Ladies and gentlemen, thank you for standing by, and welcome to Endeavour Mining's Q2 and Interim 2021 Results Conference Call. At this time, all participants are in listen-only mode. After the management's presentation, there will be a question-and-answer session. To ask a question during this session you will need to press star and one on your telephone. 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 conference over to the management. Please go ahead.
Hi, everyone. I am Martino, vice president, strategy and investor relations. I'd like to welcome you to our Q2 2021 results webcast. On the call, I am joined by Sébastien, Mark, Joanna, and Patrick. Before we start, please note the usual disclaimer. Today's call will follow our usual format. Sébastien and Joanna will start by discussing the Q2 operational and financial highlights. Mark will then walk you through our detailed results by mine. Finally, Patrick will give you a brief overview of our half year exploration results. We will try to be as quick as possible to leave time for questions at the end. Now, I'll hand it over to our CEO, Sébastien, to walk you through our Q2 highlights. Sébastien?
Thank you, Martino. It's definitely been a busy year so far, and we have achieved several important milestones, including our LSE listing back in June. To recap the quarter, I will summarize in one sentence. We have had a strong business performance, which has underpinned our ability to deliver excess shareholder returns. You see on the left top box that we delivered a record operating performance, with production up 18% compared to Q1. We produced over 400,000 oz during the quarter. That's an annualized run rate of over 1.6 million oz, while this year's guidance is 1.4 million oz-1.5 million oz. As a result, we are on track to achieve the top end of our production guidance, and our costs are also on track. Our strong operating performance has of course translated into a very robust set of financials.
Our operating cash flow increased by 45% over Q1 to reach roughly $300 million. Our adjusted net earnings nearly doubled to reach roughly $180 million. Yes, we are generating a lot of cash, and we are allocating that cash to continue to strengthen our balance sheet, exploration, growth, and of course, shareholder returns. We overall reduced our net debt this quarter, with our leverage ratio now standing at near zero. This put us in a very good position to deliver excess shareholder returns. This started earlier this year when we paid our maiden dividend of $60 million for the 2020 fiscal year. Today, we are pleased to announce the dividend of $70 million for H1 2021. Our minimum commitment for this year is $125 million. As you can see, today's dividends demonstrate our intent to pay more than the minimum.
In addition, given the attractiveness of our stock price, we've been actively buying back our stock since the program was launched in April. To date, approximately $70 million has been purchased, and we intend to keep the program going as long as we see our share price undervalued. This cash flow also allowed us to continue to aggressively explore with $50 million spent this year already. Given the strong results we will be announcing in the coming weeks, I can already confirm that the group is on track to deliver again over 2.5 million oz of indicated resources this year, thanks to Patrick and his team. Moving to slide seven, you can see our key performance indicators tracking through the year to date.
Our safety performance has continued to track well ahead of our industry peers, and we have enhanced several safety programs with our ultimate goal of zero harm. Despite being busy with corporate activity during the first half of the year, we are very well positioned in terms of production relative to our target for the full year. Our performance to date has put us well on track to the top end of our guidance range, with the inclusion of Wahgnion and Sabodala-Massawa for the full quarter having a positive impact. Similarly, All-in Sustaining Cost are on track, and during the first half are in the bottom half of our full year guidance range. On slide eight, you can see our production and All-in Sustaining Cost for the past five quarters.
With the consolidation of Sabodala-Massawa and Wahgnion for the full quarter, we've had a strong improvement in our production, which is up 18%, as well as solid performance on cost controls. Our portfolio moves over the last year have had a clear benefit, with production up by more than two and a half times while unit costs have declined by 9% compared with the prior year quarter. As we look to the individual contribution of our operation, you can see that Ity, Houndé, and Karma are all contributed positively compared with Q1. We saw an anticipated decline at Boungou due to grade sequencing, while Mana was essentially flat. In addition, we had the full quarter consolidated benefit of Sabodala-Massawa and Wahgnion.
On slide 10, I'd like to draw your attention to how our results compare with the first half of 2020, not only in terms of production and All-in Sustaining Cost, but also in terms of assets and geographic diversification. Our business has changed significantly, with the left pie representing our original portfolio and the right pie representing our current portfolio. We produced 433,000 more ounces of gold while All-in Sustaining Cost declined by $56 /oz . Not only that, our portfolio is well diversified with seven different operations across three different countries with one flagship mine in each of those countries, with Sabodala in Senegal, Ity in Côte d'Ivoire, and Houndé in Burkina. On the following slides, Joanna will take you through our financial performance in more detail. Joanna?
Thanks, Sébastien. Moving to slide 11, our all-in sustaining margin has continued to trend upwards.
The combined benefit of increased consolidated production, reduced all-in sustaining costs, and a modestly stronger gold price have resulted in a 19% increase on a quarter-over-quarter basis. Compared with the prior year quarter, our all-in sustaining margin has increased by more than 250%. This is due to stronger production at our legacy mines, as well as our acquisitions of SEMAFO and Teranga. On slide 12, you can see the trend of our operating cash flows, which increased by 51% over Q1 2021, and by more than 400% compared to the prior year quarter. When looking at this metric, this is our second-best quarter ever, following the strong performance of Q4 last year, where the gold price was roughly $50 /oz higher.
Our Q2 performance is not fully representative of the operating performance of the company due to seasonality of our tax installment payments, which are always higher in the second quarter of the year. As such, moving to slide 13, we have tried to illustrate a few of the key factors behind the variance in operating cash flows between Q1 and Q2. The waterfall chart starts with our Q1 cash flow of $198 million. You then see that the largest portion was driven by an increase in gold sales, as noted earlier in the presentation. The second quarter is when we normally pay most of our corporate income taxes, leading to the outflow for taxes paid.
