IAMGOLD Corporation (IMG) Earnings Call Transcript & Summary

Thank you for standing by. This is the Chorus Call conference operator. Welcome to the Côté Gold Project Construction Conference Call and Webcast. [Operator Instructions] And the conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Indi Gopinathan, Vice President, Investor Relations and Corporate Communications for IAMGOLD. Please go ahead, Ms. Gopinathan.

Thank you very much, Anastasia, and welcome, everyone, to the Côté Construction Approval Conference Call. Joining me today on the call are Gordon Stothart, President and Chief Executive Officer; Carol Banducci, Executive Vice President and Chief Financial Officer; Bruno Lemelin, Senior Vice President, Operations and Projects; Craig MacDougall, Senior Vice President, Exploration; and Jeffrey Snow, Senior Vice President, Business Development and General Counsel. Our remarks on this call will include forward-looking statements. Please refer to the cautionary language regarding forward-looking statements in today's slide set and be advised that the same cautionary language applies to our remarks during the call. With respect to the technical information to be discussed, please refer to the QP technical information slide. The slides referenced on this call can be viewed on our website. I will now turn the call over to our President and CEO, Gordon Stothart.

Well, thank you, Indi, and thank you, everyone, for joining us following our early morning announcement that IAMGOLD and our partner, Sumitomo Metal Mining, have made the decision to proceed with the construction of the Côté Gold Project, a transformational, rare and valuable asset. So Côté provides significant transformational value to IAMGOLD. At $1,700 gold, Côté generates an NPV of over $2 billion and an IRR of over 22% with an 18-year potential mine life and over 7 million ounces in reserves. The first 6 years see annual gold production of 469,000 ounces on a 100% basis at an all-in sustaining cost of $693 per ounce. We've been working hard since the feasibility study to reduce the risks associated with large projects. Specifically, our team has been working on detailed engineering, and we are now over 60% complete. This, in turn, has enabled us to secure about 55% of our total project costs in firm bids. We are making good progress with our permitting team and have received authorizations in the past few weeks for both the Section 36 Schedule 2 and Section 35 of the Federal Fisheries Act. The project is strengthened by our partnership with Sumitomo Metal Mining, who has been with us through the feasibility study and derisking activities, sharing technical expertise with us as an integrated part of our Côté Project team. The project is strengthened as well through our strong relationships with our local indigenous partners, Mattagami First Nation and Flying Post First Nation, who are both part of the Wabun Tribal Council. Finally, there is great district exploration potential with the Gosselin discovery, in particular, within 2 kilometers of Côté, and Craig will speak to that a little bit later. Côté is in a mining-friendly jurisdiction between Timmins and Sudbury with a very skilled local labor pool and road and power infrastructure nearby. Côté will contribute materially to lower all-in sustaining costs within IAMGOLD's consolidated global cost structure and will materially increase our production profile. The bar chart here highlights the pro forma production in 2024 with Côté online, assuming the start of Boto construction in 2023, subject to capital constraints. As you can see in the ring charts, Côté really brings greater balance to the company's geographic diversity as well. On the global industry, all-in sustaining cash cost curve, Côté ranks in the second quartile, along with Boto, on a life-of-mine basis and is in the first quartile in the first 6 years. As I just mentioned, Côté brings a meaningful production profile at IAMGOLD with strong district scale potential, ranking it amongst the largest assets globally. And gold is a rare development asset with a long life based on over 7 million ounces in reserve with substantial resources and district potential. Côté is also valuable in the marketplace. This slide considers recent transactions for Canadian open pit mines and demonstrates our belief that it is considerably cheaper to build than to buy. Côté is valuable to all stakeholders. Based on economic benefit, studies completed in 2018, we estimate CAD 10 billion in economic activity in Ontario, including CAD 10 billion in wages forecast through direct and indirect job creation. 450 full-time, well-paying jobs are anticipated during operations with over 1,000 local construction jobs during the build phase. Importantly, we will be working very closely with our indigenous and northern communities as we build and operate the project. Côté is ready to build. From a financial perspective, our balance sheet is strong with liquidity of over USD 1.3 billion at the end of Q1, and we are in a net cash position. The project go-forward spend is estimated at between USD 875 million to USD 925 million net of leasing, which we expect to expand over the next few years, as noted on this slide. To manage our financial risk, we are evaluating opportunities for hedging our Canadian dollar capital and fuel exposure relating to Côté during the construction period. In addition to our strong current liquidity, we forecast strong free cash flows from our existing operations, enhanced even further by the current high gold price environment, and I'm happy to see that it continues to climb. From an engineering perspective, as mentioned before, our progress on detailed engineering has enabled us to secure firm bids on pricing to reduce cost risk and also technical risk. On the permitting front, we signed the IBA with our First Nations partners, Mattagami and Flying Post, and advance permitting with the Federal Fisheries Act Section 36 Schedule 2 as well as the Section 35 authorizations recently received. We are currently working on environmental compliance authorizations, or ECAs, for construction next. Finally, on the prep side, we have safely delivered on key critical path milestones in early works, including the construction camp and tree clearing for initial construction. Here are a couple of pictures of our site, highlighting the construction camp finished in the springtime and tree clearing work. All of this was done safely and securely in the COVID-19 environment where we were able to quickly and efficiently deploy new health and safety measures to adjust and keep people safe on site. On that note, I will now pass the call over to Carol to review our financing strategy.

