IAMGOLD Corporation (IAG) Q3 2013 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. Thank you for standing by and welcome to IAMGOLD Corporation's 2013 Third Quarter Financial Results Conference Call. [Operator Instructions] I would like to remind everyone that this conference call is being recorded on Wednesday, November 6, 2013, at 8:30 a.m. Eastern Standard Time. And I would now like to turn the call over to Mr. Bob Tait, Vice President, Investor Relations. Please go ahead, sir.

Thank you, John. Welcome to IAMGOLD's conference call for the third quarter of 2013. Last night, we released our financial results for the quarter, which along with the company's financial statements, notes and MD&A can be found on our website at iamgold.com. Joining me on the conference call are Steve Letwin, President and CEO of IAMGOLD; Gord Stothart, Executive Vice President and Chief Operating Officer; Carol Banducci, Executive Vice President and Chief Financial Officer; Craig MacDougall, Senior Vice President, Exploration; and Tim Bradburn, Associate General Counsel and Corporate Secretary. Our remarks today will include forward-looking statements. I refer you to the cautionary language regarding forward-looking information in our disclosure documents and advise that the same cautionary language applies to our remarks during the call. We have prepared slides, which can be viewed via our website. I'll now turn the call over to our President and CEO, Steve Letwin.

Thanks, Bob and thanks, everyone, for joining us on the call. Well, let me start by saying how extremely pleased I am with the quarter. It's our third successful quarter in a row. We have demonstrated some great results. We have great traction and our team has really come together in our assault on costs. Our outlook for gold over the long term is optimistic but at the same time, we are prudently planning for lower gold prices. And I think you see that in our strategy, overall. Our approach to preserving liquidity is multidimensional. We will continue to reduce costs, we will continue to be highly disciplined around capital spending and this quarter our dividend policy will be under review. As I have previously stated, we will not do anything that would put our balance sheet in any kind of difficulty or undue stress. And preserving cash ensures we maintain the flexibility we need to take advantage of opportunities if and when they arise. We are blessed with a very strong balance sheet. We have a very strong cash position and we are not going to put that in any kind of jeopardy. On Slide 6, we have our third quarter highlights. In the third quarter, net earnings were $0.07 a share and net cash from operating activities before working capital was $0.18 a share. Third quarter attributable gold production of 228,000 ounces was up 11% year-over-year, and our third quarter cash cost of $807 an ounce and all-in sustaining costs of $1,216 an ounce were within guidance. And we are over 3 quarters of the way to achieving our cost reduction target. So overall, extremely happy with the quarter. On Slide 7, beating cost guidance in the first 2 quarters of the year led us to lower our guidance, as you know, with third quarter total cash cost of $807 per ounce, near the lower end of our revised guidance range and our year-to-date cash costs are coming in at $793 per ounce with 1 quarter to go. I'm confident we'll finish the year well within guidance. Our all-in sustaining costs for the quarter and year-to-date of $1,216 per ounce and $1,231 per ounce, respectively, remain within guidance as well. Note that these numbers include our joint venture operations. If you exclude these, you'll see from the charts on the left side of the slide that we do an even better job, almost $75 an ounce on where we own and operate, which again was the theme song that we've had for a number of years in terms of trying to operate what we own. On Slide 8, looking at maintaining our production and cost guidance. We look at production as well where we -- our owned and operated mines are stronger performers. Overall, at 640,000 ounces year-to-date for all gold mines, we're on track for meeting our production guidance for 2013. Westwood continues to ramp up while we focus on increasing underground development activity. And I know there's been a lot of noise around Westwood with the change in our commercial production date. Gord's going to talk to that a lot more comprehensively, but let me just tell you that my confidence in Westwood is as high as ever. Our forecast for ounces next year hasn't changed. The economic outlook for Westwood hasn't changed. The classification of the ounces has changed. So in terms of our operation at Westwood, I'm very, very pleased with what work has been done. We had a few hiccups in terms of the operation of it this year that changed our ability to move to commercial as quickly as we'd like, but in terms of economic value of that mine, it's as strong or even stronger than what we thought a year ago. So our view of the long-term potential of this mine remains very high. And then this lower gold price environment as we reassess all of our mine plans this mine stands out as one of our top performers going into the future. So early in the year, we'll come out with project updates with our production and cost guidance for 2014 and let me assure you that as we go into this budget process for 2014, we will be hitting costs as hard as ever. We will be putting a lot of effort and a lot of energy to keep our costs low, keep our capital allocation within our cash flow and cash balances for the end of the year and again, because we have a very strong position financially, we are in a very good position to act opportunistically around our own mines and look at some small opportunities in and around those mines to either build, or sustain our production. So we're in great shape going to the end of the year, our cost position is very strong and we have the ability here in our next budget cycle to improve on that. So on Slide 9, we talked about getting back to cost. The success of our cost-reduction program reflects it's early and rigorous implementation. We are out of the gate early because we had to be, and the challenges we face with the harder rock, higher stripping ratios, and given our geographic locations, high-power costs. We are a low-grade producer. I've said this many times, we are who we are. And as a result of that, we have to strive for excellence, look for cost efficiencies all day long, which is what we're going to be doing and have been doing. We realized $77 million in cost savings to-date. That isn't chump change. That is a big number, and I expect that we'll not only meet this target but do better than that. I've been asked if we're going to stop there, and the answer is no, we're going to keep cutting, and we're never going to compromise safety, we're never going to compromise our sustainability in the community, we're never going to compromise our environment position, which is top-class, top-in-the-class. But we are a low-grade, and it means we have to keep cutting costs and that's how we're going to operate. We're going to lead ourselves to excellence as a low-grade operator and we want to be top-of-the-class in that particular area. So our team is working very hard to get there. On Slide 10, our capital program. 3/4 of our development and expansion CapEx this year was at Essakane and Westwood. This year marks their completion on time and on budget. Once we complete our 2014 budgeting process and the reassessment of our life-of-mine plans, we'll have a better idea of our CapEx outlook for next year. Well, we're going to be putting a stake in the ground as best we can to keep our balance sheet in a very, very strong position where we do not draw on our revolver, where we keep debt-free with respect to the banks. As you know, we have unsecured debt that exists on our balance sheet, some $650 million that's due in 2020. Our goal really is to use our cash position and cash flow from operations basically to meet whatever capital requirements we have. That certainly is our target and in that particular way, we keep our flexibility at its outmost and our opportunistic opportunities at their outmost. So on Slide 11, where we talk about disciplined capital allocation, our future capital spending decisions must meet our criteria for return on capital and in today's gold price environment will be driven by the need to preserve liquidity. So for projects not yet off the ground, many factors have to be weighed and they will be weighed and we said before, we have the option of waiting. In the meantime, we will continue to de-risk the projects while we evaluate market conditions. On Slide 12, we've talked about this before. We have a great history of generating robust returns on capital, whether it's from acquiring mines or building and operating them. This is not a record we want to break. Return on capital and our focus on the preservation of liquidity will continue to drive our planning decisions going forward. It's at the top of the list, just below safety. Return on capital employed is a flag that we wave at this company and we'll continue to wave it going forward. With that, I'll turn it over to Carol.