We also benefited from an inflow in changes in working capital of $14 million, while last quarter, we had an outflow of $58 million, which was driven primarily from the working capital acquired in the Teranga acquisition. We also got some modest help from the gold price in the quarter. For reference, we had put a few details on the right of the page, and of course, there is more fulsome notes in our MD&A. On slide 14, we show how our net debt position has continued to improve since the start of the year. We are now sitting at a very healthy leverage ratio of 0.07 x net debt to last 12 months of Adjusted EBITDA, despite absorbing the Teranga debt, as well as repaying nearly $120 million of gross debt. Our cash balance remains high at $833 million.
We reduced our gross debt during the quarter by $120 million, and we will assess opportunities for further reductions given our large cash position. Slide 15 illustrates the strength of our balance sheet. Despite $59 million of buybacks during the quarter, we have been able to reduce our net debt down to $77 million and our leverage ratio down to 0.07 x. We have demonstrated a steady trend of debt reduction aside from Q1 of this year, where we assumed $332 million of net debt from Teranga. In Q2 alone, we reduced our net debt by $85 million and our gross debt by $120 million. Moving to slide 16, we have a detailed breakdown of our net earnings for the past two quarters. At the bottom of the slide, you can see a 46% increase in our Adjusted Net Earnings Per Share from continuing operations compared to the prior quarter.
As usual, I won't go through every line here, but we'll address a few of the most significant items. Earnings from continuing mine operations increased due to stronger production, the full consolidation of the Teranga assets, and a slightly better gold price, while costs remained in check. Corporate costs and acquisition and restructuring costs were higher than usual due to the heightened corporate activity, as you are all well aware. Current income tax expense decreased relative to Q1, despite the inclusion of the new mines acquired for the full quarter, due to adjustments related to the prior taxes upon filing of our tax returns, as well as a decrease in tax expense in the quarter based on the lower effective tax rate on the company's taxable earnings in the quarter. Overall, this translated into net earnings of $149 million and adjusted net earnings of $183 million.
On slide 17, you can see how our Adjusted Net Earnings Per Share has trended over the past several years. Overall, we are very pleased with the trend here, and we made more than nine times as much per share in Q2 2021 relative to Q2 2019, which is quite remarkable. I'll now hand it back over to Sébastien so that he can proudly comment on our shareholder returns program.
Thank you, Joanna. Moving to slide 18. Before discussing our interim dividend that we have declared today, I would like to reiterate our commitment to shareholder returns and remind you of all our new shareholder returns framework that we launched earlier this year. We're targeting a distribution of at least $500 million over the next three years minimum, if gold remains above $1,500. This is aligned to our expected production growth, so we are rewarding shareholders with a growing dividend, both in nominal terms and of course, on a per share basis. As you can see on this chart, our friendly shareholder return program has us very well positioned across senior gold peers from a yield perspective, specifically when you sum our dividend and the active buyback program.
To be clear, our intent is not to compete with Russian gold producer or single mine companies who either need high yields to attract investors or do not have growth potential to invest in their portfolio. Before handing it over to Mark, just a quick word on the U.K. listing, which was recently achieved. This was a large milestone for us, we expect to start seeing the results once we are included into the FTSE index and the MSCI indices. Before discussing U.K. indexation, I wanted to acknowledge our deletion from the S&P/TSX Composite, which occurred mid-June. While we didn't expect this to occur, we were pleased to see that the outflow provided natural liquidity for U.K. and European long-only funds. In fact, on the rebalancing date, we traded approximately 10 million shares, our share price still finished up.
Not that this overhang is completely removed, but it places us in a good position to benefit from the expected inflows related to FTSE indexation, MSCI indexation, which are expected to be larger than the S&P/TSX Composite outflows. On this page, you see our expected pathway to indexation. As we didn't expect our liquidity to shift to the U.K., we decided to re-domicile the company to the U.K. This allows us to have a very low liquidity threshold to be eligible for the indexation. I will now hand things over to Mark, who is currently on-site at Ity, and he will go through the details of our operations on a mine-by-mine basis. Mark, over to you.
Thank you, Sébastien, and hello to everyone on the call. As Sébastien mentioned, I am currently on Teranga to spend some time with our general manager, Rian, and his team, who have put together a fantastic first half. More about this shortly. I'll begin the operations review with Sabodala-Massawa, which we acquired from Teranga in February 2021. We transferred our general manager, Christo, from Houndé to Sabodala in May, and he settled in very quickly to the new role. There is a great team on site, and they've handled the transition well, putting in a strong first half. Production increased this quarter compared to Q1 due to higher grades coming from the Sofia main pit, with the Massawa area now contributing all of the mill feed, which is expected to remain the case for the remainder of the year.
On slide 23, you can see an overview of our ongoing phase I expansion, which is well underway. The purpose of this expansion is to install a gravity circuit, increase leach residence time, and increase the carbon management to better handle the higher-grade Massawa ore through the existing CIL plant. The project is tracking ahead of schedule, and the additional electrowinning cell is now in use. The DFS for phase II is underway and on track for completion in Q4 2021. As a reminder, this phase will see the construction of a new bio-oxidation processing plant to treat the high-grade refractory ore from Massawa. On slide 24 are some recent pictures highlighting the good progress we are making with the phase I upgrades. Starting at the top left, you can see the additional electrowinning cell in position in the gold room.
In the second picture in the top right, you can see the new carbon regeneration kiln installed. In the bottom left, you can see the infrastructure for the additional acid wash and elution columns. In the last photo, you can see the rolled steel segments of the new leach tank, which are welded together in situ, one strafe after another until the tank reaches the designed height. Turning to Houndé, where production increased significantly this quarter over Q1, making it a key contributor to the group's strong quarterly performance. Our new general manager, Lawrence, has already proven to be a great replacement for Christo and has a strong mining background.
The sharp increase in production was attributable to higher process grades and recoveries due to the increase in the proportion of high-grade oxide ore from Kari Pump, with further benefit coming from positive grade reconciliation in some of the higher-grade zones. Processing performance was also very good, with improved daily throughput. This resulted in a strong half and puts Houndé on track to meet the top half of its full-year production guidance. Turning to slide 26. Ity had a similarly strong performance and is on track to achieve the top half of its full-year production guidance. Q2 was a busy quarter at Ity, with a successful transition from owner to contract mining. In addition, the projects team completed the third wall raise on the TSF, two river diversions, and the haul road out to Le Plaque.
