Greetings and welcome to Endeavour Mining's 1st Quarter 2020 Webcast. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr.
Sebastian De Montezou, CEO of Endeavour Mining Corporation. Thank you, Mr. De Montezou. You may begin.
Thank you, operator. Good morning, good afternoon, everyone, and thank you for joining our Q1 operational and financial results presentation. My name is Sebastian De Monteschi. I'm the CEO of Endeavour Mining, and it's a pleasure to be talking to you all once again. Before we start, I'd like to ask you all to please note today's call is covered by our disclaimer and notice on forward looking statements.
The format for today's call will follow our usual format for quarterly results. I will provide an overview of the results our CFO, Gustavo, and will then review our financial performance, followed by Mark Morcombe, who will discuss the operations, and I will conclude before opening the Q And A. Head of Exploration Patrick is also with us here today and available to answer any exploration questions you may have. Before we dive into our results, I just wanted to briefly touch on our response to the coronavirus pandemic. I'm pleased to say that all our operations are currently running at near normal levels, and we are still shipping gold, albeit with increased health and safety measures to keep our workers safe and prevent the spread of the measures to keep, and spread of the virus.
Back in March, We did have a few employees who were tested positive for COVID-nineteen, and I'm pleased to say they have all fully recovered. Since then, we have not had any reported cases to date. Across West Africa, governments were quick to implement strong measures, to minimize the spread of the virus by leveraging their experience from the Ebola crisis. So far these countries have who successfully contained the spread of COVID-nineteen with their proactive responses. However, we continue to remain extremely vigilant.
Our response to COVID-nineteen is being managed by a designated team who are supported by a well regarded epidemiologist and an eleven person medical team from a leading U. S. NGO who will be deployed as and when the need arises throughout the countries where we operate. Here on Slide 7. You can see a snapshot of the epidemiological surveillance system we've developed with our team.
To life track cases at each of our operations and across the three countries where we operate. This is helping us to design mitigation and business continuity efforts for the group while also ensuring we best support our communities and the national authorities. Our primary focus throughout this crisis has been the protection of employees, contractors and local communities. We are also making sure that we contribute meaningfully to the national and local efforts in our host countries, helping to supply key medical equipment and training dozens of local health workers. On top of this, we have committed so far $6,000,000 to support local and national efforts, including salary donations from our leadership team.
Turning now to Slide 9. I will briefly touch upon our business continuity plans. Alongside our health and safety measures, have reviewed and stress tested different business operations, supply chain and shipping scenarios based on various escalations of proactive measures. This range from normal course of business to care and maintenance, and you can see the details of those here on this slide. We currently are operating in a level 1 environment with enhanced preventive measures to ensure that we can continue to ship and sell gold despite the closure of borders.
Alongside our focus on the commercial aspects, we have also reviewed our site roster systems to ensure we had key people on-site before borders to have closed. This has worked well, and we are very grateful to them in helping to keep our operations running. I must say that it's a time like this, during a crisis that you find out about your own team, and I've been really impressed by them. I'm proud of the speed and dedication that all of our people have shown in their response to this crisis, and I thank them for it. To my employees and staff listening to this call, in addition to dealing with the COVID outbreak, We now also need to make the TIG Management a priority, as I know that some of you are now into your 2nd straight roster.
And we will reiterate this on our internal quarterly results call later today. Described, we have weathered the COVID-nineteen crisis well so far and I'm pleased to see our strategies and precautionary measures have worked. However, whilst we are seeing the lockdown being lifted across a number of European countries, we need to remain cautious and vigilant in West Africa. Turning now to our performance this quarter. I'm pleased to report that our Q1 results are consistent with our 2020 guidance.
And that we have achieved 26 for the last 12 months. Group production for Q1 stands at 172,000 ounces, placing us on track to meet our 608 740,000 ounce guidance. And the same is true of our group, all in sustaining cost level standing at $8.99 per ounce this quarter. Which we expect to see decrease in the second half of the year into our guidance range as we will begin to benefit from the high grade caripump deposit at Hounde. Moving to Slide 11 and our safety record.
Unfortunately, our company experienced 2 LTIs during Q1. As I mentioned on our last call, for our 2019 year end results, we regrettably had a fatality at our Karma mine back in February. Since then, we've done a full assessment of the accident to make sure this doesn't happen again. And I will let Mark run through this later in the presentation. Safety has and always will be the most important factor for us, and we will continue to be vigilant in identifying root causes of LTIs and further increasing the safety of our operations.
As I mentioned earlier, we we must keep placing house and safety first while doing our best to operate in this challenging environment. Ensuring our employees go home safely every day is the most important goal we have. Endeavour saw another strong quarter in terms of production which increased by 54% this quarter over Q1 twenty nineteen, driven by the startup of the Ity CIL operation, All in sustaining costs increased by 3 percent to $8.99 per ounce, driven by the scheduled higher costs at both Hounde and Agbaou and higher royalties, which were partially offset with lower costs from the ETCI operation, staffhub and Karma. In addition to lower corporate costs. Despite operating under the COVID 19 environment, Q1 production decreased by only 3% cover over Q4 twenty nineteen due to slight increases at Hounde, Ity and Karma.
