IAMGOLD Corp

TSX:IMG

Earnings Call Transcript 2022-Q2

[Operator]

Thank you for standing by. This is the conference operator. Welcome to the IAMGOLD Second Quarter 2022 Operating and Financial Results Conference Call and Webcast. [Operator Instructions] And the conference is being recorded. [Operator Instructions]

At this time, I'd like to turn the conference over to Graeme Jennings, VP, Investor Relations and Corporate Communications for IAMGOLD. Please go ahead, Mr. Jennings.

[Graeme Jennings, executive]

Thank you, operator, and welcome, everyone, to the IAMGOLD Second Quarter 2022 Operating and Financial Results Conference Call. Joining me today on the call are Maryse Belanger, Chair of the Board and Interim President and CEO; Daniella Dimitrov, Chief Financial Officer and Executive Vice President, Strategy and Corporate Development; Craig MacDougall, Executive Vice President, Growth; and Bruno Lemelin, Senior Vice President, Operations and Projects.

Our remarks on this call will include forward-looking statements. Please refer to the cautionary statement included in the presentation under the heading Cautionary Statement regarding forward-looking information, and be advised that the same cautionary language applies to our remarks during the call. Non-GAAP measures will also be referenced on the call, and we direct you to review the cautionary statements included in the presentation and the reconciliations of these measures included in our most recent MD&A, each under the heading Non-GAAP Financial Measures.

With respect to the technical information to be discussed, please refer to the information in the presentation under the heading Qualified Person and Technical Information. The slides referenced on this call can be viewed on our website.

I will now turn the call over to our Chair and Interim President and CEO, Maryse Belanger.

[Maryse Belanger, executive]

Thank you, Graeme. Good morning, everyone, and thank you for joining us this morning. Last night, we reported our second quarter operating and financial results as well as announcing the results of the Côté Gold project update. We had a lot of information to cover on this call, so we will try to expedite matters in order to allow for enough time for questions and answers at the end.

As you will see, IAMGOLD had another strong quarter, benefiting from recent productivity initiatives at our operations. We are on track to achieve the upper end of our production guidance for the year, and there are many positive developments expected in the second half. But our operations are in challenging jurisdiction, and we see cost pressure throughout the organization. It is, therefore, essential to mitigate this impact through a strong focus on the operational excellence programs to uncover improvement opportunities in productivities, process optimization, cost control and capital allocation.

The Côté update represents a significant milestone for the company. This was the culmination of months of in-depth analysis by the company's management and project teams, EPCM contractors and technical experts. Côté Gold is transformational for IAMGOLD, offering a robust cash flow generation once in production. We truly believe that what we are building at Côté Gold is not just a project, but the stock of a district with significant opportunities for growth. I'd like to think of it as the start of a new mining camp.

The project today is over 57% complete. And the updated schedule and project costs give us much improved visibility towards completion. Given the strategic importance of Côté to achieve our goal of becoming a leading high-margin gold producer, we are actively pursuing various alternatives to increase liquidity to deliver Côté on its updated schedule. I am confident we will address the near-term challenges in order to advance Côté and better position IAMGOLD as a more resilient, agile company for the current environment.

Now turning to the quarter. On the health and safety. Ensuring all of our employees go home safe continues to be a key focus as every gold ounce produced has to be done safely. And we applaud our teams for their continued commitment to Zero Harm and also the Côté construction team for achieving an impressive 5.7 million hours with no lost time injuries to date.

IAMGOLD delivered another strong quarter, with attributable gold production of 170,000 ounces on continued strong performance from Essakane and improvements at Rosebel. And that's bringing our year-to-date production to 344,000 ounces, positioning us on track to achieve the top end of our guidance range of 570,000 to 640,000 ounces.

The strong production results and same-sales volume translated to cash costs of $1,119 per ounce sold and all-in sustaining costs at $1,604 per ounce sold. On a unit cost basis, we are seeing impacts from inflation on mining and processing costs, though these have been partially mitigated through higher grades and other operational improvement at the mine -- the mines, sorry. Cost guidance for 2022 is unchanged as it stands, with cash costs expected to be between $1,100 and $1,150 per ounce sold and all-in sustaining costs expected to be between $1,650 and $1,690 per ounce sold. These estimates issued in January included an inflation adoption of 5% to 7% on key consumables.

Additional cost pressures are continuing from systemic inflation, constrained global supply chains and other global events, further increasing the average cost of consumables, such as oil, ammonium nitrate, grinding media, lime and cyanide. We note that continued external cost pressures may result in an increase to costs and capital expenditures.

We continue to see benefits from our oil hedges. This year, we have an 80% hedge ratio on WTI contracts and a 71% ratio on brand at between $38 and $65 per barrel. For reference, a $10 per barrel increase in the oil price equates to approximately a $6 per ounce increase in our cash costs. Without our hedging contracts, the same $10 per barrel increase in the oil price will translate into a $15 per ounce increase in cash costs.

