IAMGOLD Corporation (IAG) Q2 2015 Earnings Report, Transcript and Summary

Welcome to the IAMGOLD 2015 Second Quarter Operating and Financial Results Conference Call and Webcast. As a reminder, all participants are in listen only mode. And the conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Bob Tait, Vice President, Investor Relations for IAMGOLD. Please go ahead, Mr. Tait.

Thank you. And welcome to the IAMGOLD conference call. Joining me on the call today 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 Jeff Snow, General Counsel and Senior Vice President, Business Development. Our remarks on this call will include forward-looking statements. Please refer to the cautionary language regarding forward-looking information in our disclosure documents that were released last night and be advised that the same cautionary language applies to our remarks during the call. During our opening remarks we will refer to slides which can be viewed via our website. I will now turn the call over to President and CEO, Steve Letwin.

Good morning. And thank you Bob. On mid July the gold price reached a five year low. And since our first quarter conference call three months ago the prices fallen another $100 an ounce. No one knows how long the gold price will stay depressed, no one knows if it has further to fall. While the price of gold will ebb and flow, we believe that the demand for gold as a store value a hedge against uncertainty and as an alternative reserve currency for Central Banks will strengthen again. And in time the gold price will go up. In the meantime, however, gold producers have to learn to swim in a deep end of the cycle. In that regard, our company is very fortunate. We have one of the strongest balance sheets in the industry. We have $836 million in cash and bullion. We have a successful track record of sustainable cost reductions having reduced cost by $175 million since 2013.We look at our mine optimization as an ongoing process not an event. We are seeing sustainable productivity enhancements at Rosebel and Essakane and Gord will walk and talk more about some of the work that has been done there. We will manage our way through this tough part of the cycle, we've done it before. On Slide 6, we talk about our plan. We are revisiting all of our mine plans. We are running cash flow models at $1000 and $900 gold prices. We are reviewing our operating expenditures, working capital, expiration and G&A discretionary spending. And we will reduce cost further. And we will defer cost where we can. But gold prices under pressure we are reviewing all our capital spending programs including future development projects. Consequently, negotiations related to the potential acquisition of AngloGold Ashanti’s share of Sadiola have been suspended. An M&A consideration will be carefully scrutinized. We will do even more to optimize mining and milling performance. And personally I'll be keeping a very close watch on all of our key performance indicators. Just like we've been doing over the last four years. At Westwood, we are fortunate that there were no injuries following the seismic event on May 26. Westwood still a young mine and like any new mine there is a learning curve. We are committed to Westwood and we will determine the plan that can best optimize its future development. Safety will always come first. This is not about speed; it is about doing the right thing. And we will keep you posted on their progress. In the environment, we have to do all we can that preserve our financial strength. Fortunately, we have $1.3 billion in liquidity. So when the market recovers we will be well positioned to capitalize on opportunities. On Slide 7, we talk about our operating highlights. And this will be very well covered by Carol and Gord. In the second quarter, our all-in sustaining costs were $1,076 an ounce, 3% lower than they were in the first quarter and at the bottom of our guidance range. Capital spending for the first six months of this year was down 33% from the same period in 2014. Mining commenced at our Falagountou deposit in June, one month ahead of schedule. And Westwood had lower quarterly production than expected due to the localized ground fall following the seismic event and Gord going to speak to that later. Exploration continues to deliver positive results with high grades Boto and Pitangui. I am very pleased with the work Craig and his team are doing. And I know Craig going to talk more about that little bit later. With that I'll call on Carol to talk about our financial results.

