IAMGOLD Corp

TSX:IMG

Earnings Call Transcript 2022-Q4

[Operator]

Thank you for standing by. This is the conference operator. Welcome to the IAMGOLD 2022 Fourth Quarter and Year End Operating and Financial Results Conference Call and Webcast. [Operator Instructions] At this time, I’d like to turn the conference over to Graeme Jennings, Vice President, Investor Relations and Corporate Communications for IAMGOLD. Please go ahead, Mr. Jennings.

[Graeme Jennings]

Thank you, operator and welcome everyone to our conference call today. Joining me on the call are Maryse Bélanger, Chair of the Board and Interim President and Chief Executive Officer; Maarten Theunissen, Interim Chief Financial Officer; Bruno Lemelin, Senior Vice President, Operations and Projects; and Tim Bradburn, Senior Vice President, General Counsel and Corporate Secretary.

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 statement 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 persons and technical information. 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 Bélanger.

[Maryse Bélanger]

Thank you, Graeme. Good morning, everyone and thank you for joining us. The last 12 months have been a transformative period for IAMGOLD. The company took significant steps towards this goal of becoming a leading high-margin gold producer with the advancement of funding of Côté as we prioritize our capital allocation on key jurisdictions and value-accretive assets, all for the benefit of our stakeholders and partners.

Operationally, the company exceeded its targets, producing 713,000 ounces for the year, coming in above our revised guidance of 650,000 to 700,000 ounces. This performance was fueled by the record production at Essakane. Essakane is the backbone of our current production and the team there has done an incredible job demonstrating great initiatives and resiliency. At Côté Gold, the project saw remarkable progress in 2022. It is now over 70% complete and recently celebrated a major milestone with the deployment of the first autonomous haul trucks, which began mining activities in January. The site celebrated 8.3 million hours without a lost time injury, which is a testament to the skill and dedication of the Côté team.

On behalf of the Board and the executive team, we applaud the tireless efforts of the IAMGOLD team for these achievements and the continued commitment to operating safely and responsibly. Our commitment to safety is not just a priority for us, but a value that is at the heart of everything we do. Financially, the company achieved its stated goal of funding the construction of Côté prior to the end of the calendar year. The strategic transaction for the sale of Rosebel and exploration projects in the West Africa as well and the funding agreement with our trusted partners, Sumitomo, together combined for over $900 million of liquidity and was arranged without sacrificing any long-term economics on our primary assets. This was a major achievement for the company and has positioned us for success this year.

Turning to sustainability. IAMGOLD continues to place responsible mining at the forefront and we strive to achieve the highest standards in safety, environmental, social and governance practices. IAMGOLD’s commitment to zero harm is at the core of the company’s values and essential for value creation for all our stakeholders and to operate and excel as a mining company. Our efforts continue to be recognized as we were ranked fifth out of 52 sector peers by Moody’s ESG solutions and continue to hold the AA rating by MSCI Ratings assessment, actually placing IAMGOLD among the top 15% of precious metals companies. We have and we will continue to enhance our reporting under widely recognized frameworks, including the Global Reporting Initiative and the Sustainability Accounting Standards Board. And this year, we will be issuing our inaugural task force on climate-related financial disclosure report, which will outline medium-term targets and a roadmap towards our goal of achieving net positive biodiversity at all our operations and negative greenhouse gas emissions by 2050.

Now turning to operations, last year, IAMGOLD produced 713,000 ounces of attributable gold from all operations, exceeding our guidance targets which were raised in the second half of the year. This outperformance was driven by record production at Essakane, a strong fourth quarter from Rosebel and continued improvement at Westwood. The strong production results and sales volumes translated to cash cost of $1,109 per ounce sold and all-in sustaining cost of $1,581 per ounce sold, comparing well with our guidance estimates of $1,100 to $1,130 per ounce for cash costs and slightly below our all-in sustaining cost guidance range of $1,600 to $1,650 per ounce. We saw operating cost increase in the second half of the year from continued cost pressures from inflation and supply chain constraints as well as the higher proportion of stripping expenditure that is again relative to production in Q4. Looking forward to 2023, we are forecasting production to be in the range of 410,000 to 470,000 ounces from Essakane and Westwood. We will walk through our operations and their respective production outlook in more detail in the following slides.

