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Executives

Neil Woodyer - CEO

Christian Milau - CFO

Attie Roux - COO

Analysts

Michael Stoner - Peel Hunt

Rahul Paul - Canaccord Genuity

Mark Bentley - MAB Trading

Endeavour International Corporation (OTCQX:EDVMF) Q2 2014 Earnings Conference Call August 12, 2014 11:00 AM ET

Operator

Greetings, and welcome to the Endeavour Mining’s Second Quarter 2014 Results Webcast. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Neil Woodyer, CEO of Endeavour Mining Corporation. Thank you, you may begin.

Neil Woodyer

Thank you, Operator. And as usual, on this webcast, I have with me Attie Roux, our COO, who will give us a report and run down on the operations for the quarter and also for the half year. We also have Christian Milau, our CFO, who will go through the financials review.

So, first of all, starting looking at page four, which is the half year highlights; we had record production from our four mines; we produced 228,000 ounces in the half year; we generated EBITDAR of 76 million; and we were able to have all-in sustaining cost of 1,030 per ounce and that is the all-in sustaining cost after corporate costs and after sustaining explorations; we generated an all-in sustaining margin of about 57 million.

And I think when you look at the first half year results, we can see that we’re pretty much on track to achieve the higher end of our 2014 guidance in range of 400,000 -- at 440,000 ounces, and we think the all-in sustaining guidance of 985 to 1,070 is the right mark for us to finish the year on.

During the half year, we completed the conversion Tabakoto to own mining. We also had the team at Tabakoto successfully advance the development to Segala and we began feeding ore to the mill late in June, and we’re schedule for a full ramp up during the fourth quarter of this year.

We also receive the permits for Kofi Nord which gives us access to the eight deposits we have in the Kofi Boat for future sources to Tabakoto. And our construction services team is now in-charge of that project and planning the whole road so that we can optimize the root down to the various deposits to the Tabakoto mill about 35 kilometres south of Kofi C. And we would expect to have that coming into our mine plan at the beginning of next year.

Looking at the highlights for the actual quarter, the second quarter itself that shown on page five. We had production of 122,000 ounces at an average cash cost to cost of mines of $850 an ounce. And are all-in-sustaining costs in the quarter was 1,021. That’s compares with 1,115 in 2013 of the same quarter and there’s a slight improvement over the first quarter. We expect cash costs and all-in-sustaining costs in Tabakoto to significantly improve in the fourth quarter of this year as Segala moves into full production, so a very successful half year and a successful quarter.

And I’ll handover to Christian to take you through the financial side in a bit more detail.

Christian Milau

Thanks, Neil. Turning to Slide six, we’ve got a summary of the Q2 all-in-sustaining margin and the all-in-sustaining costs for both the three months and six months. Our gold revenue for the quarter is about a $153 million, which is average realize gold price of just under $1,300 for the quarter. We’ve got our royalties, our cash cost, at 854 an ounce, or just over $100 in total. We’ve gone up slightly for this quarter as production increased by about 16%, leaving a cash margin of $44 million or 34,000 ounces of gold. Then we take off our corporate G&A of 4.7, so sustaining capital and exploration to leaving all-in sustaining margin of $32 million, which is about a 21% margin which is a slight improvement on the first quarter, the six month margin of 57.5 million is just about 20%. And that’s in all-in-sustaining cost of 1, 021 versus 1,039 for the full six months. So, you can see a nice improvement there. And the 57.5 million, 6 month all in sustaining margin, puts us on track to hopefully achieve or beat the $95 million margin that we set at the beginning of the year in our guidance.

Turning over to page 7, looking at the actually cash position and some cash use for the quarter. We started with $67.7 million. The all-in-sustaining margin we add to that of $32 million and there is some non-sustaining investments made during the quarter, which totaled 15.9, most of that relates to Tabakoto for the Segala underground development that continues in the CRF plant, that’s re-commissioned and put into place. A bit of tailings expansion of $2 million and the owner mining equipment, which still continues to be delivered but the majority of it tends to be onsite at this stage, and then a bit of other non-sustaining investment at other sites.

There’s also $11.5 million change in working capital and other. Some of that is VAT, probably roughly, half of that. Taxes and interest paid of $10.6 million and then the gold hedge of almost $5 million. We delivered about 13,000 ounces of the 32,000 annual ounces during the quarter, so it was a large quarter for the delivery into the hedge. So, the second half for the year, we’ll see that drop down to sort of 8,000 ounces or 9,000 ounces per quarter. So that number should come down assuming the same gold price. It’s also worth highlighting that the $50 million on a revolving credit facility is now available, and it’s been made available by our lenders. It’s no longer subject to certain conditions and it’s available for general corporate purposes.

