Endeavour Mining plc (EDV) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Endeavour Mining's Third Quarter 2023 Results Webcast. [Operator Instructions] Today's conference call is being recorded, and a transcript of the call will be available on Endeavour's website tomorrow. I would now like to hand the call over to Endeavour's Deputy CFO and Head of Investor Relations, Martino De Ciccio.

Hello, everyone, and welcome to Endeavour's Q3 2023 Results Webcast. Before we start, please note our usual disclaimer. On the call, I am joined by Sebastien, Mark, Guy and Jono. Today's call will follow our usual format. Sebastien will first go through our Q3 and year-to-date results highlights. Then Guy will present the financials. And finally, Mark will walk you through our operating results by mine. After Sebastien's closing remarks, we'll open the floor up to questions. And now I will hand it over to Sebastien.

Thank you, Martino, and hello, everyone. Calling with Mark and Jono from our Ity mine in Cote d'Ivoire today. I'm first pleased to report that we have continued to deliver against our 6 key focus areas for the year as presented on the screen with the goal of unlocking near-term value for all stakeholders. I will go through each area in detail in the upcoming slides, but as a quick summary, on the operational front, thanks to the efforts made in H1, we saw the strongest performance so far this year in Q3, and we expect Q4 to be even stronger. This means that we expect to meet full year production guidance for the 11th consecutive year and maintain our status as one of the lowest cost gold producers in the sector. On the capital allocation front, despite the significant investments in our growth, we are continuing to deliver strong shareholder returns while maintaining a healthy financial position. Regarding our plans to unlock growth in the short term, we expect 2024 to be an exciting year for Endeavour as both the brownfield expansion of Sabodala-Massawa and the Lafigue development project remain on budget and on track to be commissioned next year. Meanwhile, regarding our plans to unlock long-term growth, our exploration results continue to demonstrate our ability to self-generate an organic growth pipeline. Our major focus is our recent Tanda-Iguela discovery in Cote d'Ivoire, where results so far have exceeded expectations, extending the mineralized trend by 50% and delineating several potential satellite deposits. As previously mentioned, we believe that Tanda-Iguela can be a Tier 1 asset, and we look forward to publishing an updated resource estimate later this year. Alongside this year's investment in our organic growth, we are pleased to continue to offer attractive shareholder returns as we have delivered $240 million to shareholders over the first 9 months of the year. Since our first dividend payment in early 2021, we're proud to have returned over $0.75 billion to shareholders, which is equivalent to over $200 for every ounce produced. Looking ahead, our goal is to increase our shareholder returns program further still once our 2 ongoing organic growth projects are complete to ensure that our efforts to unlock growth benefits all stakeholders. As part of our ESG strategy, we continue to launch important new initiatives with an aim to protect the places where we operate and promote sustainable socioeconomic growth in our host communities. We are pleased to see that our initiatives are being noticed as Sustainalytics recently upgraded our rating, making us the top-ranked gold producer. I will now dive deeper into each of these themes, starting with our operating results. So first, as outlined in this year's guidance, operating performance is weighted toward the second half of the year as we expect stronger production and lower costs at our Hounde, Sabodala-Massawa and Mana mines. And as you can see on Page 7, this is the trend we are seeing. Due to the stripping assets done in the first half of the year, we had access to better grade in Q3, which represents our strongest quarter-to-date with production increasing by 13,000 ounces over the second quarter and all-in sustaining costs falling $33 per ounce, and we achieved this despite Q3 being impacted by the rainy season. The good news is that we anticipate the fourth quarter to be even stronger. I will let Mark run you through the mine-by-mine performance later. Turning to Page 8. You can see that year-to-date, we've already produced 792,000 ounces at an all-in sustaining cost of $974 per ounce, which places us on track to meet our guidance for the year. We have already achieved 75% of the bottom end of our production guidance with, as just mentioned, Q4 currently on track to be the strongest quarter of the year. And as you can see on the screen, we are pleased that this operating performance continues to be achieved safely with a sector-leading safety record. On Page 9, we can see that our year-to-date all-in sustaining cost performance continued to place us as one of the lowest cost gold producers in the sector, which means that we are capable of generating healthy margins in order to fund our capital allocation priorities. Diving a bit deeper into this year's capital allocation priorities, you see that we have invested more than $370 million in gross capital so far this year with the key focus on the Sabodala-Massawa expansion and the Lafigue greenfield project in addition to our exploration efforts, which I'll discuss in the upcoming slides. Alongside these investments, we have returned $665 million to our stakeholders, which include investors and our host countries. A total of $240 million has been returned to shareholders in the form of dividends and buybacks, while $425 million has been returned to governments in the form of taxes, minority dividends and royalty payments, which is important for maintaining our social license to operate and our position as a trusted partner in countries. Moving to Slide 11. I'll now provide an update on the