All in sustaining costs increased by $80 an ounce in Q1 compared to Q4 2019 due to higher royalties and the guided higher cost at Hounde, Agbaou and Karma, as we have previously disclosed. As you can see on this slide, we've generated over $100,000,000 per quarter of all in sustaining margin over the last 9 months. This is a substantial increase compared to Q1 last year, thanks to a stronger gold price expected higher costs due to CapEx being H1 weighted. Moving to Slide 14. As you can see, we reached a record level of operating cash flow.
It is particularly pleasing to see this increasing curve and I will let Luis walk you through the underlying details in the finance section. Looking closer at our free cash flow generation before debt servicing on Slide 15. You can see here that Q3 of last year was the inflection point for us after finishing construction at Ity. We are proud to have generated $187,000,000 since this inflection point with $55,000,000 net cash generated in Q1. This is particularly compelling for us as the second half of the year is expected to be significantly stronger due to our expected higher production at lower all in sustaining costs.
In addition, we will also benefit from our, from the end of our hedging program, at the end cash flow generation, we've reduced our net debt by nearly $190,000,000 over the past 3 quarters. Overall, we have increased from a peak net debt of $660,000,000 at the end of the second quarter of last year to $473,000,000, which resulted in a significant improvement in our net debt to EBITDA ratio to just above one time. It was bearing in mind that we have decreased this ratio from a peak of almost 3 times just 12 months ago. This quick deleveraging will course, allow us to accelerate our shareholder return strategy, which we are looking forward to formalizing later this year. And now I'd like to hand over to Luis to take you through the financials in greater details, over to you, Luis.
Thanks very much, Sebastian, and hello to everyone. As Sebastian said, this has been a good quarter. And looking at Slide 18, you can see that we have enjoyed a record quarter in terms of revenues, adjusted EBITDA as well as operating cash flow. The increase in revenues against relatively stable operating costs meant that our adjusted EBITDA increased by 32% over the past quarter, to $130,000,000. That's also an increase of 2 17% from the same quarter last year.
Meanwhile, our operating cash flow before working capital increased by 46% 146% from quarter 1 2019, to $119,000,000. Over the next few slides, I'll walk you through the details behind these numbers. Let's turn now to Slide 19, where we have provided a breakdown of the major elements used to derive our all in margin. We have highlighted here some key elements, and I'd like to take you through them now starting with revenue. As I noted earlier, revenue increased as a result of more gold sold by the company and the higher realized gold price.
Cash cost of sales increased on a nominal basis due to higher production compared to quarter 1, 2019. On a dollars per ounce basis, it was $6.61 per ounce in quarter 1, 2020, up $24 per ounce and down $2 per ounce compared to quarter 4andquarteroneof2019 respectively. The increase over quarter 4 was mainly driven by higher costs at both Hounde and Agbaou, which was slightly offset by lower costs at Kana. Royalties increased over quarter 4 due to higher realized gold price and an increase in government royalty rate based on different sliding scales, details of which have been provided in the news release and the MDNI? Looking at our sustaining capital spend, the increase is made due to increased waste capitalization at Hounde.
As you may have noticed in our guidance, capital spend for this year is more heavily weighted to the first half. Non sustaining capital spend decreased slightly over quarter 4, year to decreases at both Karma and Hounde, which was slightly offset by an increase at Ity, mainly related to a TSF rose. The non sustaining exploration capital spend for quarter 1 2020 increased over quarter 4oflastyear due to exploration drilling mainly being carried out during the first half of the year to take advantage of the dry season. We can see that it was up slightly over quarter 12019, which Patrick will comment on later. In summary, These changes resulted in a decrease of the all in margin by $5,000,000 over quarter 4, 2019, and an increase of $58,000,000 compared to quarter 1, 2019.
On the next slide, we start from the all in margin as shown on the previous slide and work our way to the net cash inflow for the group. Starting with working capital, a further reduction of $9,000,000 was recorded in working capital levels compared to quarter 4 2019. Most notably a reduction in inventories of $11,000,000 during the quarter. More detail is provided in the table at the top right of this slide. Taxes paid increased compared to quarter 12019, mainly due to provisional tax paid at the Hounde mine, while they significantly decreased over quarter 4 due to the scheduling of payments.
The interest paid increase compared to quarter 12019 mainly due to interest payment on equipment leases at heating and the increase over quarter 4 meanwhile is due to the timing of convertible bond coupon payments. Moving to our M and A line item for quarter 1, 2020. This includes the consideration for the increased 5% Ity ownership. And, we obtained during the first quarter and, advisory fees related to the proposed semafo transaction in previous engagement with the board was drawn on the revolving credit facility as part caution to ensure that Endeavour would have substantial liquidity and financial flexibility to operate under various stress test scenarios. Moving to Slide 21, we can see the increase in cash flow before working capital per share since quarter 1, 2019, and our cash flow per share recorded at the end of the 4th quarter of $1.14.
