Earnings Call: Q2 2018

Aug 9, 2018

Thank you for standing by. This is the Chorus Call conference operator. Welcome to the IAMGOLD 2018 Second Quarter Operating and Financial Results Conference Call and Webcast. As a reminder, all participants are in listen only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. At this time, I would like to turn the conference over to Ken Chernan, Vice President, Investor Relations for IAMGOLD. Please go ahead, Mr. Chernan. Great. Thank you very much, Ariel. Welcome to the IAMGOLD conference call. Joining me on the call today are Steve Letwin, President and CEO of IAMGOLD Gord Stothart, EVP and COO Carol Banducci, EVP and CFO Craig McDougall, SVP, Exploration and Jeff Snow, General Counsel and SVP, Business Development. Our remarks on this call will include forward looking statements. Please refer to the cautionary language regarding forward looking information in our disclosure documents and be advised that the same cautionary language applies to our remarks during the call. The slides that are being referred to during the presentation can be viewed on the website. I will now turn the call over to our President and CEO, Steve Letwin. Well, thanks, Ken, and good morning, everyone. As you probably have read or most of you have read, we had a very solid quarter. Our operations are very sound. They're performing very well. Our balance sheet is strong and we confirm our production and cost guidance going forward. Our growth projects are on track and this is a key element of our success going forward. And as you know, our theme is execute and communicate. So we're going to be doing a lot of execution, a lot of communication. On Slide 6, at our Investor Day in June, we covered a lot of ground around our growth projects. And as we've mentioned, the successful execution is everything that we're about. So, our KPIs, our compensation strategy is all linked to make sure that we make these targets as we have communicated. But it's also critical that as we go along, you know how well we're doing and if we're hitting any headwinds or whether or not we're making better progress than what we expected. So, to me, execution is obviously very critical, resources are very critical to achieve this and communication as to how we're doing so that there are no surprises either way and measuring our progress along the way is absolutely essential. We've been very clear about our targets. We've been very clear about our timelines and we have been checking the boxes quite successfully and our expectation is that that's going to continue. Sometimes we get asked how we're able to execute growth projects with overlapping timelines. So, let me talk a little bit about that. There are really three points that I want to make. 1st, we don't execute projects willy nilly. I think people that know us reasonably well know that there is a lot of structure around our projects. That doesn't mean red tape. It means dedicated and highly capable project teams driving the execution. As you know, our culture at IAMGOLD is empowering people and we do a lot of that. And key to our success has been our ability to attract some critical talent over the last little while. And I'll tell you with some of the success that we have and we're going to stay very humble and focused around that, we're seeing some really talented people wanting to join our organization. Our turnover is down significantly. It's probably the lowest. In fact, it is the lowest in our history. So, with these people and with this structure that we have in place, we're making sure that dilution is mitigated. Our people are not spread thin. 2nd, and again those of you who know me, we measure everything and the devil is in the details. So there is a high level of scrutiny, our project reviews are rigorous, They involve the Board and they're done at least quarterly. And our trips involved usually going to Longue where we have a project development office. We have a group dinner the night before and then we spend the full day going through every line, every issue that we have by project. It involves our executive leadership team and sometimes our directors who would like to take a look at where we are at. And third, our projects vary in scope and size. Our largest scale and most capital intensive project is Cote Gold. This is our lead project and a top priority as we work with Sumitomo, who are here today and tomorrow by the way, and every quarter we have a detailed review with our partner to make sure that we're advancing Cote towards production in 2021. On other projects, Saramacca at Rosebel and heap leach project at Essakane, they are huge in terms of the benefits, but with infrastructure already in place and we talked about this many times, they are on a smaller scale and less capital intensive. So, I don't want to take away from the importance of these projects. They are very important. But Saramacca and the heap leach we feel are very manageable and can be done at the same time that we're looking at Cote. The expected incremental production will add years to the life of our mine and I just keep coming back to the fact that because we are able to lever off of current infrastructure, it makes our job much, much easier. Then we have our Foto Gold project where a construction decision is expected next year. As exploration projects advance to the development stage, we can maintain a robust pipeline of future development projects. Overall, a very attractive geographically diversified portfolio of growth projects