progress being made at our growth projects, starting with the Sabodala-Massawa expansion project. As a reminder, once this expansion is completed, the Sabodala-Massawa mine will rank as a Tier 1 asset, capable of producing more than 400,000 ounces per year, thereby increasing the quality of our portfolio and further diversifying our production base. In addition, based on the exploration success in finding oxide ore, we are confident we will be able to further boost production in the short term. I will let Mark provide details on the build within this section, but at a high level, construction work is progressing on budget with 84% of the $290 million initial capital cost now committed. It is also on schedule with first gold from the BIOX plant expected during the second quarter of next year. Moving now to our next growth project, which is our Lafigue development in Cote d'Ivoire. It will be another cornerstone asset for the company with an envisaged annual production of more than 200,000 ounces over the initial 13-year mine life at a low all-in sustaining cost of below $900 per ounce. Like the Sabodala-Massawa expansion projects, we have now committed around 84% of initial capital with costs in line with expectations, and we are on track for first production in Q3 next year. In fact, we just showed the progress of the project to our Board yesterday and was very pleased to see it coming nicely. Shifting now to our ongoing exploration efforts, which continue to generate excitement amongst the team. So far this year, we spent nearly $80 million with a significant focus on our greenfield discovery Tanda-Iguela, as can be seen on Slide 13. Whilst I'll focus the discussion on Tanda-Iguela in the upcoming slide, I also want to highlight the success that we are seeing across the portfolio, which we're happy to address during the Q&A session. This success across the group leads us well positioned to meet our 5-year discovery target of discovering 12 million to 17 million ounces of indicated resources for continuing operations over the 2021 to 2025 period at the low discovery cost of less than $25 per ounce. Now looking at Tanda-Iguela on Page 14, I must say, given the drill results received, we continue to be more and more convinced that it has the potential to be another one, Tier 1 asset. Last year, we were thrilled to announce an initial maiden resource of 1.1 million indicated ounces and a further 1.9 million inferred ounces, and this was solely based on approximately 60,000 meters of drilling. This year, we have already drilled 131,000 meters and are on track to drill in total of 180,000 meters. The results have exceeded expectations, extending the mineralized trend by 50% and delineating several potential satellite deposits. We are, therefore, eager to publish an updated resource estimate later this year, which is expected to result in a material increase in the overall resource base with a greater proportion in the indicated category. As mentioned earlier, in addition to investing in our growth, another key capital allocation priority for us is returning capital to our shareholders. This year, we have already paid out $240 million to shareholders, which is comprised of the $100 million dividend for H2 2022 that was paid in Q1 and another $100 million dividend that was paid in Q3 for H1 2023. On an annualized basis, the dividend paid for the first half of the year represents $25 million more than our minimum dividend for the year, which reiterates our commitment to paying supplemental shareholder returns. In addition to our dividend, we have returned over $40 million in share buybacks year-to-date, which means that since the launch of the program in early 2021, we've bought back more than $270 million worth of shares, representing over 12 million shares. As you can see on Page 16, overall, this means that our progressive shareholder returns program has now returned more than $775 million in the form of dividends and share buybacks since we declared our first dividend in 2020 and commenced payments in early 2021. To put this in context, we have returned approximately 13% of our market cap since the beginning of our returns program. Another way to look at it is that we delivered significantly more than the capital required to build one new mine. Looking ahead, once we complete our current 2 builds, we then expect to focus on further strengthening our balance sheet and increasing our shareholder returns before launching a new build, thereby ensuring that our efforts to unlock growth provides immediate benefits to all our stakeholders. Before I hand over to the team, I wanted to touch on our ESG initiatives. We continue to believe that mining has the potential to be one of the most impactful industries in contributing to improvements in living standards, particularly in West Africa, where we operate. And we are able to see this firsthand through the results of our ESG initiatives and our economic contributions to host countries, which amounted to over $2 billion last year. While there are many ongoing initiatives, we're particularly proud this quarter to announce that we have now received external assurance for compliance to the World Gold Council's responsible gold mining principles across all our mines in addition to ISO certifications for environmental and health and safety management. These are significant milestones for Endeavour and demonstrate our commitment to responsible gold mining practices. In fact, looking at the next slide, you see that because of our efforts, we are proud to now be the top-rated gold mining company in Sustainalytics ESG rating universe and also one of the top performers across other sectors as well. In the appendix page, you will see that we are now better ranked than Anglo American, Rio Tinto or Glencore, but also be mining better than Alphabet, Unilever or Amazon, just to name a few ones. And on this positive note, I'll hand it over to Guy to walk you through our financial results.

