IAMGOLD Corp

TSX:IMG

Earnings Call Transcript 2024-Q3

[Operator]

Thank you for standing by. This is the conference operator. Welcome to the IAMGOLD Third Quarter 2024 Operating and Financial Results Conference Call and Webcast. As a reminder, all participants are in listen-only mode and the conference is being recorded. [Operator Instructions]

At this time, I would 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 our conference call today. Joining us on the call are Renaud Adams, President and Chief Executive Officer; Marthinus Theunissen, Chief Financial Officer; Bruno Lemelin, Chief Operating Officer; Timothy Bradburn, Senior Vice President, General Counsel and Secretary; and Dorena Quinn, Senior Vice President, People. We are joining today from IAMGOLD's Toronto office, which is located on Treaty 13 territory on the traditional lands of many nations, including the Mississauga of the Credit, Anishinaabe, Chippewa, Haudenosaunee, and the Wendat peoples. At IAMGOLD, we believe respecting and upholding Indigenous rights, founded upon relationships that foster trust, transparency, and mutual respect.

Please note that our remarks on this call will include forward-looking statements and refer to non-IFRS measures. We encourage you to refer to the cautionary statements and disclosures on non-IFRS measures included in the presentation and the reconciliations of these measures 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 with the heading qualified person and technical information. The slides referenced on this call can be viewed on our website.

I'll now turn the call over to President and CEO, Renaud Adams.

[Renaud Adams, executive]

Thank you, Graeme, and good morning, everyone, and thank you for joining us. The third quarter was another exciting quarter for IAMGOLD, as our operations performed well, demonstrating safe, stable production and strong cash flow growth.

Gold production year-to-date for the company totaled 490,000 gold ounces, driven by the strong year-to-date performance at Essakane and the turnaround of Westwood, both assets, which are poised to achieve the upper end of the production guidance estimate. Cote Gold, meanwhile, is taking significant strides as the mine continued its ramp-up and achieved multiple milestones in the quarter, including reaching commercial productions on August 2, demonstrating the capability to operate at or above nameplate throughput levels, completing key maintenance to improve the availability of the plant, and achieving its first quarter of a positive free cash flow production.

Cote remains on track towards our goal of the mine, achieving 90% nameplate throughput exiting the year. With 2025 just around the corner, a surprising 7 weeks away, IAMGOLD is rapidly moving closer to our goal of becoming a leading modern Canadian gold producer with a strong balance sheet and assets that are poised to generate significant value for our stakeholders, partners, and investors, further enhanced by the backdrop of today's gold price [ action ]. By the middle of the next year, we anticipate we will have our gold prepayment facility behind us. Cote will be nearing nameplate production, and Essakane and Westwood will be capable of generating near-records cash flows. This will conceptually position IAMGOLD uniquely amongst the mid-tier space, with significant cash flow generation and some very valuable near-term growth to uncover at Cote Gold.

Looking at the highlights from the quarter, starting with health and safety, which is a fundamental pillar of IAMGOLD's vision of Zero Harm and our commitment to people and the places in which we operate. In the third quarter, our total recordable injury frequency rate was 0.46, an improvement from the prior quarter, led once again by Essakane team, who achieved triple zero for safety incident in September, a testament to the professionalism and commitment to a safety culture by our people in Burkina Faso.

In the third quarter, IAMGOLD produced 173,000 attributable gold ounces from all 3 of its operations, well above the 109,000 ounces achieved in the same period last year. This year-over-year production growth was driven by continued stable operation at Essakane, the successful turnaround at Westwood, and the ramp-up of Cote.

On a cost basis, IAMGOLD reported third quarter cash costs and all-in sustaining costs of $1,165 per ounce and $1,756 per ounce, respectively. While costs were lower than the prior year period, the cost increase quarter-over-quarter was in line with expectation and our guidance, as we will discuss in a moment.

Sustaining capital expenditure increased in the third quarter to $84.7 million, up from $50.4 million the year prior, as Cote achieved commercial production in August, which allowed for the relocation of capital expenditure related to operation to sustaining for the mine. Looking at our targets for the year. IAMGOLD reiterated its guidance estimate in the third quarter. As you will recall, last quarter, the company increased its production guidance and lowered the cost guidance targets, following a very strong first-half performance from our Essakane and Westwood mine. Essakane and Westwood are well positioned to achieve the upper end of their production guidance ranges this year, with combined production year-to-date of 428,000 ounces versus guidance of 495,000 to 540,000 ounces.

