Thank you, operator. Good morning, good afternoon, everyone. Thank you for joining Endeavour Mining's Q1 twenty nineteen Results Presentation. I'm Sebastian De Montezous, CEO of Endeavour Mining, and it's a pleasure to be talking to you once again. I encourage you to note the disclaimer and notice about forward looking statements.
We will be adopting the usual format today here with me, Vincent and Patrick, and the next quarter, we'll have Mark Morcombe, our new COO joining us. As he's joining us next week. Ensures and exploration opportunities in greater detail. We will then open the call for questions. We successfully delivered across all four of our strategic pillars this quarter, and we remain on target to meet full year guidance for both production and costs.
Project development remained a key focus for us and was the main catalyst during the quarter. The commercial production at Ity CIL began 4 months ahead schedule in early April. Importantly, we declared commercial production at full nameplate capacity. And in addition, we're now working to increase the Ity CIL plant capacity by 1,000,000 ton to 5,000,000 ton per annum. Our exploration has also continued to enjoy success with over 100 and 15 thousand meters drilled across the group in Q1.
That's already a third of the total plan for the year. We expect to provide updates on the drill results on Hounde, Kari West and Kari Center discoveries, as well as updating our resources at Le Plaque in the coming months. In terms of our balance sheet, our liquidity sources remained strong at $144,000,000, and we are excited as we are now entering a period of sustaining strong cash generation as a result of Ity CIL entering full production. As you can recall, at the beginning of the year, we have also increased our ownership stake in the Ity mine from 80% to 85%. Looking at this next page, as I just mentioned, we are on track to meet our 2019 guidance.
We have experienced no LTIs this quarter, maintaining our position as one of the safest operator in the industry. In terms of production, despite the mathematical calculation based on production this quarter, We remain on track to meet full year guidance with higher production expected for the reminder of 2019 due to the CIL, ity CIL plan commissioning and ramp up, and higher grade across the rest of our mines. The same is true for cost as the Ity CIL contributes exceptionally low cost answers to the group. On this next page, we see our safety stats in a bit more detail. Safety is the number one priority for us and this quarter We have reinforced our strong safety record with 12 months with a 12 months loss frequency rate of 0.04 well below the industry average.
The only LCI on the past 12 months occurred at Tabakoto, which was sold last year, As such, looking at our continuing core operations, we experienced over 500 days at Hounde, Ity, Agbaou, and Karma and in our projects. Without a single LTI. Turning to the next page. We see our quarter on quarter production and all in sustaining cost variation. We've shaded in greater portion relating to the Ity heap leach operation as it ceased in the fourth quarter.
Overall, production decreased by 53,000 ounces from the record level in Q4 2018, ending more in line with Q2 and Q3 levels of last year when excluding Ity. Production decreased due to the mining of lower grade stockpiles in portion of a much stronger performance across the group over the rest of the year. As we are illustrating with the dotted arrows, we are expecting strong growth to begin in Q2 as the Ity CIL project continues to operate at full nameplate capacity and due to high expected process grades across the group. On this next page, we see in a bit more detail the utilization of low grade stockpile across our operating assets. As outlined in our guidance press release, this year's strategic focus was the reduction of working capital in stockpiles.
And you can see that around 30% of the total mill feed this quarter was from low grade stockpiles. This in turn helped released almost $8,000,000 of noncash inventory adjustments equivalent to about $64 per ounce. This allowed us also to push forward waste cap efforts so we can access higher grid materials in the coming quarter. Going into more detail by mine on this next page, as previously mentioned, only residual ounces were recovered at the Ity heap leach operation and no further production occurred. While the Ity CIL Mine had pre commercial production in Q1, and we expect to strongly benefit from its recent commissioning in early Q2.
At Hounde and Karma, production decreased and all in sustaining costs increased in line with expectation as we used low grade stockpiles to supplement the Feed. We are expecting a stronger performance at both in H2 once the high grade Bouere deposit at Hounde is commissioned, and operations that Karma benefit from the stacking the costs. The lower cost. As shown on this next page, despite the 57,000 ounce production decrease, operating cash flow has only declined by $6,000,000 since Turning now to an update of the Ity CIL construction. As you know, we are pleased that the project was completed 4 months ahead of schedule.