The slide highlights the steady increase that we've seen over the last five quarters, an increase of $0.93 since quarter 12019. An improvement of our financial position through the lens of our reduced net debt and reduced net debt to EBITDA metrics as Sebastian touched on earlier. Net debt amounted to $473,000,000 at the end of the first quarter, a decrease of $187,000,000 since reaching a peak net debt of Similarly, the net debt to adjusted EBITDA ratio significantly improved over the quarter, decreasing from one 0.48 times at the end of 2019 to one 0.06 tonnes at the end of the first quarter based on a trailing 12 month adjusted EBITDA. This marks a large improvement from the corresponding period last year where the ratio stood at 2.96 times. As I noted earlier, As part of our COVID-nineteen business continuity program, we grew down the entirety of our available revolving credit facility increasing our cash reserves to earnings and adjusted earnings per share of 0.30 dollars for quarter 1, 2020.
Underlying earnings were also positive at $0.24 per share. The main takeaway here is that this was a much cleaner quarter than in prior quarters with relatively fewer adjustments relating to nonrecurring costs in order to arrive at the adjusted earnings number. Finally, moving on to Slide 24. You can see how our quarterly adjusted earnings have trended since the start of 2019 when we finished construction at Ity. Compared with quarter 12019, we have seen an increase of per share.
And that's it from me. I'll be happy to answer any questions at the end, and I will now hand over to Ma to give us an update on each of the mines and the projects.
Thanks, Louis, and hello to everyone on the call. I hope that you're all doing well in whatever level of component you are currently enjoying. Before we dive into the quarterly performance, I'd just like to reflect on the fatality that occurred at Karma in late February, which involved the loss of control of the Greater when its engine failed near the top of the town or peak ramp. We conducted an internal and external investigation into this fatality, and have adopted many actions at Karma and across the group to prevent reoccurrence. These lessons apply to the way we conduct and sign off maintenance related checks how we undertake operational checks on emergency steering and parking systems, along with a number of other actions.
Importantly, these vessels apply not just to heavy mining equipment, but to light vehicles, cranes and contractor fleet. Since the fatality, the team at Karma have responded really well in terms of renewed focus on operational safety and performance. To kick off the operations overview, the production breach on Slide 26 highlights of variances between quarter 120 20 and the corresponding period last year. The completion of the CIL project has had by far the greatest impact on our results over the last 12 months, with the first gold pour it in taking place at the end of Q1 twenty nineteen. We are happy with our Q1 performance, as the group is tracking in line with guidance, and I'm extremely proud of how the team is working together in the COVID-nineteen environment.
I would like to echo Sebastian in thanking our teams for their hard work and dedication through this time. As already mentioned, during the first quarter, we operated at near normal levels, and we will keep monitoring how the situation evolves. Our workforce and our unions have worked closely together to ensure that we manage fatigue and well-being with longer than normal workforces to manage in country quarantine requirements. Our supply chain has responded well to ensure adequate stock levels of key reagents. The area that has been most difficult to manage is where we require specialist skills for planned and unplanned tasks, we were not able to travel to West Africa.
In which case we've appreciated their support via remote means, similar to how many of us are currently working. Turning to Slide 27, I will start by taking you through our performance at Ity. You can see that production has remained flat in the past quarter, of higher throughput and recoveries compensated for the slight decrease in process grade. Total tons mined increased predominantly due to being able to utilize the demining trucks, based both on the work done to improve roadways and other running surfaces and less rain interruptions. Increased volumes of waste were mined for the tailings dam lift, which will be completed by the end of May.
In terms of all in sustaining costs, We have seen the decrease of ity due to increased volumes of gold sold and lower unit mining and site G and A costs, which were partially offset by higher sustaining capital. In the coming quarters, all production sources will vary with battery dropping out in the second half of the year due predominantly to the rainy season, while oil production from deploy will increase. This will be complemented with ore from the Collins Wood pit in the second half of the year, with feed from historic stockpiles continuing into supplement plan feed. We also expect recovery rates to decrease as an increased proportion of surplus fresh ore is processed. On the exploration front, we expect to announce updated La Plaque resources and reserves midyear, along with an updated Ity mine plan to incorporate the expanded La Plaque resource price.
We are well underway with the process to get the necessary permits and approvals for the Plaque in the upcoming quarters. Moving on to Hounde, production remained flat as slightly higher throughput offset slightly lower recovery rate. While the process grade remains stable. The main focus continued to be bulk waste mining at each of our pits, which was given a boost with the arrival of the PC3000 excavator from Karma, which immediately settled into high productivity mining at Bengaluru Center. The addition of this machine and 3 of the larger tract doses from ity will enable a mine to achieve higher total mining volumes planned for 2020 compared to 2019 and enable us to open up the pits for increased in the second half of the year.