that vary in scope and size. So we're going to keep checking off the boxes. I am obsessive about it. I am relentless about it. And in the Q2, we completed the heap leach feasibility study for exocann, which delivered a reserve increase far greater than what we expected. The additional ounces more than replaced this year's expected depletion for the entire company and the reserves for Saramacca are yet to come. While reserve replacement is a huge challenge for our industry, our exploration success has put us on a different and very attractive path. With last year, we increased reserves by 86% and we're continuing to build on that. So, all of our projects are a work in progress. You'll hear more about it as we go along. Saramacca, the Essakane heap leach, Cote Boto, they're all at a stage where we're identifying opportunities to optimize project returns. The refinement of project estimates and the deferral of certain capital expenditures to early 2019 led to a reduction in our CapEx guidance for 2018. And let me reinforce, this has no impact whatsoever on our project delivery timeline. We remain extremely confident about what we've communicated, but due to timing issues and Gord can speak to that, we've been able to move the capital out to 2019. So, we are executing as planned. Our target of 40% to 45% growth in production over 4 years from now with all in sustaining costs below $8.50 an ounce remains unchanged. I couldn't be happier about where the company is. As you know, I'm the largest independent shareholder of this company. I've done that with my own cash. I've done that over the almost 8 years that I've been here. I continue to buy shares very aggressively. I'm very confident about what we're going to be able to deliver. I'm very proud of what these people have been able to accomplish over the last 3 years. And as I look forward, as I say to our shareholders, we have a very good look going forward. I'm very pleased with it. And as I say, I applaud the team and the people at our sites for what they've done. With that, I'll call on Carol to review our financial results. Thanks, Steve, and good morning, everyone. Turning to our financial results, we had a solid second quarter. This next slide presents the key financial highlights. Revenues of $277,000,000 were up in the same quarter in 2017. The increase reflected a higher realized gold price and higher sales volume at Rosebel and partially offset by lower sales volume at Essakane. Gross profit was $30,000,000 Net cash from operating activities before changes in working capital was $73,000,000 up 8% from the same period in 2017. Adjusted net earnings for the Q2 2018 were $13,000,000 up 205% from the previous year. As shown on this next slide, the bottom line was impacted by a number of non cash items, including the depreciation adjustment and write down of assets, write down of a loan receivable related to the Sadiola Sulfide project and unrealized foreign exchange losses. After the adjustments, adjusted earnings per share were $0.03 up $0.02 from the Q2 2017. The next slide presents our hedges as of June 30, 2018. Canadian dollar and the euro are hedged for 2018 2019 and the oil hedges extend out to 2022. As detailed at the bottom of the slide, in the Q1, we purchased CAD60 1,000,000 at a rate of 1 point 309 earmarked for 2019. And during the Q2, we purchased CAD150 1,000,000 at an average rate of approximately €1.1975,000,000 earmarked for the second half of twenty eighteen as well as 2019. Our balance sheet remains strong with $776,000,000 in cash, cash equivalents and short term investments and money market instruments and this excludes the restricted cash of $29,000,000 Now, if you net out our debt, our net cash position was $375,000,000 at the end of the second quarter. By the end of this year, we're scheduled to receive a $95,000,000 cash payment from Sumitomo, which is the final payment for their 30% stake in the Cote gold project. The total liquidity, including the $249,000,000 availability under the credit facility, exceeded $1,000,000,000 which gives us flexibility as we continue to execute on our growth projects. So with that, I'll turn it over to Gord. Thanks, Carol. Well, our operations performed well in the Q2, but that Q1 was a tough act to follow. Production in Q1 benefited from the planned mining of higher grade zones and significant positive grade reconciliation at both Essakane and Westwood, whereas Q2 was impacted by planned maintenance at Rosebel and Essakane and the planned buying of lower grade stopes at Westwood. Nevertheless, the performance was in line with our expectations. Production continues to track close to guidance. 2nd quarter production of 214,000 attributable ounces brings us to 443,000 ounces year to date, which puts us just over the halfway mark of the midpoint of our full year guidance. As Steve said, our annual guidance is reiterated at 850,000 to 900,000 attributable ounces. All in sustaining costs in the second quarter were $10.77 an ounce $10.12 an ounce year to date. Full year guidance remains unchanged at $9.90 to $10.70 an ounce. Turning to our capital spending outlook for 2018, we are reducing our guidance by $40,000,000 to $325,000,000 plus or minus 5%. This was the net result of a $60,000,000 decrease in non sustaining capital and a $20,000,000 increase in sustaining capital. The $60,000,000 decrease in non sustaining capital was primarily due to a $40,000,000 decrease at Rosebel relating to the Saramacca project. As a result of more specific scheduling of construction