Are immensely proud of how this project has progressed. It began progressing processing ore on February 20 and achieved its 1st gold pour on March 19. Commercial production was declared at the beginning of April at its full nameplate capacity following a quick ramp up phase. Discontinued on the ramp up track record of Agbaou and Hounde. The plant is performing well with all key metrics meeting their target including a process rate exceeding 11,000 tons per day.
Looking forward, it is expected produce 160,000 to 200,000 ounce of gold in 2019 at an all in sustaining cost between $5.25 to $5.90 per ounce. Additionally, a plant upgrade from 4,000,000 tonne to 5,000,000 tonne has been launched and will be completed over the next 6 months during the scheduled plant maintenance shutdown. Now I would like to hand over briefly to Patrick to give us an update on the company's Q1 exploration efforts.
Good morning, good afternoon, everybody. Many thanks Sebastian. As you can see, we undertook stronger exploration effort this quarter with around 15,000,000 already spent, which is more or less 1 third of our full year exploration budget. Overall, we drilled more than 100 and 15,200 meters during the first quarter zooming into the efforts at particular mine We should know that over 61,000 meters were already drilled at Hounde where we are focused on activity with the Kari West And Kari Center area, which are our main priority for the 1st semester in Hounde. A possible extension was defined Southwest of Kari Center, which we are going to investigate further during the Q2.
We expect this result to be published later in Q2. 2nd, at Ity, we've been drilling over 26,000 meters with 7 rig active over the Greek area, including on and around the block with 5 rigs operating. And finally, the 3rd most significant operation was dedicated to, Fetekro, where we have been drilling 27 1400 meters. And on Fetekro, we expect an update resource that will be published in Q3 2019. That's where, indeed, the 26,000 meter has been planned to be drilled for 2019 at Kalana while drilling at Taqbaou and Karma has been delayed to later in the year as the team focuses on higher priority exploration target at Ity and Hounde.
Now, I would like to turn the call back to Vincent.
Thank you, Patrick. Good morning. Good afternoon, everybody. So on page 14, as previously discussed, there was a production decrease in Q1 mainly due to the fleet operation ending and our decision to use low grade stockpiles mainly at Agbaou and Hounde as discussed earlier. As noted, we expect stronger production going forward, even if the use of low grade stockpile will continue in the second quarter as planned.
On the next slide, I will walk you through the main line items from revenue to earning margin. Those numbers are only reflecting continuing operations and therefore exclude Tabakoto numbers for 2018. Our all in margins from continuing operations were also impacted by the decrease in production as well as a lower gold sales and a lower realized gold price of $12.52 per ounce compared to $12.93 per ounce in the same period in 2018. Gulf sold from continuing operation decreased mainly due to the reasons I'd explained on the last slide, the heap leach operation ceased activity declines across all the mines because of the use of low grade stockpiles. Realties decreased both due to the lower gold sales and a lower realized gold price, while sustaining CapEx was higher due to the increase at both Agbaou and Hounde, which were slightly offset by a decrease at Ity.
Non sustaining capital decreased mainly due to a $3,000,000 decrease at Agbaou. This was partially offset, however, by an increase at Hounde due to the waste capitalization activity, which give us future access to the high end grade to the high grade royal deposit. Finally, non sustaining exploration also decreased, but remained at a high level in line with our focus on unlocking exploration potential and value this year. This all led to an all in margin of $22,000,000 for the PIS. On the next slide, you see the cash flow over the period compared to the last year, starting from the $22,000,000 all in margin I mentioned earlier.
Of particular notes are the item cycle on the page. At point 1, you can see the working capital outflow of $25,000,000. This was mainly due to a receivable outflow of $3,900,000, which is linked with the decrease, the increase of VAT receivable at Hounde, which was slightly offset by a decrease in gold sales receivables. Inventories were an outflow of 4,000,000 due to the delivery timing of spare parts consumable in anticipation for scheduled plant maintenance at Hounde. There have also been gold in circuit increase at Karma due the higher volume stacked, which impacted cash flow by $2,400,000 and is expected to be received in Q2 2019.