Process grades remained stable as we reduced stockpiles to supplement the mine fee during the quarter. All in sustaining costs increased, as you can see here, although less than anticipated. This was mainly due to higher sustaining capital and unit processing costs. Which was partially offset by lower unit mining and G And A costs. Looking ahead, all low grade stockpiles are expected to continue to supplement mill feed while mining focuses on waste capitalization.
For 2020 as a whole, Hounde is expected to finish the year strongly on the basis of commencing mining at Kari Pump as Bora production winds down. The permitting process is well underway and our expectation is that this will be received in quarter 3 2020. Patrick will cover exploration in more detail in his section, though it is worth noting that an updated resource estimate is expected to be released midyear along with maiden reserves for Kari West, which will be followed by the publication of an updated Hounde mine plan. Due to continued exploration and success around the Kari Center area, a new mineralized zone was discovered, which was named rather at Imageinor Dupley as Kari Gap. Consequently, an updated resource estimate will be announced midyear with maiden reserves later in the year.
Due to ongoing metallurgical and geotechnical analysis given its increased size. Turning to Slide 29, here is a quick look at Agbaou where production decreased in line with expectations. As mining mid completion in Westpac V, requiring recommencement of ore production from the north pit, lower grade ore from the south pit. Slightly lower plant recoveries were due to the threshold feed from north pit, although we did achieve higher throughput due to less in influence in the blend from the slightly Westpit Fiber. All in sustaining costs increased due to lower gold tail, highest sustaining capital and higher mining unit costs due to recommencement of mining in the North pit which was partially offset by lower processing and G and A unit costs.
For the rest of the year, we expect to continue mining in the North And South pit with contributions from the West Pit shopping in the second half of the year. This means that throughput and recovery rates are expected to decrease in the second half of the year as greater volumes of hard, official, are processed. Slide 30 takes us to Karma where production remains flat as the increase in grades that compensated for marginal decrease in stacked tonnage and recovery. Mining was concentrated on the Cowenor pit, which provided the majority of the autumn stacked for the quarter. So importantly, mining was started mid quarter at the Ggone pit to ensure sufficient feed over the course of the year.
Ggone is located approximately 5 Kilometers West of the heap leach facility, whereas Cowenorth is main is located 12 Kilometers TO the Southwest. And consequently, the mining team did very well to split the fleet and maintain good production rates throughout the quarter. The higher grades of Canada was meant that the stack grade increased marginally. All in sustaining costs increased, albeit outperforming guidance. Mainly due to the increase in mining and G And A unit costs, along with increased royalties and sustaining capital.
Looking at the rest of the year, we will continue mining at the Countwall pit and GT1. Though with the commencement of the next phase of the Canwall pit, Ggone will make up a high proportion of the ore feed, which will see grades come down slightly. Before I hand over to Patrick for an exploration update, Slide 31 provides an overview of the status of work on our 2 stand alone projects. Studies are underway with the aim of publishing a PEA on Fetekro and PFS on Kalana later this year. At Fetekrae, we have completed early stage studies based on the current 1,200,000 ounce resource.
To help form an internal view of the project. The exploration team is currently working on increasing the resource, which will be updated in the coming months. And which will form the mining inventory for the prefeasibility studies. Once these studies are published on fetekro and Kalana, we will be better positioned just to decide which project we prioritize. In addition, we will also need to include the SemPro projects in our project assessment.
This concludes my section. Patrick, over to you. Thank you.
Thanks, Mark, and hello to everyone on the call. So a quick update on our exploration effort this quarter. Looking at Slide 31, you can see a snapshot of our exploration activity in Q1 2020. We saw a company wide exploration spend of around $17,000,000 quarter or representing approximately 40% of the 2020 full year budget. As it was not by and said by Luis, it has been a quite a record quarter of activity for us.
And I would say that, sometime I like some of our competitor, we were even more active on the exploration front while respecting strictly the COVID, preventing processes. In total, the spend translated into over 100 8000 meters being drilled across our assets, but mainly focused and to be more concentrated on Hounde, it and Fetekro. You can see here on the right, I was just spending this quarter has been split across our near mine and greenfield X duration activity this quarter, basically to sell for ball, more on feed, brownfield and one sell for greenfield and fetekro. At TT, all most of the drilling concentrated on the Le Plaque area as we continue to explore that area at depth and also extending the Le Plaque deposit towards the Southwest in a new area that was not known before. While expanding a little bit to Plaquemaine and Blac North.
We have been also working on the Daimler Southwest. And a target area, where we are delineating some positive results that we add a few years ago. Fetekro exploration focus remain on the Lafigue deposit. It has to be noticed that during the last quarter of 2019 drilling has been expanding. And today, We have expanded significantly the Safeguis deposit.