Cash costs this year are expected to be between $1,125 and $1,175 per ounce sold. The increase in cash costs compared to that from continuing operations in 2022 is due to an expected return to a grade – closer to reserve grades at Essakane as well as the continuation of the elevated pricing level for some consumables as experienced during the second half of 2022. While pricing for the main consumables, including cyanide, lime and grinding media, are expected to remain in line with the levels of second half of 2022. Some consumable pricing such as activated carbon, explosives and fuel products are expected to remain under pressure in 2023, reflecting continued imbalances in global supply and demand.

All-in sustaining cost is expected to be in the range of $1,625 to $1,700 per ounce sold and the increase in all-in sustaining cost in 2023 again as compared to that from continuing operation in 2022 is due to the same reasons as cash cost per ounce sold as well as the impact of an increased ratio of stripping capital to – sorry, increased ratio of stripping capital to ounces produced at Essakane, particularly in the first half of the year, where we may see cost come in above 2023 guidance only to step down in the second half of the year. In addition, our all-in sustaining cost outlook contains a higher per ounce contribution of corporate costs as a result of the signal of the company’s interest in the Rosebel gold mine.

Now, turning to operations. Essakane reported its best year ever of production since starting operations 13 years ago, the mine produced 480,000 ounces of gold in 2022 or 432,000 ounces on an attributable basis, benefiting from positive reconciliation – excuse me of head grade versus our block model and improved recoveries at the mill. On a quarterly basis, the fourth quarter saw attributable production of 98,000 ounces in line with the prior year period.

Ore mining declined in the fourth quarter as operations prioritized stripping activities to secure access for the next phases of mining later this year, while also managing impacts from supply chain constraints related to the security environment in the country. On that, we note that the security situation in Burkina Faso continued to deteriorate in 2022 with governmental instability and terrorist-related incidents occurring in the country and the region. The company continues to take proactive measures to ensure the safety and security of in-country personnel and is constantly adjusting its protocols and activity levels and decide according to the security situation. The company continues to make investments in security and infrastructure in the region and at the mine site while regularly engaging with relevant authorities and government partners in Burkina Faso.

Cash costs and all-in sustaining costs in the fourth quarter came in at $1,043 per ounce and $1,456 per ounce respectively. Increasing actually in the second half of the year due to inflation impacts as well as lower production and increased waste stripping relative to the production in that quarter. Looking ahead, Essakane attributable gold production is expected to be in the range of 340,000 to 380,000 ounces as grades are expected to return closer to reserve grades and as also operations move into the next phases of the pit.

Unlike last year, where we saw relatively flat production quarter-over-quarter, this year, we expect lower production in the first half of the year as mining activities prioritized stripping in order to provide access to two new all phases for mining in the second half and into 2024. Cash costs and all-in sustaining costs are expected to continue to remain hot, particularly in the first half of the year, reflecting lower production levels as had grade return closer to reserve grade.

Additionally, in the quarter, IAMGOLD completed a study to assess alternative to a heap leach scenario at the end of the mine life. And we did that by campaign in low-grade stockpile through the processing plant. This study returned positive results, suggesting that approximately 10 million tons of the stockpile can be processed through the CIL circuit economically. Accordingly, the company will not be pursuing the heap leach project and we will be providing the results in an updated technical report later this year.

Now Westwood, gold production was 18,000 ounces in the quarter as a result of higher volumes in ore grades from underground as well as higher grades mined from the Grand Duc pit. Underground development in the fourth quarter achieved the highest development rate of the year with 1,297 meters of lateral development completed, triple that of the same prior year period, resulting in full year lateral development of 4,303 meters. This successful ramp-up in development activity has secured multiple of paces at different levels in the mine providing increased operational flexibility to exploit multiple stope sequences to support the 2023 production plan. This year, Westwood is expected to produce between 70,000 to 90,000 ounces with an increasing proportion of ore sourced from the underground mine. Production levels are expected to progressively increase over the course of the year, benefiting from the continued advancement of underground development providing access to higher grade zones in the second half of the year. Mill feed will continue to be supplemented from available surface deposit and we should note that our guidance includes supplemental mill feed from satellite deposits, including from the final property in the second half of the year. Cash costs and all-in sustaining costs continue to remain high at the West with complex with a very high sensitivity to underground output. As production volumes increase, we expect to see costs to go down.

