updates when we are able to do so.

The government of Suriname shares our sense of urgency and we are optimistic that similar agreements will come to fruition. We are really looking at reinventing Rosebel and I know a lot of people are anxious to hear more about Rosebel as we go forward. What I can tell you is that we are moving ahead very aggressively on Charmagne satellite deposits that exist within the UJV and attract very low power rates.

So we have an excellent team of people down in Suriname. They are working very diligently. And news at 11, we are going to be giving a lot more information about Rosebel as we proceed. But I can tell you, I am extremely pleased with the progress that we are making there.

At Essakane, a great success. The mill expansion has driven throughput up substantially. So we can process a much higher volume of hard rock. With the expansion driving growth in production, the focus now is on improving our cost structure. We have and we will move ahead with the solar power project. It should be close to five times the size of the solar plant that began operation at Rosebel this quarter.

And on that note, just a side note, the solar, we had the individual (inaudible) from Suriname at our board meeting this week. I took him and his wife over for dinner last night and thanked him for the excellent job he did in getting that solar project going in Rosebel. It's a 5 megawatt facility. It has been throwing off about 4.2 megawatt during the day. It's been a great success.

And on the heels of that success, we want to look at Essakane and look at whether or not we can do something very similar and get our cost down at Essakane as much as we can on the energy side. As you know, it consumes about 25% of our cash cost. So anything we can do on the energy side of Essakane is very positive.

And we are looking at other things at Essakane. The technology in this area is changing rapidly and Gord Stoddard is basically driving a lot of innovation in and around what we can do at Essakane to bring down cost, whether it's grid power costs or costs that are correctly driven at the minesite.

At Westwood, we are again slide seven, we are going to see a ramp-up in production in the second half of 2014, with cash costs expected to trend down. Some fantastic work by Sylvain LaRue and his team. Development activity basically has doubled there. We are really pleased with the progress that's been made. The safety record improvement and the fact that Mouska closed without incident was all very, very, very positive so far this year. Now that we are in commercial production, the focus is on evaluating various production profiles so we can generate the best economic returns.

About two weeks ago, I went to Mali. And I will tell you that if we are going to proceed with the Sadiola expansion, we need to secure a long-term supply of lower-cost, reliable power. Mali is experiencing a chronic power shortage. So it is much a priority for the government as it is for us. We continue to collaborate not only with our partners, but with other mining companies in need of a better power solution.

You may have seen a press release that Mark Briscoe put out. Venkat, who is the president of AngloGold, myself and Briscoe were over there meeting with the Minister of Energy and Minister of Mines looking at trying to come up with, what I would call, a consolidated solution for power in Mali. Until we resolve the power issues, we are going to continue looking for additional oxide reserves to minimize potential future gaps in production at Sadiola. But we really do need to have that power solution in place before we can head down the road of the deep sulfide expansion.

And at all our sites we are continuing to reduce these costs and improve productivity, whether or not we are proceeding with the expansion or not. So Sadiola is a work in progress. I can tell you that Anglo and ourselves are very excited about trying to get the project going. But the math has to work and the government of Mali understands that. We have two people that left last night for very rigorous discussions with the government to try and come to some kind of solution as to how we can treat power and give us the rates of return that we need at that project site.

So the first half of the year has set the stage for a stronger second half. Our second half looks very, very robust. Production is expected to ramp up across our operations and that in turn should drive down cash costs. We are, and you have us I think now, for a number of quarters, if I add up all the cost that we have taken out of the system in the last year and a half, it's close to $200 million. That's a big number, and a lot of the credit belongs with not only our operations team, but our finance team.

So really, really pleased with the progress we are making. People often ask me, are you going to continue to focus on the three Cs, the cash costs, cash preservation and capital allocation, even when gold prices go up. And I say, absolutely. It can never leave the target zone in terms of an objective. So really good progress made. We are going to make further progress. Very, very pleased with the way the team is working and look forward to some very positive third and fourth quarter results.

So with that, I am going to turn it over to Carol.

Carol Banducci

Thank you very much, Stephen. Good morning, everyone. Our financial performance in the second quarter shows positive trends. All-in sustaining cost continued to decrease for the second consecutive quarter. Net cash from operating activities increased 155% year-over-year. Our balance sheet is solid and we continue to maintain substantial liquidity.

In the second half of the year, we expect to see further positive results. As gold production continues to ramp up, total cash cost will trend down. With the strong performance at Niobec in the firs half of the year, we raised Niobec's 2014 production and margin guidance.

I want to point out that April 1, 2014 we adopted a new accounting standard for financial instruments IFR 9. While we are not required to adopt this standard until January 2018, it allows us to take advantage of hedge accounting treatment for most of our derivative contracts which in our case would be the exchange rate and aluminum contracts that qualify.