Thank you, Gord, and good morning, everyone. The basis of our financing strategy for Côté Gold is to be conservative and appropriate. From a financial strategy and governance perspective, we would aim to maintain our conservative balance sheet profile with a net debt-to-EBITDA ratio of less than 1.5x through the construction cycle. And I'll just pause here and just remind everybody, and as Gord has noted, we're in a substantial net cash position today. And based on current market conditions, we would not expect to get anywhere close to this level of 1.5x of net debt to EBITDA. So we would aim to maintain a minimum cash balance of $200 million, limit the volatility of our input costs and maintain our significant leverage to the gold price, which is enjoying high as not seen for years. From an execution perspective, to mitigate financial exposures associated with the expenditures, including currency and commodity risk, and to protect future operating cash flows, we may opportunistically enter into derivative contracts for fuel and the Canadian dollar. In fact, we have substantially completed the fuel hedge program over the construction period and initiated a Canadian dollar hedge program for up to 90% of its Canadian dollar exposure. So to date, we have hedged just over 5% of the attributable Canadian dollar exposures at rates that averaged around $1.3605. Under current market conditions, we have the financial capacity and flexibility to build the Côté Gold Project. And with that, I will now pass the call to Bruno to provide an overview of the project.

Thank you, Carol. Our partner on Côté is Sumitomo Metal Mining, or SMM. SMM has a long mining history, 430 years of mining history, in fact, and is deeply experienced in the modern metals and mining industry, being partners in several major open pit mines in North and South America as well as operating the only active underground gold mine in Japan, along with many other production assets in their portfolio. We are committed to sustainable development principles and have been steadfast partners since joining the Côté Project. On Slide 19, I will highlight on this slide that we have over 7 million ounces in reserves, which were estimated using a $1,200 per ounce gold price plus significant additional potential in resources. The deposit is very well drilled and understood with nearly 2/3 of the content ounces in the proven category of the total proven and probable reserves, even at the preproduction stage of this mine. I will highlight a few item on this slide, which compares the current status of the project with the extended case from the feasibility study. We are seeing slightly higher all-in sustained costs due to the impact of the gold price on royalties and consolidated new operating cost estimates. Our initial capital is up following further refinement and conservative assumptions, and we'll bridge the key differences in a couple of minutes. The sustaining capital is up primarily due to a shift and capitalized waste stripping from operating cost in the feasibility study to capital cost now using the same evaluation criteria as we apply at our existing operations. While we made this shift, we have also used more conservative estimates in our operating costs, so the net effect has been a relatively stable operating cash costs and higher sustaining costs. At a gold price of $1,350, the NPV at a 5% discount rate is USD 1.1 billion. We can better understand the sensitivity of the project against gold price with an average value of -- with an average value addition of $250 million on the NPV by each $100 per ounce increment. This slide is included to give you an idea of the capital cost breakdown by key discipline area. As you can see, major areas of spend are mining, the processing plant, the tailings storage facility and indirect costs. On CapEx variances, this slide provides key areas of differences on the initial capital, which we group as feasibility study adjustment, feasibility study improvement and escalation and derisking. As you can appreciate, as we advance in engineering, get more insight information and refine our estimates, we also see where initial estimates are low or needed to be more conservative. The feasibility study was estimated based on constant 2018 dollars as feasibility study numbers normally don't include estimates of price escalation. For the current construction estimate, those costs have been included and further increased due to the delay in the start of construction versus the date originally contemplated in the feasibility study. Derisking Côté. 55% of the total project cost has been derisked at this point. This may shift a little as we go through the contracting process. But the outcome of the work done to date on detailed engineering and the impact on the contracting process is that we have better information on which to issue packages, which tightens the range and accuracy of pricing. Autonomous technology makes for more predictable operations, and this technology is widely deployed. To understand why we believe autonomous technology is about now versus the future, we would highlight the benefits, including