Thank you, Steve. Good morning, everyone. We ended the quarter in a very strong financial position. Our financial performance year-to-date reflects where we are in the gold cycle. Cost reduction, capital discipline and cash preservation will continue to be critical in this market. Turning to the results for the second quarter, we reported a net loss of $19.7 million, the $16 million net loss in the prior year in the prior year included net earnings of $6.2 million from the discontinued Niobec business which was sold in the first quarter of 2015. Of the items not representative of our underlying business, the most significant adjusting items were the $50 million unrealized derivative gain relate to the oil contracts which had $0.04 per share impact and $4.2 million change in the estimate of asset retirement obligation at close site. Partially offsetting these items was a $5.4 million adjustment to normalize Westwood's cost following the low quarterly production resulting from the seismic event. In accordance with International Financial Reporting Standards, costs attributed to inventory are reduced by this amount to normalize for the amount fixed overhead allocated on a per unit basis. After normalizing earnings for this one time items, the adjusted net loss is $0.08 per share for the second quarter 2015, compared to earnings of $0.02 per share in the same period last year. The $0.10 per share variance was mainly due to higher cost of sales and lower revenues due to a lower gold price. Inclusion of Niobec in the 2014 numbers but not in the 2015 numbers had a $0.02 per share impact. Revenues from continuing operations in the second quarter 2015 were 2% lower than the previous year. This was due to a 7% or $94 per ounce decrease in the average realized gold price and partially offset by a 7% increase in gold sold. Westwood was the main reason for the increase in gold sales due to the inclusion of its revenues in the operating results after commencing commercial production in the third quarter of 2014. Partially offsetting this increase were lower sales at Essakane as a result of lower production and lower sales at Mouska due to the closure of the operations in the third quarter 2014. Turning to cost of sales. Higher depreciation was the main reason for the year-over-year increase as operating costs were up by less than 3%. As shown in the second column from the right, the nearly $4 million increase in operating cost was due to Westwood, partially offset by lower mining and milling cost at Essakane and Rosebel and the closure of Mouska. Westwood's operating cost was not included in the prior year as commercial production was not achieved until the third quarter, 2014. Westwood also counted for most of the $20 million increase in depreciation. The balance was due to higher amortization of capital life stripping, higher production and lower reserves at Rosebel. Essakane's depreciation declined year-over-year due to lower amortization of capitalized stripping, partially offset by lower reserves. Net cash from operating activities was $32 million in the second quarter 2015, the decrease in the second quarter 2014 was mainly due to an increase in account receivable inventory. The net settlement of derivatives and the absence of earnings from Niobec which was sold again in the first quarter of 2015 for $500 million. Partially offsetting was $5 million decrease income taxes paid, removing the impact of changes in working capital, net cash from operating activities per share was $0.12 in the second quarter. At the end of the second quarter, cash, cash equivalent and gold bullion was $836 million. In addition, we had $500 million unused credit facility. The credit facility is up for renewal on February 2016 and we have initiated renewal discussion. Long-term debt of $645 million is not due until 2020. Net cash is $191 million which puts net debt EBITDA at zero, which is a very good position to be as Steve mentioned earlier in this market. Attributable production in the second quarter was 202,000 ounces, down 400,000 ounces from the same quarter last year. The decrease is mainly due to the closure of Mouska and lower grades at Sadiola. These decreases were partially offset by commercial production at Westwood and higher production at Rosebel due to higher grade and recoveries. Compared to the first quarter of this year attributable production was lower by 600,000 ounces, this was due to Rosebel which had lower throughput in Sadiola as lower grades were partially offset by higher throughput. Essakane was flat quarter-over-quarter as higher throughput was offset by lower grades. Westwood is always flat but previous quarter although below expectations due to the seismic event. All-in- sustaining cost of $1,076 per ounce in the second quarter were $60 per ounce lower than the same quarter 2014. This represents a 7% reduction in total cash cost by sustaining capital expenditures were nearly the same in both period. There is couple of things to note with respect to all-in sustaining cost for the second quarter. First, realized hedge and non-hedge derivative losses increase on sustaining cost by $53 per ounce. First quarter 2015 have been similarly impacted by $64 per ounce. The second point relates to the normalization of Westwood's unit cost following the low quarterly production resulting from seismic event. As explained earlier in accordance with International Financial Reporting Standards, cost attributed to inventory were reduced by $5.4 million which normalized for the amount of six overhead allocated on a per unit basis. As a result, cash cost and all-in sustaining cost were reduced at Westwood by $244 per ounce produced and $207 per ounce sold respectively. At the consolidated level, this reduced all-in sustaining cost by $28 an ounce. Our all-in sustaining costs for the quarter were at the bottom of our guidance range, our intentions are to do better than that as we weather the downturn in the gold price. Prioritizing expenditures, reviewing our capital programs, maintaining the strength of our balance sheet, that's where our focus will be, it will continue going forward. With that I'll turn it over to Gord who will provide an update on operations.

