Hello, ladies and gentlemen, and welcome to Endeavour Mining Third Quarter 2019 Conference Call and Webcast, which is being recorded. A copy of the presentation is available on Endeavour's website. A brief question and answer session will follow the formal presentation I will now hand over to your host Sebastian De Montezous, CEO of Endeva Manning. Please go ahead.
Thank you, operator. Hello, everyone, and thank you for joining our Q3 2019 results presentation. My name is Sebache and De Montesur. I'm the CEO of Endeavour Mining, and it's a pleasure to be talking to you once again. This time from our operational hub in Abijon, where we are our board for their 2nd annual site visits.
I'm delighted to say also that our new independent non executive director, Sofia Bianchi, is with us on this trip and in on the call. Please note today's call is covered by our disclaimer and notice on forward looking statements. The format for today's call will be our usual quarterly format. I will provide an overview of the results, then Luis will review our financial performance. Followed by Mark who will discuss the operations, and I will conclude before opening up for Q And A.
Ahead of exploration, Patricka, is also with us here today. Available to answer any exploration questions you may have. Announced that our net, net, net, net, net, net, net free cash flow is finally positive. This marks the transition from our high capital intensive investment phase to a cash flow generation phase. If you remember, I told you back in 20 seen that the turnaround would be completed after our 3 year strategic plan, and I'm pleased to confirm that this quarter, we have generated our 1st net cash flow positive quarter.
Before we dive into the presentation, I'd like to thank the team for their tremendous efforts over the past 3 years, which have ultimately resulted in this quarter. Thank you as well to our shareholders. This achievement could not have been done without their support, and we expect that they will now start seeing their patience rewarded. On this page, we have laid out the key takeaways for the quarter. I think it is safe to say that it has been a strong the challenges brought by the severe rainy season.
This strong operating results and a higher gold price led to our operating cash flow doubling And most importantly, the business reduced its net debt by $52,000,000 as we have completed our investments during the previous quarter. Looking ahead, our objective is to generate strong cash flow so we can continue to deleverage the business and demonstrate a robust return on capital employed. In addition, I believe that the business is very well positioned In Q4, we expect Ity's ramp up to 5,000,000 tons per annum to be complete. This means that 2020 will benefit from a full year production at Ity at an increased plant size. We also expect the exploration success to generate further growth, and this is not arm waving, wishful thinking.
As you know, from our announcement, we have found deposits, which are at least 1 gram per ton richer at both our flagships, Ity and Hounde. We are therefore moving quickly to get permits so that we can start mining them in late 2020, early 2021. As you can imagine, We are delighted because it's rare to be able to have both debt reduction and growth at the same time. And finally, based on the exploration success we have had, it is now part of our DNA to have a strong exploration focus. This will allow us to continue to build low cost optionality within our portfolio.
Turning now to the next page. Safety. Safety continues to be our top priority. We were disappointed to record 1 lost time injury during the quarter at our Ity mine, the first in over 23 months across the group. Also, our safety recall remains well below the industry average at 0.06.
It is a reminder to all us that we must continue to be vigilant about our safety. The safety teams at all our mines are redoubling their efforts to ensure all our workers take the necessary safety precautions at all time. Moving to the next one. As I mentioned, we have had a strong quarter despite the rainy season, as production increased by 6% over Q2 and all in sustaining costs remained low at $800 per ounce. On this page, you can see that in fact, this has been our 2nd best historical quarter after the record set in Q4 last year.
Turning to Slide 7. You will see that we were up against this quarter in Burkina Faso. The left hand side of the page illustrates the average rainfalls during Q3 over the past 4 years, up four times versus when we first started operating in that country. The rain undoubtedly impacts production costs if we assume all other factors are constant. However, it is not the only factor to consider.
By incorporating the lessons we've learned, we are able to better plan for the rainy season with the goal of maintaining a production profile that is as flat as possible. Every rainy season has its challenges and this year was no different. The main challenge this year was starting a high grade Bouere deposit at Hounde during the rainy season. And also at the same time, ramping up our Ity mine in soft material, quite a challenge. As I like to tell the team our job is to be problem solvers and make sure we have backup solutions in place.
As such, we've been able to mitigate the impact by mine scheduling building up stockpiles in the dry season. Cost tends to increase during the rainy season because more water pumping is needed. Mining efficiency is lower and we use stockpile lower grade ore to maintain plant throughput, which is why we place a greater emphasis on maintaining production levels to net this out. And in the current gold price environment, this is even more beneficial. Moving to the CIL project has been the big driver for Endeavour's performance this year.
