IAMGOLD Corporation (IAG) Q2 2017 Earnings Report, Transcript and Summary

Thank you for standing by. This is the Chorus Call conference operator. Welcome to the IAMGOLD Second Quarter 2017 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 Ken Chernin, Vice President, Investor Relations for IAMGOLD. Please go ahead, Mr. Ken Chernin.

Thank you very much, Yvonne. Welcome to the IAMGOLD second quarter conference call. Joining me on the call are Steve Letwin, President and CEO of IAMGOLD; Gord Stothart, EVP and COO; Craig MacDougall, SVP Exploration; and Jeff Snow, General Counsel and Senior Vice President, Business Development. Carol Banducci, EVP and CFO, is not on the call today, because she's traveling for business. Carol will be available to answer questions when she returns next week. Joining us today is James Collie, Vice President and Corporate Controller, Finance and Accounting. Our remarks on this call will include forward-looking statements. Please refer to cautionary language regarding forward-looking information in our disclosure documents, and be advised that the same cautionary language applies to our remarks during the call. The slides that are referred to during the presentation can be viewed on our website. I'll now turn the call over to our President and CEO, Steve Letwin.

Well, thank you, Ken. And I apologize as well, I am on my way to Suriname here, so I'm in transit, but hopefully, everybody can hear me. We had another excellent quarter. Our operating performance was outstanding, financial results were strong and exploration results continue to impress. Gord, James and Craig will talk you through the highlights in a moment, but we made a change in respect to what I talk about and I think it's a good one, and that am more focused and should be more focused on the strategic direction that the company is taking. And I want to talk about our strategy to transform this company, which started about five years ago. And we've been on this road for a long time, and it's like, I guess the old tortoise and the hare story. We've been executing methodically, and believe and we're starting to see over the last two years as this is our eighth quarter in a row of improved performance, we're starting to see the results. And we don't want to get too ahead of ourselves here, and we always remember where we came from, but I have to tell you that I'm very, very pleased and I'm very impressed with the way the company has turned itself around in the direction it's now taking. I'm going to draw your attention to the slide, where we show the short cycle and long cycle capacity. And as you know, we put this together to show the balance between really two strategic directions that we've been taking. And we've been executing on both, but it really wasn't until this year that we started to see the milestones starting to accelerate and show up at a much more faster pace. And that resulted in the significant increase in reserves and resources that Rosebel, which we announced a few weeks ago, and as you know, Saramacca is just a few weeks away from a maintenance resource estimate, and I know Craig is going to talk about that in a little more detail today. And Westwood, our hats are off to the Westwood operations team. May 18, 2015, we had our seismic event, and Westwood is operating at normal level of production and ramping up quite nicely. We've also, again, thanks to some great work by Jeff Snow, who is in the room, formed a joint venture with Sumitomo for the Coté Gold Project. And again, thanks to Gord's team completed our prefeasibility study, which saw the conversion of 6 million ounces to resource -- of resources to reserves and Craig MacDougall has been quarterbacking that, showing Côté to be an economically viable project. So those are the milestones. If you turn to the next slide and you look at Rosebel, I'm going to zoom in a little bit on the short cycle. This is where we can get the greatest bang for our buck as you know. And our whole theme song here is that with less capital we get a lot faster payback obviously. And at the same time, we've been increasing the life of our mines. At the end of July, we surprised a lot of people, I think, including ourselves with Rosebel's 80% increase in reserves. A vast majority of the increase was due to optimization of mine plans and cost reduction. So on the left side there, you can see, and again, I apologize, because I'm in transit, so I am not with the group, but you can see on the far left side, the step approach that we've been taking to Rosebel. And Saramacca, which we plan to announce in early September, hasn't been included, but -- and I think what Craig would tell you, and I don't want to steal his thunder is that Saramacca itself will be a stepwise or a step approach. And that although we're going to be announcing a maiden resource in the first week of September, I think we're fairly optimistic that we're going to able to add to that resource over time. So although we'll be announcing a maiden resource in September, we feel very confident that we're going to able to add to that resource as we do more exploration. And then, of course, as you move up the ladder or the steps at Rosebel, we believe there is going to be an increase in reserve and extending Rosebel's mine life beyond 2028, which is where it is today. So we'll be able to add the Saramacca resources, and Gord and his team, Michel Payeur leading is going to put together a life of mine that will include Saramacca. This will obviously improve the economics significantly at Rosebel. And what Gord reminds me of all constantly, and it's a good reminder, is that additionally and on top of Saramacca, we have other exploration opportunities at or near the other Rosebel mine. This includes the Sarafina property that Craig negotiated a number of years ago, which covers the potential extension of the Saramacca mineralization located about 25 kilometers from the mill and the Overman deposit, which remains under evaluation a another potential satellite deposit for Rosebel. So when we look at Rosebel, and you take into the fact when this deposit really was discovered and the mine was built, we were at around 2 million ounces and our life of mine, which was about eight years, we produced over 4 million ounces and we moved this resource. We basically doubled the resource value of the company and the reserve value of this particular deposit in a reasonably short period of time. And of course, going back to what I've been repeating over-and-over again, the economic returns of doing this are infinite because the infrastructure that was build here and has a replacement value of well over $1 billion was paid for over 5 years ago. So when you're moving these soft rock, higher grade material into the infrastructure at a fairly low cost of capital, you can imagine what it will do to our cash flow and our overall rates of return. So it's very, very positive. And that same story, if you go to the next slide, can be shown at Essakane. And at the -- on the far left side, Falagountou, is something that we started mining in 2015, the Western portion of Falagountou. And by the end of this year, we're targeting an updated resource for the Falagountou East for inclusion in the operations reserves and resources. And then following up the ladder or the steps, heap leaching could provide yet another significant growth opportunity. Essakane's mine plan excludes a significant amount of mineralization below the current cutoff grade. There's also marginal grade stockpiles, not as economical to mine with the existing processing methods. So heap leaching could change this, and the preliminary test show it to be a viable alternative, because it would justify additional pushbacks of the main pit, we would have to access -- we'd have access to mineralization that at one-time would have been basically a write-off. So heap leaching, together with the existing plant, could give us Essakane another 3 or 5 years. And similar to Rosebel, you can see how our mine life is getting extended. And again, under the same basis that we talked about earlier, Essakane's infrastructure being in place, the returns are significant. The prefeasibility study for heap leaching is going to be completed by mid-2018. And depending on the results, construction could begin by the end of this year -- of that year, sorry, followed by a production start at a later date. We also have opportunities if you look at the far right, satellite prospects, with a number of untapped satellite prospects surrounding Essakane, the Gossey and Korezena prospects about 15 kilometers from the mill are currently being drilled, and we're evaluating results from the Tassiri and Sokadie prospects also within a short distance from the mill. And all of these have the potential to add to the life of Essakane. So again, although I've singled our Rosebel and Essakane, in the future, we're going to hear a lot more of our Westwood, as Westwood continues to move ahead. And then on the long cycle side of course, we've got Côté and potentially Sadiola. And we continue our negotiations with the government. We really have nothing to report there. We're continuing our negotiations, hopeful that we're going to be able to move Sadiola forward on a timely basis. But as we're seeing with Rosebel, successful transformations take time. I want to thank our investors and shareholders for their patience. I think it's paying off. We've been at this for a few years now. But I think, and I'm-- hopefully, you're going to able to see it. I know a number of analysts are going down to see Saramacca here in about 3 weeks-or-so, about a month, and just see what we've been talking about. It's also an opportunity to see a transformation on the concession itself, where we're seeing such an significant increase in our reserves and resources. And then at Essakane as well, we'll hopefully get a tour out there or be able to in some way show you what's going on. So with all that, again, I want to thank you for your patience. I have to tell you that I'm extremely pleased and grateful to our team for all the hard work they've done and it goes right across the board, right across the operations, exploration and financial side. We have finally seen fruits of our labor, and we're going to continue to work hard and move this company ahead. So with that, I'll turn it over to James to review our financial results.

