Greetings, welcome to the Endeavour Mining second quarter 2018 webcast. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Sébastien de Montessus, CEO of Endeavour Mining Corporation. Please go ahead, sir.
Good morning. Good afternoon, everyone. Thank you for joining Endeavour Mining's Q2 2018 results presentation. I'm Sébastien de Montessus, CEO of Endeavour Mining. It's a pleasure to be talking to you once again. Please note on the following slide the usual legal statements and disclaimers here. Here with me today participating, Jeremy Langford, our Chief Operating Officer, Vincent Benoit, our Chief Financial Officer, and Patrick Bouisset, our EVP Exploration and Growth. As usual, I will begin by taking you through the highlights from the quarter with the help of Jeremy and Patrick. Vincent will take you through our financials, followed by Jeremy, who will provide more color on each individual mine and project. We will open the call for any questions.
As you can see here, to recap on our activities from the first half of the year, we've made strong progress across each of our four strategic pillars. We are very much on track operationally. Our projects are advancing well. Ity CIL construction is progressing on time and on budget. We are expecting an updated feasibility study on Kalana by Q1 next year. On the exploration front, we were also quite busy with more than 292,000 meters drilled across the group in the first half of the year. We believe that with the new discoveries made, most notably the Kari area at Houndé, we will continue to build on our track record of unlocking exploration value. On the portfolio management front, following a strategic assessment of Tabakoto, the mine was deemed to be non-core. The sale process was launched.
This move is in line with our capital allocation strategy, which I will discuss in more detail in an upcoming slide. Lastly, we continue to manage our balance sheet carefully as reflected by our strong liquidity sources, which has us well-positioned to fund our growth projects. As always, I want to reiterate that safety is an utmost priority for us. At Endeavour, no job is so important and cannot be done safely. We're delighted that our group-level safety record remained better than the industry average during the first half of the year with LTI for H1 of 0.22. In terms of our construction track record, as you may be aware, we previously completed Houndé and Agbaou with no lost time injuries. That excellent track record continues at Ity.
As a reminder, Houndé has now more than 10.3 million hours without LTI, and even Agbaou had only one accident, since it started its construction back in 2012, about six years ago. On the next slide, as you can see here, we had a very strong first half of the year, beyond our safety track record, which I just noted. We are pleased that our performance across the group is well on track to meet the full year guidance, 358,000 ounce produced in H1 at all-in sustaining cost of $825 per ounce. It is important to highlight that both our group production and all-in sustaining cost are on pace, both inclusive of and without Tabakoto. You will note in particular that without Tabakoto, our all-in sustaining has been for H1 at $732 per ounce. We can go into more detail on these items in the following slides. Tabakoto.
A key pillar of the strategy that was set back in early 2016 is to actively manage the portfolio to increase its quality over time. As you know, we've been focused on divesting assets that do not fit our magic box criteria of low all-in sustaining cost and long mine life. Based on this criteria, it is no surprise that both Youga and Nzema were divested. Viewed through the strategic lens, we undertook a strategic assessment of Tabakoto, which was completed in Q2. This assessment demonstrated the potential to reduce Tabakoto all-in sustaining, mainly through capital investment to renew the underground operation. As some of you may recall, in 2015, the company transitioned from contractor mining to owner mining, but at the time, did so with a secondhand fleet, which suffers from poor availability and high maintenance cost. We are talking below 40% availability.
Despite this, the team has been doing a fantastic job on site. About $40 million of capital is required to fix this, and our view was that these investments do not fit Endeavour's capital allocation criteria. As such, Tabakoto was deemed non-core, and the sales process has commenced. We believe the asset is better suited for the portfolio of another company with an alternative strategy, allowing us to continue to focus on lower cost and long life assets. We have already received non-binding offers and are confident to close the transaction before year-end. As you will see in the following slides, Tabakoto has been classified as held for sale and included as part of Endeavour's discontinued operation. Looking across the group, the benefit of Houndé ramp-up has lifted production from continuing operation by 75% versus Q2 last year.
In white, you can see the previous production from Nzema, which was sold last year. In gray, you can see that inclusive of Tabakoto group production amounted to 173,000 ounces of gold in the second quarter. The all-in sustaining costs for the second quarter amounted to $878 per ounce with Tabakoto and $780 without Tabakoto. As expected, the all-in sustaining cost increased over the previous quarter as Houndé benefited from stronger grade in the first quarter. I previously mentioned that our focus was to decrease our all-in sustaining cost to below $800 per ounce in order to maximize our cash flow generation. On this slide, we can see the impact of both the portfolio management and the project development activities. Between H1 last year and this year, we sold the high-cost Nzema mine and now intend to sell Tabakoto.