Thanks, Steve, and good morning, everyone. Turning to Slide 14. Revenues in the third quarter 2013 of $294 million were $43 million lower than the same period last year. The decline reflects a 20% drop in the average realized gold price, which was only partly offset by a higher volume of gold sales. And the increase in gold sales is due to 2 factors: timing differences between production and sales and no sales from Mouska in the previous year due to the stock volume ore while the plant was being refurbished. In the third quarter of this year, Mouska recorded sales of 13,000 ounces. Note that 11,000 of those ounces were actually produced in the second quarter but not sold until the beginning of the third. While production was flat at Rosebel year-over-year, sales increased 9% due to a timing difference between production and sales in the previous year. This increase was partly offset by a decrease in sales at Essakane due to lower production resulting from the expected drop in grades. Slide 15 shows that we reported earnings of $25 million or $0.07 a share for the quarter. The net impact of the adjustment this quarter was minimal with adjusted earnings of $26 million. Compared to the second quarter of this year, when we adjusted for declines in the market value of marketable securities and equity investments, we in fact recorded a small reversal in the third quarter related to INV Metals. In the third quarter, 74% of the interest on the high-yield debt was capitalized. Based on expected capital expenditures for this year, approximately half of the annual interest will be capitalized. In the third quarter, our normalized effective tax rate was in line with guidance at 38%. Turning to Slide 16, net cash from operating activities before working -- before changes in working capital was $67 million or $0.18 a share. This compared to $104 million or $0.28 a share in the same period last year. This year-over-year decline was mainly due to the combination of lower revenue and higher cost of sales, partially offset by lower exploration expenses and lower income taxes paid. Attributable gold production of 228,000 ounces in the third quarter was up 11% from the same period last year. The increase was due to the ramp-up in production at the Westwood mill, as we batch processed ore from both Westwood and Mouska. The Westwood mine produced 43,000 ounces of gold, which are pre-commercial ounces. The Mouska mine produced 2,000 ounces in the quarter compared to no ounces last year due to the refurbishment of the mill. Looking at our other operations. Rosebel was flat year-over-year and production was lower at both Essakane and our joint venture operation. The lower production at Essakane was due to lower grades, partially offset by higher throughput. As we previously said, we expect the grades to be lower than the life-of-mine average this year while we process lower grade, softer ore stockpiled in previous years. In 2014, we should see a pickup in grades as we mine more hard rock. Turning to Slide 18, the reconciliation -- this shows the reconciliation between ounces produced and ounces sold, including the 43,000 pre-commercial ounces from Westwood, attributable gold sales exceeded production by 10,000 ounces. This is mainly due to Mouska, as 11,000 ounces produced in the second quarter were not sold until early in the third quarter. The balance is due to the net effect of the timing of shipments at Essakane and Rosebel. Until the Westwood mine reaches commercial production, we net the revenue and related costs from the sale of pre-commercial ounces against capital expenditures. In the third quarter 36,000 ounces of the pre-commercial, 43,000 ounces were sold. As we've heard from Steve, we gained excellent traction with our cost-reduction program. With more than 3 quarters of the targeted reduction achieved so far, we're well on track to meeting our $100 million target. Third quarter total cash costs were $807 per ounce at the lower end of our guidance range of $790 to $840, which we reduced in the second quarter. The increase in cash cost year-over-year was mainly due to higher energy costs associated with processing hard rock, the impact of lower grades on production and inflationary factors. We continue to benefit from our cost containment initiatives, including lower power rates at Rosebel and efficiency improvement. At our gold mines, all-in sustaining costs averaged $1,216 per ounce of gold sold compared to $1,065 per ounce in the third quarter of 2012. The year-over-year increase in all-in sustaining costs reflects higher total cash costs and higher sustaining capital expenditures to support a higher hard rock capacity level at Rosebel and Essakane. For the operations we own and operate, total cash costs were well below guidance at $735 an ounce, while all-in sustaining cost per ounce of $1,118 remained at the lower end of the guidance, as Steve mentioned. We also report all-in sustaining costs after subtracting non-GAAP operating margins, net of the sustaining capital expenditures. As we previously explained, we do this to recognize how our overall cost of production benefit from the cash flow generated by Niobec. For the third quarter, the benefit from Niobec was $82 an ounce, which we -- which reduced all-in sustaining cost to $1,134 per ounce. Turning to Slide 20. While the precipitous slide in the gold price experienced in the first half of the year was somewhat abated with our average realized gold price in the third quarter, again, only 3% from the previous quarter, the year-over-year decline was 20%. This, along with the year-over-year increase in total cash cost lowered our gold margin for the quarter -- for the third quarter 2013 to $527 an ounce. Turning to Niobec. Niobium production was up 8% in the quarter, mainly due to a 10% increase in throughput. Revenue of $48 million in the quarter was in line with the same period 2012 as lower sales were offset by marginally higher niobium prices. Despite flat revenue growth, the continued focus on efficiency improvements drove operating margins up 19% to $19 a kilogram. Niobec continues to be a very stable business as niobium prices and volumes are holding steady. We've sold virtually all of our production for 2013 and are in the process of negotiating next year's contract. This last slide shows our liquidity position of $1.3 billion as of the end of September 2013. The reduction in cash and cash equivalents reflects the outlay of capital for our developments and extension projects, namely Westwood and Essakane, which will be completed at the end of this year. As well, we distributed $94 million in dividends to our shareholders during the year. With market conditions the way they are, conserving cash is not optional. Steve has already talked about our dividend policy being under review, so I want to stress the importance that we place on financial strength. We will manage our spending in a way that allows us to enhance profitability while maintaining the flexibility we need to ask opportunistically. With that, I'll turn it over to Gord for a closer look at the operations.