As you know, it was completed 4 months ahead of schedule $10,000,000 below budget and without a single LTI. The ramp up has also been quick lasting only a 3 weeks, Since then, and guidance range. Just a reminder, we deliberately gave a wide guidance range at the beginning of the year as the lower end was based on the name plate capacity and the top end already included upsides, such as the plant running above its nameplate. During the ramp up, we identified the ability to further increase the mill throughput by 25 percent to 5,000,000 tons per annum for minimal CapEx. Those upgrades are progressing well, and on track for completion before the end of the year.
Moving to Slide 9. Now that we are 3 quarters of the way through the year, we are adjusting our 2019 full year guidance for production and all in sustaining costs. To walk you through our thinking, let's look at production first. We've already produced 473,000 ounces. And as I just mentioned, we expect Ity to meet the upper end of its guidance.
So the lower end of the group's guidance has been increased slightly by 35,000 ounces. Concerning the other mines, we expect Agbaou to perform well in the final quarter, too, offsetting Hounde with the severe rain, slow the development of the high grade upwards slightly by 4% to reflect the higher royalties associated with the stronger gold price environment, which is equates to around $15 an ounce. Addition, the adjusted estimate to take into account the Ity all in sustaining costs, which is expected to be near the top end of its guided range, as mentioned during our Q2 call, driven by the increased production at the lower average grade. Overall, we expect Agbaou to offset Hounde and Karma. Now I'd like to give an overview of our financial performance, focusing on what I consider are the 3 important metrics for the business, operating cash flow, net debt reduction and return on capital employed.
This quarter, we doubled operating cash flow compared to Q2 as we benefited from both an increase in production, thanks to Ity and the stronger gold price. Again, this is why it's important that we hit our production target whatever the weather. Turning to Slide 11. This graph makes me very happy as thanks to both our operational performance and our financial discipline, we can now boast strong per share metrics. This is the reward of managing to fund our growth without diluting our shareholders.
As we have now transitioned to being a cash flowing business, it is interesting to see that our annualized cash flow yield is in the double digits which is high for any industry and particularly for the gold industry. In the context where we are competing for capital across industries, I believe that this is important for the gold industry to show it can be benchmarks across industries on all relevant metrics. As you see on this next slide, the gross capital spend since 2016 has been significant amounting to over $800,000,000, This represents almost half of our market cap. With only the ity upsize remaining, CapEx decreased to $6,000,000 in Q3. Delivering our projects on time and on budget is great, but ultimately, the most important is to show a return on capital employed.
As you see on Slide 13, this metric has improved substantially this quarter to 15% on an annualized basis. Moving to Slide 14. With the high capital investment phase now and behind us, we have pivoted to reach the cash flow inflection point in the business. It was announced it is finally there. We will now accelerate our de leveraging.
I think this graph sums it up nicely, and you can see the different elements on the bottom side in particular. And now as you can see for this quarter, with the CapEx spend pretty well finished, we can start focusing on debt reduction. This quarter, we decreased net debt by $52,000,000 compared to Q2. As you can see from the orange line, the net debt to EBITDA ratio decreased from 2.75 times at the end of June to 1.94 times at the end of September, which represent a 30% decrease in just 1 quarter. Which is very pleasing to see, and we expect this ratio Turning to exploration now.
As part of our strategic plan, we did invest a lot during the last 3 years in exploration in the same spirit as for the project. We are also now starting to benefit from the exploration successes we have had and converting progressively our discoveries into reserves. As you may recall, the main goal sets 3 years ago were twofold. 1st, to extend mine lives to more than 10 years and second, to advance greenfield discoveries, to build optionality within the portfolio. Over the first two years, we focused mainly on near mine exploration.
This year we started to ramp up greenfield efforts, which now represent nearly 20% of the spend. We are very pleased with the results at both as both Ity and Hounde now have demonstrated potential to have tenure mine lives and we have started to see delineation of new greenfield discoveries. The icing on the cake is that our discovery costs stands at less than $15 an ounce Let's look at Hounde quickly in some more detail. Our target is to have at least a 10 year mine life at an average 250,000 ounce per annum. Graph on the right hand side shows the production gaps in gray that we need to fill to achieve this.
And this is how we calculated our target needing an additional 1,100,000 ounces of reserves. While this sounds a big number, we have already discovered 710,000 ounces which we published as a maiden reserve for Kari Pump back in June. And not only did we add reserve ounces, it was also a considerably higher grade of just over 3 gram per ton. During the quarter, we've been finalizing the resource calculation for the Kari Center and Kari West discoveries, and expect to announce a maiden resource and reserve estimate in the coming weeks and demonstrate once more that we'll be reaching the target we had set for Hounde. Moving now on to Ity.