Now turning to Côté Gold. It has been very exciting seeing the progress of the project over the fourth quarter and into this year. Project advancement rates are currently at peak levels in line with the updated project plan. The site is operating at its current capacity with approximately 1,500 workers at site. I was up at site a couple of weeks ago with our partner Sumitomo, and it is remarkable the transformation we are seeing at Côté. At the end of the year, the project was approximately 73% complete, achieving nearly 9% progress in the fourth quarter.

To start the winter, our construction teams were focused on critical project activities to allow for mechanical installation and mobilization inside the plant during the winter season as well as earth works activities in preparation for the spray. Structural steel work in the HPGR and secondary crushing area has made significant progress with the main structure and overhead crane to be installed in the first month of this year. And as you saw in the previous slide, installation of the leach tanks is nearly complete and construction of the electrical substation at site is progressing well, and we anticipate connecting to the to the provincial hydro grid on track with our schedule.

This site celebrated a major milestone last month with the initial deployment of the autonomous [indiscernible] drilling systems, with the first round of Caterpillar 793 haul trucks currently operating in autonomous mode, supported by the AHF operators in the newly commissioned mine control rule. This early deployment has allowed us to support our earthworks contractor, while better positioning our mining team for handoff mid-year and for the commencement of production next year. It is really a site to see these trucks running with their blue light and operating with a level of precision that can only be achieved by this technology.

Now looking at the project spending. In Q4, the company incurred $185.6 million in project expenditures. As of December 31, 2022, the estimated attributable cost to complete construction and IAMGOLD’s funding requirement is $800 million to $875 million. It is expected that Sumitomo will fund approximately $340 million of the 2023 expenditure as per the amended joint venture agreement. And Maarten will provide details of it in a moment. Therefore, translating to a IAMGOLD funding requirement this year of $460 million to $535 million during 2023.

In terms of time line, Côté Gold continues to track well with the updated project schedule towards initial production in early 2024 IAMGOLD and our partner, Sumitomo alloyed and focused on building Côté safely on done and to the current budget and scope. At this time, the critical path for the project continues to be through the processing plant, and teams are focused with installation, ongoing of the pipe racks and grinding and refining structures. The project is advancing at about 2% to 4% per month. And as we look ahead to this year, we can start to see the light at the end of the tunnel. 2023 is going to be an exciting year for this project, and we are eager to showcase to the world that what will be Canada’s third largest gold mine by production.

Turning briefly to Gosselin. Last year, we conducted a 17,000 meter diamond drill campaign with the results reported earlier this month, which intersected mineralization to the sold off and below the current resource boundary of the deposit. Gosselin with its maiden results of 3.4 million indicated ounces and 1.7 million ounces inferred continues to be in the early stages of discovery. The deposit has only been drilled with a fraction of the meters compared to Côté and to ask the depth. It remains open along strike and I doubt. When one looks at the Côté life of mine plan, there is a step down in production in the year 2030 to 2033 which would be a logical fit to bring Gosselin into the mine plan.

There is a lot of work to do in order to realize that. And this year, we will be advancing technical studies to review alternatives or potential inclusion of Côté into the future – sorry for potential inclusion of Gosselin into a future Côté life of mine plan. Then looking beyond Gosselin, we firmly believe that Côté Gold is not just a project but the start of a district and there is significant upside to be uncovered as then with minimal historical exploration targeting those Côté, Gosselin intrusion-hosted deposits within our 596 square kilometer land package.

I will now turn it over to Maarten to walk us through the financial review.

[Maarten Theunissen, Interim Chief Financial Officer]

Thank you, Maryse and good morning. As you would have seen, Rosebel has been classified as a discontinued operation due to its sale and are not included in our continuing operating results. Revenue from continuing operations totaled $958.8 million last year from sales of 555,000 ounces or 506,000 ounces on an attributable basis at an average realized price of $1,721 per ounce. The price was below spot due to the impact of physically delivering 150,000 ounces into the prepay arrangement that has a $1,500 per ounce color. IAMGOLD received $30 million in cash this year in relation to the dollar completing the 2019 prepay arrangement.