Combined, these actions have decreased our all-in sustaining cost by about $75 per ounce. The much larger impact has been the successful ramp-up of production at Houndé. With its all-in sustaining cost of $521 in the first half of the year, its impact on the group is noticeable. All-in sustaining cost from continuing operation was $732 per ounce for H1. By this time next year, I would like to point out the Ity CIL project will be in production. Ity's all-in sustaining cost is projected to be below $500 per ounce, further enhancing the overall quality of our portfolio and continuing to lower our group all-in sustaining cost even further.
I believe that we are very well positioned to meet our 2019 strategic objective of achieving an annual production of above 800,000 ounces at all-in sustaining costs of below $800 per ounce, and with the visibility of more than 10 years at each mine, as set in early 2016. You can see on this slide the direct impact of greater production and lower cost on our all-in margin from the discontinued operation, which includes, sorry, the discontinued operations. In the first half of the year, we achieved a margin of $116 million, which is almost double what was achieved during the equivalent period last year. On Ity CIL, as mentioned, the project is our next large growth catalyst, and we are very pleased with the progress being made as it is on budget and on time for a first gold pour in mid-2019.
On the CapEx front, we have already committed over 85% of the capital. Looking at the chart on the right, you will see that the remaining CapEx to be incurred now stands at $221 million. With $30 million of equipment financing remaining to be drawn on, this brings our remaining cash outflow requirements to $190 million. With nearly $340 million of liquidity sources available, we are obviously very well funded. I have to say that I was on site doing a project review last week, and I wish you could see the amazing job the team is doing there. Now I will hand over to Jeremy to talk through the progress being made in more detail.
Thanks, Sébastien, and good morning, good afternoon to everyone. As mentioned, the Ity CIL project is tracking on time and on budget and is 50% complete to date. During Q2, we reached a major milestone with the ball and SAG mills arriving on site, some three months earlier than initially planned. Just some major achievements during Q2, as per the list. 85% of total capital costs have been spent, as Sébastien commented on. All eight of the CIL tanks have been constructed. Launder is going in now, and four of the CIL tanks are currently in hydro test. Pleasingly, there's over 2,100 people on site, and 95% of the people are local. Over to the next slide and just some pictures looking clockwise. Obviously, the four CIL tanks with the four behind and the two detox tanks in the foreground there.
The slide on the right is the process plant milling foundation steel and the mill foundations, with one half of the ball mill shells there. Just below that is the haul bridge construction, which is going along really well at the moment. This haul bridge connects the Daapleu and Ity pits to PE26 or the main processing facility. Last but not least, the crushing facility or the crusher vault. Pretty common with Houndé and Agbaou, very similar design. We're certainly benefiting from commonality in design. On the next slide, we provided the upcoming milestones for reference. In the essence of time, I won't go through these in detail, but we'll continue to track well against the schedule we've laid out. I'm going to hand over to Patrick now for a review of the exploration activities. Over to you, Patrick.
Thanks, Jeremy, good morning, good afternoon, everybody. As far as exploration is concerned, you can see on the slide that this illustrates our continued strong focus on various exploration programs. As you can see with the amounts presented in the table, we have been very, very busy in H1 2018. All in all, we spent something around $35 million spent in exploration in the first semester, out of which $15 million were spent in Q2 alone. This is, I would say, quite normal since we have intensified drilling ahead of the rainy season, where we normally slow down a little bit, and we'll start again later on, as soon as the rainy season allows us to speed up.
The main focus indeed of our H1 was dedicated to the Houndé area, where we announced recently confirmed Kari Pump discovery and announced two additional discovery over the broad Kari anomaly.
We have been also working on very strongly, especially in the first quarter, but also in the second quarter at Kalana, where we have undertaken a very intensive exploration program within the deposit. Our target is to publish an updated resource by sometime in Q3, which will feed into our updated feasibility study for that project later on. At Ity, we have been continuing to work a lot on the Le Plaque discovery, where we communicated earlier on this year. We continue to see good results in the expansion of Le Plaque. As I said previously, we expect an updated resource to be delineated within the end of the first quarter of next year. We are also very happy because we are progressing significantly on our greenfield exploration package. 2016 and 2017 was mostly dedicated to work around our mine to increase the mine life.