The same principle applies. We want a 10 year mine life at an average 250,000 ounce annual production, To achieve this, we only need to add 500,000 ounce of reserves. We have already discovered 500,000 ounce of indicated resources, so we are confident we can meet this target as the discovery keeps growing. Similar to the carry areas for Hounde, we are also seeing above 3 grams per tonne at Le Plaque. We expect to Now I'm turning to our greenfield exploration efforts in Cote d'Ivoire.
We are very excited about the Fetekro deposit. In September, we increased the indicated resource 1,100,000 ounces at a good grade of 2.54 grams per tonne. And we will be commencing a 10,000 meter extension drilling program shortly. Which we expect will increase the project's resource base further. Solid, Patrick.
Thanks. That concludes my quarterly overview, and I will now over to Luis for a detailed review of our financial performance.
Hello, everyone, and thank you Sebastian for the introduction. From my side, I'm very pleased to be joining industry at this important juncture as the business matures into a cash generating gold company. With the current strong gold price environment, I think I may have timed it perfectly to join the sector at this point in time. On my first slide, Slide 20 in the presentation, I thought it would be interesting to provide you with a snapshot of how the business has performed. Both on a year to date basis and comparing The company's financial performance has improved across all key metrics.
On the financial side, adjusted EBITDA and EBIT margins are up 24 percent and 35%, respectively, with operating cash flow up by 52%. As Sebastian has mentioned, the key driver has been our increased production for continuing operations and a stronger gold price, which more than compensated for the slightly high our all in sustaining costs year on year. Considering the significant change to our asset base over the past 9 months, with the CIL plant coming on stream at ETE and the growth CapEx phase now essentially over. I will focus on a our quarter on quarter performance with the balance of the presentation, and we'll be happy to address any further questions you may have later. So let's turn to Slide 21, where we have provided a breakdown of the major elements used to derive our all in margin.
In the tables, we have shown both phenomenal amounts as well as the dollars per ounce impact. The all in sustaining margin came in at 44% up from 38% reported in the previous quarter. Lower non sustaining capital for both mining and exploration resulted in a $3.05 per ounce improvement in the all in margin of the company. This is due to significantly less non sustaining capital required by the business during the third quarter. And to explain that point, on the mining side, we did decreased stripping at our new deposits at Hounde and Karma earlier in the year and on exploration, most of the drilling was done ahead of the rainy season.
Unit cash cost decreased over the previous quarter, which was however offset by higher royalties and sustaining capital spend. For reference, we have provided additional insights on each of the main line items on the slide. On the next slide, we start from the all in margin and work our way to the net cash inflow for the group As Sebastian mentioned, the bottom line shows a positive inflow for the quarter, which is a turning point for the company. Dialing into a bit more detail, I'd like to anticipate any questions you may have on the larger quarter over quarter variances. So starting with working capital It has swung to an outflow during the quarter, mainly due to payables related to the construction of the ETCIL plant winding down, which was somewhat offset by a very large VAT recovery, during the third quarter approximately $15,000,000 of that has been recovered in the quarter.
Taxes came down slightly as the 2nd quarter also included a provisional tax payment of $6,000,000 at Hounde for and growth project capital decreased significantly, as you'd expect to see now that the ity plant, ity CIL plant is commissioned. Again, we have provided more insights on the page, and I'd be happy to address questions during the Q And A session. Moving on to the next slide. Where we show the drivers for our opening and closing cash position, you can see that we started the year with $124,000,000 of cash to which operating activities have added another $178,000,000 $11,000,000 into the business for growth projects and sustaining and non sustaining expenditures. As you see with the insert, this represents a 60% decrease over the previous year.
These activities were bridged by an inflow of financing activities, notably the drawdown of the RCF earlier this year, which was partially offset by interest payments and finance lease obligation repayments as well. No further draw downs are currently expected given our strong cash on hand position. To the next slide, The company's liquidity remains strong and we are in a healthy financial position. We have available funding of $240,000,000 at the reporting date. Our current net debt to adjusted EBITDA ratio stands at 1.94 times, Sebastian referred to earlier, and this is calculated on a trailing last 12 months adjusted EBITDA basis, which is a sharp decrease over the 2.7 loans at the end of June.
What we have included in this slide is a calculation where you where we annualized the quarter 3 adjusted EBITDA, and arguably this is most probably a more relevant metric in this higher gold price environment And with ity now ramped up, and on that basis, the leverage ratio should be around 1.24 times. Looking ahead, we expect net debt to EBITDA, the ratio to continue declining on the back of reduced growth capital expenditure requirements. Turning to my final slide. You can see that on a quarterly basis, adjusted net earnings per share increased considerably in quarter to $0.30 per share. This being the benefit of funding our growth in a manner that has avoided equity dilution for the shareholders.