work and equipment procurement timelines based on detailed engineering studies, we've been able to defer certain expenditures to 2019. There's no change to the targeted completion date of the project, which has production starting in the second half of twenty nineteen. At Essakane, we reduced non sustaining capital guidance by $25,000,000 Of that amount, dollars 20,000,000 is related to the heap leach project. This was due to deferring procurement activities until after the feasibility of study is completed in the Q1 of 2019. As with Saramacca, this does not affect the project delivery timeline. The change in non sustaining capital guidance also includes $10,000,000 increase for the Cote gold project reflecting the advancement of some detailed engineering and equipment design work. The $20,000,000 increase in sustaining capital reflects a $15,000,000 increase at Essakane due to higher capitalized stripping. Because this is a shift in expenditures from operating costs, there is no impact on all in sustaining costs. It's merely a categorization change. So to reiterate, these revisions to our 2018 capital spending guidance have no impact on our overall project timeline. The targeted completion dates for all projects remain intact. Moving on to each of our operations, starting at Essakane. Attributable production for the Q2 at Essakane was 97,000 ounces, down about 4% from the same quarter in 2017. This was mainly due to lower throughput resulting from planned mill maintenance. Gold recovery at 91% was consistent with the past 4 quarters. We do expect to see an improvement in recovery following the commissioning of the oxygen plant expected in the Q4 of this year. All in sustaining costs were $1,003 an ounce in Q2, up $81 an ounce from the previous year. This was mainly the result of higher sustaining capital expenditures and higher cost of sales per ounce. Cost of sales were higher due to a number of factors including no maintenance, a weaker U. S. Dollar relative to euro and higher contractor costs due to the longer lead times on some new production equipment purchases. Heap leach project at Essakane. The study represented a very positive scenario, combining heap leaching in parallel with the existing CIL process plan. To recap the highlights, reserves increased by 39% or 1,300,000 ounces on a 100% basis before depletion. Please note that the technical report, which was filed on SEDAR on July 19 included depletion from January 1st to June 5 whereas the reserves and resources reported on June 5 were before depletion. While we knew that heap leaching would unlock ounces that would otherwise not be economical to mine, we didn't expect to encounter the high grades that we did, which accounted for 1 third of the reserve increase. To appreciate the full benefits of this project, you have to consider the combined benefits of heat leaching together with the incremental production from CIL processing. Incorporating heap leaching into the operation results in additional CIL production that will extend the life of the mine 3 years from that reported in the 2016 technical report. Mine life is expected to be 8.5 years with CIL mill throughput of 12,000,000 tons per annum and heap leach throughput of 10,000,000 tons per annum. Once heap leaching begins, average annual production will increase by 16% from our previously disclosed plan to 480,000 ounces annually on a 100% basis with peak production exceeding 500,000 ounces. The feasibility study is evaluating additional development alternatives such as a gravity circuit upgrade and an increase in grinding capacity to increase throughput and recovery of the CIL and gravity circuits. As well, the feasibility study will allow us to optimize a number of conservative assumptions that were included in the PFS such as heap leach recoveries and manpower requirements. So, when you consider this reserve increase along with the additional ounces that could come from satellite resources, we believe there's strong potential to extend Essakane's mine life beyond 2,030. As I said earlier, the feasibility study is on track for completion in the Q1 of 2019 followed by an expected production start in 2020. Turning to Rosebel, 2nd quarter attributable production was 70,000 ounces. Production was lower than the previous year by 4,000 ounces due to planned mill maintenance and an increasing hard rock blend. All in sustaining costs were $10.35 an ounce. The increase from the same period in the previous year primarily reflected the planned mine and mill maintenance and higher energy costs. At the Saramacca project, development work is progressing well. The initial reserve estimate is expected in the second half of this year. Detailed engineering work related to site infrastructure in the haul road is nearly completed. The long haul trucks have been selected and orders placed. And the environmental social impact study to support the permitting and engineering work was submitted to the National Institute For Environment and Development or NEEMAS in Suriname last week on July 31. So permitting should be completed by the end of this year. As I said earlier, despite pushing out some of the capital expenditures into next year, the timeline remains intact with the production start in the second half of 2019. In the 1st 4 to 5 years, we expect the mill to be exclusively saprolite with transition and hard rock in the following years. We see an optimal throughput rate of somewhere between 2,000,000 and 3,000,000 tons per year additional. Annual attributable