Thank you, Sebastien, and hello to everyone joining us today. Sebastien has already given the high-level picture. So I'll focus more on the specifics of the third quarter. To summarize the quarter, our production from continuing operations increased by 5% over the last quarter, while costs were down 3%, resulting in a 4% improvement in adjusted EBITDA to $263 million and a 30% improvement in adjusted net earnings to $70 million, while operating cash flow decreased by 22% to $115 million due to the impact of higher income taxes and withholding taxes during the period. I'd like to now take you through the details, starting with our quarter-on-quarter operating performance. As you can see on the production bridge on Page 21, our quarterly production from continuing operations increased by 13,000 ounces to 281,000 ounces primarily due to increased production at Hounde as a direct result of the higher grades mined and processed from the Kari Pump pit. Elsewhere at Mana, production was consistent with the prior quarter. And at Sabodala-Massawa and Ity, production decreased due to lower grades processed and lower throughput, respectively. On the cost side, our all-in sustaining costs also improved by $33 per ounce quarter-on-quarter to an industry-leading $967 per ounce, largely due to all-in sustaining cost improvements at Hounde as higher volumes were sold. Looking forward, we expect our progressive quarter-on-quarter improvement to continue into Q4 with stronger production and cost performance expected as the wet season ends and we start processing higher grades at both Mana and Sabodala-Massawa. Moving to Page 22, you'll see that our stronger production and cost performance in Q3 drove higher adjusted EBITDA, increasing by $10 million over Q2 to $263 million despite the decrease in realized gold price. And as a result, our EBITDA margin has improved to a healthy 50%. Turning to our operating cash flow on Page 23. We generated $115 million this quarter, which marks a 22% decrease over the last quarter, which, as I said, is largely as a result of the seasonally higher withholding taxes paid as well as higher income taxes. Typically, we incur higher withholding taxes at this time of year, and we paid $50 million this quarter, with further withholding tax payments expected in Q4 as we continue to upstream the cash from our operating entities to corporate. Income taxes were also higher due to higher taxes at Sabodala-Massawa due to the timing of provisional payments. Moving now on to Slide 24, you can see a bridge of our quarter-over-quarter variances in operating cash flow. Cash flow decreased from $147 million to $115 million for the quarter, largely due to the lower gold prices, higher operating expenses and higher taxes paid, which was partially offset by higher gold sales and a working capital inflow. As shown in the waterfall chart, the gold price declined from $1,947 per ounce to $1,903 for the quarter, reducing cash flow by $12 million, while gold sales increased by 9,000 ounces to 278,000 ounces, generating an additional $18 million in operating cash flow for the third quarter. Operating expenses increased largely due to increased mining costs at Hounde and Mana and increased processing costs across the group given the higher volumes that we processed. Meanwhile, the higher tax payments I mentioned on the previous slide drove the increased income taxes outflow during the quarter. And lastly, our operating cash flow benefited from a reduction in cash outflow, mainly due to a decrease in inventories across all of our sites. Moving on to Slide 25, we can see the impact of the cash flow changes on our net debt position. Our operating activities having generated $115 million while we invested $195 million in our existing operations and our growth projects during the period, including $116 million of growth capital, mainly related to the Sabodala-Massawa BIOX expansion and the Lafigue greenfield project. Financing activities was a $180 million outflow and included $100 million in dividend payments to shareholders, $55 million in dividends paid to minority shareholders and a further $17 million in share buybacks, which was partially offset by a $55 million drawdown against our RCF to manage the short-term offshore cash balances while we're in the process of upstreaming cash. We also saw a $15 million loss incurred as the value of our cash on hand was impacted by foreign exchange rate changes as the euro depreciated against the U.S. dollar. Overall, this resulted in our net debt increasing from $171 million to $445 million. In order to maximize value to shareholders, we are prudently increasing our leverage to fund our growth with the goal of them quickly deleveraging ourselves given the quick payback periods of our assets. This is similar to our previous growth phase where we absorbed debt and then quickly deleveraged. However, the key difference this time is that because we started our current build phase with a strong balance sheet, we're capable of continuing to deliver strong shareholder returns while investing in our growth. In fact, we currently have $867 million of liquidity available through our cash on hand and the headroom in our RCF and Lafigue term loan, which provides significant financial flexibility. While our leverage has increased quarter-on-quarter, looking at Page 27, you see that we're currently standing at a healthy 0.4x net debt to adjusted EBITDA, which ranks us very favorably against our gold peers. As we complete our growth projects next year, we expect to quickly delever the balance sheet back to a net cash position while simultaneously increasing our shareholder returns, which will again place us ahead of the peer group. Moving lastly to our net earnings on Page 28. We continued to see high profit margins underpinned by our first quartile cost positioning. I won't talk through the detail of every line item. I'll just focus on a few. For the quarter, we incurred $15 million of exploration costs as we continued to aggressively explore at our Tanda-Iguela greenfield project in Cote d'Ivoire. The gain on financial instruments decreased to a gain of $7 million in Q3 due to increases in unrealized foreign exchange losses and a decrease in the unrealized gains on gold collars. Adjustments during the quarter included a loss on noncash tax and other adjustments of $12 million and other expenses of $7 million, which is partially offset by a net gain on financial instruments of $6 million, largely related to the unrealized gain on forward sales and collars. Overall, this meant that we generated adjusted net earnings of $87 million for the quarter, which is equivalent to $0.28 per share and represents an increase of approximately 30% over the prior quarter. I'd now like to hand over to Mark to walk you through our operating performance.