Thanks Carol. And good morning, everybody. Operating results in the second quarter were very good at our largest mines Rosebel and Essakane. And our joint venture at Sadiola performed well. With the exception of Westwood, the quarter was essentially on plan. As Steve said in the news release and his opening remarks, we have to do even more in this gold price environment. We continue to optimize our mine plan, evaluating options, reduce gold prices and improve cost levels resulting from all the great work at the sites over the past few years. We are continuing our efforts to reduce operating cost and capital spend, including revisiting the plans we created several years ago as to how to cope if the gold price went to $1,100 or $1,000 per ounce or lower. We are ready to do what is necessary not only to manage the business in this gold price environment, but to generate cash at those levels. Looking at Westwood, as a result of the seismic event that occurred on May 26 of this year, production in the second quarter at Westwood was below expectations. Due to the low quarterly production following the seismic event in accordance with IFRS as Carol stated, we've reduced the cost attributed to inventory by $5.4 million to normalize cost for the amount of fixed overhead allocated per ounce. We produced 23,000 ounces of gold in the second quarter at a total cash cost of $837 per ounce produced and in all-in sustaining cost of $1,044 per ounce sold. Due to a change in mine sequencing and a near term focus on mine development, production in the second half of the year is expected to be lower than the 45,000 ounces produced in the first half. In June, we adjusted our full year production guidance for Westwood from 110,000 to 130,000 ounces to a lower range of 60,000 to 75,000 ounces of gold. Due to the lower 2015 production guidance for Westwood, we expect all-in sustaining cost to range between $1,300 and $1,400 per ounce. We are reviewing ways to reduce cost and do not expect the higher cost guidance for Westwood to have material impact on unit costs on a consolidated IAMGOLD basis. Rosebel produced 71,000 attributable ounces of gold in the second quarter of 2015, when compared to the second quarter of 2014, the increase in gold production of 6% was mainly due to the impact of favorable grades and higher recovery partially offset by lower throughput. Gold grades were 8% higher as result of pit sequencing and better dilution control. Recoveries improved by 1% due to the optimization of the carbon handling and elution circuits implemented earlier this year. Mill throughput however somewhat lower as the proportion of soft rock mill decreased to 28% from the current quarter compared to 44% in the same period a year ago. Rosebel continue to look for ways to optimize the mill feed blend as a proportion of soft rock mill continues to decrease. Total cash cost per ounce were $864 in the second quarter of 2015, the decrease of 8% compared to the same prior year period was mainly due to favorable grade, lower mining and power cost driven by lower fuel prices, lower mill consumables and productivity increases achieved through the cost improvement programs initiated in 2014. All-in sustaining cost per ounce sold were $1,104 in the second quarter of 2015. The decrease of 9% compared to the same prior period was mainly due to lower cash costs and lower sustaining capital expenditures. Sustaining capital expenditures in the second quarter of 2015 were $15.1 million, a decrease of $3.9 million from the same period a year ago. Rosebel continues to benefit from numerous cost cutting and operating efficiency initiatives. Their priorities continue to be on improving grades and increasing operating efficiency. A new approach to grade control practices is started to deliver the promise of identifying additional ounces and lowering mining dilution. In addition, rather than waiting until they secure a source of soft rock, the Rosebel team has been working hard to reinvent their business plan. They have made impressive progress so far and please stay tuned for further information. Attributable at Essakane, attributable gold production was 89,000 ounces in the second quarter of 2015, consistent with the previous two quarter but below the 92,000 ounces produced in the second quarter of 2014. This was mainly due to the proportion of soft rock and the mill feed falling from 29% to 18%. The lower proportion of soft rock resulted in a 26% decrease in throughput which was partially offset by 28% improvement in head grade. New recovery improved by 1% due to the optimization of carbon handling and the elution circuit. Total cash cost per ounce produced were $802 in the second quarter of 2015. The decrease of 5% compared to the same prior period was mainly due to higher grades, favorable fuel prices, lower mill consumables and lower royalties driven by the lower gold price, partially offset by an increase proportion of waste material mine and harder rock milled. All-in sustaining cost per ounce sold were $1,022 in the second quarter, 2015. The increase of 9% compared to the same prior year period was mainly due to an increase in sustaining capital spending coupled with lower gold sales. Sustaining capital expenditures were $16 million, an increase of $10 million from the same prior year period. This was due to the timing of capital stripping, the initiations of the Falagountou access road and infrastructure and the purchase of some additional mining equipment. In June, 2015, mining commence with the Falagountou pit, nine kilometers east of the Essakane process plant. During the month 278,000 tons were mined from Falagountou, half of which was ore. The favorable strip ratio from the satellite pit helped to offset the higher proportion of waste mine in the Essakane main zone pit. The Falagountou deposit contains indicated resources of 12.5 million ton averaging 1.52 grams of gold per ton or 0.61 million ounces contained gold. Ore mill in the first half of 2015 was nearly 5.3 million ton, slightly above the mill main play capacity rate of 10.4 million tons for the expansion which was completed early last year. Essakane continues to further reduce costs and to work collaboratively with our external consultant to improve management system, maintenance performance and planning method. Looking at Sadiola in Mali, attributable gold production was 17,000 ounces in the second quarter of 2015. The decrease is 29% compared to the same prior year period was mainly due a reduction in grades and throughput, partially offset by favorable recoveries. Total cast cost per ounce produced were $658 in the second quarter of 2015. The decrease of 31% compared to the same prior year period was mainly due to the realization of lower fuel and consumable prices. And a favorable foreign exchange rates. All-in sustaining cost per ounce sold were $706 in the second quarter of 2015. The decrease of 33% compared to the same prior year period was mainly due to lower cash cost. As Steve said, negotiations related to the potential acquisition of AngloGold Ashanti’s share of Sadiola and plans for its future expansion have been suspended. We expect that the mining and processing of the oxide will continue well into 2016. As well the site has initiated a reverse circulation drilling program to evaluate oxide target which have the potential to add incremental resources. That concludes my comments on operations. And I'll pass the call over to Craig for an update on exploration.