production from Saramacca could be between 70000 9000 ounces a year over 10 to 12 years of life. At Westwood, 2nd quarter production was 31,000 ounces, down 2,000 ounces from the previous year Compared to record production in the Q1 with the mining of high grade zones, lower grade stopes were mined in the Q2 as planned. As in previous periods, reported mill grades were lower than mine grades. This is due to processing of marginal grade ore stockpiles in addition to the underground ore to utilize available mill capacity as the mine ramps up. Excluding this marginal ore, the head grade was about 32% higher than was reported for the mill in this quarter. All in sustaining costs were 11 $29 an ounce for the quarter. The year over year increase reflects a weaker U. S. Dollar relative to the Canadian dollar and higher sustaining capital expenditures. Underground development continues to open up new mining areas. The focus is now on ramp breakthroughs on central ramp and on level 132, which will provide access to high grade areas to be mined in 2019. Infrastructure development continues in blocks on the lower levels, including the 180 West level from which production is expected next year. We remain on track to reach full production rates in 2020. At our Sadiola joint venture, attributable gold production in the Q2 2018 was 16,000 ounces. With the mining of oxide ore now depleted, mining activities have ceased and the mill is processing stockpiles. Once the stockpiles are depleted, which we expect will be around mid-twenty 19 and if there is no agreement in place to advance the Sadiola Sulfide project, Sadiola will be placed on suspended operations. Turning to the Cote gold project, feasibility study is on track for completion in the first half of twenty nineteen. A production start is targeted for early 2021. Results from delineation drilling completed in the Q1 will be reflected in the reserve and resource update that will accompany the feasibility study. Geotechnical investigations to evaluate pit slope stability and investigate proposed locations for key project infrastructure were completed in the Q2 and will be reflected in the project design. An important goal of the feasibility study is to identify is to identify opportunities for improving project returns. One change we've made in the feasibility study is to increase mill throughput by about 10% 36,000 tonnes per day or around 13,200,000 tonnes per annum. We're committed to autonomous haulage and autonomous drilling is the base case and we are looking at other proven technologies that could be applied where it is advantageous to do so. And as I said earlier, retail engineering and equipment design activities have been advanced as part of an early works program. Turning to the next slide, the feasibility study for the Boto gold project is on track for completion in the second half of this year. As with our other projects at this stage, we're looking at opportunities to enhance project returns. For example, we've increased mill throughput by 25% from what was used in the PFS to 2,500,000 tons per annum and we believe we can do this without increasing capital costs. Exploration work continues in support of the feasibility study and to identify potential targets for additional mineralization. And with that, I will now turn you over to Craig to talk about exploration. Thank you, Gord, and good morning, everyone. Before I begin, please note that the results I talked about today have been previously disclosed in accordance with security regulations and signed off by the qualified persons within the company reporting them. Also note that any references to exploration target potential, including potential quantity and grade are conceptual in nature and insufficient work has been completed to define a mineral resource and there can be no certainty that an exploration target will result in a mineral resource being delineated. Exploration had another productive and successful quarter. At Saramacca, we expect to reserve estimate in the near future. During the quarter, we completed an additional 8,000 meters of RC and diamond drilling, primarily to infill the deposit and upgrade the resource. In addition to working on resource conversions to ultimately support the declaration of reserves, our drilling program has also extended some parallel zones to mineralization under the original resource pit shell, which returned some nice grades over solid intervals. This has potential to incrementally increase total resources. On the adjacent Focalonco property, which is at a far earlier stage of exploration compared to Saramacca, we have initiated an exploration program, including activities such as geological mapping, outcrop sampling and geochemical surveys to confirm the historic results and help prioritize targets. During the quarter, we also completed just over 4,500 meters of RC and diamond drilling as part of our first path drilling program to test selected target areas for the presence of mineralization. The results will be validated and compiled as they come to hand to help guide further exploration on this prospective property. This next slide focuses on regional exploration at Essakane. If we can replicate the success we had at Falun Guntu with our other satellite targets, there's great potential for extending the mine life beyond 2,030, which is our objective. During the quarter, we completed almost 24,000 meters of RC and diamond drilling on the mine lease and surrounding concessions. This included infill drilling at the