Stockpile volumes have been reduced as low grade material was fed to the plant to supplement production. Prepayment were $1,200,000 outflow due to the prepayment made during the normal course of business and trade and other payables were $16,000,000 outflow which is partially linked first for the with the payment of the bonus in Q1 as well as other accruals made at the end of last year. At 0.2 relates with the recognition of long term receivable for Baboto permit as agreed in the sales of the Tabakoto mine. At point 3, you see the interest and financing increase due to the increase in debt outstanding. At point 5, the gross project capital was comprised mainly of $62,000,000 for the Ity CIL project.
And 4,000,000 for Kalana. And lastly, at 0.6, you see that we have a drawdown on the RCF during the quarter to fund the CapEx spend. Flow metrics. You see here, we started the year with $124,000,000 of cash. To which operating activities added a further $24,000,000, we then invested $110,000,000 into the business for growth project, but also sustaining and non sustaining capital.
These activities were bridged by an inflow of financing activities which not the with not only the drawdown on the RCF, which was partially offset by interest payment and finance lease obligation repayments. On this slide 18, while our net debt has increased over the quarter, mainly due to the Itycl construction, We expect this to quickly decline as we benefit from ItyCl's production capacity and strong free cash flow generation. Our net debt to EBITDA, last 12 months EBITDA as a reference ratio increased to three times due to both lower long term last 12 months EBITDA and increase in net debt. The lower last 12 months EBITDA is mainly due to the fees of ity heap leach operation, the sales of Tabakoto, but also, we had a very strong EBITDA achieved by Hounde in the fourth quarter 2018, which was its first, full quarter of production. Due to the change in our production profile, it is, however, difficult to use the training data as a benchmark for debt repayment.
On the forward EBITDA, based on our full year guidance, it stands about 1.8 times. As we reambled debt and increased EBITDA, we expect to be well below 2 times by year end. As far as the hand, our available sources of financing and liquidity remains strong at $144,000,000, specifically considering the minimal CapEx required going forward. Finally, on Slide 19, this slide gives the net earnings breakdown. There was an adjusted EPS of negative $0.04 per share for the quarter.
The gains on financial instrument was due to, $900,000 loss on the gold revenue production program and the $8,300,000 unrealized gain on the convertible senior bond. The finance costs are related to charge, for the RCF as well as cost associated with the convertible bond net of interest capitalized for Ity CIL project. The increase in income tax expense was primarily due to Agbaou becoming a tax penalty in Q1 2019 as the 5 years tax holiday payers came to an in the fourth quarter last year. And now I will hand back to Sebastian.
Thanks, Vincent. I'm now going to talk you through our individual mine operations and the main takeaways for each of, for each for this quarter. Starting with Hounde. Production decreased in line with our expectations, while all in sustaining costs increased. Or in sustaining costs increased to a $7.81 per ounce, mainly due to the anticipated lower process grade, higher unit processing cost and sustainable CapEx, which were partially offset by lower unit G and A costs.
Looking forward, Hounde is on track to meet its full year guidance of 230,000 to 50,000 ounces and its all in sustaining cost guidance of $7.20 to $7.90 per ounce. We expect the mine's production to increase in H2 2019, as the prestripping activities at the high grade Bouere deposit are progressing as planned with commissioning expected to occur in late Q2. Reserves are also expected to increase later in the year as the Kari Pump resource is converted into reserves. Turning now to Agbaou. Production also decreased in line with expectations for this quarter.
As emphasized earlier, this was mainly due the low grade stockpile being used to temporarily supplement plant feed as mining was focused on waste cap activities. The mine is on track to meet its full year guidance, while Westcap assets are expected to progress throughout the year with lower grade stockpiles continuing to supplement the mill feed. Production at Karma also decreased for the same reasons as Hounde and Agbaou. Moreover, the production and costs were also impacted by the lower recovery rates. Associated with the low risk stockpiles temporarily used to supplement stack feed.