Starting last year, we started to accelerate our greenfield exploration effort, which we confirmed this year. We are quite active. We are busy on several targets to explore them. We expect to publish something, some result later on this year once we have some more solid result. With that, I would say that's all for me for this part. We will move on to financial. I will hand over to Vincent Benoit to go through the next section of the presentation. Vincent?
Thank you, Patrick Bouisset. Good morning. Good afternoon, everyone. I will start this section by looking at the production bridge between H1 this year and last year. When you look on slide 16, at the chart and starting at the left-hand side, Nzema and Tabakoto production have been removed to obtain H1 2017 production from continuing operations. Overall, on the comparable basis, production has increased from 173,000 ounces to 299,000 ounces. You see that Houndé has more than compensated for the lower production at Agbaou, which is in line with its life of mine plan, which now integrates harder rock, and at Karma, which decreased due to the lower recovery rate associated with treating the GG2 transitional ore in the first half of 2018.
Ity's production increased and all-in sustaining cost decreased there, mainly due to the increased stack tonnage and higher grades from the Bakatouo pit, which more than compensated for lower recovery rates. Jeremy Langford will come back in a minute on technical explanations. Overall, this led to total production from continuing operations to 299,000 ounces, which places very well on track to meet our full-year guidance, as Sébastien de Montessus has reminded earlier. On slide 17, I will walk through the main line items from revenue to all-in margin. The top line increased, as I just explained. Gold sold amounted 305,000 ounces. I want to note just a couple of other points. The gold price average is taking into account the streaming financing from Karma. It has increased compared to a year ago.
As you have noted, as you see on note three, the all-in sustaining margin significantly increased to $116 million versus $64 million last year due to the successful start-up of Houndé, higher realized gold price, and an increase in gold sold at Ity, which more than offset for the all-in sustaining cost increase at Agbaou. At point 4, the non-sustaining capital spending increased versus last year due to a $6 million increase at Agbaou for its waste capitalization activities. On point 5, the non-sustaining exploration cost increase, as we are well advanced in our drilling program, as explained a moment ago by Patrick Bouisset. In total, we spent $30 million in exploration in the first half 2018. We are well in advance compared to the full-year budget, as we are drilling more before the rainy season, as Patrick Bouisset was explaining.
Finally, this resulted in an all-in margin from all operations of $116 million for H1 this year versus $64 million last year. Page 18, here you will see a more detailed breakdown of the movement in cash over the period compared with a year ago. As shown on point 1, there was a significant movement in working capital variation during H1, $55 million negative. This is due firstly to an increase in stockpile at Houndé and Karma. Secondly, due to the prepayment for reagents at Houndé, and thirdly, due to the increased outflow from trade and other receivable driven by gold sales received at Houndé. This working capital variation, it is expected that by the second half, it turns positive with inventory and reagent consumption. As shown in point 2, interest and financing fees increased due to the increase in debt outstanding related to the construction of Houndé and Ity CIL.
As shown in point 3, we spent $153 million on the Ity CIL, inclusive of these associated working capital. We spent as well $5 million for new group IT system and $5 million on the Kalana construction. As shown in point 4, we received $330 million of proceeds following our convertible notes issuance in the first quarter. As you see below, $280 million has been repaid for the revolving credit facility in Q1. In Q2, we have drawn down $17 million for the construction of Ity, bringing the net amount repaid this year to $210 million. On slide 19, you can see here the strong increase in the cash flow per share, operating cash flow per share, due to the significant improvement in our portfolio asset quality, representing an uptick of 30%, to $1.52 per share. On slide 20.
On this slide, you know it very well as it shows our capacity to fund our CapEx and our gross CapEx. You see that it leaves us with a very good position to fund the remainder of the capital expenditure required to complete Ity. We have $340 million in available liquidity, comprising $79 million of cash and $260 million of undrawn RCF. On top of this, we have the remaining proceeds from the Nzema sale, the remaining equipment financing at Ity, and of course, the cash being generated by the operation. All those results are more than enough to fund the remaining Ity CapEx, which amount to $200 million going forward. On slide 21, we quickly look at the cash variation from an IFRS standpoint, which of course match with the previous view. We started the year $123 million in cash.