Construction of a leach tank to increase residence time on account of the high throughput was also commenced. The team have been working to open additional mining areas to increase flexibility, which has paid off with higher production over the second quarter as the average process grade and gold recovery increased. The ore was sourced mainly from the Le Plaque and Bakatouo pits, which are both higher grade. Recovery rates increased as the proportion of Le Plaque ore in the blend was lower than the previous quarter. Looking at the full year, while we expect grades to decrease with less Bakatouo in the blend, we are planning to commence mining Le Plaque, which will see ore production in the last quarter of the year. Moving on to Boungou, which has now completed its third full quarter since the restart of mining operations last year.
Following a strong Q4 and Q1, production declined in Q2, as a greater focus was placed on waste extraction and mining was constrained to lower-grade areas. In contrast, during the previous two quarters, production was focused on mining of a higher-grade ore block during the ramp-up of the mining fleet. Bisiaku, our general manager at Boungou, has done a great job to ensure that SFTP, our mining contractor, has been able to increase mining volumes to catch up on the shortfall from last year. Mining extraction activities continued to focus mainly on the west pit, with a new phase of the pit further to the north commencing as well. Pre-stripping activities continued in the east pit. The mining sequence will continue like this for the remainder of the year.
Mill throughput is expected to remain broadly consistent with the first half, along with average process grade, while recovery rates are expected to decline slightly due to the ore characteristics. The wall raise of the TSF was largely completed by the end of the quarter. Overall, Boungou remains well-positioned to meet its full-year production guidance. Moving to Mana on slide 28, which is also on track to meet guidance for the year, based on a robust half-one performance driven by strong mill throughput and grades. During the quarter, production decreased slightly due to a reduction in average processed grade, which resulted from a decrease in the proportion of ore from the higher-grade underground mine, where the focus was on development and backfilling of stopes.
It is worth highlighting that following a detailed review of the Wona ore, stage four cutback economics, and given the success of the Siou underground, the decision was taken to forgo the next cutback and rather develop the Wona pit as an underground operation. We expect this to start in the coming months. Open pit mining will continue at Wona South, by which time the Wona underground will reach production levels. Martin, who has been our GM at Mana for the past nine months, has done a great job to refocus the team, improve operation efficiency, and reconfigure the operation away from open pit mining for a period until some of our open pit satellite deposits are proven, which Patrick will discuss in the next section. Moving to Wahgnion now. On a full quarter basis, production remained relatively stable as higher throughput offset the lower grade.
Ore was sourced mainly from the Nogbele North and Nogbele South mining areas, and was supplemented with ore from Fourkoura, where mining commenced earlier this year. Tonnes milled increased following planned maintenance carried out in Q1, looking to increase mill availability in Q2. The mill feed blend was similar to Q1, with transitional ore and a 60/40 split between oxide and fresh. Paul, our GM at Wahgnion, has been at the mine since commissioning and has done a great job in leading the team through the transition from Teranga to Endeavour, and ensuring that the mining operations keep pace with the processing plant, which is running well above nameplate. Given its strong half one performance, Wahgnion is well positioned to meet its full-year guidance. Mining is expected to continue at Nogbele North, Nogbele South, and the Fourkoura pits, with significant waste development continuing throughout the year.
Construction of the second cell of the TSF will continue through 2021, and will be completed in half one, 2022. Turning to Slide 30. Karma has also had a solid quarterly performance, placing it on track to achieve full-year guidance. Though Karma is the smallest mine in the group and our only heap leach, Adama, our GM, has done a great job in leading his team to improve efficiency, reduce costs, and continue with advanced grade control drilling around the pit to extend mine life. Production increased during the quarter due to the higher-grade stacks, thanks to some higher grades coming from Kao North pit, which also had a positive impact on recovery due to stacking a higher proportion of ore from the same pit. Looking at the rest of the year, mining activity is expected to focus on the GG1 pit.
As a result, processed ore and recoveries are expected to be lower, whilst that grade is expected to decrease in Q3 due to the wet season before returning to normal levels in Q4 2021. Before handing over to Patrick, I would like to take you through our development projects, which are all progressing very well. I touched on the Sabodala-Massawa phase I and II expansions earlier. Phase I is on schedule, and we expect all the work packages to be commissioned by the end of the year. The phase II DFS is also on track to be completed by year-end. At Fetekro, the DFS is progressing well. All metallurgical and geotechnical test work was completed during Q2, and the mining permit is expected to be awarded shortly.
At the same time, our exploration team are doing further drilling around the Lafigue resource, which will be the main pit for this project, along with follow-up drilling around nearby targets, which Patrick will talk about later. At Kalana, optimization of the study continued, with a particular focus on investigating ore sorting as a method to both reduce the volume of ore to be processed and increasing the feed grade. The DFS remains on track to be completed in Q1 2022. As you can see, performance across our operations has been strong in Quarter two. The group remains on track to achieve its production and All-in Sustaining Cost guidance for the full year. This is a testament to the overall quality of our portfolio and the capabilities and great work of our operating team. With that, I will hand over to Patrick.
Thanks, Mark. Hi to everyone on the call. As you can see on Slide 33, it's been really a very busy semester for us. We do all more than 300,000 m drilled across our property to date in 2021, amounting to a total spend of over $50 million. With our year exploration effort and good result to do to date, as already mentioned by Sébastien, we should be on track to add more than 2.5 million oz of new indicated ounces in 2021, which is close to our target. Following on from our significant exploration success since the beginning of the year, updated resource estimates are indeed expected to be published in Ity, Houndé, Massawa, Sabodala-Massawa, and also Fetekro. Going on Slide 34, starting now with our new flagship operation, Sabodala-Massawa.