This means the unrealized gains and losses will no longer be recorded in earnings but as a component as other comprehensive income. So realized gains and losses would be moved from other comprehensive income and recorded in the same line item in either the statement of earnings or balance sheet as a corresponding hedge transaction.

IFRS 9 also removes from earnings all gains and losses related to marketable securities including impairment charges and reversal. This activity will also now be accounted for as other comprehensive income.

Revenues in the second quarter were $289 million, 4% lower than the same quarter last year. The slight decrease was mainly due to our lower average realized gold price and lower gold sales, partially offset by 15% increase in Niobium revenue.

Adjusted net earnings for the second quarter 2014 were $9 million or $0.02 a share. The main reasons for the year-over-year variance in adjusted net earnings were lower revenues, higher depreciation expense and higher operating cost.

Operating costs were higher primarily at Essakane due to the increase in hard rock processing and lower capitalized stripping. Also a significant contributor to the variance was the positive impact of a retroactive power cost adjustment at Rosebel in the second quarter of 2013. The amount of the adjustment pertaining to prior periods to the second quarter was $11.6 million on a 100% basis or $11 million attributable. Partly offsetting the increase in operating cost as a result of these factors was a $26 million decrease in operating cost at Mouska as the operation came to a close during the quarter.

The slide shows items not indicative of normalized operations which are excluded from adjusted net earnings. They include impact from changes in estimates of asset retirement obligations at closed sites, unrealized gains and losses on non-hedge derivatives and foreign exchange losses and gains.

Other items include a provision for Yatela exposure cost which was based on an approved second quarter closure plan and write down of assets which included an inventory write down of stockpile ore at Essakane.

As part of the 2014 life of mine plan, we made the decision to defer processing a low-grade hard rock stockpile until the end of Essakane's life. Because this inventory stockpiles has different characteristics and a different processing timeframe compared to other non-current stockpiles, it was considered a separate unit of account for the inventory recoverability assessment performed of June 30, 2014.

Based on long-term gold price of $1,300 per ounce, the assessment resulted in a $6.2 million write down of the stockpile to its net realizable value. The amount represents a difference between the cost of the stockpile plus the estimated future cost of processing the ore and the amount we believe would be realized from the sale of the gold.

The effect of IFRS 9 does not change our approach to adjusted earnings. The adoption of this standard results in an increase in our opening retained earnings of $41.1 million net of tax which is the amount that is in the impairment charges recorded in the statement of earnings in the year.

After normalizing earnings, the effective adjusted tax rate for the second quarter was 50% which was consistent with our annual guidance.

Turning to slide 12. Net cash from operating activities, we are seeing positive results from initiatives to monetize a portion of our non cash working capital. Compared to the same quarter last year, net cash from operating activity increased 155% to $97 million. The main factor behind the increase was reflection of cash on outstanding receivables, managing vendor payment terms and lower income taxes paid. We are very encouraged by these results and we will continue reviewing our accounts to ensure that we are managing our liquidity effectively while maintaining an appropriate level of risk.

Attributable gold production in the second quarter 2014 was 206,000 ounces, up20% from the first quarter. This improvement is due to the increased production at Essakane of 35%, following the commissioning of the new processing mines and the processing of the ore stockpiled at the Doyon division in the first quarter.

Compared to the second quarter 2013, production was lower by 18,000 mainly due to Rosebel where very severe rain season impeded access to higher grade ore. And production at Mouska was down as the mine reached the end of its life.

Partially offsetting the lower production at these operations was a 48% increase in production at Essakane, again reflecting the successful commissioning of the new processing line. The variance between commercial production and gold sales with 5,000 ounces, which was mainly due to the timing of sales. We expect production to improve the second half of the year with higher grades at Rosebel and Essakane and the ramp up in Westwood production.

On July 1, 2014 our Westwood mine achieved commercial production. The operation is hoisting ore at a level necessary to feed the plant at a rate enabling profitable production, and have been successful at sustaining this level. In the first 30 days of July, the mine hoisted an average of 1,075 tons per day. So effective July 1, 2014 revenue and operating cost are recorded in the consolidated statement of earnings and are no longer netted against capital expenditures.

We maintain our 2014 production guidance for the Doyon division of 100,000 to 120,000 ounces. This includes the ounces produced from Mouska and the noncommercial ounces produced by the Westwood mine. With a total of 21,000 ounces produced year-to-date, production in the second half of the year is expected to range between 80,000 and 100,000 ounces.

Total cash cost are expected to be in the range of $750 to $850 per ounce produced as production at Westwood ramps up throughout the rest of the year. All-in sustaining cost continued to decrease for the second consecutive quarter. At $1,136 per ounce sold for all gold mines, this was $62 lower than in the first quarter. The improvement reflects lower sustaining capital expenditures following the completion of the mill expansion at Essakane and the use of the refinancing from mining equipment at Rosebel.