Thank you, Guy, and hello to everyone. Before I discuss our operating results in detail, I would like to touch on our strong safety performance. During the last quarter, our lost time injury frequency rate was 0.08 per million man hours, well below the industry average of 1.14, which is very encouraging, particularly as the number of people working on our sites has increased with construction activities at our 2 development projects. Our strong safety performance has also been recognized with ISO certification for both environmental and health and safety management. We've put the highest priority on safe work practices and remain focused on eliminating all recordable occurrences as we believe that all incidents are preventable. I will now talk to our group performance and then each mine in more detail. Following the divestment of our noncore assets in June, I've been able to allocate more time towards our core mines and development projects. And it is really pleasing to see the progress we are making across the group. As Sebastien and Guy mentioned, quarter 3 was our strongest quarter so far this year, and that was despite the impact of the wet season, which affected mining and processing rates, as well as costs. As you can see on Slide 31, at a group level, we remain on track to achieve our full year production and cost guidance following continuous improvement in performance as the year has progressed. After 3 quarters, we've already achieved 75% of the bottom end of our production guidance, while we are expecting quarter 4 to be our strongest with the improvements in grade at Sabodala-Massawa, improvements in underground mining rates at Mana, and continued strong performances at Ity and Hounde expected. Moving to our Sabodala-Massawa mine on Slide 32. As we prepare to start commissioning of the BIOX project early next year, we are focused on ensuring that we have the right of refractory and non-refractory ore available to ramp up production whilst also continuing to support the existing CIL plant. During the quarter, we prioritized opening up 2 new non-refractory deposits, Niakafiri East and Sofia North extension to provide additional upside ore to the CIL plant and support a strong fourth quarter. In quarter 3, head grades were lower at approximately 2 grams per tonne as we mined the initial phases of these new pits, resulting in lower production quarter-on-quarter and higher all-in sustaining costs. During quarter 4, as these new pits advance, we expect grades to increase and we will supplement the feed with higher-grade ore from the Sabodala pit. Overall head grades are expected to increase in quarter 4 driving higher production. Moving on to the expansion project at Sabodala-Massawa. I'm happy to see the BIOX plant construction advancing into the final stages. We remain on budget and importantly, on schedule for a quarter 2 2024 startup. As mentioned by Sebastien earlier, approximately $243 million or 84% of the initial $290 million of growth capital has now been committed with pricing in line with expectations. As you can see from the photos, the processing plant, power plant and TSF are all well advanced. For me, the 2 key upcoming milestones at the project are the power plant expansion and the BIOX circuit ramp-up. The 18-megawatt power plant expansion is nearly finished with electrical instrumentation activities well underway ahead of energization in quarter 4 this year. Once the power plant is up and running, we can start commissioning the rest of the processing plant, including the BIOX circuit. The BIOX circuit ramp-up to full production is an important milestone and requires time for the BIOX material to grow in volume and progressively fill all of the BIOX reactors. Importantly, we have an initial 40-kilogram population of optimum on site that we are growing in the pilot plant and storing and smaller tanks with the aim of ramping up the scale of the [ bacterial ] population in the main BIOX reactors once power is available. At Sabodala, with the expansion project progressing well and with a significant portion of the initial capital committed, we were confident about launching the construction of a 37 megawatt solar power plant in quarter 3, which will help us to reduce our energy costs and lower our carbon dioxide emissions. So far, we have committed around $11 million or 20% of the total $55 million capital as we move ahead with the procurement of long lead items while we advance design work and geotechnical studies. Importantly, we are tracking in line with our budget and on schedule for the completion of the project by the end of next year. We expect to see an immediate cost benefit once the solar plant is running as this power will be generated at around $0.014 per kilowatt hour compared to $0.18 for our self-generated power. We are also adding an 8-megawatt battery system that is designed to reduce the number of generators required for screening reserves while the solar farm is generating electricity. The solar initiative will not only reduce our costs at Sabodala-Massawa, but also our emissions and help put us firmly on track to meet our 2030 emissions target for the group. Now moving on to our Hounde mine on Slide 35. As you can see, Hounde had a record performance in the quarter. Hounde benefited from the work we did in the first half of the year when we were focused on waste stripping in the Kari Pump pit to advance to the next phase of ore mining, which we started in late quarter 2. Throughout quarter 3, Kari Pump was the main source of ore and owing to its high reserve grade of around 2.6 grams per tonne. We achieved higher head grades and higher production, which was slightly impacted by lower recoveries as a higher proportion of fresh and transitional ore from Kari Pump was in the mill feed. Heading into the fourth quarter, we expect to continue mining off from the Kari Pump pit and we'll be blending it with an increased proportion of ore from Kari West and Vindaloo mine, resulting in a slightly lower head grade. Moving now to the Ity mine. After a record half 1 performance, production decreased as guided during the third quarter as the wet season impacted mining and processing rates due to the wet ground conditions and the higher moisture content in the ore, respectively. Lower mining and milling rates, coupled with higher voltage and dewatering costs associated with the wet season drove costs slightly higher in quarter 3. Despite the continued range in early quarter 4, we expect throughput rates to increase in the fourth quarter, which will be offset by slightly lower grades as mining will focus on low-grade areas of the Walter and Le Plaque pits. As Ity's throughput performance has surpassed the expectations in the first half of the year, we took the decision to accelerate the construction of TSF2 to ensure that we have sufficient tailings capacity at the current elevated throughput rates. At the same time, we are making good progress at our Recyn and Mineral Sizer optimization initiatives, which are in the commissioning and construction phases, respectively. Moving to our Mana mine. As I highlighted earlier in the year, we are transitioning Mana as we move from a combined open pit and underground operation to an underground-only operation with multiple deposits being mined. We are expanding the Wona underground mine through 2 portals and 3 decline systems to increase underground production rates. To support the increase in underground mining activity, we have brought in a new contractor, though so far, this has been slower than expected. Therefore, we are putting a lot of focus on helping to improve the new contractor's performance to continue to advance development and stope production at Wona. We are starting to see improvements in mining activities with a 20% increase in development meters and a 40% increase in production from stopes in quarter 3 compared to quarter 2. As a result, we saw increased production from the underground in quarter 3, while the open pit feed from Maoula is decreasing as the pit approaches the end of its mine life. Overall production at Mana remained relatively flat in quarter 3 compared to quarter 2, whilst all-in sustaining costs increased largely due to a high strip ratio at the Maoula open pit driving open pit mining costs higher. During quarter 4, we expect to see continued improvements as stope production ramps up at the Wona underground. At the same time, stope production at the Siou underground is expected to progress into higher stope grades as well. Lower contributions from Maoula will be offset by higher underground stope production, which is expected to increase head grades in quarter 4, driving higher overall production. Moving now to our second development project, the Lafigue project in Cote d'Ivoire. We continue to make significant progress on our next cornerstone asset. Construction is progressing well, and we are on budget and on schedule for first production in quarter 3 next year. It is encouraging to see the project of advance so quickly. We have now commissioned 84% or $377 million of the initial capital, and we are pleased to see that pricing is largely in line with expectations. You can see some of the critical path items in the images on this slide. Detailed engineering is approaching completion. Concrete works for the crushing, milling and grinding circuit is well underway. We visited the project yesterday, and it was pleasing to see the HPGR frame now in position and then [ ball mill and SAG ] installed. The construction of the 225 kilovolt power line is progressing well. We have completed the erection of the towers and stringing of the power lines and are working on the substation installations at each end of the line. At the TSF, we are currently aligning with HDPE liner and expect to finish in the coming months. Overall, the key work streams are tracking in line with the schedule, and we are very pleased with the progress made so far. As Sebastien mentioned earlier, we are very excited for next year as our growth projects come to fruition. I will now hand back to Sebastien for some closing remarks.