And that gives a good overview of the cash position of $57 million at the end of the quarter. I’ll pass over to Attie Roux now.

Attie Roux

Thank you, Christian. Please move to slide eight. I’ll talk about the operating summary for Agbaou Gold Mine. Agbaou continues to perform very well as a low cost mine with the tonnes grade and recovery about budget for the three months and the six months to-date, producing 31,878 ounces for the quarter and the all-in sustaining cost of 728 for the quarter and below 740 half year.

If we turn to slide nine, talk about Tabakoto mine in Mali. Tabakoto had another steady performance for the quarter with the conversion to owner mining at Tabakoto successfully completed during the quarter. Despite not having all the owner mining equipment onsite during the quarter, we have seen the gold production improving steadily quarter-on-quarter. We have also seen the cost per ounce starting to improve, and we also have improved control of the mining operations at Tabakoto mill, we’re well positioned to drive the cost down to 300 a year.

And then with Segala moving into full production in the later part of the year, we will see further improvement in the cost base. So it’s all looking up at Tabakoto at this stage.

If we move to slide 10, so just talking about Segala in isolation. As Neil mentioned, as planned, Segala started producing the first stope ore from the Tabakoto mine. And you can see on the photograph, the first stope ore at the bottom of the chart. The current status as at the middle of July, the decline is now more than 200 meters below vertical surface for a total of 1,300 meters developed in the incline. We had the total of 4 kilometers of lateral development on four levels to provide access to the ore body, accessing the ore body is from vertical spacing. The main ore body is on average 20 meters wide, and which can be divide into two blocks.

If we turn to page 11, as Neil mentioned of importance to Tabakoto area you see receiving of the Kofi Nord permit during the quarter. It includes eight to nine deposits comprising an independent resource of 0.6 million ounces and another 0.6 million ounces of inferred material. The Kofi C deposits the reserves that were already being included in the Tabakoto production plant for 2015. And the early work continues on the conversion of resources to reserves for the rest of the Kofi deposits along the haul route. The Kofi property has excellent exploration potential, especially on the north section of the Loulo trend, which you can see on the little map. Loulo is the green area and the extension of the mineral trend into the Kofi property.

A point of note on permitting is, I am sure everybody has seen the media reports that the Mali government has thrown some 130 explorations permits. None of the Endeavour Mining permits were affected by this action, and all our permits are currently in good standing. We put them to post [indiscernible].

I’ll talk about Nzema Gold Mine and Nzema have in the second quarter in terms of gold production and cost. This mainly results from the mining progressing through deeper levels at the Adamus Pit, and during the last quarter accessing some of the areas that have very good growth in the pit. In addition to that, the mine also reached the best of very good grade purchased ore, which in combination with the mine ore added significantly to our economics, as you can see the all-sustaining cost now below at $1,000 for the quarter and also for the [indiscernible]. So that’s all going well for Nzema.

Turning to Page 13, Youga Gold Mine. Youga continues to generate good positive cash flow and obviously having low sustaining capital. As you can see and as expected, the decline in the grade going forward in the Youga mine, and that’s mainly due to depletion of the main pit and that’s now moving to the lower grade satellite deposits. Obviously the lower grade and lower ounces also along with the slightly higher cost of moving further away from the process plant movement is started to reflecting increase in the cost base for Youga. But overall, it’s still a very good performance for Youga.

Turning to Page 14, Houndé Permitting Progress nearly ready to that, the ESIA report has been resubmitted on July the 14th. This will be followed by the application for the industrial operating permit and then the grating of the mining permit, which is expected to be -- before the year-end. In general, the Houndé project or the property has very good exploration potential and that could potentially add significantly to the project economics in the long run.

And maybe, before I hand back to Neil I just maybe want to talk about one or two other issues, which is come up from some of the questions. The first issue is talking about the Ebola situation in West Africa. Currently, there is no confrontation in many of the companies where we’re operating. Our initial and continued focus leads to some education. What is Ebola? How is it contracted? How is it prevented? What we do if it’s suspected and being not to panic?