While total cash cost continued to be impacted by lower grade and harder rock, the sustainable benefits of our 2013 cost reduction program has helped to mitigate the cost increases. Compared to the first quarter, total cash cost improved slightly. With the expected ramp-up in production in the second half of the year, w expect total cash cost to decrease further.

Compared to the same period 2013, all-in sustaining costs for all gold mines in the second quarter 2014 were lower by $60 an ounce sold. However, for comparability purposes, all-in sustaining cost for the second quarter 2013 have been normalized to account for the retroactive adjustment to the power cost accrual at Rosebel recorded in the second quarter 2013.

This adjustment had a $55 per ounce impact on all-in sustaining cost in the second quarter. Excluding this adjustment second quarter 2013 all-in sustaining costs for all gold mines was $1,251 per ounce, resulting in a reduction in all-in sustaining cost per ounce sold of $115 an ounce year-over-year. As the gold price remained virtually flat with the previous quarter, you can see that the spreads between our all-in sustaining costs and our average realized gold price is wider.

Turning to Niobec. Niobec continues to be a strong performer with production up 17% from the same quarter in 2013 and up 8% from the first quarter of this year. Throughput and recoveries continue to benefit from measures taken to improve mill performance. As a result of higher production, revenue increased 15% from the second quarter 2013 with an operating margin of $18 per kilogram in the second quarter 2014 compared to $17 a year ago.

The strong performance in the first half of the year led us to raise both production and operating margin guidance for Niobec for the year. Previously we had expected to produce 4.7 to 5.1 million kilograms of niobium at an operating margin of between $15 and $17 a kilogram. We now expect production to come in between 5.2 and 5.5 million kilograms with a margin between $15 and $19 a kilogram.

Turning to our financial position. We remain in a solid financial position with over $1 billion in liquidity, of which nearly $300 million is cash and bullion at market with balance of $750 million in credit facilities remain undrawn.

With that I will turn it over to Gord for a closer look at the operations.

Gord Stothart

Thank you, Carol. I will be covering the main operating highlights for our operations. For a more detailed review along with site by site performance indicators, please refer to our MD&A.

Operating performance at Rosebel in the second quarter was affected by a particularly severe rainy season. With above average rainfall, we had limited access to the areas of the pit with higher grade material. On top of that we experienced some problems with our production drills which set us back a bit, but those issues have now been rectified and the drilling is going well. As a result of these two factors, we lost the gains we have made in improving grades in the first quarter and production levels slipped back down to where they had been in the fourth quarter last year.

To match the grade variations, we are implementing a number of action plans stemming from the grade reconciliation audit completed in the first quarter. Included in those plans is a shift to reverse circulation drilling for in-pit grade control as this allows for better definition of contacts between the waste rock and the ore and which should also reduce dilution and improve short-term planning. We forecast grades to improve as we progress through the second half of the year.

The decline in production in the second quarter from the first drove total cash costs higher. As production improves in the second half of the year, unit cost should come down. At the same time, we are now starting to implement a number of priority initiatives expected to have the greatest effect on reducing costs.

One change we have made is to implement an engineered stockpile ahead of the primary crusher to stabilize the blend of hard transition and soft rock fed to the mill. A more consistent ore blend means greater stability in the milling circuit, which in turn reduces the consumption of power and reagents and increases recoveries. We are also integrating advanced technologies into our work processes in the mine, such as remote monitoring of drilling to enhance operator and drill performance, and the electronic monitoring of blast movement to better manage dilution.

Our collaboration with an external consulting group to increase productivity to reduce cost has advanced to the next stage. With the diagnostic and design phases completed, we are now implementing changes and are starting to realize important improvements in mine productivity, mobile equipment maintenance and mill maintenance performance. As well, we are seeing better alignment between the mine planners and the mine operations team. Through process enhancements to reduce costs and improve efficiency, tighter grade management and a plan to drive into higher grade areas of the pit, production should improve in the second half of the year.

Turning to Essakane. Production climbed 35% from the first quarter of the year. The benefits from the mill expansion completed at the end of last year is substantial. Having a second processing line has allowed us to process a much higher volume of hard rock. Compared to the first quarter, mill throughput increased 29% and the proportion of hard rock by 27%.

Also contributing to higher production was an 8% increase in grades from the previous quarter. Grades should continue improving as we mine the higher grade hard rock at the heart of the deposit, which will provide the bulk of ore for the next few years. Work done in the second quarter to divert the river in the northern part of the pit will enable the pushback of the pit to defined limits in the coming years, as well as allowing us to mine some small satellite pits to the north of the main zone. With the operation performing as well as it is, we are confident that production in 2014 will be higher than last year by at least 25% as we had previously.