Thank you very much, Guy and Mark. As you can see, we have continued to deliver against our key objectives in 2023 [Technical Difficulty] for a strong 2024 as we are progressing well towards unlocking our organic growth projects for next year. With Sabodala-Massawa and Lafigue completed, we will further upgrade our portfolio by increasing production while lowering our cost base. This will, of course, position us to generate strong cash flow, which will in turn allow us to continue to reward our stakeholders. None of the progress we have made would be possible without our team, and I would like to thank them for their continued hard work and dedication. Thank you for joining us. I will now hand over to the operator for Q&A.

[Operator Instructions] Our first question comes from the line of Ovais Habib from Scotiabank.

Sebastien and Endeavour team, congrats on a good quarter-to-quarter improvement despite the rainy season. Just a couple of questions from me, Sebastien. Starting off just with -- in terms of cost, 2022 and kind of first half of 2023 was kind of all about increased cost due to inflation. Are you starting to see costs stabilize in the second half of this year? And any color on your expectations on cash costs and sustaining costs going into 2024?

Sure. Thanks, Ovais. I think on the cost, you're right. We flagged that we would be expecting still an inflationary environment and high elevated price, in particular, in H1. I would say that in H2, we haven't seen any increase and we start on certain areas, I mean, to see some price decrease, although we haven't seen as we would have expected a bigger drop in particular in fuel price in Senegal and in Burkina in particular. But hopefully, this will materialize, I mean, progress maybe over the next month. Regarding 2024, we always said that we should see, again, a drop in our production cost at group level in 2024 simply by getting those 2 new projects online, given that the 2 projects, both the Sabodala-Massawa expansion with BIOX and Lafigue, will both come out with lower cost than the average 2023 group costs. So this will, in turn, improve our cost in 2024. So despite seeing some higher trends in the sector with cost going up, I would expect that next year, we would come back with a lower production cost for Endeavour than for 2023.

And in terms of the sustaining capital, I mean you had pretty high sustaining capital in the first half of 2023, just based on all the projects that you were completing. That's starting to fall off in the second half. And can you just comment on the sustaining capital kind of going into 2024 as well?

Sure. Well, if we look at the results release, there were some minor adjustments to our capital outlook for the remaining of the year. But for 2024, I would say that -- I don't know, Guy, I mean, if you want to comment on our expectations for '24.

Sure, Seb. So if we take a look forward after, as you said, there's some relatively peaked CapEx this year. We're looking at a EUR 250 million more or less look forward for a combined sustaining and non-sustaining.

And just switching gears, I guess, to Mana. Mana had a bit of a slower-than-expected ramp-up of underground development on that end. So now the ramp-up is progressing well. Based on the experience at Wona underground, are you looking at opportunities of underground potential at your other operating mines as well?

Sure. This is why we've been flagging that Mana was important for us. I mean, in upgrading progressively our core skills within the group, I mean, for underground. We've been focusing today on transitioning Wona from open pit to underground. It has been taking a bit more time, but we are scaling up progressively with, in particular, new declines at Wona in order to increase the underground mining rates and support the mill field. What we see is that, clearly, we are doing some drilling campaigns currently at Hounde, for example, with some very interesting preliminary results for Vindaloo Main, some underground potential there. I mean, we obviously know that there will be, at some point, some underground capacities at Sabodala-Massawa, in particular, Massawa, which was clearly identified during the DD when we acquired, I mean, the assets. And last year, we see potential at Ity. So getting those core competencies within the group is important, and this is why we're trying, I mean, to set up the right way at Mana and to basically use Mana as the training facility for underground competencies for the rest of the group. You might recall that Mark our Chief Operating Officer has a very large and strong underground competencies and therefore, have been able to attract progressively some good guys to help us ramp up that skills and capacities.

And just last question for me, Sebastien. Just switching gears to the exploration program at Tanda-Iguela, you're looking to complete close to around 180,000 meters of drilling in 2023. Would you be able to incorporate all these drill results that you're looking to complete at Tanda for the resource update planned in Q4? And then maybe a follow-up to that would be in terms of the resource update, would that resource update be looking to be brought into a study into 2024?

Sure. I think there is an expression in English, which is proof in the pudding. So we're obviously putting pressure on Jono and the team to try to integrate as much results as possible for the release in the coming weeks. That's something that we might have ready by end of November, beginning of December. So I would say that we would expect, at least, I mean, all the results by end of Q3, so end of September drilling to be included into that release. It means that the drillings in October, November and results wouldn't be included into it. But I think the surprise and the quality of what we are expecting will be good enough to confirm that this is clearly heading to become a Tier 1 asset and one of our best assets in the portfolio. We will, on the basics of this release, try to start looking at a scoping study in 2024. At the same time, we try not to rush too much as it's important for us to really understand, I mean, the size of what we are looking at, so that the scoping study doesn't constrain us at the beginning in certain options that would still be available for us as we grow a better understanding of the deposit.