Now Essakane. Turning to Essakane. It continued to deliver, reporting gold production of 107,000 ounces, benefiting from higher head grades and strong recoveries. Mining activity totaling 11.4 million tonnes in the second quarter was lower than the prior quarter, primarily due to lower waste stripping activities because of constraints in consumables from supply chain challenges in country and abroad. We will work to rebalance this stripping shortfall. But as of today, the reduction in stripping activities is not expected to materially impact production in 2022 and 2023.

Mill throughput was 2.7 million tonnes at an average head grade of 1.5 grams per tonne of gold, and plant availability of 86% with recovery of 90%. Mill feed rate and availability were lower during the second quarter due to higher volumes of hard rock in the mill feed as well as annual planned maintenance and supply chain challenges.

The security situation in Burkina deteriorated during the second quarter and impacted the in-land supply chain, resulting in delays in the delivery of consumables. The company continues to take proactive measures to ensure the safety and security of in-country personnel and managed to limit the impact on production in the second quarter. We continue to adjust our protocols and the activity levels at the site according to the security situation. The company is furthering some additional investment in security infrastructure in the region and at the mine site, and that is with the support of the government.

Looking ahead, attributable gold production at Essakane in 2022 is expected to approximate the top end of the range of 360,000 to 385,000 ounces, reflecting the higher-than-expected grade in the first half of the year and the potential for further positive reconciliation between mine grade and the reserve block model.

Turning to Rosebel now. We were very proud for the second quarter, which historically sees lower production due to the impacts of the rainy season. The operation reported second quarter attributable production of 49,000 ounces, benefiting from improved recovery and head grades, bringing the year-to-date total to 95,000 ounces.

Mining activities have returned to prepandemic levels, mining 15.5 million tonnes in the quarter with a ramp on stripping program as required in the updated mine plan we released earlier this year, which, by the way, are paving the path for Rosebel to return to being a plus 300,000 ounce per year producer.

Mill throughput achieved 2.2 million tonnes at an average head grade of 0.88 grams per tonne. And throughput was lower due to mill maintenance work required on the SAG mill feed chute and refurbishment of the apron feeders. Mill recovery of 92% continues to benefit from the ADR circuit improvement put in place at the end of 2021. Looking ahead, attributable gold production guidance for 2022 at Rosebel remains unchanged at 155,000 to 180,000 ounces.

In the first half of the year, additional cost pressures emerged through rising oil prices, and they continue to be partially mitigated by the existing hedge program. The company also expects higher power costs compared to 2021, which we know have led to the price of gold and oil. We note that the collective labor agreement at Rosebel expires in August 2022, and negotiation for new agreement have commenced and have been cordial and professional. The strategic review process of Rosebel is active and ongoing, and we will provide updates when appropriate.

Now with Westwood. Gold production was 14,000 ounces in the quarter as the underground development continues in order to support the full ramp-up of the mine. Importantly, in June, mining activities recommenced in the higher-grade West and Central Zones, and the main ramp broke through the 180 level in the lower part of the mine, which will allow for additional flexibility and development of high grade zones, including on zone 230.

Gold production guidance at the Westwood Complex in 2022 remains unchanged in the range of 55,000 to 75,000 ounces, and in the view that the safe and stable result of the Central and West underground zones can continue throughout the year.

Now turning to Côté Gold. Activity at site has accelerated dramatically this summer following this strike action by crane operators and construction labors in May, which reduced headcount at site by approximately 250 people over that month. We currently have approximately 1,200 workers on site. Work inside the plant is progressing with the ball mill foundation being set and preparation ongoing for mechanical, electrical and piping installation.

Last night, we announced our updated estimate of cost to complete, project economics and life-of-mine plan for Côté. The results will be included in a new NI 43-101 technical report to be filed on SEDAR before on or September 17. This project update concludes the Côté Gold schedule and cost, execution strategy and risk review, or Supertrend, initiated by the company earlier this year.

Looking at the life-of-mine plan highlights, there are a few key changes from the previous technical report. We have higher production extended over the first 6 years versus 5 years previously. And also, we have lower waste tonnes translating into an improved strip ratio. Both of which helped to mitigate an increase in unit and cash costs on updated costs and operating assumptions.

The net result is a project that continues to be transformational for IAMGOLD. Côté Gold is a project with an 18-plus-year mine life, producing nearly 500,000 ounces per year in the first 6 years of operation and offering significant growth potential with the addition of Gosselin and historically underexplored land package.

We will not quickly step through key component of the operation and highlight changes of assumption in the new mine plan. First, online design and pit sequencing. We saw some opportunities to add value to the project and maximize early cash flows. Through this work, the pit phasing was modified to target high-grade zone early in the life-of-mine plan, moving to 5 phases with an extended phase 1 pit design. Additional opportunities for value creation included the adjustment of the ramp gradient, which allows for shortened haulage distances and the extension of mining activities in phase 1.

Further, we have lowered our ramp-up and utilization assumption for the mining equipment to increase the allowance for learning of operation and maintenance of the autonomous haulage system, with increased windows for operating alongside our contractors to achieve better knowledge transfer. Also to de-risk the first year of operation, we are executing only a 48,000-meter grade control drill program on a 10-by-10 drill spacing, which covers 78% of the tonnes to be mined in the first 12 months of operation.