That completes my review. I'll be happy to answer any questions at the end, and we'll now hand over to Mark.
Thanks, Louis. It's great to have you in the team. Like to start my operational review with the Ity mine, commissioning of the new processing plant in the lead up to the wet season has gone pretty well. As you can see from the graph on the right hand side, the difference in production between the old heap leach and the new CIL operation is considerable. Essentially three times the production at a lower all in sustaining costs and good validation to support the capital investment made.
Production for the quarter continued to increase despite the heavier than normal rainy season. On the mining front, we continued to open up the Dipla and itchy flat pits which extended down into the transitional and fresh rock in places, which, as most of you know, for ity is a benefit as we can use the larger mining fleet with more solid underfloor conditions rather than the smaller articulated dump trucks. Additional ore sources came from the spent heap leach near the CIL plant, and a low grade dump, which has been mined to make way for planned TSF lifts. The production rate has continued to ramp up based on the debottlenecking work being conducted we expect to be in a position to process at an annualized 5,000,000 tonnes per annum during the fourth quarter. The mine's all in sustaining costs decreased during quarter 3, mostly due to a lower strip ratio, greater production volumes and lower G and A costs.
These factors helped to more than offset higher mining related costs due to the rainy season and increased royalty costs. Patrick and his team have done a great job discovering and modeling high grade La Plaque deposit. Though there is still more resource to be drilled, we're in the process of converting the initial resources into reserves and incorporating this into our life of mine plan. Due to the grade profile of La Plaque, our goal is to work through the permitting and planning process and bring this into the mine plan as early as possible. Looking ahead to the final quarter of the year, Ity is on track to achieve the upper end of 20 production guidance.
For the all in sustaining cost, as guided during the second quarter results, we expect the mine to finish near the top end of guidance to account for the lower average grade mined and processed in taking the plant beyond nameplate capacity. Turning to Hounde on the next slide, the mine delivered a good performance for quarter 3, despite the severe rainy season, with only a slight decrease in production. We started to mine the high grade borate deposit during the second quarter, discontinued at a higher rate in the 3rd quarter, which helped maintain the process grade profile, as we also blended Vindaloo with Bintaloo ore and lower grade stockpiles. Ramping up of production at Bore was slowed due to the more severe rainy season, which is the main reason we now expect to be at the lower end of 2019 production guidance and above the all in sustaining cost guidance. As you may have seen, the guided $25,000,000 of sustaining capital for the second quarter, our second half of the year is considerable compared to the $10,000,000 in the first half.
Of this amount, $15,000,000 is planned for the fourth quarter. The strip ratio is well above the life of mine ratio at roughly 15 to 1, is expected to remain high in quarter 4. Looking at the big picture, the company pushed Hounde very hard in its first two years of production in order to support the funding complete the guided capital stripping during the second half of the year to place us in a good position for next year. Similar to ity, the exploration team have done a great job discovering and extending our knowledge of the high grade carry pump deposit, which is also expected to make a contribution to Hounde's life of mine production profile. We're therefore looking forward to incorporating this into the mine plan as soon as possible.
Moving on to Slide 29, to our Agbaou mine in Cote d'Ivoire, the maturity of this operation was highlighted by the smooth from our expat GM to the new Ivorian General Manager. The team has embraced the change and neither production nor performance has Mr. B. Mining operations continued in the north and west pits during the quarter as the primary ore sources. Towards the end of the period, waste mining recommenced in the south satellite pit.
Processing throughput was supplemented with some low grade stockpiles and production was steady quarter on quarter through the rainy season. All in sustaining costs decreased as a result of a reduction in both processing and G and A unit costs as well as an increase in gold sold. The higher gold sales helped to offset higher unit mining costs and royalties. Looking ahead to the final quarter, Agbaou is on track to meet the higher end of full production guidance and expected to come slightly below the all in sustaining cost guidance for the year. And lastly, slide 30 for our Karma asset in Burkina Faso.
Production increased as forecast despite the effects of the rainy season. Mining activities focused almost solely on the newly commissioned County North Pit as we finished mining the Cowmain pit in early quarter 3. The higher grade channels oxide ore contributed to the significantly higher stack grade, which more than compensated for lower stack tonnage. All in sustaining costs decreased mainly due to increased gold sales, which more than offset higher unit mining and stacking costs and higher royalties. Looking ahead to quarter 4, we expect Karma to meet the lower end of 2019 production guidance and finish slightly above all in sustaining cost guidance.
This is mainly due to questions after Sebastian's concluding remarks.
