Ladies and gentlemen, thank you for standing by, and welcome to Endeavour Mining's O2 and Interim 2021 Results Conference Call. At this time, all participants are in a listen only mode. After the management's presentation, there will be a question and answer Today's conference call is being recorded and transcript of the call will be held 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, and I'd like to welcome you to our Q2 2021 results webcast. On the call, I am joined by Sebastien, Mark, Joanna and Patrick. Before we start, please note the usual disclaimer. Today's call will follow our usual format.
Sebastien and Jerana will start by discussing the Q2 operational and financial highlights. Mark will then walk you through our detailed results by mine. And 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. And now, I'll hand it over to our CEO, Sebastien, to walk you through our Q2 highlights.
Sebastien?
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 had a strong business performance, which has underpinned our ability to deliver excess shareholder returns. And 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 ounces during the quarter and that's an annualized run rate of over 1,600,000 ounces, While this year's guidance is 1,400,000 to 1,500,000 ounces. 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 44 45% over Q1 to reach roughly $300,000,000 and our adjusted net earnings nearly doubled to reach roughly $180,000,000 So 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 0.
This put us in a very $50,000,000 for the 2020 fiscal year and today we are pleased to announce the dividend of $70,000,000 for H1 'twenty one. Our minimum commitment for this year is $125,000,000 So as you can see, today's dividends demonstrates 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 $70,000,000 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 $50,000,000 spend this year already.
And 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 2,500,000 indicated resources this year, thanks to Patrick and his team. Moving to Slide 7, 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 0 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 today has put us well on track to the top end of our guidance range with the inclusion Guagnon and Sabodola Massawa for the full quarter having a positive impact.
Similarly, all in sustaining costs are on track and during the first half are in the bottom half of our full year guidance range. On Slide 8, You can see our production and all in sustaining costs for the past 5 quarters. With the consolidation of Sabadellamasawa 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 2.5 times, while unit costs have declined by 9% compared with the prior 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 Saba Dua Masawa and Guanyu.
On slide 10, I'd like to draw your attention to how our results Compared with the first half of twenty twenty, not only in terms of production and all in sustaining costs, 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 ounces more ounces of gold, while all in sustaining costs declined by $56 per ounce. Not only that, our portfolio is well diversified with 7 different operation across 3 different countries with 1 flagship On the following slides, Joanna will take you through our financial performance in more detail. Joanna?
Thanks, Sebastien. 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 2 50%. This is due to stronger production at our legacy mines as well as our acquisitions of SEMAFO and Tarango.
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 2nd best quarter ever 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 Q2 of the year. As such, moving to Slide 13, 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 198,000,000 You then see that the largest portion was driven by an increase in gold sales as noted earlier in the presentation. The 2nd quarter is when we normally pay most of our corporate income leading to the outflow for taxes paid.
We also benefited from an inflow and changes in working capital of $14,000,000 While last quarter we had an outflow of $58,000,000 which was driven primarily from the working capital acquired in the Trenga 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's more fulsome notes in our MD and 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 point 0 7 times net debt to last 12 months of adjusted EBITDA despite absorbing the Teranga debt as well as repaying nearly $120,000,000 of gross debt.
Our cash balance remains high at $833,000,000 We reduced our gross debt during the quarter by $120,000,000 and we will assess opportunities for further reductions given our large cash position. Slide 15 illustrates the strength of our balance sheet. Despite $59,000,000 of buybacks during the quarter, we have been able to reduce our net Debt down to $77,000,000 and our leverage ratio down to 0.07x. We have demonstrated a steady trend of debt reduction aside from Q1 of this year, where we assume $332,000,000 of net debt from Taranga. In Q2 alone, we reduced our net debt by $85,000,000 and our gross debt by 120,000,000 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 Taranga 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 year taxes upon filing of our tax returns as well as the 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 $149,000,000 and adjusted net earnings of $183,000,000 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 9 times as much per share in Q2 2021 relative to Q2 2019, which is quite remarkable. I'll now hand it back over to Sebastien 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 $500,000,000 over the next 3 years Minimum, if goal remains above $1500,000,000 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. Although to be clear, our intent is not to compete with Russian gold producer Our 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 Marc, just a quick word on the UK listing, which was recently achieved. This was a large milestone
for us and we expect to start seeing the
results once we are for us and we expect to start seeing the results once we are included into the FTSE index and the MSCI indices. But before discussing U. K. Indexation, I wanted to acknowledge our deletion from the S and PTS6 composites, which occurred mid June. While we didn't expect this to occur, we were pleased to see that the outflow provided natural liquidity for UK and European long only funds.