higher productivity, better costs and smaller camp size. Using automation, we effectively have seasoned high-performing operators on day 1 without a need for training and with increased productivity. The mines that are running this technology today has continued to expand their implementation at a rapid pace. A comparable site in Western Canada started with 6 trucks and is now up, in line with the plan to run 20 by year-end. On the Côté Project, we are benefiting from the expertise of that same supplier implementation team. We are in discussion with regulators in cooperation with other Canadian operators to refine regulations for the implementation of autonomous technology in mining. Other sites with autonomous implementation are noted here. This is really to see that autonomous is the way of the future. Fortescue has nearly 100 trucks. BHP is profiting existing trucks, which is more challenging, and Highland Valley Copper is implementing as well. The production schedule shown here on the 100% basis demonstrates that the project is a very strong producer in the early years. However, exploration program, which Greg will discuss shortly, is targeted to augment the lower production gaps here with materials proved up from the Gosselin and Young-Shannon zones, as well as extend the life of the operation. Very simply, the time line is approximately 2.6 years to construct or 32 months, 18-year mine life based on the extended phase and only reserve ounces and final closure over a 2-year period. I'll now discuss community and the environment. Responsible mining for us is about community, technology and partnership. IAMGOLD has been repeatedly recognized for its strong ESG performance around the world based on our Zero Harm vision. And we will, of course, be bringing that same vision to the development and operation of the Côté Gold mine. We have been actively working with our local indigenous groups with an IBA signed last year with the Flying Post First Nation and the Mattagami First Nation, along with the Memorandum of Understanding, or MOU, with the Métis Nation of Ontario. We will be working closely with indigenous and northern communities as we build and operate the project. We have had strong support from all level of government, federal, provincial and local. We have a strong relationship and deep roots in Sudbury, Timmins and Gogama with the local project office based in Sudbury. Sudbury and Timmins will be the main transit hubs for our Côté employees. We have a long-standing partnership with Laurentian University and the Bharti School of Engineering. In 2018, we announced a $2 million investment over a 5-year period, extending our initial commitment of $1.25 million in 2013. We have also been working closely with Cambrian College to collaborate on data analytics program to help grow local expertise in this field. We donated $150,000 to the Duke of Edinburgh's International Awards to extend its programming in the Gogama region with a focus on assisting indigenous and youth in the region. This slide, these pictures highlight our teams and partnership. On permitting, this slide summarizes our permitting. As noted earlier, we are well advanced with the number of permits and authorizations already approved. Additionally, we have made progress on the authorizations required for construction, having received the Metal and Diamond Mining Effluent, Section 36 Schedule 2; and Section 35 Fisheries Act authorization. Moving on to project execution. We highlight key milestones here, starting with today's decision to construct starting in Q3 and ramping up activities in Q4. We anticipate major earthworks to start in Q2 2021 with the process building enclosed in Q1 2022, the TMF Phase 1 completed in Q4 2022 and commercial production following the Q3 2023 completion of commissioning. By mid-2024, we would anticipate achieving full production level. The conversation about time line is not complete in today's COVID-19 world. We have spent a great deal of time reviewing protocols and collecting and incorporating best practices to safely manage all of our site, including Côté. Our resources include IAMGOLD's other sites, Essakane, Rosebel and Westwood, from Sumitomo's experience at other operation and wood experience at other mines construction pipe. At Côté, we will focus on 3 key areas: managing access to the site, limiting exposure risks and adding comprehensive sanitation and monitoring program. We include here our labor ramp-up. In the site prep period through November 1 this year, we planned for 75 people on site on average. And the first ramp-up from November to next May, we would see 400 people on site in roles that allow for physical distancing, such as operating large earth-moving equipment. In the second ramp-up beginning next May, we would increase to over 1,000 people on site with a number of activities, including preparatory mining and tailing facility construction. We foresee a reduced risk of transmission during the early stages of construction and will be vigilant in managing the health and safety of our workforce on site. I will now turn the call over to Craig to discuss exploration.