Thank you, Gord. And good morning, everyone. The second quarter continues to deliver encouraging exploration results. Of the $13.6 million spent in the quarter, $8 million were expense and $5.6 million was capitalized. In the following slides, I'll review our advanced exploration projects, highlighting some of the more significant drill intercept from our recent drilling programs. Drilling results from these projects have been previously disclosed in accordance with the securities regulations and have been duly signed off by qualified persons within the company who reported this. On Slide 23, we have the Boto Gold Project in Senegal. We are very pleased with the achievements to date. The project has an estimated indicated resource averaging 1.7 grams of gold per ton or 1.2 million contained ounces and additional inferred resources averaging 1.8 grams for a total of 635,000 contained ounces. Infill delineation drilling at the Malikoundi deposit which is the largest deposits on the property has now been completed. On July 20th, we announced drilling results from the final 26 holes, highlight include 36 meters at 3.59 grams per ton told which included 7 meters at 9.46 grams. These results confirm the continuity of mineralization with frequent high grades over wide interval and most importantly they indicate that the deposits remain open. We will be incorporating these results along with the once reported in February into revised resource estimate expected to be completed by the end of the third quarter of this year. We've also completed 1,150 meters of diamond drilling that will provide geo technical information in areas of proposed mine infrastructure. Various technical studies to examine the viability of the project are in progress and we will continue through 2016. Turning to our Siribaya joint venture product in Mali. We are focused on the Diakha prospect which is an extension of the same trend that hosts the Boto project deposit. White Boto the grades encouraging as indicated by the highlights from the 2014 final assay results and the more recent results announced on June 11, 2015. Highlights from the initial results of the 2015 drilling program with 40 meters at 2.52 grams per ton gold which included 9 meters grading 8.83 grams per ton gold. Results continue to confirm the presence of multiple zones of gold mineralization over a wide area. To date just under 15,000 meters or reverse circulation in diamond drilling have been completed to delineate the Diakha discovery and advanced towards the completion of an initial resource estimate by the end of 2015 as the results warrant. On Slide 25 that our wholly owned Pitangui project in Brazil. The resource delineation program initiated in 2014 continued through the second quarter with the focus on upgrading resources within the core area of Sao Sebãstio deposit. The current resource estimate for this project comprises an inferred resource of 638,000 contained ounces grading 4.88 grams gold per ton. Further assay results reported on July 7 this year included 11.9 meters grading 6.8 grams per ton gold which include 3.5 meters grading 17 grams. We are very pleased with these results as they confirm the continuity of the targeted zone and have intersected securing enrolls of higher grade mineralization. The infill drilling program was completed in the second quarter and the assay results will be incorporated into an updated resource model once they are received and validated. At the Eastern Borosi project in North East Nicaragua, we continue to see positive results on a number of gold and silver range systems. 2015 drilling program has been focused on further testing the discoveries from 2014 as well as exploring additional vein systems. Approximately 3,400 meters of diamond drilling was completed in the second quarter. The assay results reported on May 6, 2015 for the Blag vein system included the highest grade silver intercepts to date and they define the continuous high grade in gold and silver shoot within the vein system. On June 11, 2015, drilling updates were provided for most Guapinol and Vancouver vein systems again with very effective grades of both gold and silver. Results of the 2015 drilling program will be assessed to determine our future program. Lastly, at our joint venture Monster Lake project in Quebec, we completed in the 2015 winter drilling program. We completed 7,800 meters of drilling. Assay results reported on June 25 included 1.5 meters at 18.8 grams per ton gold and 10.7 meters at 3.64 grams per ton gold. The exploration team is now carrying out geological mapping and geophysical survey to identify and prioritize further drilling targets. Overall, our exploration projects are advancing at a good pace. Infill drilling programs to upgrade current resources have been completed at Boto and Pitangui and we hope to declare our initial resource at Diakha by the end of this year. Attractive grades have been reported at some of our other early stage projects are very encouraging and maybe pointing to the next discoveries. With that I'll turn you over to Steve.

Thanks, Craig. So in closing we expect to meet our guidance as presented on the slide, as announced back in June production guidance for 2015 were wise to reflect the reduction in Westwood's performance. In total, we are guiding at 780,000 to 815,000 ounces for the year. And despite the increased cost guidance for Westwood, the operation accounts for a small portion of our total production at this time, so we have maintained the overall cash cost and all-in sustaining cost guidance at $1,075 and $1,175 an ounce. While the gold price continues to take its toll in our industry, we've a plan for managing the business in this challenging environment. We have the strength of our balance sheet. We have no bank debt and we have no need to draw on a revolver. We have high quality assets and we have good people. And on that note, we'll open it for questions.

[Operator Instructions] First question today is from Botir Sharipov from HSBC Global. Please go ahead.