Thanks, Carol. Good morning, everybody. Starting on Slide 24, as our operating results show, we're seeing the benefits of our cost-reduction program. To date, we've achieved $38 million in cost savings at our operating sites with a target of reaching at least $54 million by the end of this year. With what we've achieved so far and understanding the work going on at the sites, I'm confident we'll deliver as planned. On our call last quarter, I went through some of the initiatives at each of our sites. This slide updates those examples, along with some new initiatives that were implemented in the third quarter. Most of these are ongoing in nature with long term sustainable benefits. Rather than speak to all of them, and I don't want to repeat what I've talked about last quarter, I'll comment on a few new initiatives this past quarter that highlight our focus on improving productivity and reducing costs at the sites. For instance, at Rosebel, the drilling of blast holes during the rainy season can be costly. The holes can quickly fill up and/or collapse before the blasting crew can perform their work. As a result, holes have to be redrilled. To counter this, we've done 2 things: firstly, we've implemented an aggressive de-watering process in the pits and we've improved the coordination of shifts for the drilling and blasting crews. As a result, the blasting crew now loads explosives in the blast holes immediately after they've been drilled. Not only has this significantly reduced the need and cost of redrilling, it has improved overall drill productivity, allowing us to drill off more tonnes per hour worked. Another example with less than a 6-month payback, was the installation of a drinking water treatment system at Essakane. This initiative eliminated the need to purchase bottled drinking water, which was costing us close to $1.5 million a year. You can imagine the amount of drinking water that gets consumed in this extremely hot and arid climate. All cost savings will be embedded in our cost structures we move forward with the 2014 budgeting process. Now, I'll walk you through each of our operations, starting with Rosebel. Production at Rosebel in the third quarter was unchanged from the previous year and up 16% from the second quarter. The increase from the second quarter was due to an 8% increase in grade and a 7% increase in throughput. Since commissioning a third ball mill at the beginning of the second quarter, we're seeing a progressive improvement in throughput, up 5% in the second quarter, and 7% in the third. We expect this to continue, even with the increasing proportion of hard rock, which should be at around 30% by the end of this year. Total cash cost of $729 an ounce in the third quarter were up 6% year-over-year. Given the higher maintenance and fuel cost associated with longer hauls and the mining and processing of harder ore, this increase was expected. Positively, compared to the second quarter of this year, cash costs were down $16 an ounce. As stated previously, we expect annual site cost at Rosebel to potentially be reduced by up to $50 an ounce as a result of the lower power rate agreements. With respect to the future plan for Rosebel, the feasibility study assessing the number of -- a number of hard rock scenarios and which incorporates the reduced power rates, is nearing completion. Looking at Essakane, lower production year-over-year was due to the planned processing of lower grade satellite ore stockpiles during 2013. That's why the grades we're seeing this year are 10% to 15% below the life-of-mine average grade. Partially offsetting the impact of lower grades on production, was higher throughput for year-over-year, as well as versus the prior quarter. This improving trend in mill throughput reflects the expansion of crushing and milling capacity to accommodate harder ore. The new pebble crusher has now been in operation since mid-April. We're on track and on budget for completing the mill expansion at the end of December. As we increase the proportion of higher grade hard rock through the mill, we expect to see production increase by as much as 25% to 30% in 2014 in terms of gold production. Stripping continuous with the pushback at the main pit, we are stockpiling higher grade harder ore in anticipation of the start to the expanded plan. The higher grades will help mitigate the impact to the higher energy consumption required to treat harder ore and bring grades closer to the life of mine average. At the same time, we are exploring opportunities to reduce power costs, including the possibility of connecting to the Burkina National Grid. Turning to our Abitibi operations, batch processing of ore in the Westwood mill continued through the third quarter, with Mouska producing 2,000 ounces and the Warrenmac zone at the Westwood mine producing 43,000 ounces. The mill continues to process at plant rates of 2,000, to 2300 tonnes a day. As at the end of the September, the 2 mines combined have produced 101,000 ounces to date. We continue to be on target for producing between 130,000 and 150,000 ounces of gold in 2013. While we previously communicated that the Westwood mine was expected to reach commercial production by the end of October, we have revised the start date to the third quarter of 2014. This was the result of a reassessment of the ramp-up of the mine in light of 2 previously disclosed events. The first incident reported in June of this year involved a software malfunction, which put the service hoist out of commission. And in August, we experienced a rock burst, damaging some drifts in a small localized zone. While there were no injuries, we temporarily suspended operations in that particular area of the mine for safety reasons, limiting access to that portion of the ore body. Rehabilitation of this zone to re-access the ore is underway. While these 2 events triggered a reassessment of the ramp-up, further evaluation of the impact of these events has given us a better understanding of the mine to modify our designs as necessary to safely realize its full potential. In a way, we can look at this as an opportunity to build a better mine plan. As we said in the second quarter, mining the Warrenmac ore has been very positive in terms of mine recovery, grade reconciliation, dilution, and gold recovery in the mill. Based on these results, as well as success in initial mining of stopes in the actual Westwood ore body, the new mine plan currently under revision will include significant volumes of ore to be mined by the less-expensive open stoping technique versus the previously planned cut-and-fill technique. In 2014, our focus in the first half of the year will be on continuing to increase underground development productivity, building on the improvements realized over the past 18 months. Our 2014 production outlook for the Westwood and Mouska mines combined is expected to range between 100,000 and 120,000 ounces, with the ramp-up of the Westwood mine to full capacity by the end of 2016. While the timeline for reaching commercial production has changed, it does not alter our long-term view of the mine plan, estimated mineral reserves and resources and life of mine throughput and production. Looking at Sadiola, performance in the third quarter was disappointing. The third -- the lower production compared to the same quarter of 2012 was a result of lower grades and recoveries, partially offset by higher throughput. Compared to the second quarter of this year, the drop in the production was a result of both lower throughput and recoveries as grades remained constant. The lower production accounts for the substantial increase in cash cost year-over-year. Production in the third quarter was impacted by the rainy season, restricting access to deeper sections of the existing pits, as well as by challenges encountered during the startup of mining in the new Tambali pit. The operating costs at our joint venture operations continue to be much higher than those at our owned and operated mines. The Yatela mine has been one of our highest cost operations. This is one of the factors, along with safety in the pit and a drop in the gold price leading to the joint decision with our JV partner to suspend mining excavation activities on September 30. This decision shortened the life of mining activities by approximately 6 months from what was previously planned. However, the processing of ore previously mined at Yatela will continue until the end of 2016. Turning to Niobec. Operating performance was very strong in the third quarter. A 10% increase in throughput from both the previous quarter and the same quarter in 2012 boosted niobium production by 8%. Our continued focus on improving both underground development productivity and processing efficiencies, drove operating margins up by 19% year-over-year and by 12% from the previous quarter. I'll now pass the mic on to Craig MacDougall, who will talk about exploration.