We plan to drill for the 1st part of the year, at least 60,000 meter, which only, I would say, 40% has been drilled at the end of the first quarter. We are working today with C3 on Fetekro. And, as said before, we plan to announce around midyear, new increased resource level. Looking ahead to the rest of the year, we expect to see the result of our efforts including the resource increases for the carry area out today. Again, in carry, it will include some increased resource indicated resource in Kari West in Kari Center and new resource on the area named Kari Gap, which is separating Kari Center and carry cells.
For the look like area, it also then we increase the resource and also at Fetekro. As you can see here, and from Mark's slide also, it's going to be a very exciting first half of the year for Endeavour and the full year probably the same way. It will be good for endeavor to increase the resource base as we did previously. And on the exploration front, we are quite positive in term of the outcome. I look forward to updating to you on our progress next quarter.
And now I hand out, and you're back to Sebastian now to wrap up the call.
Thank you very much, Luis, Mark and Patrick. Before we conclude, I wanted to touch on our combination with MFO. As you know, we announced this combination in late March with the shareholder meetings scheduled on May 28. This transaction is something we are very excited about. As together, we will create a leading West African producer.
Not only this, but the merger will provide operational diversification across 6 mines, 4 of which will have combined production of over 800,000 ounces a year. On this slide, we have mapped out a snapshot of pro form a Q1 results for the 2 companies, demonstrating the strong pro form a metrics. The companies together produced a quarter of 1,000,000 ounce at very similar all in sustaining cost below $900. As you see highlighted in the box, this generated nearly $190,000,000 in operating cash flow. As we previously mentioned, the combined group, we don't have a very healthy balance sheet, which when you include the upcoming La Mancha equity placements, representing point 5 times net debt to adjusted EBITDA ratio.
This increased size and liquidity is important for us as it means that we will be able to meet the investment hurdles for a number of larger funds We have annualized the pro form a Q1 key metrics to give you a flavor of what the combined group might look like on a full year basis. The companies together can produce over a 1,000,000 ounce at below $900 per ounce, equating to approximately $750,000,000 in operating cash flow, more by the way than B2Gold is forecasting. At this rate, our net debt to EBITDA would sit close to 0 by yearend. I believe that these are conservative numbers as both companies expected strong second half of the year. On the end of a side, thanks to higher grades at Kari Pump and for Simafo, thanks to the restart of Boungou.
This is one of many reasons why we are very excited about the outlook for the combined companies. Moving to Slide 36, you can see within the Top 15 gold producer globally and also make us the largest gold producer in Cote d'ivoire and Bockina Faso. Finally, before we wrap up the call, I'd like to show you the consensus 2020 free cash flow yield for the combined group. Which sits at 12%. As you see here, if you annualize Q1, it currently stands at 16%.
We believe that as we continue to deliver free cash flow, this should lead to a significant rerating. It is interesting to see that if we were to trade a at the peer average of 6% yield, this would represent a share price appreciation of nearly 100%. To wrap up our presentation and before we take questions, I'd like to take a brief look at the year ahead of for Endeavour and the key moments for us. As I mentioned at the start, the shareholder meeting is scheduled on 28th May, and we urge you to vote. You might also have seen this morning that we received a notice from the Director of Investments under the Investment Canada Act indicating that the minister of Innovation, Science And Economic Development is considering whether to order a national security review of this transaction.
This ties back to the Canadian government announcing enhanced review measures under the Investment Canada Act in response to COVID-nineteen. As we do not have assets in Canada and we do not produce anything national security related, we don't expect that this will be an issue. And expect to close this transaction sometime in June. There might have been a mistake with the TMAC transaction and Shandong investment. In terms of our exploration projects, we expect an updated Le Plaque Resource Estimate at Ity within Q2 with the reserve estimate following soon after midyear.
At Hounde, an updated carry area resource estimate is also expected in Q2 with the maiden reserve estimate for carry waste by midyear. Finally, with Fetekro and updated resource estimate is during the middle of the year, we then hope to carry out a PEA in Q3. All in all, it's a very exciting year for Endeavour, and I'd like to thank the team for their incredibly hard work, both over the past few years, to help us reach this strong financial position. And also over the last quarter, during which we had to grapple with the challenges of COVID-nineteen. I'm incredibly proud of what we achieved as a team, and I look forward to seeing what the rest of the year brings for us.
Thank Your first question comes from the line of Avis Habib Scotiabank.
Hi, everyone, and congrats on a great quarter. Sebastian, I just had a couple of questions more relates to COVID. And look, it was really great to hear that all your operations are running smoothly. Do you see any impacts to costs as you deploy and follow new COVID protocols and procedures?
Thanks, Avayes. No, at this stage, I mean, we don't see an impact on cost, whether on the supply chain or on our operations. I mean, the cost is mainly the cost of responding to COVID-nineteen. Through the enhanced equipments that we've provided to our sites, but also to the nation that we've made to the host countries where we operate. And at this point, we have a total investment cost either for internal responses or for supporting the host countries of about $6,000,000.