Net cash flow from operating activities amount $108 million, which include a negative $55 million working capital variation, as mentioned before. Investment activities amounted to $247 million, comprised of $163 million of gross project and $765 million of sustaining and non-sustaining operating capital expenditure, including exploration. Financing activity amounted to $98 million, which include, as previously mentioned, the issuance of the convertible notes and the repayment of the RCF. That leaves us at the end of the period, at the end of June, with a current cash position of $79 million at the end of the second quarter. Slide 22. Of course, the strong operation performance during H1 led to a strong adjusted EPS increase, which was at $0.31 per share. As usual on this table, on the right you can see the main item and adjustment which have been made.
It's always the same one, losses from discontinued operation that has been removed, deferred income tax recovery, gain in financial instruments, stock-based expenses. That leads to this $0.31 per share EPS. With this, I will hand over to Jeremy, in order he goes through the operational performance by mine.
Thanks, Vincent. We've already talked about how pleased I was with Houndé and how it's performing compared to feasibility study. As expected, production was lower than previous quarter, mainly due to an expected decrease in the average head grade feed to the plant. The operation continues to perform ahead of expectations, and throughput has increased from 20%-30% above nameplate. Houndé now tracking at about 3.9 million tons a year in annualized throughput, compared to 3 million tons of its nameplate. We do, however, remain cautious and conservative here, expecting this throughput to come down just a touch in the upcoming quarters. The wet season may be in effect. AISC mainly increased mainly due to the lower process grades as well as the higher unit costs and the increased sustaining capital spend.
As highlighted by the others, Houndé continues to make strong contribution to the group, its performance, and it's well on track to meet full year guidance. Over to Agbaou. In 2018, as we've mentioned quite a few times, continues to be a transitional year. With a focus on waste capitalization, which gives us access to the higher-grade ores over the longer term. We did see production slightly increase over the previous quarter due to the higher grades of material milled, as lower grade stockpiles continue to supplement the mine feed. Good news is that the waste capitalization efforts are continuing to progress well. Overall, Agbaou is on track to meet full year guidance as production is expected to increase in the latter portion of the year, and costs are expected to trend towards the guided range as the hard ore blend and the strip increases.
Over to Ity, we talked about this a number of times, actually. When we talk about the Ity CIL project, we tend to forget that we have existing heap leach operation, and it continues to operate very well year to date and is on track to meet its guidance. Production increased significantly over the previous quarter due to the higher grade stacked, as the mining activities at Bakatouo have produced higher grades as well as an increased recovery rate. As previously mentioned, 2018 is a transition year for Ity, as greater focus is given to the CIL build. Open pit mining activities for the heap leach operation are expected to continue until the end of Q3 2018. The aim is to create a stockpile sufficient to feed the stacking requirements for the latter portion of this year.
Short mining campaigns may then be conducted based on equipment availability and progression of the CIL ramp up, or pre-production if you like. Over to Karma. As guided, production at Karma decreased over the previous quarter due to a lower in-stack tonnage, despite an increase in grades and recovery. Tons mined increased as expected, as mining activity ramped up in anticipation of the rainy season for this year, Q3. Mining at GG2 pit was completed in the quarter, and mining increased at the Kao pit, where mining began in late Q1 2018. Interestingly, the front end at Karma, since the new plant's been put in, performing very well. Even looking at the H1 numbers, the plant's producing at nameplate slightly better, and we expect that to improve in the second half of the year. Looking at Tabakoto, production decreased over the previous quarter, mainly due to lower average head grades.
This is due to the depletion in the higher grade open pit deposits. Following our strategic assessment, it's clear that the key to reducing the mine's all-in sustaining cost is to upgrade the fleet, which would allow for increased tonnage to be extracted. This comes at lower mining costs, with significantly less maintenance costs as well. These investments, in our opinion, require another company that can run two profitable underground mines with, obviously, exploration potential. I would like to hand over to Patrick to have a chat about Kalana and give you an update. Patrick?
Thank s, Jeremy. As far as Kalana is concerned, as I said, we have been working a lot on Kalana in the first part of the year with an intensive, I would say, exploration and resource program that was finalized in Q2 on the Kalana and Kalanako deposit. Most of the work that was done was performed at Kalana deposit. The main goal was to confirm the overall geological model, which was accomplished. We found and we solidify a little bit the geological model with the following and the mapping of all the vent sets that were deemed to occur, and they occurred. We also did, especially in field really, which is expected to convert a portion of the previously classified inferred resource in the northeastern part of the deposit.