The new mine plan includes updated assumptions and input for the ramp-up of the processing plant of [ June ] nameplate capacity. Based on updated modeling and analysis of OEM data for plant equipment, we revised the mill operating time or utilization rate to 92.6% from 94% previously. Further, we have extended the ramp-up period to steady state to 20 months from 10 months previously to account for an increased frequency of inspection, shutdowns and also improve learnings.

The HPGR tertiary crushing unit is a major focus for our plant and operational readiness team. We have revised our HPGR operating assumption for additional downtime in the early years and overall maintenance activities. Preparation is well underway with our team, visiting where HPGR's operations globally, to exchange best practices for ramp-up and operations. Feed spare parts are being procured with an extra set of roll already purchased. We are very fortunate that Côté Gold is located only a couple of hours from the Weir facility in Sudbury, where essential maintenance and roll resurfacing will be supported. Our teams will be working alongside Weir engineers during commissioning ramp-up and operations.

Now on operating costs. Over the life of mine, total cash costs are expected to average $693 per ounce of gold sold, and all-in sustaining costs are expected to average $854 per ounce sold. Mining unit costs are estimated at $2.62 per tonne of material mined, or if accounting for capitalized with restripping, $6.20 per tonne of processed ore. Mining costs increased by 15% from the 2021 technical report due to increased headcount, extended ramp-up and updated cost models. Processing costs increased 8% to $7.97 per tonne related to higher maintenance costs and shutdown assumptions during ramp-up, including with the HPGR, as I mentioned before. And we also have an increase in TNF operation and monitoring activities.

As the plant is connected to Hydro One, we are classified as a classic customer, and power cost only accounts for 14% of processing cost. The highest component of reagents, spares and maintenance, which combined together accounts for nearly 50% of the processing cost. As estimated in the updated technical report, as of May 1, 2022, the remaining costs attributable to IAMGOLD to complete Côté and achieve initial production is estimated at just over $1.3 billion. This, by the way, includes $185 million in contingency and $80 million for escalation.

As announced in our second quarter results, we estimate that the remaining spend to complete Côté as of July 1, 2022, is $1.2 billion to $1.3 billion after incurring approximately $100 million in May and June. The project today is over 57% complete, and the updated schedule and project costs provide us with improved visibility towards completion.

In the last number of months, the Côté Gold project has seen several changes in leadership and oversight, both at the project level and corporate level. Since the appointment of the new Executive Project Director, teams have been strengthened to target deficiencies while leveraging knowledge, experience and team integration between the owner's team, EPCM contractor and the various other project contractors.

The update also represents the conclusion of the Supertrend process initiated earlier this year. It is important to note that the Côté Gold project is being developed with the background of COVID-19, inflation and other global events and their impact, including on the global supply chain, labor availability, productivity and rates, cost of material, commodities and consumables. As discussed in our May announcement, the estimated remaining spend to completion resulted from additional cost and schedule impact in the general project cost category that you can see on our slide, and includes estimated impacts related to delays due to COVID-19, recent labor action in Ontario and inflation.

Outside of the Supertrend process, a study by independent capital project management service company estimated direct and indirect COVID-related impacts to the project just for IAMGOLD to be in the range of approximately $200 million to $400 million.

Looking at the schedule, Côté Gold is expected to commence production in early 2024. This year is critical for project advancement as project activities are ramping up through the summer and into the fall with the coordination of earthworks, concrete, [indiscernible] structural, mechanical, piping work and power installation, and they all being very, very important. The increase in the oversight team, managing contractors and contracting packages will facilitate the expected increase in the number of contractors as the headcount increased to -- over 1,500 people is expected during this construction season.

The company cautions that potential further disruptions, including, without limitation, caused by COVID-19, Ukraine war, weather, potential labor disruption and the tight labor market could continue to impact the timing of activities, availability of workforce, productivity and supply chain and logistics, and consequently, could further impact the timing of actual commercial production and project costs. Taken together, the Côté Gold project, while being developed in a challenging environment, offers robust economics for IAMGOLD.

On a go-forward basis, from May 1, 2022, the after-tax NPV at a discount rate of 5% of the Côté Gold project was estimated at $1.1 billion with an implied after -- sorry, implied after-tax IRR of 13.5% under the base case gold price assumption. At spot metal prices of $17.75 per ounce gold, over the life of mine, the Côté Gold project has an estimated after-tax NPV of $1.56 billion and implied after-tax IRR of 16.5%.

Following the project review and risk analysis, the Board retained an independent technical consultant to assist with the Board's review of the results. This independent review supported the updated estimates as presented, confirming key project areas to focus on, aligning with those we outlined today while offering insights into further optimization opportunities.