In fact, on the rebalancing date, we traded approximately 10,000,000 shares and 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, MSCR indexation and which are expected to be larger than the S and P and 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 redomicile 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 Marc, He is currently on-site at Ity and will go through the details of our operations on a mine by mine basis. Marc, over to you.
Thank you, Sebastian, and hello to everyone on the call. As Sebastian mentioned, I am currently on Friday to spend some time with our General Manager, Rehan, And his team who have put together a fantastic first half, but more about Ity shortly. I'll begin the operations review with Sabodala Masala, which we acquired from Taranga in February 2021. We transferred our General Manager, Christo, from Hounde 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 Masawa 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 1 expansion, which is well underway. The purpose of this expansion is to install the gravity circuit, increase leach residence time And increase the carbon management to better handle the higher grade Masala ore through the existing CIL plant. The project is tracking ahead of schedule And the additional Etelectra winning cell is now in use. The DFS for Phase 2 is underway and on track for completion In Q4 2021, as a reminder, this phase will suit the construction of a new bio oxidation processing plant Just highlighting the good progress we are making with the Phase 1 upgrades.
Starting at the top left, you can see the additional electro annealed position in the gold ring. In the second picture in the top right, you can see the new carbon regeneration kiln we've installed. In the bottom left, you can see the infrastructure for the additional acid wash And allusion columns. In the last photo, you can see the rolled steel segments of the new leach tank, which are welded together in situ one strike after another Until the tank reaches the design high. Turning to Hounde, 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, there's 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 Hounde on track to meet the top half 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 the successful transition from owner to contract mining. In addition, the projects team completed the 3rd wall race on the TSF, 2 river diversions and the haul road out to La Plaque. Construction of a leach tank to increase residence time on account of the high throughput was also commenced. The team has been working to open additional mining areas to increase flexibility, which has paid off with higher production over the 2nd quarter As the average process grade and gold recovery increased, the ore was sourced mainly from the Dufloors and Bakatou pits, which are both higher grade.
Recovery rates increased as proportion of Dauphlurt oil in the blend was lower than the previous quarter. Looking at the full year, while we expect grades to decrease less Baccaratou in the blend, we are planning to commence mining La Plaque, which will see ore production in the last quarter of the year. Moving on to Boungou, which has now completed its 3rd full year 3rd 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. Isiaki, our General Manager of Boungou, has done a great job to ensure that SFTP, our mining contractor, Mining extraction activities continued to focus mainly on the West pit With the 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. Mills 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 ore rate of the TSF was largely completed during by the end of the quarter. Overall, Boungou remains well positioned to meet 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 process 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 the stopes. It is worth highlighting that following the detailed review of the Wahgnion War Stage 4 cutback economics And given the success of the Siou underground, the decision was taken to forego the next cutback and rather develop the Waina pit as an underground operation. We expect this to start in the coming months. Open pit mining will continue at Wona Segment, at which time the Wona Underground Martin, who has been our GM at Mana for the past 5 months, Has done a great job to refocus the team, improve operation efficiencies and reconfigure the operation away from open pit mining for a period 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 Nog Valley North And North Valley South Mining Areas and were supplemented with ore from Fekora where mining commenced earlier this year. Tonnes milled increased following planned maintenance carried out in Q1, looking to increase mill availability in Q2. The Milford blend was similar to Q1 with minimal transitional ore and a sixty-forty 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 Tauranga 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 Nogbelle North, Nogbelle South and the Fekora Pit With significant waste development continuing throughout the year, construction of the 2nd cell of the clear set will continue through 2021 and will be completed in half 1, 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 they are running 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 stacked, thanks to some higher grades coming from Cowenor pit, Which also had a positive impact on recovery due to stacking a higher proportion of ore from the same period. Looking at the rest of the year, mining activity is expected to focus on the GG1 pit. As a result, process flows in our caries are expected to be lower, All stack 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 Masala Phase 1 and 2 expansions earlier. Phase 1 is on schedule We expect all the work packages to be commissioned by the end of the year. The Phase 2 DFS is also on track to be completed by year end. The Fetekroes, the DFS is progressing well. All metallurgical and geotechnical test work was completed during Q2, The mining permit is expected to be awarded shortly.