Thanks, Gord, and good morning, everyone. As you now, our planned exploration spending in 2013 was scaled back by 40% as part of the corporate-wide cost-reduction program. This, together with our ongoing efforts to identify further savings and efficiencies in our programs has reduced our forecast spend on exploration to $96 million for this year. With $35 million in cost savings to date, we've now achieved 88% of our target. As discussed on the last quarter call, the most significant cuts are related to scaled back drilling programs in Mali, Burkina Faso and Suriname to furrow certain elements of the Côté Gold exploration and pre-feasibility study, and the downsizing of some of our greenfield exploration teams. In this context, our focus in exploration this year has been on resource development work and target generation around our existing mines and on select greenfield projects for programs we're targeting for delineation of resources. So let me give you a brief update on the status of 2 key greenfield projects. First, the Boto Gold project in Senegal. We announced the maiden resource estimates for this project at the end of July. The vast majority of the estimates is in the indicated category, which contains 1.1 million ounces at a grade of 1.62 grams per tonne gold. In the third quarter, drilling was suspended during the annual rainy season but it is expected to resume in mid-November. The program will continue to year end and is targeting a resource expansion of a newly discovered Malikoundi zone, which remains open along straight to the North, as well as that depth down dip. The second project is the Pitangui project in the state of Minas Gerais in Brazil. Infill drilling of the Sâo Sabastiâo prospect continues throughout the third quarter and we are seeing progress in targeting structurally secondaries, which is key to unlocking the resource potential. We are working to be in position to complete a mineral resource estimate this quarter, if results remain encouraging. I'll now turn you back to Steve to wrap up.