We are very excited by all the remaining exploration opportunities we see over this relatively still underexplored property. We are focused in 2021 on identifying additional non-refractory targets within the Massawa lease, which are located less than 30 km away from the Sabodala mill. In the first semester, our efforts were mainly focused on Samina, Tina, Sofia, and other undeveloped and especially non-refractory targets. Because of change so far in 2021, we have been quite successful, and we expect an update resource estimate for all of the H1 address exploration target to be published later on in 2021. At the Sofia North deposit, we initially focused on delineating its previously identified northern extension. This extension has been tracked and is now extending over 800 m along strike and is 150 m wide and remain open at depth.
Drilling conducted also at the Samina deposit focused on increasing the formerly known 500 m mineralized strike lengths to over 900 m. It too remains open. At the Tina deposit, finally, initial drilling mainly focused on expanding and converting previously known inferred resource defined in 2019 into indicated resource in 2021. You have three slides with the main cross-section issued from the main target that have been addressed at the Sabodala-Massawa deposit. Due to time, I will skip over, but this is just for the purpose of illustrating the good quality of the mineralization encountered in these three deposits. On slide 38, at Houndé, our H1 exploration efforts were mainly focused on Vindaloo South, Mambo, and the intersection between Kari Gap and Kari Center, where our initial and previous exploration effort did not yet close the mineralization extension.
We will discuss the new Mambo discovery in more detail on the following slide. It must be first be noted that additional exploration in the Kari area and at Vindaloo South performed during the first semester concentrated on delineating new mineralized extension and will be the subject of additional exploration effort later in 2021. On slide 39, you can feel that the drilling result at the Mambo target have indeed generated significant internal excitement, as it may be considered as a significant discovery now. Geologically speaking, Mambo is located in a very attractive setting at the boundary between a volcanic and a granitic intrusion. Its mineralized trend now extends over more than 800 m, with pending drill result expected to hopefully extend this strike length to over 1 km-1.2 km.
Mineralization appears to be still open to the northeast, southwest, and also at depth, since it has been only tested down to approximately 100 m. Step-out drilling in the second half of the year will target lateral extension of Mambo and also an initial maiden resource is expected to be published before year-end. Slide 40 shows section A from the northern part of the deposit where a quite thick and very continuous mineralization occurs within the granitic intrusion. While on Slide 41, the section B is located in the southern part of the Mambo deposit at the boundary between the granite and the mafic volcanics, where the mineralization also appear to be somewhat thinner than in the north, but more importantly, much higher grade, as shown, for example, in the hole 350. Moving now to Ity.
Our exploration first semester efforts were mainly focused on the Le Plaque South area on what is now known as a new discovery named West Flotouo, on Daapleu deep, on Yeopleu extension, and also on the area located at the junction between the Bakatouo and Walter deposit. Full geological reinterpretation of the whole area led us to aggressively drill the West Flotouo target, which is located immediately below an old verse west waste dump. This led us to validate and extend significantly the discovery of a series of continuous high-grade mineralized lengths located in the immediate proximity of the Ity plant. Delineation is presently going on aggressively. This new discovery, which is still open to the north, south, and also at depth, will have a new maiden resource published before the end of the year.
Very positive deep drilling was also conducted at depths at Daapleu, and this clearly confirmed that mineralization continues at depth according to our model and now extends at least 300 m down deep of the deepest current pit design. Drilling conducted at the junction between Bakatouo and Walter deposit confirmed the continuity of the overall mineralization existing between these two both current type deposits and illustrates the global continuity of mineralization all around the whole diorite granodiorite intrusion. On slide 43, we have a close-up of our H1 exploration activity within the Le Plaque area with some of the best selected intercepts per target. The Le Plaque deposit has been extended laterally and at depth like in its southern delta extension outside our 2020 resource pit design. The Yeopleu/Legale previous discovery has also been positively confirmed and significantly extended.
On slide 44, we have some illustration of our success in extending high-grade mineralization laterally and that depth in the delta extension area clearly demonstrating the possibility of extending our present plan pit laterally and also downward, and even enabling us to consider a potential underground upside for this very attractive shear structure. Now going on Burkina Faso on the Boungou mine. The exploration was focused in the first semester on very near mine targets in the area located in between the east and west pit and within the southwest, southeast, and the northwest Natougou area. At Natougou northwest, hanging wall mineralization was either identified and follow on with a higher-grade mineralization extending over 700 m and remaining open to the north.
We also had identified some interesting mineralized trend at Natougou Southeast, Natougou Southwest, West flank, and Boungou Northwest. We will focus on extending later on these and evaluating additional inferred resource on those targets. Jumping now, going on Boungou mine, the slide 46 briefly illustrates some of the best selected intercepts from our H1 drilling program around Boungou. Unfortunately, due to time, I'm going to have to jump over this slide, but without too much detail. Next, we move quickly to tackle the Mana mine, where we have been very active during the first semester. On slide 47, you can see the target that were addressed in the Mana area during H1 and on the general map, that is also exhibiting some of our best intercept obtained per zone during this semester.
The exploration efforts were mainly focused on several open pit oxide targets such as, for example, Maoula 1, and on evaluating underground target at Siou and Nyafé. I will discuss the drilling at Maoula on the next slide. Before I do so, it is worth noting on this slide that deeper drilling conducted at Siou North intersected higher-grade mineralized zones adjacent to the planned underground development. On slide 48, drilling conducted at Maoula clearly extended the mineralization which within the exploitation license is now made of two east and west mineralized branches. The mineralized trend also now extend to the southwest within the neighboring exploration license. On the slide 49, it shows that cross-section to the northern part of the Maoula mineralized trend, which is simply illustrating the two opposite dipping eastern and western Maoula mineralized branch that remains still to be fully delineated.