At the same time, our exploration team are doing further drilling around the La Figue resource, Which will be the main pick for this project along with follow-up drilling around new Vitania, 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 water 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 Q2 and the group remains on track to achieve its production and all in This is a testament to the overall quality of our portfolio and the capabilities and great work of our operating team. And with that, I will hand over to Patrick.
Thanks, Marc, and hi to everyone on the call. As you can see on the Slide 33, it's been really a very busy semester for us. We will hold more than 300,000 meters drilled across our property to date in 2021, amounting to a total spend of over $50,000,000 With our year of exploration effort and good results to date, as already mentioned by Sebastien, We should be on track to add more than 2,500,000 ounces 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 estimate are indeed expected to be published in Ity, Hounde, Sabodala Massawa and also Fetekro. Going on Slide 34, starting now with our new flagship operations, Sabodala Masawa.
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 Masawalis, which are located less than 30 kilometers away from the Sabolavame. In the 1st semester, our exports We are mainly focused on Samina, Tina, Sofia and other undeveloped and especially non refractory target. With the chase 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 Nordstrom extension.
This extension has been tracked and is now extending over 800 meters along site and is 150 meters wide and remain open at depth. We've conducted also at the Salina deposit focused on increasing the formerly known 500 meters mineralized strike lines to over 900 meters and it too remains open. Adetina deposit, Finally, initial drilling mainly focused on expanding and converting previously known inferred resource defined in 20 19 into indicated resource in 2021. Then You have 2, 3 slides with the main cross section issued from the main target that has 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 I encountered in these 3 deposits. On Slide 38, at Hounde, our H1 exploration efforts were mainly focused on Vindaloo South, Mambo and the intersection between Kari Gap and Kari Centre where our initial and previous Exploration efforts did not yet close the mineralization extension.
We will discuss the new Mambo It's covered in more detail on the following slide, but it must be firstly noted that additional exploration in the Kari area and that Inderle South performed During the 1st 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 results The Mambo target has 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 volcanic and a granitic intrusion. Its mineralized trend now extends over more than 800 meters with pending drill result expected to hopefully extend this strike length to over 1 to 1.2 kilometer. Mineralization appears to be still open to the Northeast, Southwest And also at depth since it has been only tested down to approximately 100 meters.
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 deposits were quite thick and very continuous mineralization occurred within the granitic intrusion. While on Slide 41, the Section B show is located in the southern part of the Mambo deposit at the boundary Between the granite and the massive volcanics where the mineralization also appear to be somewhat thinner Down in the north, but more importantly, much higher grade as shown, for example, in the whole 350. Moving now to Ity. Our exploration 1st semester effort were mainly focused on the Le Plaque South area on what is now Known as a new discovery named West Flotou on the Dapo Deep on the Europolo extension and also on the area located at the junction between the Bakatou and Walter deposits.
Full geological reinterpretation of The whole area led us to aggressively drill the West flow to our target, which is located immediately below an old Werse West Waste Tump. This led us to validate and extend significantly the discovery of a series of continuous high grade mineralized lands located in the immediate proximity of the Ity plant. Delineation is presently going on aggressively And this new discovery, which is still open to the north, south and also at depth, we have a new maiden resource published before the end of the year. Very positive deep drilling also was also conducted at depths at Dakhle and this clearly confirm that mineralization Continues at depth according to our model and now extends at least 300 meter down deep of the deepest curing peak design. Finally, drilling conducted at the junction between Bakatto and Walter deposit Confirm the continuity of the overall mineralization existing between these 2, both current type deposits And illustrates the global continuity of mineralization all around the world diority granular diority piti intrusion.
On Slide 43, we have a close-up of our H1 exploration activity within the Le Plaque area We saw one of the best selected intercepts per target. The La Plaque deposit has been extended laterally And that depth like in its Southern Delta extension outside our 2020 resource peak design. And the EUROPE L'Orealo previous discovery has also been positively confirmed and significantly extended. On Slide 44, we have the administration 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 planned pit Laterally and also downward and even enabling us to consider a potential underground upside for this very attractive share structure. Now going on Burkina Faso on the Boungou mine.
The exploration was focused in the 1st 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 Natuho area. At Natuho Northwest, Angie wall mineralization was identified and follow on with higher grade mineralization extending over 700 meters and remaining open to the north. We also have identified some interesting mineralized trend at Natubu Southeast, Natubu Southwest, West Flanc and Bangu North West and we will focus on extending later on 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 intercept Romain, H1 Drilling Program, Roombou.