Essakane main zone in support of the ongoing heap leach feasibility study. At the Gossey prospect, we're targeting a maiden resource estimate in the Q4 of this year with a geologic target potential of somewhere between 400,600,000 ounces ranging between 0.8 gram and 1 gram per tonne gold. We have completed a second phase of drilling, which intercepted some wide zones of mineralization. Gossi also has a deeper than expected oxide profile, locally much deeper than what we've seen at Essakane. So far, results confirm saprolite extending up to a depth of 50 meters, which is a positive development. There are also a number of other prospects to evaluate including Tin Teradata at the top of the Gazzicurizina trend and Tesiri, Garura and Soquide clustered south of the Essakane main zone. For example, at Tin Teradata, we're seeing a structural setting similar to Essakane, gold mineralization intersected in drilling over some good thicknesses. Moving to our Sierra Bayre project in Mali, we've completed approximately 8,800 meters of Diamond and RC drilling during the quarter. Our focus remains confirming and delineating resource expansions at the Diaco deposit in preparation of a resource update by the end of the year. At Pesengui in Brazil, we continue to focus on expanding the Sao Sebastien deposit and testing other priority targets for the presence of mineralization. During the quarter, we completed just over 4,900 meters of diamond drilling. Iron formation hosted gold deposits like the Sao Sebastiao deposit and typical of the iron quadrangle in Brazil can be very large with attractive grades and often extend to great depth, which is why they are such compelling exploration targets. One of our objectives with this year's program is to probe at greater depth to see if we can extend the mineralization deeper. At our Eastern Barasi project in Nicaragua, drilling continues to focus on potential resource extensions and to test other vein targets to evaluate their resource potential. During the Q2, we completed approximately 4,000 meters of diamond drilling. Both Pettinguis and Eastern Barasi are work in progress as we look to expand the size of the resources on both of those projects. Moving on to our projects in Quebec. During the Q2, we reported further high grade results for our Monster Lake project. These were from our winter drilling program, which focused on infill drilling the upper portions of the 325 Megan zone and testing for extensions. Highlights included 39.2 grams per tonne gold over 3.8 meters, which included 127.4 grams over 1.1 meter and 40.9 grams per tonne gold over 5.3 meters, which included 2 51 grams per tonne over 0.7 meters. We continue to be impressed by the continuity and high grades we're seeing with the infill drilling. As I've said before, the structural settings suggest excellent potential for additional zones and mineralization along the Monster Lake Structural Corridor. Lastly, turning to the Nelligan project in Quebec, we're over 6 months into the diamond drilling program, which is focused on evaluating the resource potential of a recently discovered large mineralized system now referred to as the Nard Zone, which is located north of the previously known Liam and Dan zones. During the second quarter, we completed 3,700 meters of diamond drilling as we work towards an initial resource estimate. Overall, great work by the exploration teams to keep these projects progressing at the rate they are. With that, I'll hand you back to Steve. Thanks, Craig. So to wrap Slide 31, we've had a very successful first half of the year. Our operating and financial results have been very solid. We're on track to meet guidance and the successful execution of our growth projects continues. We've checked off a lot of boxes in the first half of the year. We've got some key boxes coming up in the second half as we expect to have reserve estimates for Saramacca, a completed feasibility study for Boto and a resource estimate for Gazzi. So with that, we will open it up to questions. Thank you. We will now begin the question and answer session. Our first question comes from Mike Parkin of National Bank. Hi, guys. Congrats on the quarter. A couple of questions. Regarding Westwood, just wanted to get a sense of how you see grades trending there for Q3, Q4. We saw in the press release that the actual mine grade was good, brought down in the mill by the lower grade stockpiles. Would we expect any improvement on the mine grade for the 3rd or 4th quarter? Yes, Mike, it's Gord here. Yes, looking at the forecast right now, Q3 is up slightly versus Q2 and Q4 is actually we get back into some higher grade mining areas in Q4. So, we're expecting to see a nice rebound then. Okay. And then just with the major shutdowns planned at Essakane and Rosebel in Q2, Can you just give us any comments on how those assets restarted? Did everything come up relatively smoothly? Yes, everything came up very, very nicely and we're back to sort of the same throughput rates that we were enjoying in Q1 and in recent times. It was just sort of a juxtaposition. We ended up doing all of the SAG mills, I think, in Q2 and a couple of the ball mills as well. So it just sort of all added up. Everything's running fine. I think just the last couple of months, availabilities for both plants are running 95% plus. Okay. And then with the greater and greater hard rock feed at Rosebel, are you seeing any kind of wear pattern changes on the SAG at Rosebel or is everything kind of operating as expected? I think it's