Moving to Wahgnion on slide 50, we have first a global map of our exploration and exploitation licenses within the Wahgnion area, showing the entire area where we'll be fully active during 2021. The exploration really only started during Q2 at Wahgnion, it is right now speeding up and focusing on the Nogbele North and Nogbele South deposits and targeting the continuation of mineralized structure between the pits. Exploration efforts in the second half will accelerate and will continue to focus on the extension of the Nogbele mineralization as a whole, the continuation of the Fourkoura deposit, and testing also some extension at this inside target. Reconnaissance drilling at various attractive targets such as Kafina West and Korinougou will also be completed later this year. Slide 51 show an illustrative cross-section of Nogbele South with some interesting mineralized zone.
It's still early days on this exploration, and I will skip over this cross-section also due to time constraint. Moving to Karma now, on slide 52. In the first half of 2021, exploration work was implemented as part of an advanced grade control type drilling, as mentioned by Mark, targeting the immediate extensions of the currently mined mineralization at Kao North and accelerating their natural incorporation into the current and very short-term mine plan. On slide 53, we are moving now to Fetekro, which was again our largest greenfield exploration focus during H1 2021. The map to the right of the page indicates all the first semester of drilling, in small yellow circle, and highlights some of the best selected intercepts encountered since the beginning of the year on Lafigue.
With more than 50,000 m drilled having been completed since the last resource update last year, an updated resource estimate is now expected to be published in late 2021. At Lafigue North, a small part of the exploration program focused on converting some of the remaining inferred resource into indicated resource, but really most of the activity really focused in the area located in between Lafigue Center and Lafigue North deposit, with the result of this aggressive drilling activity being extremely successful and demonstrated the continuity of the mineralized system with the occurrence of shallow, subparallel, and stacked mineralized lenses that were previously located outside of the 2020 resource pit. All these newly discovered mineralization will now be included in the new mineral resource estimate, which will support the ongoing DFS.
Finally, slide 54 exhibits more or less a north-south section of the area that has been intensely drilled in between Lafigue North and Center, illustrating the extent of the newly discovered mineralized lenses that are clearly located now outside of our previous 2020 resource pit shell, shown in the extreme northwest of the section. Now, Sébastien, back to you.
Thank you, Joanna. Thank you, Mark, and thank you, Patrick, for your overviews. As you can see with this quarter's results compared to a year ago, we now offer a more complete investment proposition with a high-quality portfolio, a strong social license to operate, a healthy balance sheet, a robust organic growth pipeline, and a friendly shareholder returns program. Overall, we firmly believe that having a resilient business and having a disciplined capital allocation framework are key to be able to deliver long-term value for shareholders. Finally, to conclude on slide 60, you can see our key upcoming catalysts, which we have described throughout the presentation.
With that, I would like first to thank my team for this very solid quarter, and in particular, Mark's team and our GMs who have been pushing on all fronts and keeping the house in order while some of us were busy on the corporate agenda with the listing and the integration of SEMAFO and Teranga people and assets. I think this quarter is a demonstration that the integration is now completed and that we have strong foundations for the future. Last but not least, thank you all for dialing in, and I will now open the line up to questions.
Thank you. Ladies and gentlemen, we now begin the question-and-answer session. Our first question came from the line of Fahad Tariq from Credit Suisse. Please go ahead. Your line is open.
Hi. Good morning. Thanks for taking my question. You reiterated the 2021 cost guidance, but I didn't hear anything, and I apologize if I missed this, but I didn't hear anything on inflationary pressures, which is the most common theme we're hearing from some of your peers. Maybe talk a bit about if you're seeing any labor wage inflation or any other inflation, and how we should be thinking about cost maybe in the second half of this year. Thanks.
Thanks, Fahad. We haven't commented too much on this because we don't have that much impact. Compared to our peers, we probably have a bit of a different situation. I think the fact that we went through massive renegotiation with the SEMAFO acquisition and then with the Teranga acquisition on all our main key contracts on the supply chain and logistics side. We have locked in over the last few months contracts which are lasting six months, 12 months, 18 months, 24 months with minimum increase, in some cases even some reduction. If I give the example of cyanide, we've locked in our prices for 2021, and we've got even a reduction in 2022 of several %. We're not seeing yet inflation cost rising.
The only one which is obviously important that we keep monitoring is LFO and HFO, depending on where the oil price is and the impact translated in countries where we operate, which depend a lot on the taxes that we are paying in country. The only one which I would be careful on our side is to see how we will be impacted on CapEx for 2022 when we will finalize the DFS, in particular for the next two projects that will go into construction. Mainly Sabodala-Massawa phase II expansion and also Fetekro, and obviously we would expect some increases compared to our initial source due to steel prices. At the same time, we might see steel prices to start coming off a bit towards the end of the year.
We'll wait to finalize the DFS and come up with the real CapEx numbers for those two projects to comment on inflation cost or not.
That is very clear. Thank you.
Thank you for your question. The next question came from the line of Mr. Habib from Scotiabank. Please go ahead. Your line is open.
Thanks, operator. Congrats, Sébastien and Endeavour team on a solid quarter and a clean beat. Just a couple of questions from me. The first one, Sébastien, you produced around 756,000 oz in the first half, implying around 740,000 oz in the second half. That's according to the top end of guidance. In regards to your outlook provided on your key mines, looks like second half is going to be better than the first half. Are you just being conservative on guidance or am I missing something here?
You know the rules. Under promise, over deliver. I think it depends on a lot of parameters. First of all, we pushed a bit in Q2 because we were also lucky to have a rainy season that started later than the year before. When this happens, this is where you want to push as much as possible, because then the impact that you can have in the future, you've already backed in, I would say, as much as possible ounces. Rather than having pressure on big Q3 and big Q4, we have now de-risked, I would say, the production profile for the full year. That's the positive side.
We don't know how the rainy season is going to be in Q3, so we tend to have, depending on when the rainy season starts and how long it goes for, we tend to have lower Q2 and lower Q3 versus Q1 and Q4. With a strong Q2, it's again de-risk our Q3. The other element is, you should be producing as much as you can when gold price environment is positive. Clearly with gold price around $1,800, this is where you want to be producing a lot. We've been pushing what we could. Q3 and Q4 will be good quarters, I have no doubt. If we can go until the upper end of the guidance, I think the contract will be done.