We expect Karma to meet its full year guidance for both production and all in sustaining cost as the mine is expected to enjoy a stronger performance in the second half of the year due to the benefit of stacking oxide or from the North Kao pit. Ity, as noted earlier, mining and stacking activities for the Itty heap leach operation ceased in mid December, as the focus shifted to commissioning and ramping up the CIL plant. Production declined to 2700 ounces as the final ounces were recovered from the heap leach operations. In closing, I would like to run through our strong upcoming catalysts before taking your questions. Q2 is expected to benefit particularly from the start of commercial production at Ity CIL, while the commissioning of the high grade Bouere deposit at Hounde in late Q2 will also bring growth.
For upcoming press release, Hounde Kari Pump reserves are expected in Q2, as well as the Hounde drill results for the ongoing exploration campaign at Kari West And Kari Center Discoveries with a maiden resource expected for those in Q4. While in parallel and updated resource for Ity's Le Plaque will come in Q2 and the maiden resource in Q4. We are very excited for the reminder of the year as there are many catalysts, all of which are the fruit of the hard work done by the team over the past 3 years, And if you have any question, I'll be happy
Thank you. Your first question comes from the line of Securities. Please go ahead. Your line is open.
Hi, thanks very much for hosting the call. My first question is just on Ity. Can I I inquire as to what throughput is right now? And just in terms of the ramp up to 5,000,000 tons, is that expected to be relatively smooth? Or is that more of a step change once the equipment's installed?
Hi, Justin. Thanks for the question. Right now, the plant is ramping up fast and pretty well. We are at 4.60 tons an hour. Around 11,000 tons per day.
And in particular, with that blue getting processed. I would say that, we are expecting for April, which ended up yesterday close to 18,000 ounce which is a good start, I mean, for the 1st month. So overall, pretty happy with the way the plant is moving forward.
Perfect. And on Hounde, depending on Kari West And Center, and how the resources go there in Q4. Do you expect to be able to advise on a potential plan upsize towards the end of the year or is that something that's going to come into next year?
I think that's something that we'll be reviewing in Q3 in particular once we come up with Kari Pump Reserves. And once we have a first understanding of the potential of Kari West And Kari Center, But as we mentioned in the past, we believe that if we continue to have very good success on the carry area, then there might be an opportunity for us to investigate further the expansion at Hounde. But nothing has been taken on this. And we'll be looking based on the reserves and the carry drilling results.
I see. Okay. That makes a lot of sense. And this is sort of related to that. I mean, you've come through a very successful phase where you developed Hounde and Ity and you revamped the portfolio.
And just going forward, how do you see the next phase, for Endeavour? Is it primarily deleveraging you've got a couple of growth projects in Kalana and potentially Fetekro. Just how would you characterize strategically where you are right now?
I think the just in the 2019 is the turning point for us. We are basically ending in Q1, Q2, the significant CapEx program that we had that we started 3 years ago in building Hounde and Ity. Now it's time for cash flow, cash flow generation to demonstrate in particular, in Q3 and Q4 with the full ramp up, to be significant, you know, cash flow driven And I think that based on the current leverage that we have, the key focus over the next 2 or 3 years is really on deleveraging and Master the cash flow. And we'll see in parallel whether there are some opportunities in the market. But as we just discussed on the Hounde potential expansion, I think that internally people will compete for CapEx and will have to come up with a highly accretive a return on capital employed for projects.
And clearly, an expansion of Hounde would be more attractive launching a new phase of building a new mine like Kalana. So time is on cash flow generation and optimization on our return on capital employed.
Okay, thanks. Very much for that guys and very much looking forward to coming to CAT later this month.
And your next question comes from the line of Jack Garman from Pareto Securities. Please go ahead. Your line is open.
Good afternoon guys. Thanks for hosting the call. Yes, one or 2 questions from me. On Agbaou, I noticed that exploration's been postponed. And I was wondering, I guess, what could you give us an update and what been tested, what is left to test and what's the long term plan, I guess, with Agbaou?
Sure. Patrick, do you want to, to comment on Agbaou?