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 1st 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 intercepts obtained per zone during this semester. The exploration efforts were mainly focused on several open pit oxide targets such as, for example, Maula 1 And on evaluating underground target at SUE and Mihafe.
I will discuss the drilling at Maola on the next Slide, but before I do so, it is worth noting on this slide that deepwater drilling conducted at 2 North Intersected higher grade mineralized hydroses adjacent to the planned underground development. On Slide 48, drilling conducted at Baola clearly extended the mineralization, which within the exploitation license is now made of Two East and West mineralized branches. The mineralized trend also now extends to the Southwest within the neighboring exploration license. On the Slide 49, we it shows that cross section To the northern part of the Maola mineralized trend, which is simply illustrating the 2 opposite dipping Eastern and Western Maola mineralized branch that remains 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 And it is right now speeding up and focusing on the Knock Belay North and Knock Belay South deposits And targeting the continuation of mineralized structure between the pit. Exploration efforts in the second half will accelerate And we'll clearly and we'll continue to focus on the extension of the Knockbele mineralization as a whole, The continuation of the Foucoura deposit and testing also some extension at this hillside target. Organisation drilling at various attractive targets such Capina West and Corinne Nougout will also be completed later this year. Slide 51 show an illustrative cross section of Nok Belay South.
We saw an 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 twenty twenty one, 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 focused during H1 2021.
The map to the right of the page indicates all the 1st semester drilling in small yellow circle And highlight some of the best in selected intercepts encountered since the beginning of the year on Lafigue. With more than 50,000 meters drilled having been completed since the last resource update last year, An updated resource estimate is not expected to be published in late 2021. At Vafi Gennorff, 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 Centre and Lafigue North's 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 Minera, the resource estimate, which will support the ongoing DFS.
And finally, Slide 54 exhibit More or less the 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 lands that are clearly located now outside of our previous 2020 results picture shown in the extreme northwest of the section. And now Sebastien, back to you.
Thank you, Joanna. Thank you, Marc, 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. And finally to conclude on Slide 16, 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 Semaphore 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'll now begin the question and answer session. Please stand by while we conduct the Q and A queue. Our first question came from the line of Tarik 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 kind of 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. I mean, we haven't commented too much on this because We don't have that much impact. So compared to our peers, I mean, we probably have a bit of a different situation. I think the fact that we went through Massive renegotiation with the Semaphro acquisition and then with the Tarangao acquisition on our main key contracts on the supply chain and logistics side, We have locked in over the last few months contracts which are lasting 6 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, I mean, our prices for 2021 and we've got even a reduction in 2022 of several percentage.
So we don't 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 of 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, so mainly Saba Dalla Massawa Phase 2 expansion and also Fetekro. And obviously, we would Expect some increases compared to our initial thoughts due to steel prices. But at the same time, we might see a bit of We might see steel prices to start coming off a bit towards the end of the year. So 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's very clear. Thank you.
Thank you for your question. The next question came from the line of Mr. Habib from Coorshare Bank. Please go ahead. Your line is open.
Thanks, operator, and congrats Sebastian and Endeavour team on a solid quarter and a clean beat. Just a couple of questions from me. The first one, Sebastian, you produced about 756,000 ounces in the first half, Implying around 740,000 ounces in the second half. That's according to the top end of guidance. Now 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 On the promise of a deliver. So I think it depends on a lot of parameters. First of all, we pushed a bit in Because we were also lucky to have a rainy season that started later than the year before. So 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 answers.
So rather than having pressure Big Q3 and big Q4, we have now derisked, I would say, the production profile, I mean, for the full year. So that's the positive side. We have I mean, 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. So with a strong Q2, it's again derisk our Q3.
And the other element is You should be producing as much as you can when gold price environment is positive. And clearly, with gold price around $1800 this is where you want to be Producing a lot. So we've been pushing what we could. Q3 and Q4 will be good quarters. I have no doubt.
And therefore, if we can go until the upper end of the guidance, I think the contract will be done.
And just in terms of the rainy season, how is kind of July fared out? Is it kind of normal, Rain? Or is it above average, below average? Anything any comment?
Mark, with that Ity could comment Life, but so far it's been pretty good. So
on the
positive side, But while I'm saying that, Mark might tell me that he is under heavy rain. Mark?