operating as expected. We do see obviously a little bit of increased wear. On a per ton basis, I guess it's increased wear on a time basis, it's not really that much different because the SAG throughput is really driven by how much hard rock you put in it. So that's what tends to cap it out And we sort of run it at maximum hard rock throughput there. The additional tonnage is really the softer rocks that get more or less a free ride through the SAG, not seeing a lot of difference in the maintenance. Okay, super. That's it for me. Thanks guys. Thanks Mike. Our next question comes from David Houghton of CIBC. Good morning, Steve and team. Thank you for the update. Just having a look at the guidance and your year to date performance, it does look as though Essakane has got the potential to overshoot your expectations, while Rosebel might be lagging a little bit. I'm just wondering, in the case of Rosebel, what you have in mind to have, if you like, a bit of a catch up in the second half? Yes. I mean, Rosebel's plan for 2018 has always been a much stronger second half than the first half. We do see we are forecasting internally for some grade rebound there and do expect it to come back. We're continuing to look at Essakane and you're right, we are running a little bit above the cadence that we've guided to. We'll reevaluate at the end of Q3 and if we need to make some changes in guidance, we'll do so at that time. But for right now, we're comfortable with where we're at. And yes, Rosebel does have a stronger second half. Okay. So, just looking at Rosebel then, I presume you're fairly comfortable with the throughput rate of about 34,000 tonnes a day. So for the grade, would it be kind of nudging up towards the 0.9 gram kind of level, the high 0.8 to maybe 0.9? Yes. In fact, it's in it certainly gets into sort of the ranges you're talking about, if not even a little better. Okay. And the other thing I noticed with Rosebel is that your mining rate is higher than your processing rate. So you're building up a reasonable stockpile there. Is that so you can present better grade material to the mill or what's the strategy there with the stockpile management? It's a bit of a long winded answer. Historically, we always see very strong positive reconciliation on ore tons at Rosebel, particularly in saprolite rock, I. E, we find a lot more soft saprolite ore than is identified through the diamond drilling models. As we go in and we drill off the RC grade control on a tighter spacing, we find these additional zones. We do exploit that and do use that to maximize the grades of the mill and stockpile the lower grade materials. We have some fairly significant low grade stockpiles that build into the future. Because they're softer rock though or primarily softer rock, we also use that to help offset and take advantage when there's opportunities to get some slightly additional throughput through the mill there when and feeding those lower grade stockpiles in. It's an interesting question because it's a discussion we've had with the team there as to how we manage these stockpiles over the next couple of years in terms of maximizing profitability. Okay. Just changing topic slightly. You've got your CapEx deferral into 2019. Is there any risk of a change in price of those items that are pushed into the future? No. And really, I think the best explanation is when we did our budget for 2018 and we came out with our capital guidance for Saramacca and the other projects, because Saramacca was being fast tracked, that was done before we even had a scoping study in place. So, the team there had put some thoughts together as to when they felt they were going to be expending money. We The assumption conservatively was that we would be paying cash upfront for equipment. As we got in and I did the more detailed engineering and procurement work, we recognized that the upfront capital is typically just down payment, but we're locking in the prices that we expected. There's some give and take again because just the level of engineering was not very advanced at the time we did the original budget. But we're comfortable with sort of the capital envelope we're working within and we're also looking at some opportunities to do some leasing of that equipment. So that's really just the timing of the expenditure. It's not it hasn't really changed the amount we're expanding on that equipment right now. Okay. And one last question, this one may be for Carol. You've got some pretty sizable euro hedging there. What sort of percentage of the costs, I presume, at Essakane are exposed to euro? It would be like a significant amount, right, in terms of the it's really the labor that would be the largest exposure there. Obviously, on the capital side, we're still U. S. Based, but it would be the labor component, David, that would be the largest component. So possibly 50% plus of the cost base at Essakane would be euroton? No, maybe lower than that, about 30%. 