On the cost side, the harder rock and reduction in capitalized stripping as mining reaches lower elevations, are the main factors behind higher unit cost. We are taking steps to optimize our mining and milling processes and we will replicate those initiatives being implemented at Rosebel that proved to be most effective. We will be moving ahead with a solar power project, which will be close to five times the size of the one that just went into operation at Rosebel.

At Westwood, our 30 year legacy of underground mining in the Abitibi continues with our new commercial mine taking over from where Mouska left off. Our decision to declare Westwood in commercial production on July 1 reflects the outstanding work by our operations teams to ramp up the rate of underground development. We are now driving more than 1,400 meters of new development headings per month. As this is happening, at the same time Westwood is achieving a nearly 75% improvement year-to-date in their key injury metric compared to 2013.

Looking back at the second quarter. Before Westwood was in commercial production, the Westwood mill processed ore that had been stockpiled in the previous quarter. Of the 20,000 ounces produced in the second quarter, 9,000 ounces were noncommercial production from Westwood and 11,000 ounces were from Mouska. Production is ramping up well and we maintain our guidance of 100,000 to 120,000 ounces this year, including the ounces from Mouska and both the noncommercial and commercial ounces from Westwood.

As production build over the last two quarters, Westwood's cash costs should trend downwards averaging between $750 and $850 an ounce. The future outlook for Westwood is very positive. Over the past 10 years, from the time that exploration of Westwood began, the overall resource estimate has remained very stable and the average grades have increased. To ensure that we are optimizing our economic returns from this operation, we are evaluating a number of production scenarios.

The LOM production scenarios under review range from 165,000 to 180,000 ounces per year at average total cash costs of between $630 and $690 an ounce. As with all our operations, a day-to-day focus on improving safety performance and operating efficiency as well as reducing costs has become deeply ingrained in our culture.

Turning to our joint venture. Sadiola had a good quarter overall with strong throughput driving up production 26% from the first quarter. Since Steve has already discussed where we stand with regard to future expansion, I will move on to Niobec.

Niobec continues to be a model of operational excellence. The benefits of the work done last year to optimize the milling process continue, with the mill shutdown in April having minimal impact on production. Recoveries remain strong and the operation continues to focus on improving operating efficiency. As you heard from Carol, based on a strong performance in the first half of the year, we have raised our 2014 guidance for both production and operating margins.

At Niobec, we have been assessing a number of scenarios to extend the length of time we can continue the current open stoping approach while still maintaining the option to transition to block cave mining when the environment is right for such an investment. The new scenarios demonstrate that we can continue mining for several years under the existing operating method.

Craig MacDougall will now give you an update on exploration.

Craig MacDougall

Thanks, Gord and good morning, everyone. It was a busy quarter for the exploration group. Positive updates were provided for a number of projects. Exploration is advancing on the Sarafina property near Rosebel and 88,000 meters were drilled at our mine and exploration sites during the quarter. Our MD&A and news release provide a good analysis of our exploration activities for the quarter. So I will focus on a highlights, starting with our wholly-owned greenfield projects.

Subsequent to the announcement of our maiden resource estimate for the Pitangui gold project in Brazil in April, we reported an update in June. Assay results from our further 27 drill holes are confirming the continuity of mineralization of the known resource and a new high-grade intersection has been reported from the second zone. Drilling is ongoing and we will continue to drill throughout the current quarter.

At the Boto gold project in Senegal, drilling continued throughout the second quarter in support of a scoping study and diamond drilling also commenced on several new gold anomalies identified through aircore drilling completed earlier in the year. More than half of the 14,500 meters of drilling approved for this year has been completed before the onset of the rainy season. Drilling will resume as soon as possible in the first quarter.

Now for a brief recap of the expiration status of some of our joint venture projects. At the Monster Lake project in Quebec, we reported assay results from five holes confirming the presence of significant high-grade mineralization. This is a unique project in that numerous high-grade intervals have been reported from previous explorations in the 25 to plus 30 grams per ton range. Ongoing exploration continues to target a four kilometer long mineralized trend to generate priority targets for a fine drilling campaign in the latter half of the year.

During the second quarter, we also announced our new option agreement with Calibre Mining in Nicaragua prospecting the Eastern Borosi project. This is a 176 square kilometer land package which holds two gold and silver deposits and a series of exploration targets. Diamond drillings to test this targets began this quarter.

And finally, our Siribaya project in Mali. During the quarter, our partner announced that our phase one reverse circulation drilling program has been completed on the Diakha prospect, which was highlighted as a significant geochemical anomaly situated on an extension of the same mineralized trend that hosts the Boto gold deposits in adjacent Senegal. Drilling results have revealed multiple zones of gold mineralization with similar characteristics of the Boto deposit. The phase two diamond and reverse circulation drilling program has been completed to further delineate potential the potential of this prospect. Assay results are pending from this phase of the work. We will continue to work with our joint venture partners and provide updates as these programs progress.