The remaining result from the last leach trial, I would say, are expected in the coming weeks, actually very soon, following bottleneck and control in the lab, because leach trial analysis take a much longer time than the classical fire assay. Our goal is to rebuild completely the geological model, which is being currently done now, based on the drilling done by the previous owner and that which we completed this quarter, while using a much more, I would say, conservative top cut assumption and ordinary kriging geostatistical approach versus what was done previously. In total, we are going to use more than 2,200 holes and more than 221,000 assays will be used to build the geological model, which will form the basis of the updated feasibility study.
Trust me, it's been a long and a lot of work, which will give us, we are sure, strong confidence in the new model that we are going to deliver. At the Kalanako deposit, drilling has confirmed the continuation of the mineralization, and we expect to convert a portion of the previously classified inferred resource and even increase the size of the deposit as it was known earlier on. This deposit was not included in the previous DFS that was made by Avnel. We expect the updated resource to be published sometime in Q3, probably late Q3, depending on the timing required to compile everything and to build the resource model. Then we'll transmit to the updated feasibility that will be completed sometime in the first quarter next year. That's it for me. Now, back to Sébastien.
Thanks, Patrick. To conclude, this was a very strong second quarter for Endeavour, and we expect to continue building on these foundations for the remainder of the year and over the long term. Throughout this presentation, you've heard that we remain on track to meet key production and all-in sustaining cost metrics and guidance, with and without the inclusion of Tabakoto. Our near-term growth prospects remain strong with Ity CIL construction tracking well and work progressing at the Kalana project. Longer term, our focus on exploration and the recent success of our reinvigorated program continues to give us confidence of significant future upside. Most importantly, this keeps us squarely on track to deliver upon our five-year strategy and objective. Let me conclude by thanking my teams. Their commitment and focus have us very well positioned to meet our objectives for 2019.
Collectively, we have enhanced the quality of our portfolio and successfully improved its balance sheet by focusing on lower-cost, long-life assets. I would probably point out that one number for the entire presentation, $732 all-in sustaining costs for the continuing operation for the first half of the year. Now the team and I would be happy to take any questions. Operator, can we have the first question, please?
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. We will take our first question from Michael Stoner from Berenberg. Please go ahead. Your line is open.
Hi, guys. Yeah, my first question is on Tabakoto. Could you clarify whether you consider spending any capital on Tabakoto ahead of a sale to kind of slightly improve the performance or kind of kick off that optimization to optimize a better sales price?
Yes, Michael, good question. I think it's fair to say that we continue to operate Tabakoto as if we were the owner of this asset till any completion of a transaction. As mentioned, the potential transaction is probably end of Q3 or Q4, which means that we will continue in the meantime to invest in the asset and ensure that we can improve production and all-in sustaining cost during the period.
Okay. Having a look at the exploration spend that's tracking, kind of annualizing H1 quite high, are we still looking for the $40-$45 total exploration spend guidance implying a much lower spend H2?
Yeah. You're talking about the full exploration budget for 2018?
Yes
I guess.
Yes.
I think the big driver that has pushed us to maintain that path and target for 2018, is in particular the discovery at Kari area at Houndé. As we mentioned, we want to publish significant, hopefully, indicated resources in Q4 at the Kari area at Houndé. Therefore, we're putting all efforts required to come up with those numbers.
It's success is driving an acceleration-
Yeah
of efforts there.
Yeah, exactly.
Okay. Just trying to get some of the nuance around the outlook you've put in the release for Houndé. You've pointed to a softer H2 on grades, presumably through the rainy season and, in terms of cost strip ratio. You're tracking well ahead on an annualized basis. Do you think you're still tracking for the upper end of guidances? Would that be fair to say?
Difficult to comment. I would just say that so far so good, Houndé is performing well. Even July has been a good month. It all depends on how the rainy season is going to impact potentially the operations. We're pretty confident that we should be well on track to meet the guidance and probably the higher end of the guidance.
Has Jeremy's team taken the kind of learnings from Agbaou and your other operations on how to maximize a strong Q3 through a rainy season?