30%. Okay. That's it for me. Thank you. Our next question comes from Dan Rollins of RBC Capital Markets. Yes, thanks very much. Gord, maybe a question for you. A caveat that realize every project is different, every company is different and some companies do a lot more work internally to get projects off the line quicker. But with Cote Gold, I was wondering if you could provide a little bit of color on some of the work that you've been doing behind the scenes as a company and with your team to sort of shore up the cost estimates, the production rates, the ramp up rates and sort of the capital cost spend for Cote just given the recent challenges at a couple of other assets in Ontario and then if you look farther back down the road or behind us, there's been another number of new startups here in Canada, bulk tonnage that have taken significantly longer to actually hit steady state than anticipated in the technical reports. Just wondering if you could provide a little bit color on what the IAMGOLD team is doing to shore up and take out that risk? With respect to construction timelines and construction cost estimates, we've we're obviously we're working with the feasibility study engineer who is Wood, formerly AMEC, from their Vancouver office. We've done a lot of truth testing with respect to the capital estimates, visited a number of sites that have recently installed equipment and looking at that. We're pretty comfortable generally with evaluating those capital estimates. We have done a lot of construction ourselves in the past and are can cast I think a costs. We have done some of the construction costs. We have done some a little bit more original or little different way of approaching certain things on some of the major civil packages. We've actually brought in contracting outfits. This is not bringing the contractors in on a bid basis to execute the work, but bringing contractors into the design team to sit down with our design elements and really challenge the capital estimates and the timelines have been put in place. And we think that really gives us a much better handle on how we can execute those and what the final cost will be. With respect to ramp up, we have actually as part of the feasibility work, we commissioned a fairly in-depth study on ramp up, what people have been able to achieve in different parts of the world and how they achieved it and what issues sort of have caused challenges to ramp up schedules. So that analysis is being incorporated into the design. We just had a discussion with the team there yesterday on some of those results. And what is being put into the feasibility study, I think, is appropriate. I think there's opportunity to do better. But we're trying to make sure that we don't sort of oversell the early years of production. I'm not uncomfortable with the amount of effort we're putting in. We've done a lot of work as well on and you'll see it when the new reserves and resources come out, but we've drilled, I think it's around 47 kilometers of additional drilling as part of the feasibility study work. And a fair bit of that was really focused on the 1st 2 to 3 years of production, bringing a lot of that material from indicated status into measured status in a number of cases and doing a lot of we actually did some very tight drill patterns, not quite to grade control grids, but almost grade control grid over some sections to validate that we'll be able to get the selectivity that we were hoping to get. So, there's a lot of selectivity work going in so that we don't get in a situation where we can't achieve the grades in the early years that we're planning to achieve. Okay. Our next question comes from Michael Fairburn of Canaccord Genuity. Hi, guys. Just a question on Westwood. The ramp up appears to be going very well and it looks like you guys are still processing stockpiles at a fairly high rate. I was just wondering if you can give us an idea of approximately what remains in these stockpiles and what grade they are? Yes. I mean, the grade of the stockpiles and it's always a bugger to try and effectively estimate stockpile grades from old stockpiles. It's called TBT or very low grade material. Most of it is old open pit material from the old Doion pit and it's actually sort of a twofold benefit. The grades we see there are sort of in the 0.9 to 1.1 range and that material as we re handle it is also alleviating some of our future closure impacts because it's higher sulfide material. So, running it through the mill and on a campaign by campaign basis, we do an analysis to make sure that we're making money from it. But that's the kind of grades. We do still have some relatively significant volumes. I will say additionally, last year, we did some custom milling with a third party again to utilize that spare capacity. That customer we had in the prior years decided to go elsewhere. However, last month, we started with a new custom milling client. So, on the basis of it, we the custom milling is slightly better economics for us than treating the lower grade material. So, we're happy to accommodate that client for the time period when we have that excess capacity. So, moving forward between now and the rest of the year, the mix from a Westwood from an IAMGOLD standpoint will be a little less of the low grade than we've seen in the past. You're going to see the IAM gold grades come closer to sort of the underground grades for the second half of the year. Okay. And it would be fair to assume that the stockpile is remaining, you have more than enough to keep the mill full pretty much between now and the 2020 when you're filling it up pretty much entirely with the underground ore? Correct. Okay, awesome. Thanks a lot. That's all for me. This concludes the time allocated for questions on today's call. I will now hand the call back over to Ken Chernan for closing remarks. Great. Thank you very much, Ariel, and thank you, ladies and gentlemen, for joining us today and for your continued interest in IAMGOLD. We look forward to you joining us for our Q3 2018 conference call on November 7. Thanks again.