Good morning, Steve and team. A couple of questions for me. First on Sadiola expansion. With gold price down we have seen the pace of sector consolidation and the leveraging deals pick up recently. You have a strong balance sheet and we all needs to improve there, will now perhaps be a good time to buy them out at a potentially attractive price. And if you asked perhaps a way toward better environment or a partner to proceed with the expansion with the asset under your control. I guess a bit more detail on your thought process there would be helpful.

Well, I think logically you could make a case that you would do that. But it is -- the issue is that the all course is that it is two to three years from closure. And with Sadiola comes closure cost that right now are split 50:50 with Anglo and ourselves and represent about $100 million of closure cost which we've accounted for. But for us to take on that kind of liability and not have a very strong sense of the mine expanding. And doing that deep soil quite expansion which requires additional capital. We just didn't think it was prudent right now. We have a lot of shareholders giving us a lot of feedback about where we would put our money. We have a real call it split in terms of those who believe that gold prices are going to move up, back up towards $1,500 and we have people that believe gold to go down at $900 and stay there for a few years before goes up again. So and no one knows. So you know there is no algorithm here for gold prices, no one knows where they are going to go, we just at the end of the day when we saw gold falling precipitously and we see they lack of positive sentiment out there for gold right now, and we sort of have our a perfect storm of rising US dollar and a reduction in gold demand. As a team we looked at it and said we just do not want to put the balance sheet in that kind of jeopardy if gold prices stay low for a prolong period of time. And so it is a tough decision, Sadiola is a great project for us. I think it will be expanded in time. But at this point in time, we just did not want to put ourselves in any kind of balance sheet stress going forward. And if the gold prices move up back up to $1,500 I think we get back at the table with Anglo or perhaps Anglo at that point decides they want to participate who knows. Right now they are obviously don't want to. And with this current environment, we've made the decision to go to the sideline and mine the oxides for now.

And the $100 million closure cost, is this just your share or is it consolidated number?

That's a consolidated number.

Okay, all right. And switching to Falagountou. What sort of mining rates and grade should we expect there going forward? And will you be putting all of that mine ore through the mill?

We will be putting all of the mine ore through the mill. I mean the number I quoted was resources. We haven't record -- we haven't quoted a reserve number yet. And in fact we are continuing to drill at Falagountou because we do see some -- the deposit is open in a couple directions. Typically, we are looking to mill somewhere in the neighborhood of probably 75, to 100,000 tons of ore from there in any given month. It is not a huge percentage of our total. But the grades have been very good. The quoted grades that I -- or the grades I quoted at 1.53 grams per ton, we are realizing them and in fact better we are seeing positive reconciliation near the top of the deposit as we saw at the top of the Essakane main zone deposit. I don't want to extrapolate that too deeply because the ore does changes as you go down. And I want to see it in hand before I get too excited about that. But it's been very, very positive for us. Not only does the soft rock allow us to up our throughput at Falagountou -- sorry at Essakane, but the positive grades and good recoveries are certainly having an impact as well.

Next question is from Phil Russo with Raymond James.

Yes, thanks. Good morning, Steve and the team there. Just on Westwood here, the revised guidance there, from where I look at it, looks like it implies pretty notable step down in mining right so and or grade, could you just maybe help clarify this, is the mining right sort of heading towards sort of 1,000 tons a day, is grade coming down, what's the combination there and if I look ahead into 2016, the five year outlook sort of looks for three notable step up in mining rights to hit next is sort of production, how are you guys feeling about 2016 as well.

Look, it is tough to give really firm answers to your questions about where we are for 2016 and forward. We do have some conceptual ideas as to where we are going to go. We are still working very, very hard on the investigation of the seismic incident, working closely with our external consultants, our internal team. And certainly keeping the provincial inspectors on site as what's going on there. So that everybody is clear and we understand what happened. It was a localized event. It doesn't affect a great proportion of the total ton or total ounces at Westwood. Unfortunately it affected the stuff that was directly in front of us. We've put together a recovery plan to get back in there and re-access those ounces and we are in the process of doing that. Until we have that firmly in hand it is difficult for us to give a any sort of strong outlook as to what's going to happen in the next couple of years because that would depend highly on that. Looking beyond that, we are taking opportunity while we are mining at a reduced cadence in the rest of the mine to look at our opportunities to push development in other parts of the operation. So that we can improve the flexibility and get back on the ramp up schedule that we had previously talked about. You are right; the issue for the remainder of the year is reduced tonnage and somewhat lower grade. As state would have it the area that was affected by the seismic activity was our lower grade -- higher grade source for the remainder of the year. So, yes, it has impacted us directly in that regard.

Okay, thanks, Gord. Just one more than just the creditor facilities, you initiated discussion sort of the renewal in the early next year. Is there anything at this early stage that would made you to believe said that the credit facility as the economy have it, is at risk in terms of what about the bank saying to you guys, are you expect it to get at the same term as it was currently have.