Yes. So What I would say is Ity had a pretty good July actually. It's lower than normal, whereas In Burkina Faso, it's been terminal. So yes, it's actually good
to see the wet season start.
We don't want it to be delaying too much. So the guys have managed well through July. And as I said, Ity seems to be a bit slow On the break season?
But Ovais, we are cautious because sometimes what we see is With a late start, I mean, in the rainy season, it can mean also that the rainy season goes over into part Q4, so let's be cautious. I mean, 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, Sebastian. Thanks for that. And just one more question for me regarding Fetekro. 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 Pedicro.
How should we be looking at the FEEDS B study? I mean, in terms of the cutoff on exploration, Obviously, it looks like there could be a lot more upside on patitro than what we're going to see in a Phase B 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 16 has been continuing to drill is what we need to be clear is on the size of the plant for the DFS. And you might recall The Ity story, we started with a PFS at 1,500,000 tonne, Then we moved to 2,000,000 tons, then 3,000,000 tons, launched the construction for a 3,000,000 ton plant and ended up with a 5,000,000 tons CL plant. So we just want to get a bit more information. Obviously, we're not going to complete, I mean, all the drilling programs that we wanted, But we're going to take a view at the end of the year with the project team and with Marc and Patrick on based on what we see, what's the right size for the plant. And we always said that what an Endeavour project looks like is although 200,000 ounce annual production for above 10 years At 850 all in or below.
And I think we are on track on that. So let's see the results at the end of the year.
Okay. Sounds good, Sebastian. That's it for me right for now and congrats on a good quarter.
Thanks, Elias.
Thank you for the question. The next question is from the line of Anita Soni from CIBC Board Markets. Please go ahead.
Good morning, Sebastian and team. Thanks for taking my call. First off, congratulations on a really solid result this quarter. And I guess the question is on Operations kind of hitting the top end have been already asked by OBE. So I'm just going to stick to the financials.
The restructuring costs You had this quarter and the depreciation revaluation again for the Tarang 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, Deb. The restructuring costs, we would expect to go down We will complete the majority of that with the completion of the Tarang acquisition and the completion of the London listing. And with respect to the fair value adjustments and the depreciation adjustments, we have not yet finalized the Taranga purchase price allocation. So that might happen We expect that to happen in Q3.
So 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 semaphobePA.
Yes. And then just if you could just provide Joanna a little bit more clarity on what that adjustment was. It was with regards to the inventory Rather so was that, I guess, just related to things that were on the pads or was that Actually, sort of related to the actual sort of physical assets.
Do you mean the gold inventory changes or
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 1 quarter to the second one. But I'll ask Martino to call you back on this with the details.
Okay. That's it for my questions. Thank you.
Thank you for your question. The next question is from Gary McCrorey from Canaccord Genuity. Please go ahead.
Good morning, everyone. So you've
got the Sabodala Masawa feasibility study Expected to be done by the end
of the year. And just in 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 sort of too late to make the cut for the DFS?
Yes. You should expect definitely some update On resources and reserves alongside with the DFS, Carey.
Okay, great. And then maybe just on the balance sheet, you've got over $800,000,000 in 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. So We said as part of our Capital Market Day that the objective was first to close the integration of Terranga and Semapho and do the listing. And we are now ready to work on credit ratings for the company and based on that to restructure the balance sheet, so that's something that would happen in the second half of the year or beginning of next year.
Okay, great. And then maybe just one more for me. I know you mentioned that Mana going to sort of 100% underground. Just wondering what that's going to look like and How quickly that's expected to happen? So like sort of the underground currently, I think, is only about a third of the mill feed.
So 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?
Sure. So the plan and we're still working on it. I mean we completed a PFS and we'll probably provide I mean to the market with some Technical report updates for Mana in the coming months. But the objective is To be able to commence the shutdown the Wana open pit and transition to the Wana underground. The Wana underground alongside with Siou underground It should allow to give a good solid profile for the next 4, 5 years for Mana with about 100,000 ounces provided by each Underground mines, so between 180,000 to 200,000 ounces 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. So that in 2, 3 years' time, once all the key targets that we wanted to drill You know, Ardon, we can then decide the future of Mana. So, yes, happy to have a plan for the short term, while I think we'll 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 on sustaining cost there would look like for a range?