Yes. Well, on Agbaou indeed, we have some plan to work on Agbaou later on this year. The fact is, this year, we have been focusing a lot on ity and Hounde. So that's why that, let's say, the Agbaou team went to work on ity and Fetekro project, which are in much more need to deliver results quickly and also on Hounde where we are operating around the clock and the Karma team has been joining the Hounde team. So it's mostly a matter of synergy and prioritization in target, but both in Agbaou and Karma will have planned to work in exploration in 2nd semester this year.
Okay. And I mean, from in terms of reserve life and I guess additional resources is quite limited, you need to effectively discover something significant, right? What's the target there?
Well, I think it's more on Agbaou. We've been saying that we continue to see some potential extensions. We're not going to discover suddenly a 500,000 ounce new deposit, but we believe that they are enough target to increase year on year, the mine life over there. And we are also testing the underground part below the main pit, where we see some based on the preliminary results that we had seems to be attractive. So we definitely have a plan for Agbaou.
And although it is not as attractive as the Hounde and the Ity success. There are some plans there to be able to extend progressively the mine life there.
Okay. Thanks very much guys.
Your next question comes from the line of Chris Thompson, PI Financial. Please go ahead.
Focusing on Hounde. Just one real question. Just can you speak to the makeup of the ore type being mined at the moment and where and see a complete transition to Freshshore, which I guess will be influenced by Von Boire.
Sure, Chris. As we have, Ryan, you want to give a quick update on that?
Yes. Currently, we're still planning around 20% fresh ore in our blend, with us moving to the waste stripping at Bouere, And that's and a bulk of our ore in Q2, Q3 coming from Windaloo North and Vinelu, mined pits days 2 and 3. Our fresh, our compounded will increase probably over 30%. And then as we start accessing the audit at Bouere towards Q4, early Q3 or late Q3, we'll start seeing the fresh component come down. So for the year, we'll still range between the 20%, 25% or fresh or component in our blend.
But, going into 2020, you'll start seeing the fresh portion of our plant increasing beyond 30% as we start progressing deeper in Windalou Mine, Stage 23. And then obviously, we'll start accessing the fresh ore in Bahrain towards the end of the year, early next year as well.
Great. Thanks for that. I'll just quickly sneak another quick question in here. How much low grade stockpile do you have on hand and how do you see that playing a part in your mill feed.
I don't have that information right. With me at the moment. I can answer that offline if you want. But we do have a fair amount of low grade stockpiles in our long term stockpiles, which we can, lend going forward as well. We have obviously with us, carrying out some of the waste stripping in Q1.
We've had to draw our stockpiles as Sebastian explained. So but the actual figure, what lies ahead, I definitely Chris Martino here. In our end of year results press release, we provided the stockpile information for quarter for year end for each mine. So we will provide more information offline.
Thank you. And your next question comes from the line of Mark Lanes from Credit Suisse. Please go ahead. Your line is open.
Okay.
Hello, Mark. Your line is open.
Hi, sorry about that. The majority of my questions have already been asked, but was just wondering if you know what the remaining stockpile grade is at Hounde?
Yes, let me let me check. I must have that.
We have the number And in total, in terms of stockpile at the end of March, we have 46,000 stock buys 46,000 ounces of of piles.
And the average grade?
And the average grade, I don't have it here, but it should be a
one gram lower.
It's one point I'd grant something at that.
Your next question comes from the line of Justin Chan, Numis Security. Please go ahead. Your line is open.
Hi guys. Thanks. Just one more for me. Just I had a question on VAT and it went up this quarter. I was just wondering if you're noticing any trends there in terms of refunds taking longer to get back?
Or is there any stickiness there? Or is that just a one off incidents? Because I know in some other countries, it's become an increasing issue?
Fair point, Justin. In fact, we've been late in collecting our VAT for this quarter. But in fact, beginning of April, we received part of that. So it's been really a timing effect rather than anything else. And also, we have in total quite significant amount of VAT recoverable in Burkina Faso.
We haven't experienced difficulties. I mean, time. It's painful, but we haven't taken a lot of difficulties to recover that.
Okay. Thanks very much. That's it for me. Really appreciate the call.
Thank you. There are currently no further questions.
Great. Well, thank you very much operator. And thank you all again for attending this quarterly conference call. And have a nice and