Now let's talk a little bit about Gosselin. So we believe that Côté Gold is not just a project, but it's part of a new mining district. The Côté Gold life-of-mine plan as defined in the technical report is based on mineral reserve of 7.2 million ounces at the Côté deposit. The Gosselin deposit is located immediately adjacent to Côté and contains 3.4 million ounces of measured and indicated resource, with an additional 1.7 million ounces of inferred. Gosselin has only been drilled to at the depth of Côté and is open along strike and at depth.

Taken together, Côté and Gosselin has a total of 13.5 million ounces in measured and indicated. And we believe there is significant upside to be uncovered as there has been minimal historical exploration targeting these Côté-Gosselin style intrusion-hosted deposits within our 596-square-kilometer land package.

With that, I will turn over the call to Daniella for the financial review.

[Daniella Dimitrov, executive]

Thank you, Maryse. The following are some key highlights of our second quarter and year-to-date financial results. Revenues in the second quarter totaled $334 million and $691 million year-to-date. The average realized gold price for the quarter was $1,799 per ounce, reflecting the physical delivery of 37,500 ounces at $1,500 per ounce under our 2019 prepay arrangement as we close monthly contracts. The average gold price in the second half of 2022 will continue to be impacted by the completion of physical deliveries of 75,000 ounces at $1,500 per ounce as we close out the remainder of the 2019 prepay arrangement.

Adjusted EBITDA came in at $110 million for the quarter and $247 million year-to-date. Higher income taxes for the second quarter that included withholding taxes on the repatriation of funds from Essakane impacted net earnings, resulting in a net loss per share of $0.02. Adjusting for noncash items, adjusted net loss per share was $0.01 in the second quarter. Year-to-date net earnings and adjusted net earnings per share were $0.03 and $0.04, respectively.

We have updated our income taxes paid guidance for 2022 to between $69 million and $79 million from $55 million to $65 million set out in our previous guidance released in January to primarily account for withholding taxes on the additional repatriation of funds from Essakane that we expect in the second half of 2022. Operating cash flow before changes in working capital was $94 million for the quarter and $228 million year-to-date, and mine site free cash flow was $42.8 million in the quarter and $130 million year-to-date.

In terms of our financial position, we ended the quarter with $453 million in cash, cash equivalents and short-term investments. And we had approximately $349 million available under our credit facility after drawing down $150 million in the quarter. Our current available drawdown under the credit facility is approximately $250 million as we drew down $80 million subsequent to quarter, primarily to manage the timing of the receipt of a dividend from Essakane, and we issued a $19 million letter of credit under the credit facility in support of our surety bond.

Based on the recently updated cost estimate and schedule of construction of the Côté Gold project, information currently available and prevailing market prices, we note that IAMGOLD will require additional liquidity to complete the construction of the project. We are working to implement a fully funded financing plan by the end of the year and prior to the necessity to make any potential adjustments to the timing of the advancement of Côté based on the updated schedule.

We are actively pursuing various alternatives to increase liquidity and capital resources, including disposition of one or more of the company's assets and/or interest therein and/or joint venture partnerships, additional secured debt, which could be provided by banks; private capital providers and/or institutional investors; additional unsecured debt, including unsecured and/or convertible notes; sales of common shares; and the extension of the 2022 prepay arrangements.

In January 2022, we announced that we were commencing a strategic review process to evaluate options for the Rosebel/Saramacca mining complex, including a potential sale of this complex. We advanced this process in the second quarter of 2022.

In addition, we just announced that we are evaluating strategic alternatives for certain development and exploration assets in West Africa, excluding Essakane; and in South America, that may include the disposition of all foreign interest in one or more of such assets. These processes are well advanced, and we will provide an update when warranted.

Back to you, Maryse.

[Maryse Belanger, executive]

Graeme?

[Graeme Jennings, executive]

I guess at this point, we will open it up for questions.

[Operator]

[Operator Instructions] Our first question is from Fahad Tariq with Credit Suisse.

[Fahad Tariq, analyst]

Maybe first for Daniella. Can you -- from what you can tell on your forecast, what is the funding gap right now between the end of this year, the cash flow generated and what is needed for Côté?

[Daniella Dimitrov, executive]

So we've disclosed that the remaining spend for Côté Gold is $1.2 billion to $1.3 billion from July 1, 2022, to production. We disclosed our cash balance at year-end -- sorry, at quarter end and following the drawdowns at the end of July that we have about $250 million available under our credit facility. We've also disclosed that not all cash is readily available. Some of the cash is held within our operating subsidiaries and operations need working capital. We've also disclosed that our Côté joint venture under our joint venture agreement, we need to stay ahead 2 months of construction costs in cash. And until the end of July, that period was 3 months. And we also have hedges that do require growth settlement rather than net settlement, which impacts the total cash that we need to have on hand at any one time.

We've also talked about in the past that taking all of these factors into consideration, we view that at any point in time, our minimum cash balance that we would need to maintain would be somewhere around $200 million. So that and the gold price and, of course, our operating performance all go into the range of additional liquidity that the company needs to go into production.

[Fahad Tariq, analyst]

Okay. And then just as a follow-up, I know there's a number of alternatives available. Is there a preference that you can highlight, whether it's an asset sale, additional debt, diluting the 70% ownership? Any color there would be really helpful.