In terms of the renewal, the credit facility, I do expect that in this market that we could see some possible changes. And I am confident that we will have a renewal however the size and facility and the terms of the facility might change. I mean our facilities that we put in place four years ago are an investment grade facility where gold prices were substantially higher than where they are today. So although we have a very strong balance sheet, that will factor into the renewal but very, very confident that we will be able to get a renewal at acceptable terms and we got a number of banks that are very interested in participating, both current and new.

The next question is from David Haughton with CIBC. Please go ahead.

Hi, Steve, Carol, Gord and Craig. Good morning to you. And thank you for the update. Gord, questions firstly on Sadiola and then on Essakane. Just returning to Sadiola, when we have a look at the reserves on a 100% basis it is over 3 million ounces of contained gold. What would that be excluding the dips?

I don't want to give you a hard number because I don't have it in hand, David. But I mean I would I have to expect that the number would be in the neighborhood of probably 350,000 to 500,000 ounces remaining oxide reserves.

Yes. Okay, so I were to guess something similar I suppose and the reason I am asking is this if the dip is off the table and all you kind of do is deplete the oxide and whatever happens to be in the stockpile. And that's really the new mine plan for us to be thinking about instead of going anywhere near the larger contained gold that you had disclosed previously.

Well, certainly for now David and by the way congratulation on your appointment, it is good to see you on the screen there. It is tough one, we are in the business where we are try to get -- trying to make very significant capital investments in an environment where you have no predictability of where gold is going to go so for the dips which is probably somewhere in the order of $400 million capital investment, it is one of those things where if you get it wrong and our -- we are looking at all-in cost at Sadiola somewhere between $800 and $850, if you got $1,000 gold price and you are looking at 150 buck margin, you don't get your capital back. And so it is one of these things where until we get some kind of flavor or where gold might be going in the longer term, it is just not prudent to put our cash at risk rate now. And Sadiola is not going to go anywhere. It makes it tougher to start it up again obviously if we run the oxides out and don't do the expansion we recognize that. But that's the risk we are going to have to take going forward as opposed to putting our financial position in jeopardy.

Okay, so I agree and right now the mindset on sight and with the partners would have to be this is a cash cow under the current circumstances and we can't really justify the expansion. So that's a very different mining mindset.

It is. And I was just there and I have to my hat is off to Anglo and the leadership there, they are doing an extremely credible job at maximizing the cash from that operation as you can see in our results. And I believe they will continue to do that for the next couple of years. And I think there are may be some upside to see if we are through, well we have to wait and see how the drilling proceeds but they are doing an extremely good job at Sadiola.

And you had mentioned the closure cost; I presume the offset too part of that would be skirt value whatever that is of the existing facilities. So is not entirely a $100 million 100% slug there.

Yes. It is not. It is probably not a huge number and don't forget we do have some new equipment on site that Anglo, when Anglo had decided that they may go ahead with this, we collectively purchased the $160 million worth of equipment which is in storage facilities around the world and that hasn't even been factored in either. So if we got $0.50 and the $1 for that that would go a long way to offsetting our closure cost. We haven't factored that in currently.

Okay. Over to Essakane. I see that you have got a bit of gap between sales and production. I presume that would be caught up this quarter and possibly into the next quarter. So it is just a bit of timing difference there.

Yes. We have had a little bit build up inventory. We are putting a plan in place to drop that inventory. We hope to see some of that next year, sorry next quarter or this quarter Q3, probably a little bit more in Q4 and even into Q1 of next year. However, the site has been put on point to do whatever they can to bring that gold to the sale side.

Okay. It kind of moves me to my final question and it might be for Carol. I have noticed on the balance sheet, you are carrying about $250 million tied up in current inventory. That's not unusual. You kind of have that from quarter-to-quarter. But in this current gold price environment are you focused on seeing how much you can release out of such a large inventory.

Absolutely, absolutely. We initiated the working capital review over a year ago and we made some great strives in reducing our working capital of that all size in terms of our inventory looking at our stockpiles, looking at our supplies and that managing our account payable and as Gord and you noted earlier, we did see an increasing in both supplies and gold inventory at Essakane and so we will be working towards moving that down to the next couple of quarters. Some of it has to do with carbon find that we have at Essakane so there is a cost assessment in terms of getting those processes and sold, and there is a little bit of timing there. But overall that the whole team, the whole organization is really focused on ensuring that we managed our working capital very prudently. We think there is a more opportunity there and we want to do it in a very risk management way in sense that we don't want to interrupt production but yet I think there are some more opportunity there and that we are definitely focused on it.

The next question is from Anita Soni with Credit Suisse. Please go ahead.

Hi, good morning. My question -- first question is the deployment of capital related to the sale of Niobec, what are you plans with that now you backed off with Sadiola?