Just in terms of the rainy season, how has July panned out? Is it normal rain or is it above average, below average? Anything, any comment?
Mark was at Ity, could comment live. So far it's been pretty good, so on the positive side. While I'm saying that, Mark might tell me that he's under heavy rain. Mark?
Yeah. What I would say is Ity had a pretty good July, actually. It's slower than normal, whereas in Burkina Faso it's been phenomenal. Yeah, it's actually good to see the wet season start. We don't want it to be delaying too much.
Yeah.
The guys have managed well through July, and as I said, Ity seems to be a bit slow on the wet season.
Ovais, we are cautious because sometimes what we see is with a late start in the rainy season, it can mean also that the rainy season goes over into part of Q4. Let's be cautious. It's good to have this significant advance compared to our target for the full year, which gives us room to deliver the high end of the guidance.
Perfect. Makes sense, Sébastien. Thanks for that. Just one more question from me regarding Fetekro. You're going forward with the release of the feasibility study by the year-end. Patrick's team continues to drill out these new targets and new zones and continues to expand Fetekro. How should we be looking at the feasibility study? In terms of the cutoff on exploration, obviously it looks like there could be a lot more upside on Fetekro than what we're going to see in a feasibility study. Am I on the right track on this?
Well, the way we're looking at it is, the reason why we've been pushing and Patrick's team has been continuing to drill is, what we need to be clear is on the size of the plant for the DFS. You might recall the Ity story. We started with a PFS at 1.5 million tons. We moved to 2 million tons, then 3 million tons, launched the construction for a 3 million tons plant, and ended up with a 5 million tons CIL plant. We just want to get a bit more information. Obviously, we're not going to complete all the drilling programs that we wanted. We're going to take a view at the end of the year with the project team and with Mark and Patrick based on what we see, what's the right size for the plant.
We always said that what an Endeavour project looks like is above 200,000 oz annual production for above 10 years at $850 All-in or below. I think we are on track on that. Let's see the results at the end of the year.
Okay, sounds good, Sébastien. That's it for me right for now, and congrats on a good quarter.
Thanks, Ovais.
Thank you for the question. The next question is from the line of Anita Soni from CIBC World Markets. Please go ahead.
Good morning, Sébastien and team. Thanks for taking my call. First off, congratulations on a really solid result this quarter. I guess the questions on operations hitting the top end have been already asked by Ovais. I'm just going to stick to the financials. The restructuring costs that you had this quarter, and the depreciation, revaluation again for the Teranga acquisition, could we expect that to now be behind us and we won't see any more restructuring costs or any kind of fair value adjustments at this stage?
Joanna?
Sorry. Thanks, Seb. The restructuring costs we would expect to go down significantly or be nominal moving forward because we were complete the majority of that with the completion of the Teranga acquisition and the completion of the London listing. With respect to the fair value adjustments and the depreciation adjustments, we have not yet finalized the Teranga purchase price allocation, that we expect that to happen in Q3. There could be some minor changes, although we don't expect them to be material similar to what happened this quarter with the finalization of the SEMAFO PPA.
Yeah. If you could just provide, Joanna, a little bit more clarity on what that adjustment was. It says it was with regards to the inventory. Was that, I guess, just related to things that were on the pads, or was that actually related to the actual physical assets?
What Adama?
Do you mean the gold inventory changes?
It just said your depreciation adjustment was related to inventory. I'm just not quite sure if you could provide some color on what that was related to specifically?
I think it's related to gold inventories that moved from one quarter to the second one. I'll ask Martino to call you back on this with the details.
Okay, that's it for my question. Thank you.
Thank you for your question. The next question from Carey MacRury from Canaccord Genuity. Please go ahead.
Good morning, everyone. You've got the Sabodala-Massawa feasibility study expected to be done by the end of the year. Just some light of Patrick's comments around a new resource update there. Should we expect a reserve and resource update with that study, or is that too late to make the cut for the DFS?
Yeah. You should expect definitely some updates on resources and reserve, alongside with the DFS, Carey.
Okay, great. Maybe just on the balance sheet, you've got over $800 million cash, but still quite a bit drawn on the revolver. Just wondering, any color on why keep such a high amount still on the credit facility?
Sure. We said as part of our capital market day that the objective was first to close the integration of Teranga and SEMAFO and do the listing. We are now ready to work on credit ratings for the company and based on that, to restructure the balance sheet. That's something that would happen in the second half of the year or beginning of next year.
Okay, great. Maybe just one more from me. I know you mentioned that Mana going to a 100% underground. Just wondering what that's going to look like and how quickly that's expected to happen. The underground currently I think is only about a third of the mill feed. Should we be expecting the underground to expand overall, or is the plant going to run at a lower but higher grade level going forward?
The plan, and we are still working on it. We completed a PFS and we will probably provide to the market with some technical report updates for Mana in the coming months. The objective is to be able to commence the shut down the Wona open pit and transition to the Wona underground. The Wona underground, alongside with Siou underground, should allow to give a good solid profile for the next four or five years for Mana, with about 100,000 oz provided by each underground mines. Between 180,000 oz-200,000 oz annual production for the asset over the next few years. The objective through that is to give a strong production basis to allow in parallel Patrick's team to work on the exploration side.
That in two, three years' time, once all the key targets that we wanted to drill are done, we can then decide the future of Mana. Happy to have a plan for the short term while Patrick's team will be drilling heavily in the area, to get us a better picture on the future of Mana.
Got it. That's helpful. Any thoughts on what the All-in Sustaining Costs there would look like for a range?
Not at this stage, Carey. We just completed our first PFS, so we'll wait for the final results, probably in September, October. I guess we would provide visibility as part of our Q3.
All right. Fair enough. Thanks a lot.
Thank you for your question. The next question from Wayne Lam from RBC. Please go ahead.
Hey, morning, guys. Just curious at Massawa, in terms of the mining from the various deposits, how long do you expect ore to be sourced solely from Sofia? When might you begin stripping and sourcing ore from the Central Zone?