The 2024 cost guidance for Essakane and Westwood combined is unchanged and is expected to be on the low end of the range of $1,175 to $1,275 for cash cost per ounce sold and $1,700 to $1,825 for AISC per ounce sold. Costs are expected to be higher in the fourth quarter at Essakane, as Essakane is expected to report a lower head grade from an increased production of stockpile material in the mill and Westwood will conduct a scheduled maintenance planned shutdown in the quarter, both in line with our expectations. On a macro level, inflationary pressures have continued to ease, though key input, including labor, remains elevated, as well pricing for certain consumables, including cyanide and grinding media, are in line with the levels experienced in 2023.

With that, I will pass the call over to our CFO to walk us through our financial results and position. Maarten?

[Marthinus Theunissen, executive]

Thank you, Renaud, and good morning, everyone. In terms of our financial position, IAMGOLD ended the quarter with cash and cash equivalents of $553.4 million, and our credit facility remains undrawn, equating to total liquidity of approximately $959.3 million. We note that within cash and cash equivalents, as of September 30 of this year, $83.4 million was held by Cote Gold and $135.3 million was held by Essakane. Notably, Essakane declared a dividend during the second quarter of $180 million, for which the minority interest portion and withholding taxes were paid during the second quarter, and $136.3 million was received by the company in the third quarter, and the balance of $15.6 million was received in October, for a total dividend received by IAMGOLD of $151.9 million.

On September 30, 2024, the company provided Sumitomo with the required 60 days formal notice to exercise the right to repurchase the 9.7% interest in Cote Gold, and the transaction is expected to close on November 30, 2024, which will return IAMGOLD to its full 70% interest in Cote Gold. The repurchase price is approximately $377 million, and includes $23.7 million for the repurchase of option fee accrued during 2023. The payment will be funded using the proceeds from the $300 million [ Board ] deal completed during the second quarter 2024 and with available liquidity. Additionally, as of today, the company has completed 1/3 of its gold prepaid obligations, having delivered 37,500 ounces in the third quarter and 12,500 ounces in October.

The company received $13.3 million in cash as part of the delivery of the obligation. The company has remaining 100,000 ounces to deliver on its gold prepay arrangements from November 2024 to June 30, 2025. The prepay arrangements were funded at the time of entering into the arrangements through -- though the company will receive certain cash payments at the time of delivering into the gold prepay arrangements, based on the market price of gold at the time of delivery as follows: in Q4, of the 37,500 ounces that will be delivered, 22,500 ounces will receive the difference between the spot price and $1,700 per ounce, capped at $2,100 per ounce, with the remaining 15,000 ounces prefunded; then in Q2 of next year, of 31,250 ounces that will be delivered through the period of April to June, the company will receive the difference between the spot price and $2,100 per ounce, capped at $2,925 per ounce. Please refer to the Liquidity Outlook section of the MD&A for further details.

Looking at our third quarter results, we saw the impact of strong production at near-record realized gold prices, resulting in the company realizing higher margins, generating higher operating cash flows, and adjusted EBITDA at an important time for the company. The higher gold price is helping set up the company to potentially expedite its plan to reduce debt levels and debt carrying costs. Revenues from operations totaled $438.9 million from sales of 184,000 ounces on a 100% basis, at a record average realized price of $2,391 per ounce. The realized price includes the impact of gold prepay arrangements in place during the quarter that reduced the realized price by $107 per ounce from $2,498 per ounce. Net earnings was $598.1 million during the quarter, and includes a reversal of a previous impairment on Westwood of $462.3 million. The impairment reversal mainly results from the update to the long-term gold price assumptions.

The strong third quarter operating results and gold price resulted in an adjusted EBITDA of $221.7 million, which was a record quarter for the company. This brings the year-to-date EBITDA to $565.2 million, with Cote still in the early stages of its ramp-up. Adjusted earnings per share was $0.18 for the quarter, compared to $0.16 in the previous quarter, and a $0.01 loss in the third quarter of 2023. Operating cash flow before working capital changes was $161 million in the third quarter. Operating cash flow does not include the prefunded cash flow received as part of the gold prepay arrangement, and is $64.4 million lower than what it would have been without the impact of the deferred revenue recognized as part of delivering into the gold prepay.

Looking at mine site free cash flow, which is calculated as cash flow from mine site operating activities, less capital expenditures from operating mine sites. Essakane reported third quarter mine site free cash flow of $76.6 million and Westwood of $20.8 million. It is worth highlighting again, as Renaud mentioned in his introductory comments, that this was the first quarter for Cote to contribute positively to mine site free cash flow, with $23.3 million in the quarter, which represents IAMGOLD's 60.3% portion of the cash flow.