So in the minds of actively participating in the local, the regional and the national divisions in these countries, we’re talking and monitoring what our peers are doing. And in all these conversation involving the contractors, the communities and all are interested in infected parties. We have done an internal assessment of our agents to handle the case and it does arrive on those states. And we are currently busy contracting an external medical institution to currently doing the [indiscernible].

Currently, we’re implement temperature screening on [indiscernible] for re-planning employees as inconvenient medium, and we are very aware of the situation and we monitor it on ongoing basis. And we will adjust our actions as the situation develops steadily.

And at this point, I would hand back to Neil for closing comments.

Neil Woodyer

Thanks, Attie. So I think in conclusion, I think the important point here is that over this last quarter, we’ve continued to increase our production and reduce our costs. We’ve produced 122,000 ounces in the quarter as an all-in-sustaining cost of just over 1,000-1,021. We’re definitely benefitting from the cost reduction program we’ve had in place. We’re benefitting from the expansion we did last year at the Tabakoto mill. And we’re certainly benefiting this year from the low all-in-sustaining costs production coming from Agbaou, which was went for commercial production in January.

Tabakoto underground mine, in terms of undermining, is now fully implemented. And as we said, Segala produce ore in June, and is ramping up the full production later in the year. Houndé, we’re continuing to go through the permitting process and to look the construction alternatives, it’s a robust project, which does provide us with good opportunity to increase production and lower all-in-sustaining costs.

So really where we stand after half year is to say that we are comfortable with the guidance that we set out for the year, both in terms of production and in terms of cost. And we will do it -- we can do to keep on delivering on the statement we’ve made for the second half year. We’ve particular improvement in the fourth quarter at Segala comes into production and other improvements to put into place at Tabakoto.

That’s, ladies and gentlemen, ends the formal part of our presentation. So, operator, may I transfer back to you, so that you can introduce the question-and-answer session.

Question-and-Answer-Session

Operator

Thank you. At that this time we will conduct the question-and-answer session (Operator Instruction) Our first question comes from the line of Michael Stoner with Peel Hunt. Please proceed with your question.

Michael Stoner - Peel Hunt

I’ve got a couple of question for you, the first one at Agbaou. As you move through this softer oxide, can you give us some kind of idea as to what you expect to happen to recovery as you move into the harder ore? I mean, do you have increased versus this time at the moment, because you can get more material through the plant ore or kind of actually you expect recovery today relatively flat?

Attie Roux

Okay. I’ll answer with Christian its Attie here. Yes, we’re currently seeing a very nice recovery, and it’s mainly due to the very generous nature of the current ore, and the fact that the plant is really creating very high tonnage of demand. So we’re probably at -- the monthly saving sort of the same is high. What we expect to happen when we get into the pressure imperial is that the recovery will moderate back to -- or place it to design and to test work numbers. You’re quire right, but lower tonnes during that period has already increased the retention time but we do not see the being offset to the extent we already are in the benefit curve now.

Michael Stoner - Peel Hunt

Okay. So would you expect it to fall back towards the kind of the 93% that we saw in the mine plan?

Attie Roux

We expect it to obviously come down a bit. Where it will go, we don’t know at this stage. If it follows the same sort of trend, we can expect it to maybe marginally above the original design levels.

Michael Stoner - Peel Hunt

Thanks for that. Then just looking at Kofi, what kind of -- how contingent is that on having the whole road in place? Is that potential to truck on existing roads if there’s any delay there? And I guess I am pointing towards how quickly in the beginning of next year do you think you can start getting ore to the plant?

Attie Roux

Okay, it is quite confusing actually on the alternative road is really not possible at the moment due to the influx of the illegal mining activities along that stage to defer out, between us and the mine. So, as Neil mentioned, we have a construction services team in place, they have taken on the project and from our current planning is that the all road will be finished before the mining is required.

Michael Stoner - Peel Hunt

Okay, perfect. So we can expect to see meaningful volumes come through in Q1?

Attie Roux

Yes.

Michael Stoner - Peel Hunt

Okay, and then final one. You pointed to Tabakoto, in the release you pointed to costs being slightly elevated due to Jambi. Is that a function of the strip ratio? And then secondary to that, when do you expect to all of that ore to be worked through?

Attie Roux

Okay, Jambi is scheduled to finish off towards end of this year, December, I guess. We will potentially see the cost coming down little bit as we would have done while stripping the last cuts in the mine but it’s really coming at the much, and the strip ratio has been done. But the strip ratio overall of the Jambi pit is quite high compared to that of another deposit like Kofi for instance.