Well, thanks Craig, and Carol, Gord, for that overview. So it's obvious that we are all operating in a very tough environment. The industry is going through a very tough time. So when our performance to date is as what it is, I get a lot of confidence that we're doing the right things to meet guidance and that we're doing things right along the track of preserving cash, cutting our costs and allocating capital in the most attractive way for our shareholders. So we're going to keep on that path. We're going to continue to preserve capital, we're going to continue to reduce these costs and we're going to continue to improve productivity. And again, although we are optimistic in our outlook for Gold in the long run, we will prudently plan for a lower gold price environment and we will reassess our mine plans and complete the 2014 budget process with that view. We will to retain a long-term perspective. We will continue to be opportunistic. We will make decisions that enable us to act in that opportunistic way, but we'll always keep in mind that we're in an unpredictable gold environment in terms of pricing and we will never put our balance sheet in jeopardy. With that, let's open it up to questions.

[Operator Instructions] And our first question we have on the audience side, it's from Andrew Quail from Goldman Sachs.

Just a few questions for me. One, on Westwood, just having a look at next year's guidance. Just looking back at the slide, there's a note, it sort of said that you guys are going to produce something like about 162,000 ounces and now you're saying 100,000 to 120,000. Is that right?

That was the earlier 2012 plan, which actually had slightly lower ounces in 2013 versus what we're putting out right now. The plans that we've had for the past year are actually pretty close to the guidance that we've -- we're talking about today. There is a slight decrease but it's not economically material. And in fact, the early budgets I'm seeing have those ounces coming out of the lower cash costs than our earlier plan. So economically, it's not a big difference.

So that's actually driven by sort of maybe better-than-expected grade and lower tonnage? Is that what we can expect?

No, actually it's more driven by the underground productivity we're seeing and better performance in terms of dilution underground.

Okay. And second question was on CapEx for 2014. Obviously, we'll get an update early next year. Just want to say, is it more going to be sustaining CapEx is going to be in line with this year across the operations, maybe some $270 to $300? Is that sort of fair or...

Yes, I think if you do the math -- it's Steve, Andrew. If you do the math, that's probably about right because we're running at around $1,150 to $1,250 all in. So if you look at our cash cost, which average around $800 and do the math, we're running at around $300 to $400 an ounce in terms of sustaining capital. You multiply that by 900,000 ounces and you get to the numbers that you're talking about.

Cool. Great. And last one, it just...

Hey, Andrew, I had a question for you. When are you going to improve that gold price forecast that you publish?

It's not up to me, not up to me.

Not up to you? You don't come up with that?

No, I don't know. [Indiscernible] Now, last question, guys. Last question was on -- just you guys mentioned just the inflationary pressures across the operation, but is that -- do you see that subsiding into sort of '14? Or is that -- is something -- just given where you guys operate, is that something that's going to be persistent into...

What was that question again, Andrew?

There are some moderate inflationary pressures but not too much. Fuel's relatively flat. Most of our labor rates are already negotiated. So I mean, there's some minor inflation there. On the positive side, some of our reagents are coming down in price, so there's not a huge amount of inflation year-over-year for 2014.

Our next question comes from Paolo Lostritto from NBF.

My question is a follow-on with regards to the changes at Westwood. I recognize that you guys are about to put out updated guidance for 2014 but maybe, Gord, you can give us a sense of how the mine's running right now in terms of production and grade.

Sure. In terms of production and grade as we're running right now, and most of the mining right now is on the Warrenmac zone, we're reconciling positively with respect to the model in terms of the grades we're encountering. Our mining recovery is close to 100%, which is great. And in terms of production from Warrenmac, which is not the main Westwood zone, we're certainly on our plan. Also, positively, as when you were at site, as you saw, our dilution is certainly well below where we had originally forecast. In the Warrenmac zone, we had forecast around 20% dilution, and in practice we're seeing somewhere between 7% and 10% dilution. Likewise, with the first stopes that we're taking in the Westwood area, we're seeing a reduction in dilution. Our underground development productivity there is above what our last life of mine planning was done at. We measure -- or Westwood measures productivity in terms of meters of development per month per jumbo crew. And they've moved from around 135 18 months ago. Currently, they're running between around 190 to 200 meters per month per jumbo crew, and I know the target there is to move it up. Our prior long-term plan was done at 180 meters per month. So I'm fully expecting that the new life of mine plan that they're working on right now is going to come back superior in a number of ways to the prior life of mine plan.

When are we expecting that? Is it kind of early next year?

Yes, we've made a commitment that we'll produce an updated sort of PEA version for the market. It's been almost 2 years. It's February of 2012 we released our prior study. So yes, with the new study and some real experience in mining under our belts, we've made a commitment to the Investor Relations group here that we'll be able to produce something. I'm expecting along around February when we come up with our normal guidance numbers.

Our next question is from Dan Rollins from RBC Capital Markets.