Got it. And just on that and in terms of, obviously, the government's also a little bit distracted with this whole COVID situation. Are you witnessing any delays in sort of receiving or even talking about permits with the government officials? I'm specifically talking about the Plaque and Gary Pump areas. It looks like everything seems to be running smoothly and you guys are looking to at least start mining at Kari Pumpa by theendofthisyear?
Yes, we have I think that things are going pretty smoothly. And I think that's probably thanks to the strong relationship that we've been building progressively with our host countries. They want us, they want to support us They know that those operations are also important and key for them. And say that in both Cote d'Ivoire and Burkina Faso, we've done despite the COVID-nineteen crisis and work at home principles and quarantine and so on. We've been working very efficiently and diligently with the 2 Ministry of Mines in Cote d'Ivoire in Burkina Faso, and we have made some extremely positive progress on both fronts.
As an example for, you know, Kari Pump, we have the commission of the government which is scheduled for the end of May. And therefore, we are expecting to have probably even earlier than what we expected, the carry pump permit which means as early as end of Q2.
Excellent. So that's it for me, Sebastian, but again, want to say congrats on a great quarter.
And your next question comes from the line of Chris Thompson, PI Financial. Please go ahead.
Guys. Congratulations. And absolutely, it'd be still a quarter. I think Aviso's answered, or rather asked a number of the questions I was going to ask, but, I have one remaining here. Just looking at Eddie at the moment, the blue, obviously deposit here.
What are you noticing as far as the, the metallurgical characteristics of the deposit? Are they in line with expectations? This is going to be an important component, I guess, of the, of the second half production.
Sure. Thanks, Chris. Mark, do you want to give some color on that?
Yes, Chris.
Run a number of different trials, looking at the, I guess, the, you know, it relates to the, the threshold and the, ourcentopilot content. And we've done some trials on both low grade and high grade. I guess, encouragingly, when we put in the low grade, portion, we do see decent recovery sort of in the range of the mid-seventy percent, although conversely, when we put the high grade in, we do see the the lower recoveries, which are indicated in the VFS. And what we're doing, because we we do recognize that that is still, you know, quite a lot of gold going under the tailings dam over the last of, the deposit. So what we're doing is a number of tests, milligical tests, which are well underway.
And we are considering some what we can do with the flow sheets, to try and recover some additional gold. So as offsetting. At this point in time, that's sort of tracking with the DFS. So we do recognize the, the loss of gold retaining.
Great. Thanks. And just, Mark, just quickly, what sort of components percentage wise of mill feed would deploy? Comprise.
For the year, it's probably sitting at, about 30% of the mill feed, 25% to 30%.
Okay, great. Thanks guys. Congratulations.
Thanks Chris.
Thank you. And your next question comes from the line of Justin Chan, Numis Securities. Please go ahead.
Afternoon guys. Thanks a lot. And again, like to others, congrats on a very strong quarter. My first question is, a little bit related to a noncore op, perhaps. Karma had a very good quarter and a good on sustained margin contribution.
The gold price is now quite attractive and that, that asset, I believe should have a fair amount of price optionality, just given the volume of material. You made a fairly large write down there. Is there any I guess, can you give us your latest thinking on how you look at that operation? How much does the gold price change things? And is this quarter an indication that things might be better there than you expected?
Might we see some changes to that write down perhaps reversing?
Thanks, Justin. Well, I think on Karma, we are, and we tend to have always a cautious approach to all our assets. We've been running this asset in the 1200, 1300 gold price environment rather than a 1700 plus gold price environment. Which obviously are changing the optional value of Karma going forward. Including in the vicinity for additional resources and including the potential for adding significant resources on the factory side, which we never really looked at in the past given the gold price environment.
So, we keep that option in the portfolio We'll see going forward if this option is best used for us or best used for someone else. We don't to rush. That's a good thing. And therefore, we're happy with the way have been changing over the last 12, 18 months.
I see. Another one is related to COVID and just the situation in country and the integration of of those MFO assets when that transaction presumably closes. Is the current state of affairs, in country such that you'd be able to quickly integrate operations, and turn them into endeavor operations. Is there much work to do from that perspective. And just from a security perspective, can you remind me what the status of the the landing strips are at the sum of our assets and whether COVID or anything else is impacted on that timeline?
Sure. Well, on the integration, so we are actively working as a joint team on the integration in particular closing. We've been very active and we have numerous streams on all functions and operations going on in order to be as effective as possible from day 1 of the closing. The good thing is that both companies have strong teams in country. Which means that despite COVID-nineteen, there are a lot of things that can be done from day 1 from an operation standpoint.
On the security front, our head of security has been actively working with the CEMAFO guys to review all the semaphores security protocols and prepare to put in place our own security protocols from the closing date. So this is progressing well also. On the, I would say, security in country, there has been some progress already made in the north start of Borkina. You probably, I mentioned several times that we were hoping that, the fact that the French were repositioning the Bakken force, all the 3500 French soldiers, which are deployed in Mali that have been repositioned in the 3 border region in the north part of Burkina. We've seen some significant already progress on that front.