[Operator Instructions] Your next question comes from the line of Richard Hatch from Berenberg.

Just got a few questions. First one is just on Hounde. Congrats on a really strong quarter, but it would appear that you're going to have to have a really bad quarter to even sort of hit the top end of guidance if not exceed it. So if we were to put our numbers above the range, is that wildly crazy? Or is there a valid reason if you got mill maintenance or something like that, that you think is just going to bring that fourth quarter down?

I think it's a fair point that we are expecting a strong Q4, better than Q3 in terms of production. And with this production level, expecting a significantly lower all-in sustaining costs, I mean, for Q4 than for Q3, allowing us at the end to meet our guidance, both for production and all-in sustaining costs.

And then just on Mana. So am I right in saying that the target underground mining rate is about 2.2 million tonnes a year, correct me if I'm wrong on that? And if that is the case, what are you doing to get to that level? Because, I look at all the other assets in the portfolio and then I look at how Mana is performing. And I hear what you're saying about the fact that it can be used as a training mine for some of the other assets on the -- in the portfolio and maybe some other ones as well. But how much longer can you sort of withstand this kind of economic performance? And also just on Mana as well, what kind of '24 cost number should we be putting into our models, please?

So what we're targeting for Mana is with [ CU ] and then with 3 declines at Wona, we're sort of looking in the range of about 60,000 tonnes a month, plus or minus for each decline. CU will gradually decrease as we come towards the end of the economic life of the current asset there. And then the Wona side will continue to increase to compensate for that. And then there is a period of time where we'll be as stated an underground-only operation. But we're confident that we can get the production rates up to the required level.

Okay. And then what about cost, Mark?

We're still working through the budget for next year. The cost will be better than this year.

Yes. I mean clearly, I mean, production ramping up, we will see, again, a significant drop, I mean, in cost for Mana next year.

Okay. And I mean, is it -- so what is the kind of the focus then with your -- is it kind of development rates? Is it not having the flexibility that you want in the underground? Like where are the sort of key areas where you're cracking the wet, so to speak?

So we've got a third decline that we're progressing to get into a third section of the underground at Wona. And so that isn't in all yet. And so that's obviously an important part to get moving. And then on the stoping side, it's just getting the -- a new contractor giving their performance up to the sort of levels where we want to see. We've seen some fairly encouraging results in November, which is good, and we'll obviously continue to push them.

And then the last one, just -- Guy, sorry if I've missed this. On the MI, minority interest cash payments out the door and tax out the door Q4. Where are you on that? What's the [indiscernible] please?

Guy, do you want to give some updates?

Sure. If we're looking at Q4 specifically, we are looking at a withholding tax and minority dividend total of around somewhere between $60 million to $65 million.

And Richard, just the last one on your first question there. I believe Sebastien's response was at a group level, whereas you're asking about Hounde. So Hounde had a good Q3, given the higher grades coming through from Kari Pump. And that's why we stated earlier this year that we expected a stronger second half given the stripping that was being done in the first half and we expect grades to normalize in the fourth quarter as we blend the ore with some Kari West and some Vindaloo there.

Your next question comes from the line of Daniel Major from UBS.

Yes, a follow-up is on the cash flow statement. Maybe a follow-up from Richard's question on the tax and the minorities. If I look at the cash tax payment year-to-date, it's about $270 million and if you sort of factor in around half of that $60 million to $65 million in a normal kind of rate of income tax and then on the withholding tax. It looks like you're on track to pay somewhere in the region of $350 million in overall tax. You note that seasonally high payment of withholding tax this quarter, but that would be a sort of 60%, 70% effective tax rate. And then obviously, on top of that, you've got the dividend distribution to minorities. I guess, my question is when we look into next year, based on your plans for upstreaming of cash, et cetera, what should we be thinking about the withholding tax payment, overall cash effective tax rate? And then a similar kind of question on the minority dividends because at the moment, it's a pretty big cash drag those combined this year.

Sure. Guy, do you want to give some clarifications on that?

Sure. So if we look at it on a go-forward basis, which I think was the thrust of the question, we should be lower looking into next year. And that's essentially because we will be putting in place some intercompany debt at the development projects, which effectively provides at least some shields to minority interest dividends and thereby reducing the overall tax burden that we've seen in this year. So I think the look-forward is significantly different to this year as this year has been to prior years as a result.

Okay. Can you give us any steer on the kind of magnitude of that?

I would prefer if you don't mind, to probably give you a shot off-line because I'd like to walk you through the split between the withholding tax and the corporate income tax. I think the -- there are variations, both by host nation as well as then our intended distributions, which are going to fundamentally affect that. So it might be slightly easier if I just provide you some more [ grifty ] data rather than try and cover it on the call.

And then just second question, just to clarify again the cash flow question. The sort of payment receipt for Boungou-Wahgnion slipped into Q4. What's the number we should be putting in there after any adjustments and sort of total cash inflow you would expect in the fourth quarter comprising of any kind of deferred payments in the initial lump sum?

Sure. So on -- in terms of the asset sale proceeds for Boungou and Wahgnion, so far, we have received $33 million from that sale from Lilium gold and we expect to receive the remaining $97 million of the upfront consideration before year-end. So, it's $100 million is expected before year-end. The delay, I mean, in receiving the payment is simply due to Lilium's mining unexpected delays in syndicating the shareholder loan, which has now been resolved, and we've been discussing directly with their bank and the legal documentation is nearly completed. So despite these delays, we're confident that we should be receiving that in the next few weeks and at least before Christmas. And beyond that, we clearly from the view that the sale was clearly in line with our strategic objectives and overall confidence given the dialogue with Lilium that they'll have the ability to deliver value to our stakeholders.