I was wondering if you might be able to comment on the infill drilling program at Falagountou at Essakane. Obviously, in the report, you mentioned it had a less thick zone of soft rock. I was wondering if you could quantify that in potential tonnage and when you expect to be depleted at soft rock at Essakane right now.

Okay, I'll -- it's Craig MacDougall here. I'll talk specifically to Falagountou and then maybe let Gord talk about the soft rock at Essakane. But as you know, at Falagountou, it's a historic prospect that had our artisanal mining in it and there was a fairly extensive artisanal pit over the center of the ore body, which precluded access. Access was gained this year, and we were able to infill drill the center portion of the deposit. Unfortunately, what came out of that drilling was we did not have as much soft rock there as we had hoped from the earlier interpretations, which were largely around the edges of the deposit. So from that point of view, we don't have as much soft rock as we would like. We have more transitional rock than we had thought, so that is an upside there. But overall, I guess to characterize it, the soft rock would be disappointing but we had a bit of a win on the transition. So a fairly neutral, I guess, outcome on that for us. Equally, one of the things that had come to light at Falagountou was the regional exploration team had discovered an additional zone to the southeast, it's about 600 meters off to the southeast, and we have been infill drilling that this year. The results of that will be incorporated in the new resource and reserve guidance that will come out in February. So we're not able to bring that forth right today, but it is work that's ongoing.

Yes, Dan, it's Steve Letwin. I just -- just to remind everybody, when we talk about hard rock, its relative. Index at Essakane is 13.6, and at Rosebel, it's 14, and when you compare that to what we typically hear is hard rock, which is far closer to 16, 17 in terms of bond index, it's hard rock for us relative to the soft rock we had at Essakane. But it's not hard, hard rock, and so when we talk about a 35% improvement in our production at Essakane, that's a very real, robust number. And although Falagountou doesn't have as much 6 bond indexed rock as we were hoping, it's got a good size of transitional rock, and it's got around 200,000 ounces or more, which is going to help us as we move the mill forward next year. So Essakane is looking a lot more attractive than what we thought. And with the expansion going very, very well, we're very optimistic about the performance of that mine in 2014.

Okay. Yes, I understand the qualifications around hard rock, but it's a relative game here with you guys and the fact that you need to add additional crushing to offset that higher rock given the energy cost.

True.

Or going into this year, you had discussed that you expected cash cost to be higher in the second half, and then going into 2014, to be higher. Is that still a fair statement or has your view changed?

Yes, we're right in the middle of budgets right now, Dan. I would expect a slow increase in the proportion of hard rock that we're treating, or an increase in the proportion of rock that we're treating, both at Essakane and Rosebel. I mean, there are some offsetting factors. Certainly, Essakane is going to be mining much higher grade next year, so that's a strong offset in terms of dollars per ounce of gold produced. And at Rosebel, the increase is being managed, and there are a number of offsetting productivity improvements that we've seen on the mine side there that are sort of helping us to mitigate the impact of the hard rock. We're not in a position right now to give guidance on costs for next year across the operations as we still have to get budgets in front of our executive group and in front of the board. I can tell you what I've seen to date. I'm not uncomfortable there.

Okay. So really, the cost savings that you've delivered to date and the ones hope to, it's basically more to contain the impact of harder rock or increased hard rock going forward? So it should be able to keep your cash costs within the same -- within this current range, near-term?

Yes, yes, I mean, that's really the goal, is to try and -- is do everything we can to keep our costs as flat as possible despite the fact that we have to put a lot more energy into the stone.

Okay. And just on -- moving on to Westwood. With the new mine plan and the focus on safety there, are you going to be having to put more underground support in? Or is it just really a changing of the mining method in certain areas?

Actually, the support profile has been upgraded a little bit, but the biggest change you're going to see going forward is actually a reduction in the amount of development we're doing. The total development life of mine under the new design will be less than it was under the old design, which is positive. So we're not opening up as much ground as we had originally planned to open up to access the ore body, which has some nice economic impacts to it as well.

Okay. And then just one last question, just at Sadiola, free cash flow on a sustainable basis, not there right now, including growth capital, the remnants of the sulphide project not generating any free cash flow. Who -- where's the free -- what's funding the free cash flow? Is it current cash on the -- in the JV? Is it Anglo funding it? Are you guys all funding your share of the negative free cash flow? How's that working?

Yes, Dan, it's Carol. We are funding as you have seen in our second quarter results. So we did advance some funds, and so they're anticipating it to continue to be negative this year, but that should turn around next year.

We're one big happy family there, Dan.

Yes, but that's always been -- it's always been the case.

It's not sustainable, though, and you know that better than anybody. So we got to fix this, and we're working with Anglo to fix this.

Our next question is from Patrick Chidley from HSBC.

Just a question on -- back to Westwood and just wanted to get an idea about where -- how deep the rock burst was and what area of the mine, what portion of the mine has been affected by that. And also, is that the main reason why you're pushing this commercial reduction forward?

So the rock burst that we had was at around 950 meters depth in the central part of the ore body to the west of the Bousquet fault. It has impacted access to some ounces but it has, by no means, sterilized any ounces, so we'll still get those ounces out. The rock burst itself was localized in one of the lateral footwall drifts -- or a couple of the lateral footwall drifts close to the ramp access point. So it's well-displaced from where -- from the actual ore lenses. It hasn't impacted the ore lenses. It is, as I stated -- when I spoke, that the impacts of the shaft incident earlier in the year, both of those together have contributed. And it's also reexamining where we are in terms of what we've been able to achieve with our mining so far and the results I spoke to earlier with Paolo's question and looking at what's the best way and most efficient way and most cost-effective way to develop Westwood going forward and make sure that it's a robust operation for the long term.