And with that, I will pass the call back to Renaud. Thank you, Renaud.

[Renaud Adams, executive]

Thank you, Maarten. We will start with Cote, which you can see here on the left image on the slide, with a view of active mining activity early in the summer. Last month, we announced the Cote's preliminary Q3 operating result, ahead of what was a well-attended mine tour by analysts and institutions. I want to take this moment to once again thank all the attendees for the great turnout, and thank our Cote team for hosting what was a very engaging tour.

Looking at the quarter, a highlight for Cote was the first quarter of positive free cash flow, as Maarten just highlighted, from productions of 68,000 ounces on a 100% basis. However, I believe the real advancements were on the progress of the ramp-up and improved understanding of the operation.

I am very proud about the progress we achieved in the third quarter, as we saw a definitive signs that the improvements that were deployed throughout the quarter and during the shutdown in September are having a measurable and meaningful positive impact on operation. Mining activity totaled 10.4 million tonnes in the third quarter of 2024, in line with the prior quarter, and ore tonne mined increased to 3.2 million tonnes during the period, with an associated decrease in the strip ratio to 2.3:1 waste to ore. The average grade of mined ore was 1.02 grams a tonne, in line with the mine plan. The reconciliations between the grade control and reserve model is also in line with the expected tolerance.

Within the pit, the mine currently has 2 CAT 6060 electric shovels and 18 CAT 793 autonomous haul trucks in operation, with an additional 3 haul trucks to be commissioned before the end of the year. Utilization rates of the primary mining equipment has been improving. Drilling and blasting activity has seen month-over-month improvement from enhanced drill fleet performance with better blast pattern preparations, resulting in a higher level of in-pit blasted ore inventory available for loading and hauling. The current mine plan is using multiple stockpiles segregated by grade, with the 43-101 estimating a total of 78 million tonnes of rehandled ore mill feed over the life of mine. This strategy is proving to date to require higher-than-expected amount of rehandling, which are seeing indication of flowing through to mining costs.

Year-to-date, mining costs have averaged $3.77 per tonne. This is higher than expectation due to the rehandling, as well as higher contractor costs to support the ramp-up of the mine. We expect to see unit mining costs decline as we bring in the full fleet and reduce the need for external support. Further, we are looking at refining some aspects of the mining strategy to optimize ore handling and move towards more of a bulk mining scenario when economically possible and as the mill continues to increase its overall throughput.

The ramp-up of the plant was the primary technical focus of our efforts in the quarter, with a headline milestone of achieving commercial production midway through the quarter, as well as multiple days of achieving above nameplate production. Mill throughput in the third quarter totaled 1.6 million tonnes, a notable improvement quarter over quarter, though throughput was impacted by the mid-September planned shutdown and an unplanned shutdown at the end of the month from an electrical failure in a motor control center.

Head grade of 1.41 grams a tonne were in line with the mine plan, which required feed material from a combination of higher grade direct feed ore and higher-grade stockpile. Recoveries in the plant averaged a wonderful 93% in the quarter. As we noted on the last call, the main component of the processing plant, including primary, secondary crushing, HPGR, conveyors, ball mill, leaching, et cetera, all have now proven their capability to operate at or above design load when provided with stable conditions.

During the ramp-up, the primary areas of our focus for the plant were: one, the crushing circuit before the coarse ore dome; and two, everything else after the coarse ore dome, or the downstream circuit, which is the HPGR tube to the west side of the plant. With the coarse ore dome full, the downstream processing circuits demonstrate very strong performance and availability and capacity, so we have focused on the crushing circuit to improve the availability and capacity. In September, the company completed an 8-day mill shutdown at Cote to deploy key optimization and improve the operating availability of the plant in support of the goal to ramp up throughput to 90% of nameplate by the end of the year and achieve nameplate in 2025. The priority of the work performed during the shutdown was to stabilize the crushing circuit and attend to the primary causes for low availability in the second quarter, which included replacing 90% of the chute with higher abrasive-resistant material to reduce the level of wear and using new type of and sizes of screen in the coarse ore screening area. These improvements have made a difference, and the plant has seen further increases in availability and performance of the secondary crusher and screening over the last few weeks, achieving multi-day performance above 40,000 tonnes per day in the crushing plant.