Turning now to the highlights around our existing mines. At Rosebel, the focus continues to be on increasing our inventory of transitional and soft rock. The results of ongoing resource development expansion drilling will be incorporated into our resource model. A drilling program is underway on a number of targets east and south of the Rosebel pit.

On the Sarafina option property situated within the joint venture area around the Rosebel mine, exploration activities are advancing as planned. Work to-date by our exploration team includes systematic auger and hard rock [ph] geochemical sampling and IP geophysical survey and geological mapping. A drilling program to evaluate priority targets outlined from this work is expected to begin in the next month.

At Essakane, drilling continued to upgrade existing and proved resources and to evaluate potential extensions. Results are encouraging from the northern sector of the main pit and diamond drilling continues. On the exploration concessions, we are targeting oxide resources within a 15 km radius of the Essakane mine. During the quarter, drilling continued at a number of prospective areas, including the Tassiri prospect.

The last project that I wanted to talk about is Côté Gold. Our positive view of this asset has not changed. During the quarter, we completed more than 14,000 meters of definition drilling over selected areas of the deposit. A key objective of this program is to better understand the controls on grade distribution and improve the resource model as part of the ongoing feasibility study. We have also begun exploration activities in targeted areas surrounding the deposit which will be followed by diamond drilling programs in the second half of the year. We remain on track to complete the feasibility study by Q1 2016.

Our exploration teams have accomplished a lot in the past six months. We have had some encouraging results and remain focused on advancing these promising projects.

I will now turn you back to Steve to wrap up.

Steve Letwin

Thank you very much, Craig. The first half of 2014 has set the stage for stronger performance for the rest of the year. With the implementation of measures to improve grades and increased operating efficiencies at Rosebel, we expect production to be higher in the second half. Essakane is performing very well and grades are expected to increase. Westwood is now in commercial operations. So we are going to see a strong ramp-up in production. As total production rises in the second half of the year, total cash cost should decrease contributing to the continued positive trend for all-in sustaining costs. Niobec's results are consistent, very strong and we expect that to continue and we are seeing some encouraging results from exploration as Craig has just pointed out.

So let's open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question today comes from Josh Wolfson of Dundee. Please go ahead.

Josh Wolfson - Dundee

Hi, good morning. I guess, first question is on Essakane. The annualized throughput there was close to 15 million tons per year, which is about 50% higher than design capacity, but it doesn't seem like there is lot of hard rock process. So are you still maintaining that design throughput of 10 to 11 million tons per year?

Gord Stothart

Hi, Josh. It's Gord. Yes, we are still maintaining the 10.8 million which is the -- that's the nameplate capacity, until we get a little more experience with hard rock. The second quarter, we continued to process a fair bit of transition and soft rock. However, as we move into the third quarter here, where significantly higher proportions of hard rock and that's really can be the modus operandi going forward. We will be completely out of soft rock by the end of this year, and not have a lot of a transition left either.

Josh Wolfson - Dundee

Okay. So at the same time as you go more into hard rock, should we expect the strip ratio to decrease a little bit? Or is it the opposite? I guess when you go deeper in the pit, have you already done a lot of lay back or is there more ongoing stripping requirements?

Gord Stothart

There is ongoing stripping requirements. The overall life of mine strip, I think, is in the neighborhood of a somewhere between 2.7 and 3 to 1 going forward.

Josh Wolfson - Dundee

Okay, and then as for Rosebel, I guess for the reconciliation issues, we saw this in fourth quarter and now again this quarter. It looks like it's in excess of a 20% differential relative to the reserve grade. Is there any sort of magnitude in terms of the reserve that you can quantify what it could potentially affect?

Gord Stothart

I should correct you, Josh. The reconciliation issue we had in the fourth quarter was between the grade control model and the mill. The reconciliation I referred to this time is between the resource model and the grade control model. So it's a different reconciliation and although we were mining low reserve grade, the issue, as Carol and I spoke to, was really access to higher grade ore. For the areas in which we were mining, the reconciliation on grade was down slightly in the neighborhood of 9% to 10%. However, the total ounces of gold was actually up because we found more volume. But that was a grade we were feeding into the mill for grade control versus block model. The reconciliation between the mine and the mill in the first half of the year has actually been pretty close. Going forward, we continue to study this. We are looking at, as I mentioned, RC drilling for grade control purposes which we feel is going to help us zone in on the models, zone in on the actual ore zones a lot better and bring those two much closer into alignment.