[Daniella Dimitrov, executive]

We are looking at various options, as we've disclosed. And we do expect that the financing package will have several components considering the cost of capital, maximizing shareholder value and providing the necessary additional liquidity to get Côté to production.

[Fahad Tariq, analyst]

Okay. And then maybe just the last question. In the press release, you mentioned like one potential option if the financing isn't secured by -- in time that potentially the Côté time line could be extended and this would "significantly increase" project costs. Can you just maybe give some clarity on what that means?

[Daniella Dimitrov, executive]

We are working to implement a fully funded solution by year-end, and that is our focus. We talked about the fact that the processes are well advanced, and we are cautiously optimistic that we will get to that fully funded solution by year-end.

[Operator]

The next question is from Josh Wolfson with RBC Capital Markets.

[Joshua Wolfson, analyst]

A couple of quick questions for Côté. For the updated study, what was the oil price assumption included either short term and long term?

[Daniella Dimitrov, executive]

I believe that the -- for the second half of 2022, it was $93; for 2023, was $82; and from 2024 onwards is about $70.

[Joshua Wolfson, analyst]

Okay. And looking at the updated plans which incorporated, I guess, a bit of breathing room with the scheduling and the ramp-up period, where would you see the risk now with development either in terms of the bottleneck or critical path items?

[Maryse Belanger, executive]

Thanks, Josh. Thanks for the question. Considering that detailed engineering is done at 99.6%, that most of our contracts have been led, procurement is -- all of the equipment is at site at the laydown area. I do not expect any major issues. The plan is to deliver on what we say we're going to do. And in fact, the team is targeting mechanical completion as soon as possible. So I don't see a lot of risk. And if you consider what we've disclosed that at the 1.3 -- $1.2 billion to $1.3 billion cost remaining, that we have more than $235 million in contingency and escalation in there. At this stage of the project, it's quite unusual to -- up to 12% contingency built-in cost estimate. So my job, Josh, is to deliver on this project on schedule and on budget.

[Joshua Wolfson, analyst]

Okay. And then maybe a final question for Côté. Has there been any feedback or discussion with your joint venture partner either about views on the updated economics or about coming in as a party that could assist with funding here?

[Maryse Belanger, executive]

I'll take that. Josh, Sumitomo is very supportive. As noted in our MD&A, we made an amendment to the Côté joint venture. And we are in a regular contact, we work closely with Sumitomo, their people integrated with the team at site. So I would say that we are actively pursuing various alternatives to increase liquidity and capital resources. But at this point, we will not discuss specific alternatives.

[Operator]

The next question is from Jackie Przybylowski with BMO Capital Markets.

[Jackie Przybylowski, analyst]

Maybe to start, I'll just follow up on that last question that Josh asked on Sumitomo. The company Sumitomo put out a press release, I guess, overnight, which it says really briefly that it's continuing to review the estimates for the Côté project and will -- it doesn't -- I mean the way that it's written, it doesn't sound like Sumitomo is entirely committed even to funding its existing portion of the project. So is there a formal commitment in place that Sumitomo was going to fund its commitment? Or is that still something that you guys are in negotiations with Sumitomo on?

[Maryse Belanger, executive]

Thank you. Thanks for the question. And I think what we say at this point is that what we've seen last year when the -- in July 2021 when there was an increase in capital cost that was announced, as far as normal process for Sumitomo, it took -- the company -- close to probably the end of October, early November, to go through their approval process internally. So in this case, we have been told that the normal process would take its course, and I don't see anything unusual about this. Just normal course of business for Sumitomo internally.

[Jackie Przybylowski, analyst]

That's really helpful. Yes, it's good color. And maybe -- sorry, another question on Côté. I know the full study is coming out in September. So I'm sure we'll get more detail then. But just for modeling purposes, can you give us some color in terms of the cadence for spending on the project like the capital spending? And specifically, I guess I'm asking for -- maybe for this year and next year, can you just talk about like how much you're anticipating you'll spend at Côté?

[Daniella Dimitrov, executive]

Yes, we expect -- Jackie, we expect our spend to be somewhere between $60 million to $70 million per month.

[Jackie Przybylowski, analyst]

Okay. That's really helpful. And maybe if I could just ask one other question. Just with respect to the commentary about the process on the review for Rosebel and potential sales, how would that impact, if at all, your debt covenants? Do you have commitments to maintain a certain sort of cash flow level? Or is it easy for you to sell an asset like Rosebel without tripping those debt covenants?

[Daniella Dimitrov, executive]

So we are -- certain of the asset sales that we are looking at, including the sale of Rosebel, are part of the security package under our credit facility. We have been working closely with our lead lenders who are aware of the process and the ultimate necessity to release the security on a successful completion of a sale. And we're comfortable that as part of working with our lenders, we have a good handle on it.

[Operator]

The next question is from Mike Parkin with National Bank.