We are now well positioned to ramp up the overall processing facility to our 90% of nameplate objective as we exit the year. In October, we averaged just under 80% of the nameplate as daily throughput. Achieving the additional 10% at Cote is primarily about stability. The objective is to eliminate daily variances in processing as we already know that we can meet nameplate capacity of 36,000 tonnes per day and potentially more. Every downtime brought new information and an opportunity to further improve. It is really now about achieving stability, more consistency. This is how we will earn the additional 10%. Furthermore, we will be installing a second cone crusher in the second half of next year at low capital requirement to provide additional capacity and redundancy in support of the operation and throughput maximization. Lastly, and as we noted previously, Cote Gold added a mobile crusher unit and conveying system that act as a dome refeed system. This addition provides flexibility and redundancy in time of shutdown by delivering up to 1,000 tonnes per hour to the dome and can operate in parallel with the crushing circuit for extra daily capacity when sporadically required.

Based on the year-to-date ramp-up progress, we maintain our guidance set last quarter for annual production to be at the lower end of the previous guidance range of closer to 220,000 ounces on a 100% basis. At the exit rate of 90% throughput, we estimate that cash costs will, at that time, average approximately $700 to $800 per ounce and all-in sustaining cost to be approximately $1,100 to $1,200 per ounce. We know, though, that costs may exceed these ranges depending on the timing and the onetime cost of initiatives and improvement implemented to achieve the ramp-up target.

Looking into 2025, we will advance Cote towards the nameplate throughput rate of 36,000 tonnes per day while looking for easy win to increase the processing plant capacity. As we have noted in the past, several components of the plant have been designed for 42,000 tonnes per day, and we have seen multiple days above 40,000 tonnes per day early on in the life cycle of the project. The addition of the second cone crusher next year is aligned with our strategy of unlocking maximum value by monetizing at low capital requirement, a maximum number of tonnes of ore mined as they become available for processing.

Alongside this, as mentioned, we are evaluating the potential to adjust certain aspects of our mining plan at Cote to potentially shift over time to a more bulk mining approach as the mill throughput capacity is unlocked which offers numerous efficiencies advantages, including reduced rehandling, improved pit sequencing, and less reliance on segregations for the mine plan and more on maximizing mill throughput and monetizations of gold mine. Over the current life of mine, the mining rate of ore was estimated to average approximately 50,000 tonnes per day, and this compared to our processing rate of 36,000 tonnes per day.

The Cote deposit has estimated mineral reserves of 7.6 million ounces that form the basis of the current economics of the project. On a measured and indicated resources basis, the Cote zone is currently estimated at a total of 12.1 million ounces, as seen here in the dark blue pit shell at the bottom left. This does not include mineralization outside of the pit shell, highlighted in red, in what we will unofficially call the Cote Northeast Zone.

Further to the adjacent Gosselin zone has an additional 4.4 million ounces of measured and indicated resources and nearly 3 million ounces of inferred, bringing the project to a total of 16.5 million ounces of measured and indicated and an additional 4 million ounces of inferred. The size of Cote and Gosselin together put the project in a very exclusive category amongst large-scale producing Canadian assets. We need to consider what Cote will be when it grows up. And that is to say we need to consider Cote not as a 7.6 million ounces project, but as a significantly bigger deposit and how to bring this value to the market. Our exploration program on Gosselin and at depth under the Cote and Gosselin Zone progressed well this year, demonstrating extensions of mineralizations outside of the resource pit shell. Next year, we will plan to further increase our drilling efforts to upgrade the mineralization in Gosselin and the Cote Zone in support of a potential updated study intended for the latter part of 2026.

Turning to Westwood, our other Canadian asset. It was another strong quarter for the mine as underground activities are now able to focus on operations and less on legacy rehabilitation. It may surprise some to say, but Westwood so far this year has generated $53.1 million in mine free cash flow and the third quarter had a cost profile below Essakane.

Looking at operations, Westwood produced 32,000 ounces in the quarter for a total of 99,000 ounces year-to-date. Ore mined from underground continued to play a more pivotal role and a higher grade, with 84,000 tonnes in the third quarter at an average head grade of 9.09 grams a tonne. The mill throughput was relatively flat quarter over quarter at 289,000 tonnes processed at an average blended head grade of 3.67 grams a tonne and 93% recovery. The plant availability in the quarter of 90% was higher than the same prior year period of 86%, with plans to further improve availability through an ongoing maintenance program in addition to an annual mill shutdown plan in November. The margin for Westwood continued to improve with a strong gold price and stabilizing costs. Cash costs averaged $1,150 an ounce and all-in sustaining costs averaged $1,617 an ounce in the third quarter.