Josh Wolfson - Dundee

Okay. That sounds good. And the last question. At Westwood, I guess relative, and obviously this is a long time back but the February 2012 PA or prefease that came out, the higher cost, now the lower production. What changed between now and then?

Gord Stothart

The production is actually not that much lower. I think what you are looking at really was, we had previously set 190,000 ounces per year. We still get to that 180,000 to 200,000. The numbers I quoted were really life of mine average production, including the ramp up period. So that's what knocks them a little bit down below. When we get up to that full production rate, we still are more or less in the same zone. We are looking at a number of different options now as to whether we do tighter mining with lower ore dilution or we try and open it up a little bit and take a little bit of dilution, but maintain the throughput higher. So I don't want to speak to it too much right now, Josh, because we really are evaluating a number of different LOM scenarios and we are not satisfied with what we see so far. At the same time, as we are starting to get into these ore zones, we are gaining much more experience around what is possible and practical with the ore zone. So I am not uncomfortable with where we are. The cash cost are up a little bit and that has to do somewhat with the exchange rate, which is quite a bit different now than we talked about back then and also just inflation in some cost.

Josh Wolfson - Dundee

Okay, great. Thanks so much for the update.

Operator

Your next question comes from Doug Dyer of Heartland Advisors. Please go ahead.

Doug Dyer - Heartland Advisors

Good morning, everyone. Just going back to Niobec for a minute. What would it have costs in terms of -- well, how much would it have cost to get the mines into its next phase, if you will?

Steve Letwin

It's Steve, Doug. What do you mean, exactly?

Doug Dyer - Heartland Advisors

What I am referring to is, we are approaching what could have been the end of life. Now you are able to extend the life. Had we got to that end of life kind of phase, how much CapEx would have been needed to hold that production up?

Steve Letwin

The end of life is at least eight years to 10 years out. So we are not approaching it, but I think what you are talking about is our view of potentially going to block caving it at some point to extend the life of mine. And what we have been able to do and Carol can talk to this and Gord can talk to this more comprehensively, but the good news at Niobec is that as we work through this and focused on capital reduction, it looks like we are going to be able to extend the mine life out towards that 20 year mark and spend far less capital. And this is extremely attractive obviously for us right now. But Carol, maybe you could speak a little more to it.

Carol Banducci

Sure. Thank you, Steve. In terms of the block caving approach, what we are looking at was tripling production at Niobec and that would have required an investment in excess of $1 billion to do that initial construction. And what we are finding is that the market was not conducive to taking on that level of additional production and as well as Steve pointed out, the capital required was quite significant. So as Gord talked to earlier through his presentation is that we have been working on different life of mine plans and what we are doing is looking at extending our current mining methods. So again, mining those blocks 4, 5 and 6 and then going taking a shaft down the road and going down to level 7, 8, 9, again using open stoping method of mining. And that would extend the mine life by 20 years or close to 20 years and would require, obviously, as much capital. Again, this deposit is open at depth and it's open laterally. So we have got a significant deposit there and we expect mine life to be very long here at Niobec. So those are the options that we have been looking at.

Doug Dyer - Heartland Advisors

All right. Yes, Steve, thank you. You were correct in what I was trying to ask. And have you ever given an EBITDA number for Niobec separate from the rest of the company?

Steve Letwin

EBITDA number for Niobec.

Doug Dyer - Heartland Advisors

Yes.

Carol Banducci

Yes, we do. We provide in our financial reporting disclosure around Niobec's performance and so you can see it in the segmented section. But on average, it's in that $70 million to $80 million of operating cash, well before CapEx.

Steve Letwin

It's probably higher this year.

Carol Banducci

Yes.

Steve Letwin

I think we are running over $100 million this year just because of the recovery and stability of the pricing.

Carol Banducci

That's correct.

Steve Letwin

So Niobec is firing on all cylinders.

Doug Dyer - Heartland Advisors

All right. Thank you very much.

Operator

The next question comes from Brett Levy of Jefferies. Please go ahead.

Brett Levy - Jefferies

Hi, guys. Can you talk about the outlook? We like niobium pricing and everything else, but can you talk about supply threats and demand growth? And just talk a little bit about what you see the macros being in niobium going forward?

Carol Banducci

It's Carol here. We continue to be very positive in terms of the outlook for Niobium. We saw the steel market improve by about 3.5% this year. We are seeing strong demand coming out of China and Asia but we sell all of our production. And the biggest challenge that we have right now is not being able to provide our customers with all the demand that they have. So we are able to sell all of our production. And as you saw, we have revised based on some of the trade permits that have been at the mill to be able to increase our production, our throughput and recovery which is increasing our sales for longer term and we are expecting the steel market to continue to improve and we expect to use of niobium to continue to rise. And the reason being is that, you are producing a high strength alloy steel and it allows the end user to consume less steel more cost effectively because you use less steel on the construction. So again we are seeing strong demand coming out of the automotive sector as they are being regulated to produce a lighter vehicle. We are seeing in the construction of pipeline, to again bring more integrity to pipelines making them stronger and obviously less likely to leak. And we are seeing it in construction and so we are seeing it with bridges and buildings. So we are very positive in terms of the outlook, and we see both growth on the steel side in terms of consumption but we are also expecting to see the amount of niobium used on a per ton basis to increase and we are already beginning to see trends in that area. So again it's a very attractive market and we expect it to continue to grow.