[Michael Parkin, analyst]

With respect to Côté, can you just give us an update on the dike that you're putting in? How is that progressing? And have you got to the point where you're starting to dewater the site that you need to dewater? Or if not, when does that start?

[Daniella Dimitrov, executive]

Thanks, Mike, for the question. The dewatering is ongoing, and we have dealt with a pretty intense pressure, but we are through. And no issues with dewatering whatsoever at this point. In fact, I think we have really good visibility to the first benches of the pit.

[Michael Parkin, analyst]

Okay. So you're not getting kind of surprised by excessive water penetration?

[Daniella Dimitrov, executive]

No, not at all.

[Michael Parkin, analyst]

Excellent. And then just in terms of cash flow, your exploration spend still remains fairly high. Is that anything that you're considering trimming back in the near term just to help preserve the balance sheet?

[Daniella Dimitrov, executive]

So we're through, I guess, more than 50% of our exploration spend. Part of that spend is -- was focused on Gosselin. And we've got a spend on Karita. We put out some pretty great drilling results recently on that. We are going to continue with the completion of that program specifically. We think that is important to get that across the line that give us better visibility in terms of [ unit ] value, particularly on that asset. That is part of the West Africa sale process.

[Michael Parkin, analyst]

And what about into 2023, is there any -- is it too early? You haven't really kind of worked on budgets yet?

[Daniella Dimitrov, executive]

It is too early to comment, yes, on 2023.

[Operator]

The next question is from Anita Soni with CIBC Capital Markets.

[Anita Soni, analyst]

So firstly, can we talk about the life-of-mine plan? A couple of things that you mentioned were steeping up the pit walls and also the ramps from 10% -- sorry, 8% to 10%. Can I ask, did you have an independent third-party review, those technical assumptions, from a geotechnical standpoint?

[Maryse Belanger, executive]

Anita, in fact, there has been extensive geotech work done. And originally, the assumption was that we needed to be more prudent with the pit design and the ramp because of the autonomous haul trucks. But those constraints now have been removed in the sense that actually -- and that's really good news. Last weekend, the first fully autonomous truck was operating on our calibration path, and we feel really confident we can achieve those ramp gradients and design parameters.

[Anita Soni, analyst]

All right. Considering all weather factors that you have there?

[Maryse Belanger, executive]

Yes.

[Anita Soni, analyst]

Okay. Second question, the assumption to go to 5% over nameplate capacity when doing this life-of-mine plan, what was the genesis of that? I mean why go higher? And I noticed you guys commented, this was a 1 on the McNulty curve, and I -- given that you've got HPGR and autonomous haulage, I'm not sure that I would classify it as a 1 on the McNulty curve.

[Maryse Belanger, executive]

Okay. I think the comment was more related to the capacity overall of the equipment, what we have is a plant with oversight pumps and cyclone feed pumps and overall capacity. And as we've seen in the industry, it's not uncommon. Once you get mills going, it's not uncommon to get an extra 10%, 15% tonnage of throughput. So we feel very, very confident we can reach that throughput. It's going to take some time. But considering the size and, really, the oversight equipment in that plant, I don't see any issues with quoting that [ 1 in 5 ].

[Anita Soni, analyst]

Okay. So then let's just move on to the capital cost estimate. I just wanted to circle back. The updated estimate is the same number that you guys put out 3 months ago, right? And you've spent $172 million in the quarter. So by my math, I think that's about 15% or 16% escalation in 3 months. How do we -- can we talk about how that went up and why it went up by so much in 3 months? Just in context of now you've got $185 million contingency and trying to figure out whether that's enough when your cost just escalated in 3 months by $172 million.

[Maryse Belanger, executive]

Okay. First of all, I would like to mention the strike, that caused some delays. And that was first -- well, there was a number of strikes, the first one the crane operators followed by laborers. And as you know, costs are largely driven, anyway, in the indirect categories by schedule. So what we've seen is actually a delay -- because of the strikes of 5 to 6 weeks, and that does impact not only our schedule, but also the timing of first revenues that we can realize.

And Daniella, if you want, you can add to this, but...

[Daniella Dimitrov, executive]

Sure. So the number that -- the estimate that we issued on May 1 was on a preliminary basis and we did caution that we had not fully completed our work. In the first week of May, as Maryse noted, there were a number of strikes. We thought -- we had hoped and expected that those strikes would be avoided. They did result in approximately a 6-week plus extension to the schedule as we had to demobilize quite a number of workers and then remobilized following the completion of the strikes. And I always takes longer to get back to where you were than it takes to demob. So that really were the primary factors that drove that increase. That resulted in a slightly extended schedule with a slight increase to indirect primarily. And more of those operating costs now being part of project costs because our production -- initial production and commercial production were extended from the schedule that we were assuming back on May 1.

[Anita Soni, analyst]

Okay. I'm just looking -- okay. All right. And then I just wanted to circle back to a question that Fahad asked, and it was about the minimum cash balances that you referenced. You said you -- keeping everything in mind, you would need $200 million as a minimum cash balance. Did that include the 2 months lead for the construction capital? So is it $200 million flat? Or should we be thinking more along the lines of $320 million to $340 million when you include to $60 million to $70 million per month of spend in a 2-month lead on it?