Earnings before interest, income taxes, depreciation and amortization from continuing operations, was $292.3 million for the year or $313.4 million on an adjusted basis. Mine site free cash flow from continuing operations. Calculated as cash flow from mine site operating activities, less mine site-related capital expenditures was $167.2 million for the year. Looking at cash flow, net cash flow from operating activities, including working capital, was $408.7 million, with $277.6 million coming from continuing operations and $151.1 million from discontinued operations.

Net cash used in investing activities totaled $891.9 million, of which $761.2 million was used by continuing operations, a major component of which was the ongoing construction at Côté and in discontinued operations of $130.7 million. Finally, net cash in financing activities totaled $404 million, primarily due to the drawdown of the credit facility.

In terms of our financial position, we ended the quarter with approximately $408 million in cash and cash equivalents and $27 million available under our credit facility. After drawing down $455 million in 2022 and accounting for letters of credit in the amount of $18.4 million issued under the credit facility as collateral for certain surety bonds issued as environmental indemnities. It is worth noting that the cash funding excludes $40.8 million in assets held for sale that is included $38.5 million of cash and draws amount. Additionally, approximately $236 million of our cash and cash equivalents are currently held by Côté and Essakane.

As Maryse noted, IAMGOLD completed a series of strategic transactions at the end of the year, taking over $900 million in after-tax funding. The results of which mean that IAMGOLD is able to meet the estimated remaining funding requirements of $800 million to $875 million for the completion of construction of Côté Gold based on the current schedule and estimate. As announced on October 18th, IAMGOLD announced the sale of interest in the Rosebel Gulf mine to Zijin Mining for cash consideration of $360 million. This transaction closed on January 31st, during which time the company received net proceeds of $371.5 million, consisting of sales proceeds of $360 million plus $15 million of the cash out by Rosebel on January 31st, less a preliminary working capital adjustment of $3.5 million. The company is due to receive approximately $24.8 million by March 31, 2023, consisting of the remaining cash balance out by Rosebel at that time, net of final working capital adjustments.

On December 20th, the company announced that its entered into definitive agreements with Manager to sell the company’s interest in a separation development process in Senegal, Mali and Guinea including Boto, Karita, and Diakha for aggregate pretax consideration of approximately $282 million or approximately $240 million to $250 million on an after tax base that’s estimated. We continue to expect these transactions to close over the course of the second quarter and third quarter. Finally, on December 19th, the company announced a funding agreement with Sumitomo. With Sumitomo will contribute certain of IAMGOLD’s funding amounts to the Côté Gold project, which in aggregate, are expected to take approximately $340 million over the course of this year in exchange for an approximate 10% interest in Côté, with the right to repurchase this 10% interest, at one of seven future dates up to November 2026. We believe the Sumitomo transaction demonstrates to all our stakeholders, strong validation of the Côté Gold project from our project partner, and you want to reinforce that is ours Sumitomo’s attention for IAMGOLD to return to the 70-30 JV ratio in the future.

[Maryse Bélanger]

Thank you, Maarten, and congratulations to you and your team for an incredible job last year. With that, I would like to pass the call back to the operator for Q&A.

[Operator]

[Operator Instructions]

[Maryse Bélanger]

Thank you very much, operator. There doesn’t seem to be any questions. So, I would like to thank everyone for joining us. Sorry, I think we have. Okay, questions coming in.

[Operator]

Yes. The first question is from Mohamed Soubra [ph] of CIBC. Please go ahead.

[Unidentified Analyst]

Hi. Thanks for taking my question. Sorry about the mishap over there. So, my question is mainly – I am here on behalf of Anita Soni from CIBC. Question is really related to Essakane and the heap leach expansion. So, first of all, I just wanted to understand whether or not the heap leach material is currently included in either the reserves and resources? Yes, that’s my first question.

[Maryse Bélanger]

Thanks for your question. And if I understood well, you wanted to know in that potential – the 10 million tons we mentioned that was supposed to be heap leach if it’s included in the resource or in the reserves and it’s not. And if I misunderstood the question, maybe you would repeat, please.

[Unidentified Analyst]

Yes. No, for sure. That was the question. It was related to the 9.8 million tons that you mentioned in the call. And if not those, going back to the technical report, I recall that heap leach expansion was about 43 million tons at about 0.37 grams per ton, would you be able to maybe give us a little bit more color on what we could expect from that a more economical material and when we expect to see that in resource or reserves?