Right. But would changing any -- would changing the mining method, obviously, that wouldn't make any difference to the propensity to get rock burst, would it?

No. I mean, as I talked with Dan, really, it's a redesign and the geometry of the access development drifts. And as I said, we're going to be opening up less ground in order to access the ore body. The mining method we -- 3 or 4 years ago, it was primarily open stoping. We were -- a couple of years ago, we reverted and said we're going to do primarily cut and fill for a number of reasons. As we're looking at it now, we understand it will be more of a blend of the 2 with a fair degree of open stoping going forward. And the access geometry is the same. It's been set up the same for both those methods so that we can make the decision as we get to the rock and as we get to the ore. Included in that, obviously, will be the rock mechanic's considerations.

Right, right, I see. Okay. And would this have any impact on your reserves? And have you been sort of infill drilling to add reserves from what we saw from last year?

So no and yes. So no, there will be no impact on reserves. There was no ore "loss" as a result of the incident, it's all still there. And we have been doing infill drilling and will report on that as part of our normal annual reserves and resources statement. And I will sort of throw in there, certainly, no negative surprises, and I think the market can expect to see similar sorts of announcements for Westwood as you've seen in the past.

And our next question is from Joseph Reagor from Roth Capital Partners.

A couple of quick questions for you. The first being on Sadiola's cash costs. So you mentioned it was mostly due to recovery, but looking at the total spend there it was roughly $24 million compared to like $21 million last quarter on lower tonnage. Is there something that specifically drove up spend a little bit?

Yes, they had a fair amount of stripping, so that was -- there's about $8 million of stripping in there with their numbers as well.

Okay. So we should anticipate somewhat of a reduction on a cash cost basis next quarter, assuming a normalized recovery and grade rate?

We're not holding our breath on too big a reduction. Obviously, we want them to be making cash. They have switched -- or they've opened up a new mining area, the Tambali pit, which is close to the original Sadiola main zone pit. And early mining there, as Carol had mentioned, sort of added stripping. They're working on some cost reduction methods there. I know they've had -- they're working on some cuts to their manpower, as well as working with their mining contractor to bring down costs. We aren't banking on huge improvements for next quarter from Sadiola.

Okay. Moving onto Rosebel and Essakane, you guys in the release said that higher amounts of hard rock, therefore higher cost, probably in Q4. Wouldn't that inherently mean probably slightly lower throughputs as well?

Well, that's a lot of the productivity improvements that we put in place help us there. Yes, in general, it should mean lower, but you have to remember as well that we've added -- we are in the process of adding capacity at Essakane. So that expansion, we will see that sort of brought online here and completely online by the end of the year. At Rosebel, we installed a third ball mill, which has been ramping up and has been helping us to treat the higher proportion of hard rock without significant or material impacts in our throughput. But as we move forward and we get into higher and higher rates, you are correct. Offsetting that is, because of the lower throughput, we use higher cut-off grades when we get into harder rock, which translates into higher average grades.

Okay. And then the final thing, not to beat a dead horse, but on Westwood, looking at the next year of continued pre-commercial production, how should we be thinking about what the capital spend rate should be net of those pre-commercial ounces, specifically looking at how the guidance is for $100 million this year, and year-to-date, I guess, you're at about $103 million? So there's some actual credits coming going forward for a period of time?

There are credits going forward for ounces produced from Westwood. The $103 million is actually the total from both Westwood and Mouska. I think about $47 million of it so far is from Mouska and that's commercial production. So it's balanced, that most of it is Westwood. And yes, that is included in the capital estimate and has been included in the capital estimate all year. So there is some offsetting balance. I don't have -- I know for guidance for this year in terms of capital out of Westwood, we're comfortable with what we've put out there. There may be some adjustments, slight adjustments up or down from that. I don't have the final, final numbers. And as we complete our budgeting process, we'll put out some guidance for where we are going forward with Westwood.

And we have David Haughton from BMO Capital.

And returning to flogging that horse, just at Westwood, it looked as though the quarter would have been good prior to the rock burst event. The tonnage that you milled looked good at 200,000 tonnes. The grade looked a touch light, but it seemed to have been shaping up as a good quarter prior to that rock burst. Is that a reasonable way to look at it?

Yes. And really, the rock burst didn't affect the quarter's production at Westwood because we were producing from the Warrenmac zone. So the production areas were isolated. What the rock burst has impacted is sort of the fourth quarter and the first part of next year and having -- us having to reestablish access into those areas. But no, I mean, Westwood itself is -- I'm very happy with the performance of the operating team up there. In terms of costs and productivity, they're really making some great gains.

So what you're moving into now is just more of a stress management, keeping those openings relatively small, only open as you need? So that sounds like the way that you're moving forward on it.

That's a pretty good description, David.

So what are you looking for as a trigger to become commercial?