Looking ahead, Westwood production is expected to be at the top of the guidance range of 115,000 to 130,000 ounces, while costs are expected to be at the lower end of the range of $1,200 to $1,300 for cash cost per ounce sold and $1,775 to $1,900 for AISC per ounce sold. Fourth quarter unit costs are expected to be higher than the third quarter due to the scheduled mill shutdown in November. This is to better position the operations for next year. Later this month, we will be issuing an updated technical report and mine plan based on reserve only for Westwood, which should demonstrate the value that has been created by the Westwood teams over the last 3 years of rehabilitation, redesign, and operation.

Finally, looking at Essakane. It was a steady quarter at the mine with operations being able to perform effectively to plan in the quarter. Essakane reported attributable gold production of 100,000 ounces in the third quarter, bringing the year-to-date total to 329,000 ounces. Mining activity totaled 12.2 million tonnes in the quarter, with only 1.9 million tonnes of ore mined, as mining prioritized waste stripping sequences in support of the 2025 production plan, including the opening of the upper benches of Phase 7. Head grades were 1.26 grams a tonne, in line with estimates. Average head grades decreased in the third quarter from the level in the first half of the year and are expected to continue to trend towards reserve grade in the fourth quarter as the volume from Phases 6 and 7 increase and from increased proportion of stockpile are included in the mill feed. On a cost basis, Essakane reported third quarter cash cost of $1,223 per ounce and all-in sustaining costs of $1,730 per ounce, an increase quarter over quarter on lower ounces sold, with both cash cost and AISC on track to be at the low end of our cost guidance range.

Looking ahead, Essakane attributable production is expected to be at the top end of the guidance range of 380,000 to 410,000 ounces. The mill is expected to continue operating at nameplate capacity and the positive reconciliation of Phase 5 is expected to continue. However, the average pit grades are expected to decrease during the fourth quarter as mining activities continue to transition into the next phases of the pit, resulting in a lower level of ore mined requiring ore feed to be supplemented with low-grade stockpile material. The focus in the fourth quarter will be to further enhance the phase positioning in the pit for a strong start next year. As we begin to look into next year, Essakane continues to be a significant cash flow contributor for IAMGOLD. With the current mine life through 2028, this operation has the capability to generate over $1 billion of cash flow at current gold price and is a significant part of our long-term plan to delever the company.

Looking beyond the mine plan, we are continuing to examine opportunity to extend the mine life at Essakane, targeting options within the fence to ensure the safety of our teams. So thank you all, and I look forward to an exciting year ahead. With that, I would like to pass the call back to the operator for the Q&A portion of the call. Operator?

[Operator]

[Operator Instructions] Our first question comes from Lawson Winder of Bank of America.

[Lawson Winder, analyst]

Could I actually just start off with a pretty basic cash flow question on working capital? Maarten, there's been a moderate headwind to free cash flow in 2024 year-to-date, something like $90 million from working capital build. First of all, at what point do you expect that to stabilize? And then, assuming flat gold prices from here, what does the working capital build look like for Q4? And then, what about '25?

[Marthinus Theunissen, executive]

Lawson, a big part of the working capital this year was at Cote. We had considerable accounts payable balances due to the construction still outstanding, and we've been paying those down over the course of the year as we are closing out those contracts and paying back holdbacks. That will continue in Q4, but then we will be at the back end of that. Part of the working capital is also some of the taxes that's building up, and then we are accruing taxes at Essakane that is increasing because of higher gold prices. But other than that, we expect it to -- our accounts payable still to decrease, specifically at Cote, and then stabilize after that from next year onwards.

[Lawson Winder, analyst]

And then, just thinking about your net debt. So look, at spot gold, I think IAMGOLD could be in a net cash position by year-end of 2025. How are you thinking about what is a sufficient debt reduction target? At what point is your net debt level sufficient? First question, yes.

[Marthinus Theunissen, executive]

Yes. So we'll be looking at our debt as it comes due when we look at that and using excess cash and liquidity to deal with that. But we've restarted paying debt this quarter already by delivering into the gold prepay, and we'll continue doing that over the course of this year and the first half of next year. Based on spot gold prices, that has a significant impact on cash. So getting that off our balance sheet is important for us. Then in the middle of next year, our second lien notes become callable, and we have an opportunity to pay that back at $20 million increments with excess liquidity when we can. So that would be our next target, using excess liquidity.