Not at this stage, Carey. I mean, we just completed our first PFS, so we'll wait, I mean, for the final results probably in September, October. So I guess, we would provide visibility as
All right, fair enough. Thanks a lot.
Thank you for your question. The next question is from Wayne Lam from RBC. Please go ahead.
Hey, good 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? And when might you begin stripping and sourcing ore from the Central Zone?
Hey, Wayne, thanks. Mark, do you want to comment?
Yes, 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 a little bit. 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 will become a production feed for next year. And then 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.
So yes, at this point in time, it's mainly It's all Sofia, but then it will be all Masala, and then we'll have some Sabodala coming back in. Okay, got it.
And then 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 biops plant?
So it wouldn't 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. So that's why we're pushing on that front Also because this will provide even more flexibility in the coming 24 months.
Okay, perfect. And then 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 kind of 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.
Yes, 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, while we're seeing the trend down that we are. But we are probably Trending back towards the reserve grade, which is what you would expect basically through to the end of the year.
Yes. On the security cost, I think it's more a timing of Spent and cash out, spent on infrastructure that were reinforced around the mine site and also some Equipment for all the logistic parts. So yes, nothing particular out there to worry about. Just we continue to monitor closely, I mean, 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, and Congratulations gentlemen on a strong quarter, Sebastian and team. I see the stock is up 7% on the LFE 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 Sabodaw Masawa from potential rainy season?
We know obviously Ity and Hounde Are prone to that, but is there any risk also at that flagship mine?
Thanks, Don. I mean, 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. So, agreed and thanks. On Saba Della Masawa, not really. I mean, the rainy season, you've got a bit of rain over there, but it doesn't have, I would say, massive disruption compared to What do we see at Ity or what we would see at Bueno, which has probably the 2 assets which are Getting the biggest impact from the rainy season.
Marc, I don't know if you want to comment more than that.
Yes. No, the rainy season is not as certainly not as strong. And from what I've seen and understand, I think we will be okay. Okay.
Okay, guys. That's encouraging. I mean, obviously, Sabodal and Masala was a key driver Among other assets, the performance we saw in Q2. And just continuing to focus on Sabodal and Masavo for a bit, We saw the grades this quarter quite a bit above the Sofia reserve grades of 2.7. So what should we be thinking about Great for Q3 and Q4 at this asset.
I know we've talked about there's been commentary about mining Sofia, a little bit of Sabodal coming into the end of the year, But back in the end of the year, but in terms of just magnitude of grade, to me it seemed like it was a bit of an outlier in Q2 and we expect this to continue or will this ease a bit?
Sure, Marc. You want to comment on the grain profile?
Yes. I do agree. We did have a very good Q2. We had some very nice high grade in the Sofia main pit. So we expect it to be not quite as strong in Q3 and Q4, but still pretty good.
Okay. Okay, that's fair. Then of course, we're looking toward the end of the year. We've got the DFS from Fatekaro and Kelana and so on. What are you guys thinking about Potential sequencing of development of both of these as well as the Phase 2 expansion at Sabodal and Masala.
Is it possible you could do all 3 concurrently or would it
be sequencing? And 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 very strong quick deleveraging 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 2 projects in parallel is good. 3 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. So I think that progressing 2 of those projects in parallel gives us a first wave of organic growth with a strong Preference at this stage for Sabado Masawa expansion Phase 2 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 end of the project, which is, as I said earlier, above 200,000 For at least 10 years and below 8.50 all in sustaining cost. So this will give more time, I mean, to work on Kalana and So more time to bring up the next greenfield project or to surprise the market with some Expansion at 1 of the existing mines.
So the good thing is that what I like with this portfolio is that there is a lot of It is. I think we have now a clear next 5 year picture between the existing portfolio And the 2 upcoming projects, the next 2 years will be about preparing the next wave of organic growth. And I think that we'll have, again, a few interesting options for the 2nd wave.
Yes, certainly. Okay. Well, thanks for that. That seems prudent. Well, we look forward to congratulations again.
We look forward to talking in Q3. And at that point, you should be in a cash surplus position.
The next question is from the line of Lawson Winder from BSA Securities. Please go ahead.
Hello, everybody, and thank you for taking the question. Just wanted to ask about some of the exploration stuff going on. So first of all, on Boungou, Patrick, I noted that you were able to do some drilling at Bougu Northwest. Now is that kind of outside of So like safety perimeter area and 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. But basically in 2021, we wanted to finish all the Very, very near mine exploration on the pit and also working a little bit on the junction between the West pit and the 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, the close vicinity from the mine, but at least outside the fence.