Thanks, Mark. So in conclusion, gentlemen, I think this quarter demonstrates the successful execution of our strategy. We have completed the growth investments required to build a strong diversified portfolio With these projects now in production, we have derisked the business and can now focus on harvesting the cash generated by these investments. Just to remind you of our 4 upcoming near term catalysts. First, we expect to publish maiden resources at the New Hounde discoveries in the coming weeks.
2nd, we're looking forward to completing the Ity CIL Upsize before year end 3rd, we're looking forward to publishing made and reserve for the new Hounde and Ity discoveries early next year. This will be followed by updated technical reports where we aim to demonstrate 10 robust years of production across both assets. And last and most important, continuing to generate cash flow. As Thomas Edison taught me 100 years ago, Having a vision is not enough, vision without proper execution is hallucination. Well, I'm pleased to say that after 3 years of discipline in executing our plan, $50,000,000 near $50,000,000 of net net cash flow after everything.
This quarter is not hallucination. But just the beginning of a new chapter. Thank you very much for your time, and we're now happy to answer any questions you may have. Thank
you. Please stand by while we compile the Q And A queue. This will only take a few moments. And the first question comes from the line of Mitchell Stoner from Berenberg. Please go ahead.
For the call. So on the itty growth CapEx, in the announcement you flagged, you spent $4,000,000 of the $10,000,000 to $15,000,000 it and that the bulk of the work left is on the tailings. Can we assume that the CapEx is tracking kind of towards the lower end of the range or better than that range or is a big ramp up in spend through Q4?
Thanks, Michael. Yes, I confirm. I mean, the objective is tracking towards the lower end of that of that guidance.
Okay. Perfect. And then on to Hounde at Bouari. Forgive me if I missed it in the call, but Do you expect to have that fully ramped up in Q4 or is that more of a Q1 event?
Sorry, say that again, Michael.
Sorry. At for Hyundai and the ramp up of high grade feed from Bouere. Is that expected in Q4 to kind of a full production rate? Or is that going to be happening early next year?
It's going to start at the end of the quarter and mainly in Q1.
Okay, perfect. And on Agbaou, the better than expected mining unit costs, are those now anticipated to sustain, or were there kind of few one off beats there?
I'm always cautious when we have better than expected results So, it would be, probably brave, you know, to think that's the standard. But, yes, I mean, we hope that the performance of the team and following the change of the GM has laid out strong foundation for the future. So we hope to continue in the same territories, yes.
Okay. But that's not down to a change of contract terms or anything that you can
Yes, it's performance based, exactly.
Okay, perfect. And the final one for me is on the working capital outflow. Louis flagged that its payables washing through at IITI. Is there much of that to expect for Q4? Or is that effect largely done now?
Michael, thank you for the question. That effect is basically done now. So it was, ETCIL accruals at the end of the year that have now are winding down.
Thank you, Michael.
Thank you so much. And the next question comes from the line of Ovais Habib from Scotiabank. Please go ahead.
Hi, everyone. Thanks for taking my question. Firstly, Sebastian and team, congrats on a strong quarter and achieving free cash flow despite the rain season was worried there for the quarter. So just on that, Sebastian, obviously, you guys got hit with rain in Q3, but how is that looking going into November and looking and going into Q4. Was November still weak in terms of or in terms of rain or are we seeing a relief there?
Thanks, Avay. Well, surprisingly, this year, the rain has been quite late and October has still been a rainy should now start to be the dry season. And if you recall, we tend to have record, you know, Q4, it year as we enter into those dry season. So, I mean, yeah, we couldn't going forward for Q4.
Excellent. Okay. And then just moving a little bit on to exploration. In terms of just want to know where Patrick is focusing his efforts now and is it fetekro? Is it, is it still at Hounde?
Or can you give us a little bit color on that?
Yes, Patrick, you want to answer the question?
Right now, the main point for us is to concentrate on Fetekro first because we started the study for to be possibly issued at the end of the first quarter. So we want to involve as many answers possible on this Lafigue deposit. So, this is my first priority right now. And we are still working a little bit now, now the rainy season has finished on the Plaque extending the Le Plaque Southeast But that's basically the priority we have now until the end of the year. That will be the priority.
Are there any other targets or kind of greenfields that you're working on right now? Or I mean, this is just the target for right now?
No, for right now in the next coming to months, it's going this. That being said, for year, we are preparing additional and other greenfield target. Well, let's say in different country on our portfolio.
Okay, perfect. Guys, that's it for me. So thanks for taking my questions.
Thank you, guys.
Thank you. And the next question comes from the line of Justin Thames from Newman Securities. Please go ahead.