Westwood is a bit of an odd duck for us. There's a number of different tests that are in place, but fundamentally, what we're looking for is a strong indication -- more than an indication, demonstration that the mine is able to produce ore at a sustainable rate to supply the mill at a nominal throughput rate or a proportion of sort of the nameplate throughput rate over a period of time. So there's enough per test, David, but effectively for Westwood, which is different from greenfield operations where it is typically around the performance of the mill. At Westwood, it really doesn't have anything to do with the mill because it's just a refurbishment of an old mill. It's already been commissioned. It runs very, very well. What we're looking at is that the underground is producing, consistently producing and will be able to sustain production of ore and waste at a appropriate level.

Yes, we're targeting 60%. So that's the threshold.

60% of the mill capacity, of the underground capacity.

On a sustainable basis?

On a sustainable basis, yes.

Correct, correct.

Okay. So a year sounds like you've got plenty of room to move in here. Judging, Gord, from what you're saying, you've already got some remedial plans underway for keeping those stressors down, navigating your way to -- past the ore body that had been affected, being more cautious as you're going at depth. So it sounds like you've got the plan kind of working...

David, I've said this to a few people in the intervening period. I mean, obviously, nobody likes a seismic event in your underground mine. In a way, this was probably a nice early wake-up call for us. It occurred concurrently with a blast. There was nobody in the area. And when it happened, it really forced us to review what we were doing and how we're going about it. But also at a time when we didn't have 2/3 of the ore body already opened up. We only had a smaller proportion of the ore body opened up. So as we've gone back through the assessment and brought our best brains in the company and from outside the company in to look at what was going on, it's allowed us to reassess what we're doing going forward. And as I mentioned when I was talking to Dan, I believe, one of the interesting outcomes from it will be a more economically robust life of mine plan.

Okay. Just now flipping, if I can, over to Essakane. I think I heard you right, at least a 25% lift in throughput for 2014. That would get you up around about the 13 million tonnes per annum mark. Is that correct? Did I hear you properly?

It was the throughput lift. We're talking of production -- an ounce production lift. There is a small throughput lift anticipated. It's not quite in that range, but it's gold production that's up by that percentage. It's grade, primarily.

Right. So the throughput you had in that quarter, the September quarter was pretty good at 2.8 million tonnes. Should we think that, that is sustainable going forward?

Yes, it's pretty close to -- maybe not -- just slightly below that once we get up to like 100% of hard rock with the new mill. Typically, the nameplate on the expansion at 100% hard rock is 10.8 million tonnes per year. We can use fairly conservative design criteria, and most of our builds, including Essakane, Rosebel expansions, et cetera, we tend to blow through the nameplate relatively comfortably. For right now, we'll stick with the 10.8 million until someone swaps a life of mine plan in front of me that I'm comfortable with. I can tell you we have seen some really positive stuff this year. Because we commissioned the pebble crusher on line A in April and we've been running with that now for almost 6 months, the performance of the hard rock in the plant is better than it had been modeled, i.e. that pebble crusher has really enhanced the operability of the grinding of the comminution circuit with hard rock to a point that we're looking -- we're anticipating some upside as we get into more hard rock, and we have the new piece of the plant, which includes SAG mill, ball mill and pebble crusher, as well as a secondary crusher. We're not anticipating that throughput is going to be a bottleneck there.

Okay. If I can just flip over to Niobec. I don't think any questions have come on this, but throughput there was fairly good for the quarter as well, surprisingly good. I can't think of a quarter where it's been as high.

It was a record quarter.

Yes, so what's happening there?

We had a program. We spent a little bit of capital last year and the first part of this year where we converted a manway compartment in the shaft into a service hoist, which has allowed us to use the other 2 compartments almost exclusively as skipping compartments. So that's allowed us to take our production pretty close to what our permit limit is. And there's been a lot of improvements at Niobec, not only in throughput but just in the general way that the underground and the concentrator are working together. On the cost savings side, one of their best cost savings this year has been around reagent consumption. So the coordination has allowed them to inch up the tonnes, but we've also seen better recovery and lower reagent consumptions just because the mill operators are not in firefighting mode, they're in operating mode, which has allowed them to really control their process that much better.

Okay. And Carol had mentioned that you're undergoing some negotiations now. I noted that it looked like the quarter had a better price received, I don't know, maybe 5% better than what we would've had previously. So what's the outlook the contract environment like at the moment for ferroniobium?

Why don't you ask me next quarter, David, after we get through our discussions with our customers. I mean, it's -- the steel market is still fairly soft. There's a lot of capacity, but we're seeing, again, as you see as you look around the world, there's mixed signs of economic recovery. And so we're cautious about it, but we've been able to sell all of our production, and the discussions are going well but all the better sense once we get through the discussions.

Okay, thank you. We've run to the end of our hour. I want to thank everyone for calling in and for your questions. Obviously, if you have anything to follow up, please call us in Investor Relations and we'll get to your questions. Just as a final note, there had been some mention of an analyst day. And again, just to reiterate, in August, we had mentioned the idea of holding one in November this year. Earlier this fall, we reevaluated the plan in light of the status of several fee studies, our budget process and the refinement of our life of mine plans at each of our mines, and we decided to defer this event until the new year when we have more information to communicate about all of that. So we'll let you know as soon as the date is selected. Thank you.

Thank you. Ladies and gentlemen, that concludes today's conference. Thank you for participating. You may now disconnect. And speakers, standby for your post-conference.