They are not doing a lot of publicity on it, but we know on the ground that there has been some good progress made in the North. And I think that this will help going forward to prepare also some strong operation in the East of the country, which is important for us for the restart of Boungou that we are still scheduling to be in Q4. It has been some good progress with CEMAFO on finalizing the awarding the contract mining to a third party. There's been a short lead and we hope that this will be done in finalizing in June or July. So overall, I think we are in good shape as a very strong again, coordination and communication on a daily basis between the Sema for teams and the Endava team in order to have a very smooth and effect transition by the closing date.
I see. And just sorry, on the airstrips that at Mana and Bongo. Are they completed now? And if not, what's the plan or what is the expected timeline in that?
They're not completed yet, but Mana is the one that will be prepared and ready very shortly. While Boungou, the objective is to have it ready before we restart the mining at Boungou. So again, before beginning of Q4.
Okay, thanks. That's really helpful. And my last one is on Hounde and the just the CapEx profile there, perhaps for the group, just reading the text, it seems like some degree of CapEx was deferred. I guess, can you give me a sense of your CapEx profile in Q2 and Q3? Is there any spillover from the first half into the second half at this point?
Overall, I think the only, I would say there's $2,000,000 on Hounde, and it has been delay compared to what we initially expected from Q1, and that will be spread between Q2 and Q3. But I'm not expecting a big impact on that. And again, the biggest point for us was to ensure that we get ready, we with Kari Pump. And we were hoping that the COVID-nineteen environment would not delay the award of the Kari Pump mining permit, and so far things have progressed very well. So, hopefully, we should have this permit before end of or beginning of a very early beginning of Q3.
I see. And so that and that will determine sort of a degree of pre strip timing. Is that fair to say?
Yes, exactly.
Okay, great. Thanks a lot guys. Again, congrats, and I'll free up the line.
Thank you very much, Justin.
Thank you. And your next question comes from the line of Richard Hatch Berenberg. Please go ahead.
Thanks very much. Yes, thanks, team, and congrats on a solid quarter. And first one is just on the cash flow statement. So Q1, you didn't see too well, you didn't see too much of a working cap build, if any, at all. Is there anything going on there?
And should we expect to see any kind of working capital build just in terms of stocks and inventories and such like into Q2?
Can I take that one, Seth? I'm sorry.
Yes, Luis, do you want to go on?
Yes, I was expecting the question, Richard. Thanks for that. What I did flag at the full year results when you asked me the question was that receivable, so that we are going into an election year in Burkina Faso and getting that recovered might be challenging. And I think that's that's the one change we've seen since the end of the year. So they've introduced a new, process for certification.
COVID has had an impact on them in terms of getting officials to the office. So, so there has been a buildup there, on that receivable. Terms of inventories at the moment, we have seen a reduction in consumables. Do not expect a big change at this point in time, over the second quarter, we've also drawn down on inventories as markets picked up in these operations report and finished goods. So I don't think, at this stage, we anticipate major changes save for, back receivables potentially, at this stage.
Okay, helpful. Thanks. And then,
the other thing I would say, Richard, is on the working capital, particularly on consumable, We're starting to see in fact the impact of the policies that we started 12, 18 months ago in renegotiating all the contracts at the group level for Endeavour. And in particular, moving on, stock consignment with a lot of our key suppliers and therefore reducing progressively our own inventories.
Okay, cool. So you just held them in a centralized hub within country rather than on your own balance sheet?
Yes, exactly. And they hold the stock for us on-site, and we pay as we take them rather than having to pay for the stock.
Okay, cool. Thanks. It's a good business. Question on Fotekro, Patrick, if you were to close your eyes and dream on Lafigue, what do you think that you could take that resource to?
Don't tell to all your tricks, Patrick. I don't know if Patrick is still on the line.
Yes, maybe. Yes, Jaeme here. Yes. Well, I cannot answer to that. The fact is,
all what
I can say that since we announced the 1,200,000 answer indicated. It has been, going quite well for us. We have been expanding frequently, Fetekro to other south, in both in all area, in the center in the north and also in the central part. So it's a bit difficult for me to answer this question. We are very happy with the results we have to date.
We still have, let's say, 30% of the drilling result to be received and to be integrated. I don't know, but I think the increase is going to be compared to the 1,200,000 ounces we announced last year. And again, Fetekro will not be Lafigue will not be close even after we publish this resource, there is still a lateral potential and potential updates probably. So Sorry, not to answer, to give any number, but we are very happy with this deposit that is coming, becoming nicer and nicer. Thank you.
That's right. It's a bit of a cheeky question. And then last 2, first one, just on Kari Center and the gap. Sorry, just to be clear, is there anything we should be reading into that in terms of you having to do additional work on the network and the geotech work, or is that just simply as you lead to in the release just down to its side?
If I may go on, just, yes, If you remember, Carrie Center was not a very large deposit. We have only 140,000 ounces. On top of that, the grade was lower than Kari West and indeed Kari Pump. What we have been working on is to closing the gap. So the name of carryout between Kari Center and the Kari South area.