Let me take a shot at first then Carol can talk to it. First of all, I want to congratulate Carol and Jeff for making that sale happened a year ago because if you look at the environment today obviously it was a very timely thing for us to do and has provided a very strong cash position for us to work off. And we are going to be very careful about how we allocate it. As you know, under the terms of the agreement, the proceeds need to be reinvested into the business or bonds will be repurchased with the amount that's left or when you look at the $500 million that we received if we reinvest $400 million, a $100 million would be reinvested in purchasing back the bonds at par. We are not driven a need buy that need to reinvest the capital. I will tell you that paying the bonds down aren't a band thing from my personal active, de-levering the company is not a bad thing from my perspective if that's the right decision. We don't have the right capital opportunities that give us rates of return that are well above our cost to capital. And add value for shareholders then we will reduce our leverage. It is simple as that. And we are not driven to invest the capital for fear that we have to pay the bonds now. And I can tell you that at the management level and I can tell you that at the Board level. So Carol do you have any comments as well?

I think you covered it, Steve. I would just add that we got a capital program laid out in our disclosure of just in excess of $200 million which obviously we are reviewing. So that would qualify towards the application of the funds. And then we do have some flexibility to be able to commit to spend money again related to ongoing necessary capital required in our business for 2016 so to the extent that we make those commitments by the end of the year. And could commit to spend that money in the first six months of 2016 that would also qualify. So there is a bit of flexibility there. But as Steve said, we are going to spend money but we are going to spend money in the right way and that's going to be our priority.

Okay. And then with regards to Westwood and AISC guidance for the year. I think it is 1300 to 1400 for the year. Does that include a similar fixed cost reduction for the rest of the year? That you similar what you took in Q2?

No. There will be - it will be different for the next two quarter so we did specific obviously disclosure around what occurred this quarter. It hasn't really back in to it when you look at Q3 and Q4 so we would expect that number to be higher as our productions going to be lower as we guided in Q3 and Q4. And so that's where -- that should be -- how should you be looking at it.

Okay. So I guess my question now is not --the actual amount, it is just that -- if I was -- say I estimated to be $6 million or $7 million for Q3 and Q4. Would I -- if I was trying to understand from cash or to your perspective would I then be adding that to the $1,300 to $1,400 per now?

Right. I mean the approach would be very similar. So it just has to kind of explain a little bit more fully. So what we did was we took a look at our fixed cost in terms of how we have been allocating it prior to the seismic event. And so we applied that same sort of principle on a per unit basis. So if you take a look at what the adjusted which is a $5.4 million adjustment for this quarter, a large component of that is going to be labor obviously and so you would have to extrapolate that into Q3 and Q4.

Sure. And then just an operational question on Westwood. Would you expect that there would be more of an impact on tonnage in grade in Q3 or just an even spread, this is for Westwood the question.

Right now what we are looking at Anita is fairly equal production for each for the next two quarters.

All right. And then just could you remind me what your power rates are right at Rosebel and at Essakane?

At Rosebel we are running around $0.15 a kilowatt hour. At Essakane we are running with the lower oil prices around $0.21 to $0.23. And then obviously Westwood running in the $0.05 range.

Was there some ore that was associated with the lower power rate? Was that Essakane? Was it the Falagountou that was like $0.11 per kilowatt I think?

That's Rosebel and it is related to the JV agreement with the government. We don't -- we are not treating any ore under that agreement yet. We are continuing to do exploration.

And then as last question at Rosebel. What do you estimate the mine life there is at this point? With considering the cost reductions that you are seeing.

Look, we are looking at a lot of different mine plans right now. If I apply a $1,000 gold we don't have an extremely long mine life there. If I apply sort of longer term prices in the neighborhood that we've been looking at in the past years we are still eight nine years there. And we are seeing some very positive indications on the existing deposits. I mean all of that is obviously net of or excludes the discovery of any additional resources from the exploration of what we are doing recently. And there is still an ongoing significant resource there. So that the cost savings are benefiting us. But we are also trying to be prudent on the cash flow standpoint and avoid taking the stripping ratios too high.

We are looking at holding basically an analyst toward there and in the sometime in the near future I have been down there as you probably know frequently. I am heading there next week for the president's inauguration and then again at the end of the month. I am extremely pleased with the progress we've made there. And we want to showcase that a bit because Rosebel has taken lot of hit and deservedly so because some of the pumps we hid in the road but I can tell you that the management team down there and Gord and his team have done an extraordinary job that improving the operation. We have a new life with mine plan and we wanted to get out and we are quite excited about it. So we are going to showcase that. And hopefully you can come down and see that Anita.

The next question is from Don MacLean with Paradigm Capital. Please go ahead.

Hello, can you hear me? Okay. I just want to follow up on the closure cost for Sadiola because that -- that often involved getting the government involved with what sort of trade off to make so that they don't impair optionality that remains with that very large resource out there. Can you give us any kind of a sense of what the spending timing might be and how you would account for it under the circumstances?