And then, after that, the biggest portion of our debt that remains is our high-yield notes, and that is a 5.75% coupon. We won't be in a rush to pay that down off of our balance sheet. And then, lastly, the leases that we have, about $133 million or $130 million, at the moment, and we expect to increase that slightly still. We will pay that down just based on the scheduled payments. So that's our way that we look. And based on the debt agreements we have, without needing to make amendments, that's what we can do.

[Lawson Winder, analyst]

So looking beyond that repayment, which it will be mostly wrapped up by at some point in the second half of next year, what would be the capital priority considerations at that point? And at what point do you start thinking about a dividend or share buybacks?

[Renaud Adams, executive]

Before we go to the share buyback, the most important thing once we put the prepay behind us is to really turn the company into a net positive cash flow. So that's the priority number 1. So this would allow -- '25 for us is [indiscernible] continuing the ramp-up of Cote and, quite frankly, Westwood and Essakane, should be in a pretty steady state type of year, maximizing cash flow.

As we enter '26, as I mentioned, there could be some opportunity of extending the life of mine at Essakane, so where you would remain always positive cash flow, but maybe you could take a little bit less [ than 600,000, 700,000 ounces ] and extend the life of mine. So I think once we turn the company on the positive cash flow side, we'll be capable to first look at unlocking additional organic growth of [indiscernible] assets as everyone will be capable to take care of themselves, and that's what would be -- I've mentioned opportunities at Cote as well, at the low capital requirement, the crusher. We'd eventually look back after that on the wet side, if there's any some opportunities. But net-net, this company should not be entering any additional important capital allocation more than benefiting from the free cash flow at each asset to further unlock some potential and continue to improve on the balance sheet. Even though Cote is poised with some opportunity to increase, we do not see this as a potential important capital allocation, but rather benefit just from the free cash flow. Hope this clarifies.

[Lawson Winder, analyst]

Yes. No, that's very clear. And then just one final thought. At some point, it might really benefit IAMGOLD shareholders to consider increasing IAMGOLD's ownership of Cote Gold. Are there certain milestones or timelines or preestablished economic considerations that would allow IAMGOLD to even marginally increase that position from 70% at some point in the future?

[Renaud Adams, executive]

I would say at this stage, the main limiting factor is this whole thing was designed at a 70:30, right? So we do have a partner, and we're very happy in the partnership we have. Should it be any opportunity down the road with our partner, Sumitomo, for sure, we would be considering to increase. But at this stage, that was designed at a 70-30, which we should be back soon. But Cote is by far our best opportunity, right? So any opportunity we would seize that makes a lot of sense and generate return, we'll be looking at improving our positions or the NAV or any unlocking any organic growth. That would be always our priority number 1 at Cote Gold.

[Operator]

The next question comes from Anita Soni of CIBC World Markets.

[Anita Soni, analyst]

A couple of questions. So just firstly on Westwood, you said there was a mill shutdown in November. Could you tell us how long that mill shutdown would be for? How many days?

[Renaud Adams, executive]

Yes. We're targeting 5. If we see a further opportunity, we'll do it. I would say 5 to 7, but hopefully, we do it in 5.

[Anita Soni, analyst]

Okay. And then next on Essakane. Just trying to understand what Q4 and 2025 look like there. In Q4, you indicated that you're going to be pulling more stockpiles as you are focusing on stripping waste. Could you just give us an indication of what the strip ratios would be, both the operating and the capitalized strip ratio?

[Renaud Adams, executive]

Yes. So next year, we'll be back to more standard. So I could already tell you that. It's a year where we should see reductions of total capital as well as aligned with the 43-101. In the Q4, we should normally increase. It's going to be like a much lower ore grade mine. So we could go probably as far as probably 4:1 or 5:1, depending on how it goes and the opportunity and the phase positioning. But in 2025, we would be back to a more regular in line probably with what we've done this year or even lower.

[Anita Soni, analyst]

So around 2, is that correct or...?

[Renaud Adams, executive]

Between 2 and 3, always seizing the opportunity. Like this year, what we've done, considering the very positive year, the free cash flow, so we took advantage to push, improve the positioning in the pit, do more waste. But you can start towards maybe a 2:5 plan, and you could go a little bit higher. So follow the mine to 43-101, which I think remains very relevant for '25.

[Anita Soni, analyst]

Okay. And then the last question on Essakane would be the grade reconciliation. I know you tried to do work on it in the past, but it's clearly beating and continuing to beat. I think the plan for Q2 was lower grade, plan for Q3 was lower grade, and it's still hanging in there well above the reserve grade. So how should we think about that on a go-forward basis? I know you'll probably tell me to use the reserve grade, but is that realistic at this point?