Michael Stoner - Peel Hunt

So that’s going to run through into the end of the year. But in terms of cash payments a lot of that stripping has already been paid for?

Attie Roux

Yes, we basically -- in the last pages, I think the bottom of the page now.

Operator

Our next question is from Rahul Paul with Canaccord Genuity. Please proceed with your question.

Rahul Paul - Canaccord Genuity

Agbaou, had a very strong first half. The mill has been performing much better than expected since the start up. So, just curious, were there any shutdowns in Q2 for maintenance? And should we expect any maintenance related downtime in the second half of the year?

Attie Roux

Rahul, nothing abnormal. We just had to complete all the line, so that is done. But we do not expect it to have any significant impact on the forecast that we’ve put in. So we expect essential performance in the second half.

Rahul Paul - Canaccord Genuity

And just moving on to Segala, you mentioned that you’re mining from two stopes now with four in development. When do you expect production to commence from the four additional stopes? Would that be Q3 or maybe Q4?

Attie Roux

I think it will be most likely in the last part of late in the year that we will be in a sequential series you will always have a few stopes in development, a few in production, few in backhaul. So, it will be like in the last quarter.

Rahul Paul - Canaccord Genuity

And just on Tabakoto again, I guess your operating costs at Tabakoto was quite high, some of that seems to be related to the open pit. But if I look at the underground mining costs on a per tonne basis, it was around $56 a tonne in Q2 and that was a big improvement from the $96 a tonne we saw in Q1. I know you did not have, I understand you did not have CRF in Q2. But net-net, would you still expect that to improve further going into the second half of the year?

Attie Roux

Yes I think we’re getting close to, we reach to the land. I think we saw room for improvements. You’re quite right the first half or the first quarter was still high because of the overhang of the underground contractors and some of the payments relating to that. A lot of that is being cleaned out now and was cleaned up in second quarter and a little bit of carryover now into mid-month or so. But from now onwards it will be clean cost and we’ll see the real cost of the underground mining.

Rahul Paul - Canaccord Genuity

And then one more question on -- I guess you mentioned to the strip ratio at Kofi C would be quite a bit lower than Jambi. But in terms of mining costs per tonne moved, would you expect Kofi C to be a little bit, I know you have the haul age as well. Would you expect mining costs to be a little bit higher than Jambi or closer to the $4.55 that we saw in Q2?

Attie Roux

No I think Kofi will be definitely cheaper than Jambi overall. The strip ratio is not quite off but it’s a lot less in the very high strip ratio in Jambi. So the realistic mining cost will be down. The added-on cost will obviously be some kilometers right for transport in the area of about 38 kilometers.

Operator

(Operator Instructions) Our next question comes from Mark Bentley with MAB Trading. Please proceed with your question.

Mark Bentley - MAB Trading

Just one question from me, in the first half of the year there was a significant increase in working capital. Am I right in thinking that that’s been a peak even may reverse in second half and hence looks significant with better cash flow overall can be expected in the second half?

Christian Milau

Yes. Mark I’ll take that question, its Christian here. You’re correct I mean in the first half what we had was the ramping of Agbaou as well as this transition owner mining. And the Segala ramp up, which resulted in some higher working capital, particularly at those two sites in the second half of the year, I think you should see that start to moderate. And obviously we’ll continue try and bring that down. We’ve also potentially going to have some benefit from some reduced VAT payment as well in Mali we believe we can offset some of that in the future. So I think you’re going to see that moderate and improve cash flows in the second half of the year.

Mark Bentley - MAB Trading

Thank you. Second question was, you’re currently stating that you believe the production for the year could be upper end of guidance, and that’s still implies lower production in the second half than in the first. Is that correct?

Neil Woodyer

I think what we’re doing here is we’re looking at the very good two quarters we’ve had. There are obviously in mining uncertainties going forward in the second half year. So we are just maintaining our guidance. We’ve had a good half year. We’re anticipating a good second year. But in terms of guidance, we think it’s prudent to maintain the numbers that we put forward.

Operator

There are no further questions, at this time. Would you like to make any closing remarks?

Neil Woodyer

Yes. Thank you, Operator. Well, I’d like to thank you all for attending. And if you have any more detailed questions, please get hold of us or email us and we will do our best to answer them. And again thank you very much for attending. And we look forward to continuing the performance we’ve achieved to-date. So thank you very much everybody.

Operator

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

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