Hey, Wayne. Thanks. Mark, do you want to comment?
Yeah, sure. I thought I'd just start and say that just as we were talking about the wet season, just as we finished that, it started raining here. Moving on to Sabodala. Yes. What we're looking at is starting up stripping and getting everything sorted to start mining Central Zone at the end of this year, so that it'll become a production feed for next year. We're also looking at the option of recommencing the Sabodala pit next year as well, just to provide, just looking at the longer-term profile. Yes, at this point in time, it's all Sofia, but then it'll be all Massawa, and then we'll have some Sabodala coming back in.
Okay, got it. Just with the exploration focus on the non-refractory ore, if there's significant exploration success and much more oxide material found, would that impact the timing of the construction of the BIOX plant?
It wouldn't, Wayne, impact the construction. I think it just give us more flexibility to ramp up the BIOX plant and make sure that we've got everything required. That's why we're pushing on that front also because this will provide even more flexibility in the coming 24 months.
Okay, perfect. Maybe just last question at Boungou. Just wondering what the driver on the higher security cost was this quarter, and just wondering in terms of the grade profile through the year as the east pit is brought online, how should we think about the grades trending relative to reserve grade?
Sure. Maybe, Mark, you want to comment on the mining sequence and the grade, and I'll just give a few comments on the security cost.
Yeah, sure. I think what we were mining late last year was a nice high-grade pocket, and we did bring some of that forward from this year into Q4, hence why we're seeing the trend down that we are. We are probably trending back towards the reserve grade, which is what you would expect, basically through to the end of the year.
On the security cost, I think it's more a timing of spend and cash out, spent on infrastructure that were reinforced around the mine site and also some equipment for all the logistics parts. Nothing particular there to worry about. We continue to monitor closely the situation, and we make any adjustments required depending on the environment.
Okay, perfect. That's all for me. Thank you very much.
Thanks, Wayne.
Thank you for your question. We have the next question from Don DeMarco from National Bank Financial. Please go ahead.
Thank you, operator. Congratulations, gentlemen, on a strong quarter, Sébastien and team. Yeah, I see the stock is up 7% on the LSE right now, so that's a nice sneak preview of what we can expect in Toronto. A lot of the questions have been answered, but maybe continue with the theme of the rainy season. Would you expect any impacts at Sabodala-Massawa from potential rainy season? We know obviously Ity and Houndé are prone to that, but is there any risk also at that flagship mine?
Thanks, Don. First of all, I wanted to thank you because I saw in your sales note that you were pounding the table with those Q2 sets of results. Agree and thanks.
Yeah.
Sabodala-Massawa, not really. The rainy season, you've got a bit of rain over there. It doesn't have a, I would say, massive disruption compared to what we see at Ity or what we would see at Wahgnion which has probably the two assets which are getting the biggest impact from the rainy season. Mark, I don't know if you want to comment more than that.
Yeah, no. The rainy season is certainly not as strong. From what I've seen and understand, I think we will be okay.
Okay. Okay, guys. Well, that's encouraging. Sabodala-Massawa's a key driver among other assets to the performance that we saw in Q2. Just continuing to focus on Sabodala-Massawa for a bit, we saw the grades this quarter quite a bit above the Sofia reserve grades of 2.7. What should we be thinking about grades for Q3 and Q4 at this asset? I know we've talked about, there's been commentary about mining of Sofia, a little bit of Sabodala coming into the end of the year. In terms of just magnitude of grade, to me, it seemed like it was a bit of an outlier in Q2, and can we expect this to continue, or will this ease a bit?
Sure. Mark, you want to comment on the grade profile?
Yeah, I do agree. We did have a very good Q2. We had some very nice high grade in the Sofia main pit. We expect it to be not quite as strong in Q3 and Q4, but still pretty good.
Okay. Okay, that's fair. Of course, we're looking toward the end of the year. We've got the DFS from Fetekro and Kalana and so on. What are you guys thinking about potential sequencing of development of both of these, as well as the phase II expansion at Sabodala-Massawa? Is it possible you could do all three concurrently, or would it be sequenced? I know this is still subject to final go-forward decisions following the release of these studies, but what can you think about here? Obviously, you went through a very strong, quick de-leveraging in Q2, gives you some flexibility, but interested in your thoughts as you build out your pipeline into the future.
Sure. Well, I think the view is still the same at this stage, Don, which is two projects in parallel is good. Three would be a stretch for management and would be also potentially a stretch for balance sheet. Not that the balance sheet is not going to be strong, but unfortunately, I can't forecast yet what the gold price environment will be in 2022 and 2023.
I think that progressing two of those projects in parallel gives us a first wave of organic growth, with a strong preference at this stage for Sabodala-Massawa expansion phase II, and Fetekro towards Kalana, which gives us a second wave of organic growth after 2023, with Kalana having more time to line up and to get into becoming a full Endeavour project, which is, as I said earlier, above 200,000 oz for at least 10 years, and below $850 All-in Sustaining Cost. This would give more time to work on Kalana and also more time to bring out the next greenfield project or to surprise the market with some expansion at one of the existing mines. The good thing is that what I like with this portfolio is that there is a lot of optionalities.
I think we have now a clear next five-year picture between the existing portfolio and the two upcoming projects. The next two years will be about preparing the next wave of organic growth. I think that we'll have, again, a few interesting options for this second wave.
Yeah, certainly. Okay. Well, thanks for that. That seems prudent. Well, congratulations again. We'll look forward to talking in Q3, and at that point, you should be in a cash surplus position. Thanks again. That's all for me.
Thanks, Don.
The next question is from the line of Lawson Winder from BofA Securities. Please go ahead.
Hello, everybody, thank you for taking the question. Just wanted to ask about some of the exploration stuff going on. First of all, on Boungou, Patrick, I noted that you were able to do some drilling at Boungou Northwest. Is that outside of the safety perimeter area? Would that signal that into the second half of next year, the exploration program at Boungou might be expanding?