Thanks, Bruno, and good morning, everyone. Before I begin, please note that any results I refer to today have been previously disclosed in accordance with securities regulations and signed off by the responsible qualified persons. I would like to start by setting the geological context. The Côté Gold deposit is located in the southwestern extension of the prolific Abitibi Greenstone Belt, which is world-renowned for its demonstrated gold and base metal endowment. This particular portion of the Greenstone Belt is relatively lightly explored as compared to the well-known and historic gold camps further East. And will no doubt, in addition to Côté itself, yield future new discoveries to add to this already impressive metallogenic endowment. The Côté deposit differs from the classic shear zone structurally controlled deposits for which the artisan is typically known. It is an intrusion hosted disseminated gold deposits similar to the world's large porphyry copper deposits and, thus, lends itself to lower-cost, large-scale bulk-mining methods. The exploration potential of the Côté area is quite exciting, and it's proven by our announced Gosselin discovery in the adjacent Young-Shannon zone located within 1.5 kilometers of the Côté deposit itself. At Gosselin, like Côté, the mineralization is largely disseminated and hosted within an altered intrusive. From what we have learned at Côté and the drilling completed to date at Gosselin, we believe we have potential for an exploration target of between 3 million to 5 million ounces at grades ranging from 0.7 to 1.2 grams per tonne of gold. I must draw your attention to the cautionary language regarding exploration targets provided on the second slide of this presentation. You will note on this slide that we've included a few intervals here from previously reported drill results, which demonstrate grades quite similar to Côté over substantial core length. Exploration's next steps at Côté will focus on advancing delineation drilling programs to support a mineral resource estimate at Gosselin as well as evaluate the resource potential of the nearby Young-Shannon zone. We are targeting completion of a maiden resource estimates for the first half of 2021. And we continue to conduct ongoing regional exploration target assessment to guide future exploration programs on our large land package, which totals in excess of 500 square kilometers. I will now pass the call over to Gord to conclude.

Thanks again, Craig. So from a strategic perspective, our company's goals include lowering our consolidated cost profile to improve margins and cash flow, increasing our gold production materially, increasing our operational flexibility and enhancing the geographic diversity of our production, thereby, improving returns to shareholders. To best achieve that, we believe we need to achieve self-funding to ensure the existing operations, exploration activities, corporate functions and financing obligations in aggregate are not a burden on our balance sheet. And we also need the sequence development of our organic growth pipeline, starting with the construction of Côté as announced today and continue derisking of Boto. We will also be planning for an exciting future, with the advancement of our district exploration prospects, which include Gosselin as just described by Craig; Karita and Diakha-Siribaya, a long trend with Boto in West Africa; Nelligan/Monster Lake in Northeastern Québec, which we announced maiden resource on just last year; also along the Saramacca-Brokolonko Trend in Surinam with the start of construction at Saramacca occurring this year; Essakane regional exploration; and our Westwood Hub & Spoke model in the Abitibi. Importantly, this all needs to be accomplished while continuing to be leaders in ESG performance through a relentless pursuit of our Zero Harm vision. Today's announcement starts us on the path of achieving our goals, and we look forward to updating you on our progress. Thank you very much for joining us this morning, and I'll pass the call over to the operator.

[Operator Instructions] The first question comes from Josh Wolfson with RBC Capital Markets.

You noted that the AISC partially increased because of the higher royalties and operating costs, but there's -- it sounds like a substantial portion of stripping, which was shifted over to being capitalized. Could you comment on what the sort of operating strip ratio is as well as what the dollar per tonne mining, milling and G&A costs are now?

I don't have the operating stripping ratio, Josh. I apologize for that. I believe you'll be able to pick it up in the call this afternoon. The operating -- mining operating and milling and G&A costs have increased roughly 10%. I don't have the final figures in front of me, but again, those will be available later this afternoon.

Okay. Got it. And then when you look at critical path as for development at this sort of early stage, what would be the key items you'd focus on?