And just one more if I could squeeze in. Hopefully it's a very simple one. I think about the exploration run rate, how are you seeing that into next year relative to this year and this year, about $100 million. How would you expect that to trend into next year?

Well, Jono will be -- who is in front of me, will be presenting his budget in 2 weeks' time. So we'll review that and looking at the overall equilibrium for the balance sheet and the P&L, but expecting that it will be at least $80 million and plus or minus around this number. And then it might evolve during the year depending on priorities, surprises and stuff like that, a bit like we did this year.

Your next question comes from the line of Wayne Lam from RBC.

I guess, just wondering in Burkina Faso, on the recent revision in the sliding scale and the royalty structure. Can you kind of discuss a bit behind the renegotiation there and when those discussions have started? And does that come with any kind of stability agreement or reassurance on the overall terms? Or just wondering if there's any potential for change in the carried interest there as well versus the current 10%?

Look, if -- I mean, if you recall, I mean, Burkina has scaling approach to as other countries to the royalty scheme. Previously, it was capped at $1,300 gold price per ounce as opposed, for example, to Cote d'Ivoire, if we look at Cote d'Ivoire, we had a cap at $2,000 per ounce. So there has been ongoing engagement over the last few months between the government, the chamber of mines and mining companies alongside also with suppliers, lenders, I mean, all the stakeholders, which are involved in the mining sector regarding the royalty rate regime. Following several iterations, we were able to settle on the [ YAC change ] that was published and we are expected it to become effective sometimes in November or early December. Overall, we have -- what is important is the impact, I mean, for Endeavour is relatively minimal because we're talking about less than 3.5% impact to our group all-in sustaining costs. And it's important to reiterate that we have stability agreements in place on the free carried interest, so we do not expect any changes there. So overall, it's been a good dialogue between the different parties, and not surprised where we've been lending.

And then maybe just at Massawa, looking ahead to production ahead of the BIOX plant coming online, just curious if the bulk of the material until then is going to be -- continue to be sourced from Niakafiri East versus the higher grade North and Central zones. And so just wondering if we should continue to anticipate a relative decline in grades before you're able to start processing the higher-grade refractory ore?

Sure. Mark, do you want to --

Yes. So if you look at how we've gone year-to-date, we do expect quarter 4 to be stronger and we do anticipate that we'll be able to maintain a similar sort of level in the lead-up to the BIOX coming online.

And then maybe just last question at EV. Given the higher throughput rates there, how much runway do you have on the tailings capacity currently? And just wondering if there's kind of a step-up in sustaining spend next year? I think you had said $250 million on a consolidated basis, but I just wanted to confirm that for 2024. And just wondering if there's a step-up in spend at Ity attributed to the construction of the new TSF to support the higher run rates?

No. We've got more than sufficient capacity at Ity on TSF 1 and TSF 2 is progressing very well. So we will have that really well ahead of time. And from an overall capital perspective, it will be similar to what we're doing this year from a sustaining capital perspective.

Yes. I mean, the good news at Ity and we're currently at Ity is obviously the Recyn project, which has been now commissioned and starting to perform in a well. And next year, I mean, we've launched already, I mean, the studies and some key procurements for the mineral sizer. And I think once we've got all that, the mineral sizer will be critical to improve throughput during in particular rainy season. So I think those 2 projects are giving us very strong confidence that the type of rates and throughput that we've seen over the last 12, 18 months, I mean, at Ity will become more sustainable post 2025, one of those 2 projects are up and running at the right rate.

And on that $250 million for 2024, was that the number that was quoted earlier? And is that just in reference to the sustaining?

Guy, I think you were commenting on '24 sustaining.

Yes, indeed. So the $250 million is for sustaining plus non-sustaining on a look-forward basis, excluding growth.

Your next question comes from the line of Sandeep Peety from Morgan Stanley.

I have a few. I'll take one at a time. So firstly, on -- again, on cash flow. So I look at the balance sheet, it looks like you have billed working capital of around $90 million in 2022 and another $90 million year-to-date if we exclude the proceeds from asset sales, do you expect that to completely reverse in coming quarters? Or it's more medium term?

Guy, do you want to comment?

Certainly. I think if we just sort of zoom out, you're right, there has been a buildup. I think the key element to the growth in working capital has been -- as we've been building stocks ahead of BIOX. And yes, you will see a reduction, but it's not going to be an unwind in the next 1 or 2 quarters. It's going to be progressively through the start of '24 and into the back half of '24 as we ramp up the BIOX.

And then I think Seb you answered partly the question on proceeds. I had a follow-up on that. So what should we be expecting in terms of cash flows for deferred cash consideration and net smelter revenue during 4Q? So $97 million was cash consideration. And are you expecting on top of that something more?

Sure. So as part of the agreement, it's about $97 million, which is the remaining part of the upfront. Then there are a few million dollars expected, which is linked to royalties on the production for Wahgnion and Boungou during Q3 and Q4. And then it will be a payment that will be received beginning of Q1 because there is a $10 million payment, non-contingent payment expected in the 31st of December this year and then another $15 million at the end of Q1. So those are, I would say, the non-contingent part. So $97 million in Q4, $10 million at the end of December and $15 million at the end of Q1. And then on top of that, we'll be expecting the contingent part, which is directly linked to production.