[Daniella Dimitrov, executive]

It's plus or minus $200 million, including the -- staying ahead by 2 months.

[Operator]

The next question is from Tanya Jakusconek with Scotiabank.

[Tanya Jakusconek, analyst]

I just wanted to follow back. Thank you for the oil assumptions on Côté. Do you have the sensitivity for a $10 move barrel, what it would do to the cost, so that we can just have an idea on that front?

[Daniella Dimitrov, executive]

We'll follow up and provide that. We do have some oil hedges we have done for our own account rather than at the project level, and so we'll provide that information as well.

[Tanya Jakusconek, analyst]

Okay. And just following back to this funding gap. Just looking out, and I appreciate there's a lot of moving parts, but for us trying to figure out what this funding gap is, and we know we need to have that minimum $200 million in cash on the balance sheet. As we look into next year, I mean, is it safe to assume or we're assuming similar production and cost overall for the company as we have in 2022? And on that basis and the spend that we're seeing at Côté of that $70 million a month or thereabout, is it safe to assume with that minimum $200 million in cash on your balance sheet plus, let's say, spot gold prices, that $600 million, $700 million of the funding gap is -- are we within a reasonable range?

[Daniella Dimitrov, executive]

I would think about the -- depending on whether ultimately Rosebel is in our portfolio or not, and I would take that into consideration as well. And I would think about that range being -- the lower end of the range being your high end of the range.

[Tanya Jakusconek, analyst]

Okay. So about $600 million. I appreciate. I mean, obviously, I have to include Rosebel in there because it's not sold yet, but just trying to understand. So assuming Rosebel is in, assuming the assumptions I gave you with that minimum cash, $600 million gap would be something, thereabout at, spot pricing?

[Daniella Dimitrov, executive]

Yes. Rosebel, I think we noted when we released the updated technical report back in January that, again depending on what gold price you're using as we ramp up to that 300,000 ounce production range in 2024, we were still expecting and are seeing Rosebel be a user of capital, both in 2022 and in 2023.

[Tanya Jakusconek, analyst]

Yes. Okay. And can I circle back to -- obviously, maybe Rosebel is going to be sold, maybe it's not. We've got 2 mines otherwise that are going to need to generate cash flow for us to get us through this period. Can we talk about Essakane, just in general? Like it's a bit concerning about the security issues. So can you just talk a little, it's a big cash flow generator for you, like what exactly is going on there? And how has July looked? Like are we getting material to site here? Did we have a decent July? And what are we doing there to make sure we keep this mine going?

[Maryse Belanger, executive]

Yes. Okay. Let's talk a little bit about Essakane because it's a very interesting one. Some challenges around security, but working very closely with the government on some security measures. And we're also working on things like extending the airstrip at the site to have more flexibility. We have found ways to organize convoys where we have a very large number -- you can just imagine hundreds of -- 100 large trucks going to this site all at once. We are taking measures also to increase our capacity of storage -- storage capacity at site as well so that we are not dependent as much on those convoys. And so -- and there's a number of measures that are being put in place.

Essakane is an interesting one because we have a very -- we have a positive grade reconciliation. And what Essakane provides is very steady production, where we also have 53% average gravity recovery. And what we've seen is a depth and increase in grade, and also an increase in quartz gold to some extent, which has led the team to decide to go back, build a new block model, which will be implemented, I expect, in September or early in the fall. So Essakane, despite the challenges, we've had a higher grade than expected. We're looking at it. We're going to implement new block model and redo our mine plan and forecast.

So more to come on Essakane. But so far, it's been a very solid producer. And it's been a very, very steady producer also. So that's a bit of color on Essakane challenges, but we've been -- our team have done enough some job managing around the security issues.

[Tanya Jakusconek, analyst]

Maryse, what -- like on site, what sort of inventory levels do we have on fuel, cyanide, other consumables? Should we have to close down and -- because of uncertainty around the mine site? What do we have on site that we can keep going?

[Maryse Belanger, executive]

We keep close to a month of the supplies on site.

[Tanya Jakusconek, analyst]

Okay. That's helpful. And so far in July, things have gone okay?

[Maryse Belanger, executive]

Yes. Absolutely. July was, in fact, a great month at Essakane.

[Tanya Jakusconek, analyst]

Okay. Perfect. And Maryse or Daniella, just on the financing package, and I'll leave it to somebody else because it's gone over time. I just wanted to understand that we're going to get some sort of financing package by year-end. It appears that it's just not going to be one thing, i.e., not just debt, it could be components of it. Is it something that we're going to see just come through like bit by bit from now until year-end? Or are you looking to put one big package together? Like I'm just trying to understand how you're going attack this line and package it. Is this -- I understand it's a sale of an asset that happens when it happens, but everything else, is it you want to get something in place and then, potentially, we see a CEO coming in? I'm just trying to understand how this is all going to work.