Hi, guys. Congrats on a strong quarter and the first majorly positive free cash flow quarter as well. My first one is just on in terms of, now that your balance sheet is deleveraging, you have a lot more sort of strategic options. How do you evaluate, I guess, give us an update on Kalana on Fetekro and just how you evaluate projects going forward? And I guess, what, if any criteria cut off you have for what makes an endeavor project?
And perhaps at what gold price do you evaluate for that?
Thanks, Justin. Same with, you know, back in Denver during my presentation, we said that, you know, the cube 2 years. So 2021 is really to focus on deleveraging and generating strong cash flow. So that's really the priority, which give us time, I mean, to continue to grow the optionality into the portfolio for our next mine. Whether it's Kalana or whether it's Fetekro.
So we have this optionality in the portfolio Obviously, if the gold price continue to be strong, we should be deleveraging faster than expected, which will give even more flexibility on the next options. But really, I want to insist on the fact that the next 2 years 2021, are really focused on generating as much as we can cash flow in the portfolio.
I see. And then in terms of cash flow and how you view balance sheet management, net debt arguably already at a healthy level relative to what your EBITDA will be going forward? I guess when thinking about a dividend or a capital return or simply just getting debt to 0, could you just run through those options and how they're viewed by your team right now?
Yes, well, I think that we'll have, I don't want to precipitate discussions with our board on those on the subject. We're just completing the first quarter of net cash positive. I think we'll have as we move forward and accelerate this deleveraging. And we always said that our target was to be below 1 below 0.5 times net debt to EBITDA So depending on the gold price, that's something that we will reach quite rapidly. And we always said that as soon as we're ready, our objective is to be in a position to move to giving back some of this cash flow to shareholders.
So this is clearly a subject that we intend to address with the board in 2020.
Okay,
thanks. And just my last one, on Q4, this is a bit more of an operational cash and cost question. Are there any accrual should be aware of that tends to occur in Q4? And will that be sort of a wild effect on cost?
Say that again. Sorry, Justin.
Yes. I was just wondering if there are any year end accruals that we should be aware of in terms of how they may impact cash costs or just or costs in general for Q4?
Justin, I don't believe there should be any, and if they are, we'll let you know, but I don't think that's reason for, yes.
Thank you. And the next question comes from the line of James Bell from RBC Capital Market.
Yes, good afternoon. Thanks for the call. Just firstly, on the permitting for the Kari targets in La Plaque. You talk about needing those sort of late 2020 or early 2021. Do you see any risks around that process or do you think that these are going to be relatively straightforward to secure?
Thanks, Jim. I think the, you know, the good thing is we're talking about permits of, a new permit of new pit it's not permitting for a new mine. So this stands in our experience to go quite fast. There is still a process to be followed. But I'm this week with the board.
And for example, we met the minister of mine yesterday. And he confirmed that he was supporting to get us as quick as possible, the Le Plaque permitting. And about 2 weeks ago, I was with the minister of mine in Burkina Faso is also committed to help us get the permit for Kari Pump as early as possible. We're quite confident that end of the year is the latest date we are expecting those.
Okay. That's great. And then on the cost side, I think it's pretty clear what's happened in Q3, but when we start thinking about looking into 2020, are you seeing any headwinds in the underlying business or any inflation coming through that you think could impact your cost base as you start to look into next year?
Well, obviously, we'll be going through the budget process in the next 2, 3 weeks. So I have a better understanding of 2020. But based on the robust, I would say life of mine plans, in particular, are 2 flagships on the entity. Pretty, pretty confident on the outlook for 'twenty and 'twenty one. In terms of supply chain, we haven't seen yet any significant increase in supplies.
And even more, as we said now that we're having a much more global approach to our procurement and our supply chain. We will see in 2020 some improvements of the inventories and consumables as we are moving towards better control in particular, having stuck containment with a lot of our suppliers to continue to improve our working capital and therefore our return on capital employed.
Okay. That makes sense. And then one just final one. When you look at your return on capital employed, it screens pretty, pretty impressively on an annualized basis. Do you have an internal target for where you would like that figure to be on a go forward basis?
And does that feed into your kind of view on projects or potential asset purchases in future?
Well, I think that as a group in terms of philosophy, we always said that we wanted to be as close as possible to 20 return on capital employed. So 15% is a first step. We hope that we'll be able to continue to improve this number. But again, I don't want to preempt the short term future given that this is our first quarter of net cash positive. And I think that based on the full year 2019 and the budget 2020, we'll be able to give some even better guidance to the market.
Okay, that's perfect. Thanks very
much. Thank
you. And the next question comes from the line of Chris Thompson from PE, Poseidon, CL. Please go ahead.
Yes, good morning. Good day, guys. Congratulations on a great quarter. Yes, very, very nice see the free cash flow there. Just a couple of quick questions.