It's not going to be huge, but it's going to be significant because we expect the grade to be in between, Kari West and Kari Pump. So it's significant. And due to this, We are running right now geotech and med test on this area. So that's why we are going to book only reserve on carry waste which is much more advanced and later on with the year on the reserve on the Kari center or Kari gap and a little bit carries out to what we will be able to
Okay. Thank you. And sorry, my last one is just on the T, just on those fees that you had to pay in the quarter. Based on the original kind of increase in your interest. Just with the exploration work you're doing there, should we expect to see any more cash flow going out in terms of that?
Not sure, Richard, which fee you're referring to?
I think it was a $5,000,000 fee play statement with regards to,
is it look like That was probably for Leclach. This was the, how do you call that the earnout? On the acquisition of the last 20 percent interest in ity. Where we agreed that any further discoveries, we would pay about $1 per indicated answers that we discover. So it's not, it's not big amounts.
Okay. But just based on, okay, fine, I can follow-up with you later on, right? No worries. Thanks for your time and congrats.
Thank you, Richard.
Thank you. And your next question comes from the line of Fahad Tariq from Credit Suisse. Please go ahead.
Hi, thanks for taking my questions. I noticed there wasn't much discussion on Kalana, even though prefeasibility is expected in the second half of the year. Can you talk a little bit about how that fits into the kind of priority? This sounds like Fetekro is it's a bit more of a priority. Is that fair or maybe any color on that would be helpful?
Yes. Well, no, it's not that in terms of priority, it's, downgraded. It's more that, current strategy is 20202021 to be completely focused on cash flow generation. And therefore, we not expect to launch any new project before the end of 'twenty one, beginning of 'twenty two. And therefore, what we want is to have as much optionality as possible in the portfolio in being able to figure out by end of 2021.
Which one from a return perspective is the most attractive between the different projects that we will have in the portfolio by that time. So Kalana is pretty well advanced and we are expecting the updated PFS in September. And there's been more focus right now on Fetekro in order for Fetekro to come as quickly as possible at par in terms of development as Kalana. So that we can really take, I would say, a proper decision on 1 or the other by the end of 21.
Okay, great. That's really helpful. And my only other question was just switching gears on security in Burkina Faso, has there been any more discussions with the government potentially providing security support, particularly now that you'll once the deal closes, you'll become the largest gold miner in the country. Any updates there?
Well, we have a very, I would say, very open and frequent dialogue. The authorities in Bockina Faso, in particular around security. I think we have a very strong relationship with them. And hopefully, you'll be able to see those through the when we'll be announcing the start of Boungou and all the security plans that goes with Boungou, which I think will demonstrate that we've made some very good progress around around Vogou in that particular area. On the rest of the assets that we currently operate or the other assets of CEMAFO, Again, they are all in regions and parts of booking FSO where there is no real, I would say, challenge from a security perspective, and therefore, there hasn't been any particular updates, except the fact that we've been progressively increasing and reviewing whenever it's required with our own team.
Okay, great. Thank you.
Thanks, Ahad.
Thank you. We will now take our final question. And the question comes from the line of Jody Mark Hayward Securities. Please go ahead.
Just quickly then, and transitioning, I guess, from operations and money share over to the holistic viewpoint on the company going forward. Given the augmented sort of asset portfolio base that you're likely to get, I guess, come due Can you give us an idea on the holistic sort of approach to milestones and investment sort of thresholds that you'd be looking at in terms of managing those assets going forward in terms of what could be core, non core, what you would look at in terms of maturing along our development pipeline, etcetera. And what do you see as being a manageable number of assets across Africa?
Thanks, Jody. Well, we, I think we presented at the end of, as part of our year end results for 2019. That our target is to bring progressively the overall portfolio of Endeavour to, closer and closer to a 20% return on capital employed. In order to reach that when you look at on a per asset basis, obviously, there are some assets which are far away from that number in particular Karma. So we will continue to review as we've done in the past in terms of portfolio optimization in order to ensure that we keep and focus our management team on assets that are really generating the level of returns that we are expecting for the company and for our shareholders.
So obviously, Karma is clearly on the scrutiny. In terms of overall number of assets, I always said that between 5 to 8 assets is something which is manageable. In particular, if those assets are all into the same, I would say, region. And this is why we've been really focusing as much as we can in continuing to grow in West Africa rather than having to go outside West Africa because from a pure operational standpoint, it obviously is a lot our management structure and ability to manage more assets into the same region.
Great. That'll do for me. Thank you very much.
Thank you, Charlie.
Thank you. I will now hand back over to you, sir, for closing remarks.
Thank you very much, operator. Thank you all for attending our Q1 results. I hope you keep all safe in this COVID-nineteen crisis and looking forward to speaking again to all of you for our Q2 results at the end of July. Thank you very much, and have a lovely day.
Thank you. That does conclude our conference today. Thank you for participating. You may all disconnect.