[Maryse Bélanger]

So, didn’t provide much clarity in terms of the material that was considered in the heap leach scenario in the past. But all I am going to see is that by midyear, we should have a new technical report where we will have studied all of the potential options for processing and different processing pathways. So, we will keep the market informed as the work is completed.

[Unidentified Analyst]

Okay. Sounds good. Thank you for that. And then finally, I guess given the fact that you are not going ahead with the heap leach expansion anymore, should we just expect the mine life to stand around 2026, 2027 mark as per the technical report?

[Maryse Bélanger]

At this point, we think with this possibility to extend the mine life. But as you know, we would need to collect more drilling data and update all of our resource models. So, work is progressing. And as I have said, we will provide more clarity by midyear.

[Unidentified Analyst]

Okay. Sounds good. Thank you.

[Operator]

Your next question is from Sean Wondrack with Deutsche Bank. Please go ahead.

[Sean Wondrack, Deutsche Bank]

Hi. Good morning and nice job on liquidity this quarter. Just as we take a look at your cash position today, is it fair to say that pro forma cash, assuming the receipt of the funds from Boto and from South America is roughly $1 billion as we stand today?

[Maarten Theunissen, Interim Chief Financial Officer]

Yes. If we – if you take our cash position that we had at the end of the year of $407 million and we add in the additional cash proceeds on the close of Rosebel that was included in our assets held for sale. That gets us to the $450 million. And then if you add in the net proceeds from the others, the other two transactions, it would get us to approximately $1 billion.

[Sean Wondrack, Deutsche Bank]

Okay. Great. Thank you. And then just surrounding Burkina Faso, there has been a few headlines out there. There was a headline with Endeavor yesterday. Can you just tell us a little bit more about maybe what’s going on, on the ground there? There has been rumors about the French potentially leaving, is that true? And how do you control your own destiny there? I know you have operated in the country for a long time. There has always been some kind of turmoil. So, I am just curious to get your opinion on, has anything changed there? Is it sort of it’s always been a difficult environment and we are coping with it.

[Maryse Bélanger]

Okay. I will take this. Well, first let’s – I will try to address my knowledge, the headline news we heard about early this week with cool sale. So, we are aware of media reports relating to the Burkina Faso government buying gold. And the government actually issued a statement clarifying that they arranged an agreement with Endeavor for that sale. And by the way, in the mining code, Article 16 does allow for this transaction. And in our case, we sell a small amount frequently directly to the West African Central Bank. But we have not received such a request from the Burkina Faso government. And I would not comment further on this. In terms of the security and a bit more color, as we noted the situation is complex in Burkina is deteriorated in 2022. And for us, it’s always relative to our convoys of supplies going to the mine. It’s a logistical challenge. And the company continues to take proactive measures to ensure the safety of our people. And we are constantly adjusting our protocols and activity levels, and we are monitoring closely security environment. And also, we are – we continue to make some investments in supply chain infrastructure and also in storage capacity on the mine side and we do have the support of the government. So, two components to this, our situation at Essakane and then Rosebel sale, which we have not received that type of request and for Essakane. I hope that’s helpful.

[Sean Wondrack, Deutsche Bank]

Yes, that’s very helpful. Thank you very much.

[Operator]

Thank you. We have a follow-up question from Mohamed Soubra. Please go ahead.

[Unidentified Analyst]

Thanks. Thanks for taking my question there. Just a follow-up question on the current low-grade material at Essakane, I was just looking through the reserve and resource table. I was wondering if you could give me maybe just the tonnage and grade that you currently have there in the low-grade material if that’s available? Thank you.

[Maryse Bélanger]

For low-grade material, I do not have that. If you don’t mind Mohamed, we could take that slowly.

[Unidentified Analyst]

Yes, for sure. Thank you so much.

[Maryse Bélanger]

Thanks.

[Operator]

This concludes the question-and-answer session. I would now like to hand the call back over to Maryse Bélanger for closing remarks.

[Maryse Bélanger]

Thank you very much, operator and thanks to everyone for joining us this morning and for your continued engagement with IAMGOLD. As always, we are available should we – should you have any additional questions, please do not hesitate to reach out to Graeme Jennings or myself if would like to set up a meeting. Thank you all, and 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.