The critical path right now goes through the early works, earth moving around the tailings dam. We need to be able to get that in place. Because of the work we've done during derisking, a lot of the long lead items that would normally be on the critical path are sort of in hand. We'll be using the time period before we really start to ramp up production in Q4 to finalize some of that near-term critical path items are getting the camps in place. I would just maybe invite Luc-Bernard Denoncourt, who is on the call with us here, to provide anything else I might have missed there.

No, I think you were correct, Gord. The earth work is on the critical path, specifically the planned foundation, so this is -- and the tailing down. So both of the -- of those activity are on the critical path, as you mentioned.

Okay. And then last one for me on the sort of existing gold loan that's in place, I guess, a duration difference between when that's due and when the project starts up. I think the initial intention was to deliver production from Côté into that mechanism. Is that -- is there any plan to sort of revise that structure? Or is it just going to be funded, I guess, from existing production or cash?

I'll let Carol answer. I'll just sort of preface. I mean the way the agreement was structured is we can deliver it from any of our operations. But I'll just let Carol expand a little bit.

Yes. Thanks, Gord. Yes, Gord is correct. We can deliver it from any of our operations, and it represents, Josh, less than 20% of our production. And in fact, if we felt like we -- there was a need to, we could always roll that forward, if we thought it was appropriate. So that's the plan right now is to deliver into that contract. But if we felt that we needed to, we would roll it.

[Operator Instructions] The next question comes from Anita Soni with CIBC.

So just a little bit more on the increase in the sustaining capital. You gave a good breakdown on what the increase derived from the preproduction capital was. But could you just elaborate where the major difference is there for the sustaining capital went up by nearly $500 million to $600 million or so?

Yes. So for the feasibility work, we didn't apply any capitalized stripping through the life of the project nor capitalized spare parts, whereas in practice at our existing operations, we have a set of parameters and a protocol for analyzing when costs need to be capitalized, stripping and capital spare parts. So as we've moved to more of an operational plan with Côté, we've gone back through and applied our protocols with respect. So a lot -- those costs would have been included in the feasibility study as operating costs. And you will have seen that, in fact, the cash cost number are fairly constant period to period, even though our actual unit costs had moved up slightly, as I just mentioned to Josh. So where you're seeing that additional, and it's just a coincidence more than anything, is the shift of some of that operating cost into a capitalized period into sustaining capital.

Okay. Then second question, with respect to the use of contractors, I think you said you would use a marked contract for the first 3 years of the preproduction and I think in a year or 2 into the initial period and then you're switched to owner-operated. Is that still the case?

That's what we're modeling. We have a number of people who have experience with marked contracts. They provide a very good tool as long as you understand where it's going and what your longer-term vision is. The nice thing about applying a marked contract early on is that you off-load the training and the buildup of the maintenance department for a period of time to a professional maintenance organization. Longer term, you end up generating a profit margin for them. We operate our own maintenance programs at all of our operations. So over time, we would look to take it over, but we're comfortable off-loading some of that training and development work earlier on in the mine to the contractor.

Okay. And then another question with respect to the TMF. So in the prior technical report, I believe the TMF initial capital was about $67 million, $70 million. How much of the sustaining capital and the preproduction capital is the TMF now?

It was on the breakdown pie chart that Bruno out spoke to. I'm just going to ask Phil or Luc, maybe Luc, do you know what the preproduction capital on the TMF is and the go-forward sustaining is?

Yes. I'll need to get back to you, Gord, and maybe Phil knows the exact number. But I need to get back to you. I don't have the exact number in front of me. Phil, do you have it?

We don't have the split on that one, Gord.

Okay. We'll get back to you, Anita, on that. I mean what I would comment, and again, it was on one of the slides that Bruno spoke to when he was talking about the bridge between the feasibility capital estimate and the construction capital estimate. We did increase the cost somewhat in the TMF as we've gone through and done detailed engineering. We have reconfigured the layout of the tailings pond a little bit, and that has increased some costs. There are some potential reductions that we're working through now for other aspects of the tailings management system. But for the purposes of the construction decision at this point in time, that cost has gone up a little bit. But we'll get you more detailed numbers.

And lastly then, can I also ask, in terms of the TMF, one, what kind of design is it? Centerline -- am I seeing a centerline downstream? And then what kind of geotechnical program have you done with respect to that TMF facility? Apologies for having to ask.