I think it's fair to comment that. Jeremy, you want to
Yeah. Thanks, Seb. Thanks, Michael. Look, we set about have a strategic plan as we move through the wet season. We have enough stockpiled material to get us through any event where we get stuck. I'll talk about Houndé in particular, and I guess, we spent quite a bit of capital during the build with diversion trenches, hydro geotech, and pit dewatering. We're pretty much with Houndé and Agbaou, very well protected from any rainy event of note. God's power is God's power, so we'll leave that as is. By and large, the assets of the reagents, they're pretty much an island during the wet season, if you like, and they're self-sufficient. Yes, we're pretty happy with how they're running through at the moment.
Thank you. Really appreciate your time, gents.
Thanks, Michael.
We will now take our next question from Rahul Paul from Canaccord Genuity. Your line is open. Please go ahead.
Hi, everyone. Congratulations on another strong quarter. Seb, at Kari Pump, it looks like you indicated that you expect to have enough drill density to have a meaningful portion of that resource in the M&I category. That being the case, should we expect the next reserve update to incorporate some of the Kari Pump material as well? Can we expect an updated mine plan as well? Maybe with the year-end results or sometime in the near future?
Yeah. Well, you know, Rahul, that we publish our updated reserve with the year-end results in March. If we have indicated resources on the Kari area by, let's say, November or December, we should be able to come up with updated numbers on the reserve side for the year-end results.
Okay. I guess I'll ask because it looks like you've done quite a bit of drilling. Based on the exploration success that you're seeing right now, is your plan with the upcoming mine plan to increase grade to the plant and to maintain the higher grade profile for longer? Or are you at that point where you might start looking at a mill expansion as well?
I think it's too early to say. We want to see first the level of indicated resources that Patrick will give us in November. It's clear that we're all very excited and we believe that this area could be somehow a bit of a game changer for Houndé going forward.
I agree. Just last question from me. From a permitting standpoint, do you have some of the permits, or is it going to take How long do you think this could take to move through the permitting process?
Well, we have a number of items that we are launching already on that area. What is helping us also is that we've got Bouéré, which is just nearby, and on which we are building up the infrastructure. The road from Bouéré to the plant, which goes through the Kari area, this will help a lot. In terms of permitting, I think that overall, the mine plan since day one was to ensure that if you recall, the Houndé feasibility study had the first four and a half years pretty strong in terms of production and all-in sustaining. Then Vindaloo pit with a drop of grade was going down in production and up in all-in sustaining cost. Since day one, the objective with this exploration program was to be able to bring much earlier, so probably, till year three, some new high-grade deposit.
It seems that the strategy seems to be working well with these upcoming Kari Pump resources.
Thanks, Sébastien. That's all that I had.
Thank you, Rahul.
We will now take our next question from Justin Chan from Numis Securities. Your line is open. Please go ahead.
Hi, guys. My first question is just around tax for this quarter. The effective tax rate was quite high and a lot higher on the income statement than cash tax was on the cash flow statement. I was just wondering if you could explain some of what's going on there and what your thoughts are on the effective tax rate for the full year.
Vincent, you want to give an update on that?
Yeah. The thing is that you have to notice that when you look at Tabakoto, a specific P&L, you have a tax which is $4 million, which is mainly a tax assessment at Tabakoto. It's not an income tax, and this is linked with the penalties on the withholding tax that Tabakoto has been adjusted for the year 2014 to 2016. It also includes a minimum tax expense for 1% of the revenue. Overall, the main explanation is because of this provision on the accrual, let's say, on Tabakoto tax.
Yeah, it's a one-off adjustment, Justin, linked to Tabakoto past audit. In fact, that was even before we joined as the new management.
Right. Okay. Just to clarify, that's included in the current income tax or deferred income tax expense?
Current income tax
before continuing on. Okay. Thanks. That's very helpful. Do you have any expectation in the next quarters of any similar impact, or is that it for the year?
No. Actually, as Sébastien is saying, it's a one-off, and we should come back to normal in three to four.
Okay.
I must say, Justin, that we have reinforced significantly also the way we are preparing the tax filing with the authorities. We have now a dedicated tax manager in country for all that to avoid that we go into mistakes as the previous management had.
Okay. Excellent. No, that's very helpful. Just on Kalanako, what are your latest thoughts on, and I realize that the resource is being prepared in Q3, but in terms of the size of the plant there, could you give us a sense of what your latest thoughts are from the prior DFS at 1.3? I think your thinking earlier was around 1.7. Is there any update or change there?