Steve Letwin

I guess the good thing, Brett, its Steve here, is we don't get a lot of pushback from the steel companies on the pricing because you have to use so little of it to have an impact. And the best example is in the manufacture of a vehicle today, $9 worth of niobium reduces the weight of a car by 100 kilogram. So it costs very little to do some very, very positive thing. The major, if you want to call it a threat, but it also can be a very positive is the producers themselves. And as you know, we have three of them, CBMM, us and Anglo American. And CBMM has been very, very good in making sure that prices stay strong. So that plus everything that Carol said, we have got a very positive outlook for the pricing.

Brett Levy - Jefferies

Yes. It seems like there's a very fairly oligopolistic tendency within niobium. How about outlook from substitute products like vanadium or can you talk to a little bit of the dynamic between the two alloying elements and whether there's a supply threat there?

Carol Banducci

Maybe I will just start and let me pass it over to Gord. Again, it's not one-for-one. You require two units of vanadium for one unit of niobium. And there are a lot of applications where you cannot apply the same, you can't apply vanadium to the production of the high strength alloy steel that our consumer or customers are looking for. So in many cases, it's not a straight substitute. You cannot substitute it and again the price dynamics is two-to-one. And there is a lot of stability around niobium. Prices are small which our customers like and again the steel has to get qualified for use. So there is a real barrier when any producer has to change the formula. Gord?

Gord Stothart

Yes. That's exactly right. It is not a straight substitution and you do get some variability in the exact characteristics. The other piece of about the vanadium market, we are cheering quite loudly for further development of the vanadium battery technology in the future, which could drastically change the dynamics around vanadium itself. So at the end of the day, it makes niobium that much more attractive.

Brett Levy - Jefferies

Thanks very much. Very comprehensive answer to the questions.

Operator

The next question comes from Dan Rollins of RBC Capital Markets. Please go ahead.

Dan Rollins - RBC Capital Markets

Yes, thanks, guys. Just a couple of questions. One, just on Niobec. The margin improvement, is that all based on lower costs? Or are you seeing some improvement in the underlying revenue on a per unit basis?

Carol Banducci

Yes, I mean the revenues are just under $41 to around $40.60. But a lot of that is coming from improving cost and particularly improvement on recovery.

Dan Rollins - RBC Capital Markets

Okay, perfect, and then just moving on to Rosebel. With a larger portion of hard rock coming down the line and the potential impact on the current throughput of the operation, when about do you need to be able to make a decision on a subsequent expansion of that mine to maintain production or throughput in that 12 to 13 million ton level?

Steve Letwin

In order to avoid a decline in production at Rosebel, notwithstanding everything we are doing to find additional soft rock resources. If we want to find anything else, we will start to see that some decline in throughput due to the increasing hardness sometimes towards the end of 2016, 2017 and 2018 sort of thing. So if we were going to expand, we need to do that in the next year or so. . However, we are doing a lot of work on LOMs right now. We speak pretty openly, I believe, about our capital allocation strategy and making sure that when we spend capital, we are generating returns. We need to understand the case at Rosebel, whether that expansion pays off. So that's the phase we are in right now. It's going through the LOMs and just making sure that there is a project there that makes money.

Dan Rollins - RBC Capital Markets

Okay, and then just a broader question maybe towards Mr. Letwin. Just with respect to your relationship and your talks with the government of Suriname, obviously, with Newmont recently announcing that they are going to go ahead with Merian and the government could back into that as well, is there a competition for government dollars in Suriname? Or has the government basically said we have enough capital to fund both projects if desired?

Steve Letwin

Well, I am not really that knowledgeable, Dan, about how much they have in treasury. I think Surinam is being challenged, like most economies, with respect to revenues versus dollars they need to meet some of their promises like infrastructure. So I really can't comment on whether they have enough in treasury. I think they have certainly the Merian. And as you probably know, with respect to us, whether they come up with the money or not, it doesn't impact our projects because if they decline to participate and we carry 100% of, say, Sarafina or Afobaka are any of the other concessions, we still qualify for the $0.11 power rate. So they probably are more focused on Merian, given that's $1 billion project and coming up with their $250 million to participate in that. Our projects would be smaller but I am sure they would still like to participate, but it is not as critical to them. So whether they participate or not, obviously we welcome it. Because they would have skin in the game. But in the absence of that, we still move ahead and we are moving ahead very aggressively, as you heard from Craig.