Great. And then on the expected R and R update on Sabodala, Masala 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. So if you take Sabodala Massawa, Just remember that we incorporated the asset ourselves in the new endeavor only in March It's only a few months ago. So basically what we have been doing is reshuffling and reprioritizing all the targets that We had in mind and 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 project, the exploration project was delayed. So it's still too early to speak about percentage of oxide And fresh. For Maoula, it's a bit the same.
We have been working mostly in extending On Mambo, you are talking Maula on Mana or Mambo?
Mambo at Hounde.
Mambo, still Mambo, our effort was just to extend as much as we could. And now we are Only starting to infill drilling, so it's a bit too early yet to say what could be the percentage of oxide versus This question is on this deposit. Honestly, it's still too early. We should have all that when we publish an update on the mineral resource.
Great. And then the decision to go to underground at Kona, How is that going to impact the reserve? Is there going to be a slight reduction in the total loan reserve as a result of that?
No. In fact, Lawson, we didn't comment in detail during the reserve That we published for at the end of 2020. But in fact, we already Took out some reserves that were on the Wona open pit side, in particular on the North part, which initially Semaphore had planned To mine and it was I think it was about 700,000 ounces that we took out, but we were able to add About a bit more than 800,000 ounces of reserves for the underground. So those reserves are already included And we did it on the basis of our PFS. And 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. And then on the topic of semaphobe plan, MFO 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?
Yes, exactly. I think a Concierge decision for two reasons. One is, we were extremely busy on other areas. And second, we're clearing also All the permitting environment around Bantou. So that's something On the agenda for Patrick's team later this year and in 2022.
Okay, great. And then just one final question I wanted to just ask about Karma. You'd mentioned Some additional drilling success near mine. Perhaps could you quantify that success And what it might mean in terms of life extension or number of ounces? Marginal, okay.
Marginor, it doesn't change our view, which is that Karma is non core. And H1 was pretty busy The corporate team on integration of Taronga and the listing. So the team is going to be a bit more focused on H2 2 on potentially divesting Karma.
Excellent. Great job on the quarter guys. Thanks.
Thank you very much, Lawson.
The next question is from Mark Bentley from Shares Talk. Please go ahead.
Hello, Sebastian 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. So 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?
So the test, I mean, based on the cut off date which was taken is about 40, a bit more than 40,000 shares a day.
Thanks very much. Great. Then the 3 exploration questions. First of all, the new discovery at Ity West Flotour, where you found some new mineralized lenses, Roughly what depth are these lenses? Then my second question is you've stated in the results that you expect To add 2,500,000 ounces of indicated resources in 2021, How much of that will convert to reserves?
And will more of that convert to reserves in 2022 rather than 2021? And then the third question is what are your plans for exploring Golden Hill?
Sure. Thanks, Marc. Maybe Patrick, you want to comment first on the Ity?
Yes. On Ity, it's pretty simple. West West is starting at your face. Some of the lands are basically dropping out below the waste dump. So it was a big mistake, but It's a historical team to have it let go, so we reinterpreted that.
Overall, I don't know 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 To ramp up more or less in all this area. So that's all for the first question on the West West.
On the second one, Marc, the 2,500,000 ounces of indicated resources are predominantly will be coming from the core assets. So Hounde, Ity, Saba Dalla, Massawa and Ferdecro. And if I take our historical conversion rate, I would be expecting Between 70% to 80% to be converted into reserves.
And 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 It will depend on the drilling campaigns and in particular in field drilling that we would do in the second half of the year. So But 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. So you would be expecting at least 1,500,000 ounces of reserves that you added.
Thank you. And then the final part was what are the plans for Golden Hill exploration?
Yes. Patrick, you want to comment on Golden Hill?
Yes. So, Golden Hill, that's the same a little bit the same issue as on Bantou. You know, Golani is located immediately 30 kilometers south of Hounde. So basically, we are working on evaluating the possibility to connect somehow the golden that have been previously discovered and we are also trying to solve on a natural way some license Q1 renewal and all that stuff. As soon as everything will have been cleared, we'll be in action again on Golden Hills, But not yet for the 1st semester.
Thanks very much, Sebastian and Patrick. That's very helpful.
Great. Thank you, Marc.
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 e mail. Thank you very much and have a good rest of the day.