[Daniella Dimitrov, executive]

We are working to implement a fully funded package with the various components.

[Tanya Jakusconek, analyst]

Okay. So one package, fully funded, and then Maryse would help us with the CEO, trying to finalize the CEO for the company?

[Maryse Belanger, executive]

Yes. So the CEO search is ongoing, and the Board wants to ensure that we are doing it right, that we have the right person. So stay tuned on this one.

[Operator]

The next question is from Carey MacRury with Canaccord Genuity.

[Carey MacRury, analyst]

Maybe just back on the Côté CapEx, the $1.2 billion to $1.3 billion to complete. How much of that is now fixed price versus how much of it is really still exposed to either price or volume changes?

[Maryse Belanger, executive]

That's a good question. I may have to go back to you to provide more details. But one way to look at it is all of the large contracts have been flat. And right now, it's -- the work -- what's remaining is all common material. I'm not sure if that's what...

[Carey MacRury, analyst]

Okay. Fair enough. And then -- maybe I'll follow up. Maybe on just the sales processes. I know you said that they're well advanced. I'm just wondering if you can give a bit of color on how long it's been. Is there any sort of expected time line to complete that process?

[Daniella Dimitrov, executive]

So we are very active on both of those processes, and we'll update the market where we have an update.

[Operator]

The next question is from Lawson Winder with Bank of America Securities.

[Lawson Winder, analyst]

A couple of questions. Maybe just quickly on Côté. One would be, what percent of the CapEx is in Canadian dollars so we can just think about the sensitivity there?

[Daniella Dimitrov, executive]

90% to 95% of the CapEx is in Canadian dollars. The -- we've used $1.25 as the FX rate for the remaining spend. The previous estimate was done at $1.3. The average at which we've incurred the expenses is somewhere around $1.27. And we have a number of FX hedges at $1.30 and slightly above, all of which are listed in a table in the MD&A.

[Lawson Winder, analyst]

Got you. And then with regards to Sumitomo, what does the JV agreement? I was just kind of curious, what kind of rights Sumitomo has? Do they have the right to decline additional funding?

[Daniella Dimitrov, executive]

They have the ability not to contribute to cash flow, in which case, they would be diluted. There are 2 different dilution mechanisms, depending on how much of the costs have been spent. We can share with you that we're cash calling on the updated schedule and costs, and the cash contribution for -- that was due August 1 was made.

[Lawson Winder, analyst]

Okay. That's very helpful. And then just coming back to your existing operations. We definitely touched a lot on Essakane, but maybe just on Rosebel as well. So number one question would be on the labor contract expiring in August. Do you have any insight into when that could be resolved? And I mean I'm coming from the point of view of both risk to possible disruptions impacting your cash flow, but also a potential buyer or a partner for that asset may want to see that result. That would be my first question.

[Maryse Belanger, executive]

Okay. I'll try to address that, but obviously, it's going to be based on past years' experience and past negotiations. What we have seen in the past was some 1- to 2-month delay in signing final agreements. And in terms of disruptions, we have seen in the past really just 1 week of, what do you call that, [ virtual ], for example. But I would say 1 week is a good estimate at this point of possible delays in production.

[Lawson Winder, analyst]

Okay. That's helpful. And then maybe just asking about your guidance. So to be honest with you, given how strong the first half was, I would have expected you to increase the guidance. I mean the implied for H2 is 55,000 to 85,000 ounces, which would be a substantial decline from Q1. Are you factoring in disruptions from the labor negotiations? Or is this particularly grade, tonnage or operational -- operationally related?

[Maryse Belanger, executive]

Yes. And thanks for the question because I said in my remarks that we've had a great quarter, good half of the year, and I expect even some improvement in the second half of the year. I understand there's a bit of a disconnect. We decided to simply reiterate guidance, not increase it, to be a bit conservative. And then we'd say that with the team here, we really want to focus on meeting and beating expectations, okay? So decided to reiterate guidance. That allows us to take into account some of the risk around production, but definitely being conservative from my perspective. So no, we don't expect a bad second half of the year. It's not the case, no.

[Lawson Winder, analyst]

Okay. Great. That's helpful. Maybe just one follow-up, Burkina Faso, if I might. Are you currently relying strictly on sort of government military support from a security point of view? Or have you hired a private security team? And if not, is that something that you're seriously considering?

[Maryse Belanger, executive]

We are working with the government and their military people, and we do not use private military support in-country, no.

[Operator]

This concludes the time allocated for today's questions. I will now hand the call back to Maryse Belanger for closing remarks.

[Maryse Belanger, executive]

Thank you very much, operator, and thanks to everyone for joining us this morning and for your continued engagement with IAMGOLD. There's no doubt that we have hard work ahead of us, but myself, the Board and the management team are entirely focused on advancing Côté to production, addressing our capital needs and continuing on the solid operational performance at our operating mines.

I look forward to directly engaging with you, our investor and analyst community. So please reach out to myself or Graeme Jennings or -- and if you would like to set up a meeting. Thank you all. Goodbye. Have a great day.

[Operator]

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.