I mean right now Don, the closure plan is pretty conceptual. For comparison the closure plan is at Sadiola runs out, most of the spending is done sort of in a five year period. I would expect Sadiola would be sort of a similar prospect.

And Don just comment on the relationship. And we have a very strong and as you know because you are at Bill's retirement party. We go back 20 years with the government there and we had a long history of positive relationships in the current Ministry of mine is I would call him an outstanding individual, very good to deal with, we have a very good relationship with him. And we've met with the new Prime Minister and President and I would just tell you that I think at the end of the day they are going to work very hard along with us to leave the optionality we need if we see higher gold prices to come back into the site and revive the site as a new mine. So I have that confidence level and believe that optionality will be kept intact.

Bill and those of us have been around for a while when pushed on to shaft the government usually recognize the importance of keeping that optionality open. And Carol, from an accounting standpoint, how will you deal with this?

In terms of what we currently hold Sadiola as an IFRS and equity interest we will continue to that.

Okay. Is there any write down that would be required when you are recognizing the new path?

No. Now if you take a look at our financial statement, we are currently carrying Sadiola in our book at $50 million.

Okay, great. And then maybe just moving on to Westwood, Gord, I know you can't really predict what's going to happen over the next couple of years as you say but how confident are you at this point or can you give us some sense of how confident you might be under today's depressed gold prices that you will be able to actually operate above breakeven? Because you do mention you need to try to access other areas. Could you be in a position given how low the gold price is to have to make a decision to suspend your actual operating side because it is losing money to continue to develop and open it up?

I'll go back to your first thing; it is sort of tough to make that statement. We are looking at the operating side and trying to understand what we need to do on the operating side to have it generate cash. A lot of the development or all of the development, almost all of it is capitalized development to get to the ramp up. You get a little bit skip to frantic and that it would be nice to see operating side can carry to cost of the administration things of that nature. And we want to accelerate the development try and make a little bit of surplus here out of the circumstances and find a way to put together a better wrap up schedule in the five year plan and more stable operation that allows us to achieve the sort of nameplate capacities as quickly as possible and have them on sustainable basis. We really are looking at everything here Don and as Steve said and Carol said, we need to find a way to operate in a current pricing environment as best as possible.

Right, understood. And maybe just for Craig and Steve, you have had some great results at Boto quite encouraging. So are you going to put together an economic analysis on it, maybe for Steve, considering the circumstances and considering Sadiola, are you able to scale a project at Boto to sort of the economic capacity IAMGOLD at this point, do you think that's a possibility or where do you sort of stand philosophically about making significant future investments?

I would say Boto is an extraordinary discovery for us and kudos to Craig for what he has been able to achieve and absolutely it is a project one has a little longer time as you know, we are looking out three years but it is got a very strong grade for that particular part of the world. And is very, very reliable even in today's gold environment, given the capital that would be required and what we believe the operating cost would be and grade being a big factor of course and helping us achieve those objectives. So Boto is something in the pipeline that we are going to keep an eye on. We don't have to commit much capital to it right now. But it definitely is an opportunity for IAMGOLD to bring on stream.

The next question is from Pawel Rajszel with Veritas Investment Research. Please go ahead.

Good morning, everyone. I noticed you still have a royalty interest after the Diavik sale. Is there any income coming from that? Can you give us any insight as to potential value beyond what you have on the book?

Are you talking about Niobec or Diavik?

Diavik

We don't have anything left at Diavik to my knowledge. But you might be thinking of the fact that we do have a royalty at Niobec. But we do not have anything left at Diavik. And there is no revenue. The royalty stream left at Niobec has to do with the derivative resources that exist there. Sorry, there are no current revenues from that, and that's future option for us.

Actually so what you have on the book entirely the Niobec royalty?

That's correct.

And with regards to the cash cost reconciliation, I noticed you have got there the $44 per ounce impact as for the realized hedges. I am just trying to get a better grip on that because I noticed through the income statement your oil hedges are flowing through interest income and derivatives. Can you help me better understand the $44 per ounce? How do you get that?

Sure. I think you probably best to take that off line, I can run through because with our hedges we have hedges that qualify for hedge accounting and others that don't. And so we have to go through in detail different explain how it works and how it works through the income statement in terms of what is the P&L and what goes through other comprehensive income. So I am happy to do that and well we do that right after the call.

It is a very exciting discussion.

That concludes the time allocated for questions. I'll now turn the call back over to Bob Tait for closing comments.

Thank you, Joe. And thank you everyone for dialing in. I know there are other calls today and some of you need to move on to those. So thank you. If you do have further questions today, please call Laura Young or myself. Our numbers are on the news release. So I look forward to hearing from you and helping with those. Thank you very much.

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