Yes. Actually, we've been drilling a little bit outside the fence of the mine to the north, just a little bit. Basically, in 2021, we wanted to finish all the very near mine exploration on the pit and also working a little bit on the junction between the waste pit and the tentative underground part to the west. That's the first thing. Yes, secondly, we are working on defining improved security procedure to be able, hopefully before the end of the year or starting more aggressively next year, on doing some more exploration, let's say, in the close vicinity of the mine, but at least outside the fence.
Great. On the expected R&R update on Sabodala, Massawa, and actually Mambo in particular, do you have an idea of what the expected split will be between oxide and sulfide on both of those?
It's still too early to say this kind of thing. If you take Sabodala-Massawa, just remember that we incorporated the asset ourselves in Endeavour only in March, and it's only a few months ago. Basically, what we have been doing is reshuffling and reprioritizing all the targets that we had in mind. Right now we are quite, I would say, aggressively working on Massawa, because if you look at what we plan in the pie chart about the spending, basically we spend less than what we should have just because the start of the exploration project was delayed. It's still too early to speak about the percentage of oxide and fresh. For Mana, it's a bit the same. We have been working mostly on extending on Mambo. You are talking Mana on Mana or Mambo?
Mambo at Houndé.
Mambo. Mambo, our effort was just to extend as much as we could. Now we are only starting to infield drilling. It's a bit too early yet to say what could be the percentage of oxide versus fresh and so on this deposit. Honestly, it's still too early. We should have all that when we publish an update on the mineral resource.
Great. The decision to go to underground at Wona. Now, how is that going to impact the reserve? Is there going to be a slight reduction in the total Wona reserve as a result of that?
No. In fact, Lawson, we didn't comment in detail during the reserve that we published at the end of 2020. In fact, we already took out some reserves that were on the Wona open pit side, in particular on the north part, which initially SEMAFO had planned to mine. I think it was about 700,000 oz that we took out. We were able to add about a bit more than 800,000 oz of reserves for the underground. Those reserves are already included, and we did it on the basis of our PFS. As I mentioned earlier, the objective now is to finalize all the studies and be ready for construction, hopefully at the end of the year.
Okay, great. On the topic of SEMAFO plans, SEMAFO was quite excited about Bantou, and I've noticed Patrick hasn't been particularly focused on Bantou so far this year. Was that a conscious decision, and what was the thinking around that, and how are you viewing that asset?
Yeah, exactly. I think conscious decision for two reasons. One is, we were extremely busy on other areas. Second, we're clearing also all the permitting environment around Bantou. That's something on the agenda for Patrick's team later this year and in 2022.
Okay, great. Just one final question I wanted to just ask about Mana. You'd mentioned some additional drilling success near mine. Perhaps could you quantify that success, what it might mean in terms of life extension or number of ounces?
Marginal.
Okay.
Marginal. It doesn't change our view, which is that Karma is non-core and H1 was pretty busy for the corporate team on integration of Teranga and the listing. The team's going to be a bit more focused on H2 on potentially divesting Karma.
Excellent. Great job on the quarter, guys. Thanks.
Thank you very much, Lawson.
The next question from Mark Bentley from ShareSoc. Please go ahead.
Hello, Sébastien and team. Thanks very much for excellent delivery in the first half. Firstly, I have a question concerning the possible index inclusion and then three questions concerning exploration matters. Firstly, on the index inclusion, I just want to clarify the liquidity test of 2.5 basis points of shares traded. Is that the number of shares traded daily or monthly?
The test, based on the cut-up date, which was taken, is a bit more than 40,000 shares a day.
Thanks very much. Great. The three exploration questions. First of all, the new discovery at Ity West Flotouo, where you've found some new mineralized lenses. At roughly what depth are these lenses? My second question is you've stated in the results that you expect to add 2.5 million oz of indicated resources in 2021. How much of that will convert to reserves? Will more of that convert to reserves in 2022 rather than 2021? The third question is what are your plans for exploring Golden Hill?
Sure. Thanks, Mark. Maybe Patrick, you want to comment first on the Ity?
Yes. On Ity, it's pretty simple. There, West is starting at surface. Some of the lands are basically cropping out below the waste dump, so it was a big mistake, but the historical team to have it let go, so we reinterpreted that. Overall, I don't know exactly what will be the size, but it's starting from surface down to basically as deep as we could have drilled, we found some continuity of mineralization, so we don't know exactly. We know we target more or less a mineralization in average of 2 g/ ton, more or less, in all this area. That's for the first question on the West.
On the second one, Mark, the 2.5 million oz of indicated resources predominantly will be coming from the core assets. Houndé, Ity, Sabodala, Massawa, and Fetekro. If I take our historical conversion rate, I would be expecting between 70%-80% to be converted into reserves.
Will that reserve addition come in this year's reserve results, or will it take until next year before that can be added?
Difficult to say at this stage because it will depend on the drilling campaigns and in particular infill drilling that we would do in the second half of the year. What we always said is that at least we want to ensure that in terms of reserve, that we will be adding in 2021 at least what we deplete. You would be expecting at least 1.5 million oz of reserves added.
Thank you. The final part was what are the plans for Golden Hill exploration?
Yeah. Patrick, you want to comment on Golden Hill?
Yeah. From Golden Hill, that's a little bit the same issue as on Bantou. Golden Hill is located immediately 30 km south of Gombele. Basically we are working on evaluating the possibility to connect somehow the Golden Hill mineralization that have been previously discovered. We are also trying to solve on a natural way some license issue and renewal and all that stuff. As soon as everything will have been cleared, we'll be in action again on Golden Hill, but not yet for the first semester.
Thanks very much, Sébastien and Patrick. That's very helpful.
Great. Thank you, Mark.
Thank you. I will now hand the conference back to the management. Please go ahead.
Thank you everyone for attending the Q2 webcast. For additional questions, we remain available by phone or email. Thank you very much and have a good rest of the day.