I think it's a bit early, Justin, to be able to state. We always said that our objective was to redo the DFS once we have comfort on the resource level, and I think the resource should come up in the next few weeks, probably two, three, four weeks maximum. The project team will look at it. We always said that our objective was to be able to increase that from 1.6, 1.7 to 2 million tons. It will all depend on what's the best in terms of total return and cash flow.
Okay, excellent. Just the last one. On Tabakoto, could you give us a sense of what you're looking for in terms of the sale there? Do you have a preference for cash or just total valuation or Just trying to get a sense of what to expect there.
We're looking just for cash. Not interested in shares. That's for sure, and we've been very clear with the different candidates that have put non-binding offers on the table already. In terms of valuation or amount, it's probably too early. In any case, if you look at our accounts, we probably have at least the book value for Tabakoto, which is in.
Okay, great. Thanks very much.
Thanks, Justin.
We will now take our next question from Tara Hassan from Raymond James. Your line is open. Please go ahead.
Sure. Thank you, operator. Just a couple questions on the ops side. First on Houndé, obviously an expectation for mining costs to go up as you move into a greater mix of harder rock, but there's also some commentary on higher fuel prices. Can you just provide some guidance on sort of what you're seeing on fuel prices in Burkina and what your expectations are for the rest of the year for mining costs, please?
Jeremy, you want to take this one?
Yeah, sure. Thanks, Tara.
Look, Tara, to answer your question, we are seeing a bit of a price hike in fuel. It's having a little bit of a Q1, Q2 effect across the Burkina Faso assets in particular. I'm looking at all the mining costs at all five assets at the moment, and we're still tracking to be well within the full-year guidance. Houndé will smoothen out towards the latter part of this year and likewise with Karma. Interestingly, the two highest cost mining operations have a heavy contract influence. The only mining operations.
That we're mining at are still very low and below $2. Very pleasing to date.
Okay. If we're modeling in that range of $2 per ton for the remainder of the year, that's a good number to plan on?
Yeah, that's right. Yep.
Okay. I guess as well on the fuel price, are you seeing it regionally or just in Burkina in terms of increases?
No, we are seeing it regionally. Like I said, Burkina a little bit more than the others. All the different states have different subsidies and different taxes. The unit costs or cost per liter of fuel is different in Mali, Burkina Faso, and Côte d'Ivoire slightly. Yeah, we are seeing-
I guess the crude oil price going up and the net result falling onto us.
Okay. Just on Karma.
Also it's probably fair to say, Tara, that we've been quite lucky up to now that given that we've been adding some operations and big operations, we've been centralizing more and more some of the buying and being able to get some.
Discounts thanks to volumes with our suppliers.
Okay. That's great. Thanks. Just on Karma, there was commentary on sort of a change in stacking as your ore characteristics change. Is that largely in line with what you expected on that change from GG2 to Kao, or is there variance from what you were expecting?
Yeah, Tara, it's something we've been working on for quite a while now. In the original feasibility study, I think they had three lifts per cell, 30 meters vertical. We've done some test work through the latter part of last year, first half of this year. It looks as though we've got a significant kicker in terms of being able to go up another lift or two. We're just looking at, I guess, an optimized stacking plan, with a minimal amount of conveyor shuts, et cetera, that impact the operation. We'll be working through that through H2 this year.
Okay. That's great. Thank you. Just to follow up on the previous question on the Tabakoto sale. Obviously, Sébastien, you indicated cash is a preference. Are you willing to do a similar structure as what you saw in the Nzema, where you've got sort of stage payments or payments linked to production targets or resource targets?
Could be, some as after that. Ultimately, I prefer 100% of the cash on the closing. We'll be fighting.
Yeah
mainly for this.
Okay. That's great. Thanks so much.
Thanks, Tara.
We will now take our next question from Geordie Mark from Haywood Securities. Your line is open. Please go ahead.
Great, thanks. Yeah, good results coming out of Houndé. If we could just expand on some of Tara's questions. At Houndé there, just looking at how your mining was going in terms of grade reconciliation, and what's your assumed sort of mine dilution?
Jeremy, you want to come in?
Sure. Thanks, Geordie. How you going? Look, the reconciliation.