Dan Rollins - RBC Capital Markets

Okay. That's great, because I was wondering if the power costs were contingent on their support, which obviously it is not.

Steve Letwin

No. Not at all.

Dan Rollins - RBC Capital Markets

Great, and then maybe just on Essakane. There's been chatter about getting in the lower power costs. Obviously that would have a huge impact on your underlying profitability of that operation going forward. Where do you stand now on potentially solar power there? Or even tapping into the grid? Have you got any more comfort on getting into the grid? And more importantly, after you build a multi-kilometer line, if the power will actually be there at the end of the line for you guys?

Steve Letwin

I would say the grid option is not highly probable. And I say that because the line from Ouagadougou to Essakane isn't really the challenge. It's making sure you have reliability of supply. Dan, I am going to tell you this, I am very excited about some of the solutions that we are looking at, at Essakane, be it solar, be it other solutions. We are seeing a lot of improvements in technology. GE is going to be putting $3 billion in the Africa and GE could be a very strong partner with us potentially in helping us with these energy solutions. So we are going to move ahead with the solar side. I gave approval for that last week, based on the success we had in Suriname at Rosebel. We are probably looking at somewhere around a 20 megawatt to 30 megawatt solar farm. And we would do that right on site and anything, any access, we would probably sell in to the grid to Dore to help the government develop some further businesses in the north. So I agree with you. It is so critical to the economics going forward on Essakane, it deserves our attention and we are giving it full attention.

Dan Rollins - RBC Capital Markets

That's perfect. That's great. And again, congrats on the work you guys have done on the cross front. Obviously, it's a tough market, but you have been making good inroads, which is great to see.

Steve Letwin

Thanks, Dan.

Operator

Our last question today will come from Joseph Reagor of Roth Capital Partners. Please go ahead.

Joseph Reagor - Roth Capital Partners

Good morning, guys, and congrats on what appears to be a pretty strong quarter here. I just had two additional questions. First one being, with Westwood now in commercial production and the guidance of 80,000 ounces to 100,000 ounces for the rest of the year, would it be fair for us to assume that next year's guidance will fall somewhere between 160,000 ounces and 200,000 ounces?

Steve Letwin

No, we are not going to be up that high. We will be below that. We will increase somewhat the total guidance from the Abitibi, but it's not going to be at that rate. We are still working on those numbers and we will come out with them later this year. But I wouldn't get that aggressive with it yet.

Joseph Reagor - Roth Capital Partners

Okay, and then I noticed at Yatela, the cash costs remain above $1,500 for second quarter now. Are you guys capable of basically shutting down the remaining operations there? I know you guys aren't mining anymore, but is it possible to just wrap that up now instead of continuing to have a cash flow negative? Or are you guys already in the process of doing so? Or do you still think that maybe there's some room to improve that to some lower cash cost number?

Steve Letwin

We are looking at that right now and that is an option to it. You have to remember, a lot of those cash costs are actually stockpiled charges coming back on to the gold. So that cash has really already been spent. And if we were to close it out, you would still see that cash come across earnings as a write down. So when we are evaluating Yatela, we are looking at a couple of things. Is it generating true cash and we are working with our partners on that, as well as what's the benefit of continuing to operate while we complete some of the closure activities and if it gives us a favorable tax situation if we can rehabilitate at the same time as we are doing production.

Carol Banducci

There is a positive (inaudible) to that too. We and our partners are looking at the operations and the life of mine plan. There is another review going on. So our objective is to really minimize the cash outflow. And as you would have seen in our results, we have an additional $9 million there with respect to the closure cost at Yatela. So it is something that we are looking at very closely.

Joseph Reagor - Roth Capital Partners

Okay. Do you guys have a concept right now of where you guys are on a cash cost basis, excluding the stockpile draw down costs?

Steve Letwin

I am very, very sorry. Look, Joseph, I don't have that. We can get that for you, Joseph.

Joseph Reagor - Roth Capital Partners

Okay.

Steve Letwin

It's a good question.

Operator

This concludes the time allocated for questions on today's call. I will now hand the call back over to IAMGOLD for closing remarks.

Bob Tait

Okay. Thank you. It's Bob Tait. I just want to thank you for joining the call. The replay will be available fairly soon after this call, and available for some time, if you want to listen again. If you have any further questions that pop up, Laura Penelope and my numbers are on the bottom of the news release. So you can contact us and we will do our best to answer any questions. Thank you very much.

Operator

This concludes today's conference call. You may now disconnect your lines. Thank you for participating and have a pleasant day.

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