I think a lot of my questions have already been answered, but just moving to Hounde right now with Bombore, What sort of, what sort of mill grade are you anticipating when you do bring that, that pit fully on?
Mark, you want to?
Yes. So the Vore pit should get better in grade as we go. By the end of the year will be sort of just under 3 grams, average for the year. And then we expect it to improve in 2020 by another gram.
Great. I mean, it's a as far as blender grates the mill, what should we be anticipating?
Are we talking for this year or for next year?
Generally for the, what was the sort of steady state run rate, I guess, in the near to medium term with Bore on?
Sort of it's in the low 2s.
Okay, great. Thank you. Just just moving on quick, quick, great performance from Agbaou. But just focusing on, I guess, on EZ here, Nice to see that you guys are on track for the, for meeting the 5,000,000 ton per per year. Do you you anticipate an improvement in grade or are you pushing it to continue to push on the tons, rather than the grade there?
Can we anticipate a plus 2 gram, sort of mill grade there?
No, with the increased throughput, that will keep the grade lower.
Yes. Okay. Perfect. Thanks. And then finally at Karma, again, nice to see the good grade coming in there from Cowenorth.
When can we anticipate an uptick in those tons?
Yeah. We're doing some work on the stacker right now. And we're expecting that to be finished in this quarter so that come 2020 we'll be, improving our throughput.
Yeah. And as you, Madrick, remember, Chris, for us, 2020 is a turning point for Karma in terms of cash flow. As we'll be finishing the last CapEx with the stacker, which is about $24,000,000 this year. And next year is the end of the 1st high level of Franco Nevada stream that will allow us to start working on Karma for us rather than just for Franco Nevada.
Great. Thanks for that, Sebastian. Good guys. Keep it coming. Thank you.
Thank you very much, Chris.
Thank you. And the next question comes from the line of Jody Mark from Howard Securities. Please go ahead.
Guys. Just to follow on from other questions there. I'm focusing firstly at Ity, very nicely done through the West. Just trying to get an idea of how you're looking for a sort of mining fleet capacity now that you're coming out of the wet season, you're sort of rotating out the ADTs and into other equipment and how that's going to affect ultimately the of your mining fleet and hopefully that should have some reflection on unit costs as well.
Yes. At this point in time, we're still using quite a number of ADTs and that's also just looking at the kind of activity that we've got on We've got, TSF construction underway and sourcing adequate fresh rock for that. So certainly Q4, Q1, we'll still have quite a number of the ADTs. And obviously, as we get into any fresh rock and our ability to use the dump trucks, we'll certainly take that opportunity.
Right. And you're seeing, I mean, in terms of broader scale, reconciliation, are they sort of those numbers sort of coming in line at the moment or is it too early to tell?
It's probably a little bit early to tell, you know, ramping up and also going through wet seasons because mining is not always as easy in the wet season. So probably wait another quarter or so on that.
Okay, mate. And, probably just a question Sebastian out for time is, obviously, the ramp up through nominal nameplate capacity to $5,000,000, you're kind of close to there already on an average in Q3. What are you thinking, the ability to be able to exceed that going next year? Or should just say $5,000,000 sort of to be conservative on that basis?
I think we should be conservative for the time being. We know our ability, I mean, to grow above network capacity. That is just settled. I mean, 1 or 2 quarters and then it would be able to draw lines on where the effective capacity
right. Okay. And, while we're on exceeding capacity design, let's go over to Hounde, it's running at 4, well and truly above that, I guess. And that's well above the initial nameplate. With the guidance of, obviously, 250,000 ounce for the year, sort of that's what you want to try and achieve.
I mean, what sort of are you looking at moderating grade on that or are you looking at a combination of invested capital, look at planned expansions to achieve that sort of 10 year objectives.
One of the things with Hounde is we can get the 4,000,000 tons when we've got a nice blend of oxide and hard rock. And at times, the profile will change and we'll just have hard rock. And when we're in hard, we're sort of down at the 3.6 range. So the fall is not a given over the life of mine profile.
Yes. And obviously, if we continue to discover high grade deposits like in carry pumped and which are mainly oxide and it helps, you know, to improve the blend, both in terms of throughput and in terms of great. So this is where we're expecting to maintain this type of profile over the next 10 years.
Right, okay. And in terms of maybe adding to a question earlier in terms of and as you've shown, in terms of trying to rotate around assets or organic growth and allocation of capital within your portfolio. Obviously there are some assets that are at the start of their lives or rejuvenated. And others that are nearing the number of years at the end of their mine life are sort of decreasing there. Just thinking about how you go about looking at those assets with fewer, fewer years on their lives.