[Renaud Adams, executive]

Well, as I mentioned in my opening comment, one of the big contributors is the Phase 5, and we've seen some extension that's going to prolong in '25. So on that point of the Phase 5s alone, it would bring normally opportunity beyond the 43-101. So we'll look at this for next year. Now, we're not at the beginning of the Phase 5, but we should benefit at least another quarter, if not more, from the Phase 5. So yes, we should normally -- should the Phase 5 continue, as I mentioned, we should normally be able to improve beyond the 43-101 in terms of grades for next year.

[Operator]

[Operator Instructions] Our next question comes from Tanya Jakusconek from Scotiabank.

[Tanya Jakusconek, analyst]

Renaud, maybe just to circle back on Lawson's question on capital allocation. Did I understand correctly that the priorities for you in 2025 are obviously paying down the prepaid and the notes and some of the leases, et cetera, et cetera, dealing with the debt side? And then you have some capital that you put into Cote on the plant side. And is it safe to assume that you want to extend the mine life at Essakane. So that's 2025. And so as we go into 2026, do you think, at that point, you will have any additional free cash flow to look for returns to shareholders? I'm just trying to see whether returns to shareholders via dividend and/or share buyback is a 2026 part of your review. It's not 2025 is what I'm understanding.

[Renaud Adams, executive]

Thanks for your questions, because our shareholders obviously means a lot, and we'll always be taking into account. So my capital allocation answer was really focusing more on what we see as real mine site capital needs, which we still see within the -- but as you mentioned, and as we have mentioned in previous quarter, as we turn this company positive cash flow and address property level of debt reductions, we'll continue to generate excess free cash flow. And we have mentioned in the past that we will be looking down the road to how could we find a better way to reward our shareholders. This is not for '25. We will see how the gold market goes, but I'm expecting this company to be in excess of cash flow as we advance '26, '27, and beyond, and which will represent some opportunity. We don't have any decision made. This is all part of strategic approach as we advance in time. But I'm looking at '24, looking how we are advancing. I'm very excited about what this company could be next year towards the Q3. There are some big priority that would make a difference for the shareholders. As you know, the second lien is very expensive, and we must find a way to reduce cost of that. But after that, down the road, once you adjust your balance sheet, I think, there would be opportunity for the shareholders. So thank you for this question.

[Tanya Jakusconek, analyst]

Okay. Looking at '26 and beyond for that opportunity.

[Renaud Adams, executive]

Yes, that cannot really be before that because we do have that. So I think as we advance '26 and beyond, looking at the needs, the excess cash flow, we'll be looking at what could be done, yes.

[Tanya Jakusconek, analyst]

And then, Renaud, my second question is just on Westwood. I know the 43-101 technical study is coming. And I think Anita asked this on one of the other calls, but can you just remind me what you have set as a long-term production target and cost target for this asset? Was that 150,000 ounces or [Technical Difficulty].

[Renaud Adams, executive]

Thanks for your question, because we will be filing the 43-101. But, but in all fairness, the 43-101, by the nature of the mine, it's a deep mine. There is quite a bit of ounces, not quite in the reserve category. So you've seen the reserve at the end of December, about 1 million ounce and the 43-101 is based on reserve only. But there is quite a significant amount of other ounces that, of course, part of the life of mine and so forth.

So an average of 130,000, 140,000 ounces. So I'd like to say, I see this mine down the road that is a steady 125,000 to 150,000 ounces type of range. And this is just with the current life of mine. But once the Grand Duc is done, there will be further opportunity and extra capacity at the mill, down the road, that could be. So I would say as a base case, it's probably 125,000, 140,000 ounces. And in terms of cost, I would wait for the 43-101 to highlight a little bit more of that.

So I don't want to be ahead of my ski here. So a few weeks will be a better answer to these questions. But you will see a drop from the current range just because of the level of rehabilitations that would ease down, so that would lower some costs. So if we do $1,600 today, you should expect down the road the mine to be capable to do better than that.

[Tanya Jakusconek, analyst]

Okay. Look forward to [ getting ]. And then maybe my final question, I just wanted to circle back, Renaud, on something you said earlier, which was on inflation, very focused on this. I think that 35% of your cost structure is labor, correct me if I'm wrong. Can I just understand, number one, what is your labor inflation currently? And how are you thinking about that into 2025? That's my first question. So is 35%, Maarten, the right number as a percentage of cost for labor and then the inflation?