Yeah
The reconciliation for the year had a bit of a spike when we started blasting the latter part of Q1. It's smoothed right out now and we're getting a pretty good reconciliation between the BOM and the grade control model. What we are seeing is slightly more tons, and slightly higher grade. 8%, I guess, lower than the grade control model in tons overall, but resulting in 9% more ounces. The net result is zero at the moment. The main difference is between Vindaloo and Vindaloo Central. We're learning the ore body more now that we're operating, of course, from the feasibility study. And, yeah, we're pretty happy with the results to date.
Okay. Excellent. Thanks. In terms of stockpile strategy going into the wet, where do you stand at the moment in terms of the amount of stockpile? Can that help you offset obviously the higher throughput rates you're achieving at the moment to continue those through Q3?
We're in good shape with stockpiles, Geordie. Obviously with Houndé with the mine plan. Following the mine plan, we do need to stockpile more of the lower grade material to get access to the two-point plus gram per ton ore. In terms of fallback, we've got well over 45 days of stockpiled material that we could mill if we couldn't get access to the pit for whatever reason. We're pretty happy with that. We'll keep stockpiling. We strip a little bit more during Q3 as we're trying to get hold of this higher grade ore towards the back end of Q4 to come home with a wet sale. Yeah, we're pretty confident that Houndé will roll 24/7.
Okay, thank you. If I can extend one more question, move over to Karma. On the material characteristics, are you getting issues in terms of ponding or irrigation flow rate issues there in terms of lower stacking? Obviously, I'm guessing you're getting lower flow rates through the ADR?
Yeah, no. Look, I'll just clarify that. I guess the characteristics of the pregnant solution going through the back end of the plant is the same for any ore type. Where we did get a little bit of a speed bump was when we started processing just the Kao material only. It got a little bit more clay in at Geordie and we didn't have GG2 going through with it hit the throughput on the shoulder a little bit for a short while. We get block shoots in certain different places. We're operating the plant slightly differently on this material now, and it does show increased throughput with a slight blend with the stockpile material that we have a truckload of, as you know. Certainly in terms of material characteristics, there's no problems in processing the material at all.
Right. Okay. Obviously expect flow rates and recoveries, well, not recoveries, recovered gold rates, I guess, to improve going through H2?
Yes, we do. We've had a pretty big start to the wet season up there, actually, and quite two or three pretty big thunderstorms. Like any heap leach plant, as you know, once you start getting a little bit of dilution from the heavens on the pad, you see different gold concentration coming through the ADR. At the moment, yep, we're tracking in line with our expectations and the assets will come home, if we predict right, pretty much in terms of guidance.
Okay, thanks very much. Appreciate your time today. Thanks.
Thanks, Geordie.
Thanks, Geordie.
Once again, if you would like to ask a question, please press star one. We'll take our next question from Dan Rollins from RBC Capital Markets. Your line is open. Please go ahead.
Yeah, thanks very much. I don't want to focus on the financials too much here, but just back to the question on tax. You didn't highlight that Tabakoto was part of the cause, but my understanding of the financial statements is that Tabakoto is no longer included in continuing operations, and the continuing operation tax expense seems still to have been fairly high with fairly chunky moves at both Agbaou and Ity. I was wondering if you might be able to comment on that or if better take it offline.
No, effectively I would, because the reason for the data, there's penalty at Tabakoto, but it's in the discontinued operation. For the tax, when you look at the tax for the continuing operations, that's true that there is an increase, but it's also due to the fact that we have increased with earning tax at Ity as well. As you can see as well on the segments reporting, you see that the tax at Ity are increasing, which is not the income tax, but it is a tax related to, again, the 12 earning tax, because you have $9 million profit before tax at Ity for the six months period, and you have $9 million of deferred and income tax. That explains the abnormal level of tax at Ity, explains this increase at the group level. Again, it's a one-off for the second quarter.
I agree with you.
Okay, perfect. Can you confirm just at Agbaou you won't be paying cash taxes there until 2019? That's when the current agreement expires, correct?
It expires at the end of 2018, yeah.
Okay, perfect. Thank you very much.
Thank you.
That's very helpful. Yep, thanks.
Okay.
It appears there are no further questions at this time. Mr. de Montessus, I'd like to turn the conference back to you for any additional or closing remarks.
Thank you very much, operator. Thank you all for joining us for the Q2 results. Again, thanks to my team, and have a nice and lovely day. Bye.
This concludes today's call. Thank you for your participation. You may now disconnect.