And then final question, one on production. So production range for 2023 has been maintained. This implies that run rate needs to improve by approximately 9% versus 3Q level to achieve the midpoint of the guidance range. Do you think this is achievable or we need to be more conservative?

Your next question comes from the line of Don DeMarco from National Bank Financial.

Just a couple of questions from me. So -- and building on the last caller's question -- Sandeep's question about Q4 being stronger than Q3. What are the mines that are going to rebound and drive that stronger production in Q4?

Sure, Mark?

We'll see better performance at Sabodala, if you will be stronger quarter-on-quarter. Hounde won't achieve its record production in Q3, but it will still be a good quarter, and we do expect to see a better performance from Mana.

So really, all 3 except for Hounde, which is fair. Now going back to Richard had asked a question on Hounde before production, Mark, you mentioned would normalize, but we see even 45,000 ounces is kind of put you above the top end of guidance. So I'm just wondering about Hounde, like what's the production in Q2? Was it off sequence? And is there any -- is there any implications on production or grades looking ahead in 2024, say?

No. The performance from Hounde in quarter 3 was not off-sequence at all. It was just a very high-grade pocket in the pit. And with your resource modeling, there is always a top cut applied, and I guess we did achieve or get a very good outcome from that particular part of the ore body, like a very positive reconciliation. Yes. So it's not something that we expect all the time going forward.

Yes. I mean it was planned for this year, and this is why we were insisting that we had some high production towards H2 rather than H1. And it's really on the back of the stripping that was made at Hounde in Q1, in particular, the large stripping we did. So we're getting the benefits in Q3 and somehow also a bit in Q4.

So you are getting some positive reconciliation there. But looking at Q4, you've got the levers to blend it. And so even if you hit another high-grade pocket, I mean, you can adjust those levers as you see fit, I suppose?

Yes. I mean, what we -- what Mark was hinting to is, we're not expecting Q4 and you shouldn't expect Q4 for Hounde to be as strong as Q3. It will still be a good quarter. But what is interesting in Q4 for us is, seeing Ity again, with stronger performance and Sabodala-Massawa.

Okay. And Sebastien, while you have the mic, maybe if I could just ask you a final question on your perspective on M&A at this point. It's been topical in recent call -- other calls. What is your sentiment at this point in time?

Well, on M&A, what is interesting is, I keep revealing the same, but we don't feel pressure to do -- to the M&A, in particular, while we are doing strong organic growth with the focus right now on completing both Lafigue and Sabodala-Massawa. And as we are shaping nicely Tanda-Iguela and I think that the press release will do in the coming weeks update on Tanda-Iguela will show that we have very interesting projects to build in the coming years with Tanda-Iguela. So as mentioned before, in terms of adding production through M&A, the asset that fits our portfolio criteria are not readily available and tend to sit sometimes with larger companies. So we first need to see what strategic direction these companies are going to take. So we need to continue to monitor the market, but no pressure, and we'll continue to be extremely disciplined if any opportunities arise and that we should have a look at.

Your next question comes from the line of Raj Ray from MBO -- BMO.

So first one to you, Sebastien. On the new royalty in Burkina, my question is, has there been any other ask from the interim government there in terms of changing any other attributes of the mining code? I know you have a stability agreement with respect to the 10% [ CAGR ] interest, but the special income tax and any other attributes, has there been any other ask that didn't make it to the final agreement, if you can talk to that? And then I have a couple of operational questions for Mark.

Sure. No, Raj, I mean, there hasn't been any other particular request, I mean, from the government. I think that's something that has been pending for some time to review for them the scale for the royalty scheme. So it hasn't been a complete surprise. What was good is that it was debated and discussed. So it didn't come as a blanket decision without proper discussion and coordination with the different industry representatives. I mean, obviously, this is something that will help the government in their current fight against the terrorism. So it's not something that we can't support. So yes, no other specific items requested.

And then, Mark, couple of questions for you. First on the Hounde recovery. Head grade was up substantially, but recovery dropped. Now I did see the comment on the [ blending the ore ] plus there was a comment on the retention time being lower. Can you comment on that? And why that's impacting or how the retention time is being impacted by your ore mix? And the second question was on the Mana underground grade. If you can give us some idea what the Q3 underground grade was. And overall, as you're ramping up your underground output, so how your grade is reconciling versus your reserve grade?

So at Hounde, as we increase throughput, it will have a slight impact on retention time. And depending on the mix, it will obviously vary. So when we're in the good oxide ore, and we still get very good recoveries, the recovery impact that we're talking about, there is some graphitic zones in the Kari Pump pit at times, and we do tend to see a slight recovery penalty when we're in the graphite.

So Mark, just a follow-up. So if I look at your ore process for Q3 versus Q2 is slightly lower. So that's why I was a bit confused with the retention time comments.

Look, I'll have to come back to you on that one and just understand exactly what might be driving that unless it's an availability related as well and utilization --

Okay. Yes, and on the Mana underground, please?

Yes. So Mana underground, from a scoping perspective, we had a mill shut down recently. And after that, we did some batches of the underground, just to compare or just to confirm because sometimes when you're blending, you don't necessarily know what any single ore source is doing. And we're certainly -- we were happy with the results to know that what we were claiming going in from the underground perspective was -- as it was planned.

That will conclude today's Q&A session. I would now like to turn the call back to Martino De Ciccio for any closing remarks.

Thank you, everyone, for joining our webcast today. We, of course, remain available offline for more questions. Thank you, and have a good day.

And that will conclude today's conference call. Thank you for your participation. You may now disconnect.