[Renaud Adams, executive]

I'll pass it to Maarten for more further detail.

[Marthinus Theunissen, executive]

Tanya, so 35% is still the amount for labor and contractors in our cost structure. That will change slightly as Cote becomes a bigger part of our organization now going forward because Cote has less labor than Essakane, for example. When we look at our budget, which we're still working on, and we look at what the industry is doing, as well as CPI, we're seeing like 3% to 3.5% increases for labor on average. And I think that's in line with what other people are seeing as well.

[Tanya Jakusconek, analyst]

And as we go forward, would that 35% move to 40% in labor, or would it be higher, like with the contractor? I'm just trying to understand what that 35% would move to.

[Marthinus Theunissen, executive]

I think that 35% would maybe decrease because of the labor component, higher labor component in Essakane than at Cote. But we're just working through those numbers as well, so...

[Renaud Adams, executive]

It should not increase.

[Marthinus Theunissen, executive]

It should not change.

[Renaud Adams, executive]

Maybe there should be a slight decrease.

[Tanya Jakusconek, analyst]

So you're saying that 35% includes your employees and your contractors in that 35%...?

[Marthinus Theunissen, executive]

Correct.

[Tanya Jakusconek, analyst]

Okay. Can you give me the split of what that is now? So what is [Technical Difficulty] and what is contractors in that 35%?

[Marthinus Theunissen, executive]

So based on our plan for this year, I've not checked the actuals recently, but it was about 25% of the 35% and then 10%. So labor 25%, contractors 10% of that 35%.

[Tanya Jakusconek, analyst]

And then that 10% should decrease as Cote comes on next year, is that how I understood it.

[Marthinus Theunissen, executive]

Yes.

[Tanya Jakusconek, analyst]

Yes. Okay. And still within the 35%, it's just the shift of contractors increasing versus your employees. And then, Renaud, you mentioned...

[Marthinus Theunissen, executive]

Sorry, Tanya. It's more that our total percentage of labor of our cost structure, the 35%, we expect to maybe slightly decrease as Cote becomes a bigger part of our overall cost structure. The split between labor and contractors may not change, but it depends on how we operate the business.

[Tanya Jakusconek, analyst]

And so when you look at overall, and I think, Renaud, you mentioned that consumables is in line with [Technical Difficulty] of the cost structure. Obviously, the higher gold price impacts royalties, that you see. So as you think about 2025, and you have this labor inflation at that 3%, 3.5%, and let's say, flattish on some of the other stuff, plus you have a higher gold price for the royalties, would we be thinking like 5% would be a reasonable assumption for year-over-year change '25 to '24?

[Marthinus Theunissen, executive]

Tanya, there's lots of other price inputs as well, like we need to look at oil, and that's been changing, energy costs. So we will be providing our guidance early next year, and we're still working through our budgets and plans as well. So it's hard to confirm that number at this point.

[Renaud Adams, executive]

Yes. And the thing is that you may have some -- like Cote, for instance, right? Cote is a good example. The first year is a ramp-up, so you're looking at your consumptions that are not optimized. So you may face some increase in and some unit price paid, but you have further possibilities. So I think '24, '25, we'll do anything possible to offset any possible increase. But as Maarten highlighted, so we'll be more specific at the start of the year, but I definitely do not -- because Cote has so much of improvement and opportunities, I think we still can target to offset most of the increase, other than the labor.

[Operator]

Our next question comes from Simon Wildsmith of Canaccord Genuity.

[Simon Wildsmith, analyst]

Maybe for Maarten, with strong gold prices, and what seems to be an improving balance sheet, is there an opportunity to refinance the relatively high-cost term loan early?

[Marthinus Theunissen, executive]

Simon, that loan becomes callable -- we can start repaying it now, but there is a prepayment penalty that's quite large at the moment.

So in May of next year, that reduces to 104%. So to do anything before then, if you look at the cost of new debt and all of those costs, we don't believe that, that is the best way to increase value and reduce our debt-carrying cost. But by middle of next year, that's when there would be an opportunity to do that. And we are still delivering into the gold prepay now as well. So that is using a lot of the extra free cash flow and high gold price.

[Operator]

This concludes our time allocated for questions on today's call. I will now hand the call back over to Graeme Jennings for closing remarks.

[Graeme Jennings, executive]

Thank you very much, operator. Thank you, everyone, for joining us this morning. As always, if you should have any questions, please reach out to Renaud or myself. Thank you all. Be safe, and we will see you next quarter in 2025.

[Operator]

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