We've got a few assets here in the portfolio. And whether you sort of what you do with those, sell those or close, I'm not just trying to get an idea of asset allocations within their portfolio?
I think it's, that's the beauty of mining. It's a never ending story. Need to move from one asset to the next one. And we always said that we have no emotions and string attached to any assets. What we want is those assets to generate the level of cash and returns that we expect.
If at some point they're not generating those returns, it's probably that they are not asset for us to be owned. And we've demonstrated over the last 3 years that our ability to sell non core assets and either acquire build new assets. The pleasing thing is to see that our exploration strategy to prepare for the next project is getting traction with now in the portfolio, 2 optionalities that we're building with Calana and Fetekro. This gives us confidence that there is still ways to continue to improve and maintain a quality for you for Endeavour going forward. And again, looking at the mine life of karma and Agbaou, when you look at the Agbaou performance in particular, this year, we're very happy to have this asset and very happy with the team over there.
And if at some point someone shows up with the right price, we have a disciplined approach capital employed. So we'll just look as long as it's the right thing for the company.
Okay, well said. And then maybe just some housekeeping last question on UT there. In terms of looking at 2020, what are you thinking the balance of feed is looking to be there? Or feed supply?
Sorry, you meaning for Agbaou?
No, no, for ity. What, what sources there, just to try and get an idea of where the blend are coming from?
So Duplu is a is a fairly main contributor to ity over its life of mine. Baca 2 is going to be there. Izzy Flat will have some contribution and then there will be some contribution from low grade stockpiles.
Okay, great. I'll follow on from that a little bit later.
Thanks, Georgi. And just to avoid receiving, you know, 25 phone calls about whether we're sellers of Agbaou, the answer is no today, we're not sellers of Agbaou in particular as we see a natural extension for Agbaou with this Fetekro new projects where there might be a lot of synergies between the end of Agbaou later on and the beginning of Fetekro. Thank
And the next still comes from the line of Mark Bentley from
Good afternoon, gentlemen. Thanks once again for an excellent quarter. Just one quick question relating to Slide 15 of presentation. You mentioned in there, Guinea Greenfield Exploration. I don't recollect licenses that you have.
In Guinea. Could you clarify that, please?
Sure. Yes, we did announce last year, taking some licenses, about 4 licenses in Guinea. That's in the Sigiri area, not far from the Anglo Anglo asset in that region. Last year was more theoretical analysis on the ground and activity of this area, which I think Patrick and the team are quite excited about. And therefore, they are this year, starting some preliminary drillings.
Thank you, Ma.
Thank you. And the next question comes from the line of Justin Tenth from Newman Securities. Please go ahead.
Hi, just for the aggregators out there, it's new missecurities. But anyway, thanks for my follow-up. Just one, it's been sort of a theme this year, especially in the security situation, especially in Burkina. Continuing the headlines there. Are you noticing any sort of increased difficulties in the operating environment?
I know that you've got very good protocols in country and people aren't generally on the roads from your company. But I was just wondering from a directionality perspective and from a difficulty or ease of operating perspective, is there any trend that we should be aware of and anything you can share on that?
Well, thanks, I mean, for the question, obviously, it's something that we're monitoring I would say, Nilly, on a daily basis for the team here and on the security side, we haven't seen any, to date, whether at Karma or at Hounde, any implications of those security issues in our ways to operate. And at least nothing has changed or affected because of security, our ways to operate at both Karma and Hounde. But on a regular basis, we do reassess and in particular, we increase from time to time at the security protocols around some of our mines and in particular Karma, which in the north part of the country. But, so far, we haven't been in a position where we had to to take radical decisions. We still feel, and I do feel taking that responsibility that our employees are operating in in safe area and that we have the right protocol in place to maintain those operations.
Okay, thanks. And just for maybe a bit of color on that. Is has there been a ramp up in sort of government involvement in some of the outlying areas? And is that responsible for the increase in incidents? Or I guess is there any more you can share on that?
Well, I think that what is evident is that there has been an increase level of attacks in particular in the north and the east part of Borkina. Overall, I mean, if look and take a step back on the region, you see that there has been some movements from north of Mali to south of Mali at the border. Of the 3 countries, mainly in Asia and in Burkina Faso. But what we see also is an increasing presence which probably explains those different attacks, increasing presence from the G5 sale. So the 5 countries from the sale, which are putting joint forces to tackle the subject.
And also increased forces from both the US and France.
Okay, thanks. That's very helpful. Thanks very much.
Thank you. And there are no further questions at the moment. So please go ahead.
Great. Well, thank you very much, operator. And thank you, ladies and gentlemen, again, for attending this quarterly results. And I'll you again for
conference for today. Thank you for participating.