Thank you, Steve. Turning to our financial results, Slide 7 provides a snapshot of how we performed on key operating and financial metrics in the second quarter. Compared to same quarter in 2016, gold production increased by 13% to 223,000 ounces. Cost of sales and cash cost per ounce were lower, and all-in sustaining costs were down 12%. Gold sales were up 17% with a higher revenue -- higher volume driving revenue up 18%. Gross profit increased by 47%, reflecting major operational improvements at Essakane and Rosebel and the continued ramp-up of Westwood. Higher operating earnings contributed to the 25% increase in net operating cash flow. Second quarter earnings included reversals of impairment charges related to the Côté Gold Project and the Rosebel mine. The changes to deferred income tax assets and liabilities as a result of the reversal resulted in the significant increase in income tax expense, which is the reason for the decline in adjusted net earnings, which takes me to the next slide. Reported net earnings attributable to equity holders in the second quarter included $524 million of impairment charge reversals. A $400 million reversal for the Côté Gold Project was triggered by the sale of 30% interest in the project to Sumitomo metal mining for $195 million. Given the amount of consideration, it was determined that the recoverable amount of the asset was greater than the carrying amount. With Rosebel, the impairment charge reversal was $124 million. This follows the significant increase in reserves and resources and the extension of the mine life announced on July 26, 2017. Adjustments also included a $19.2 million gain on the sale of the 30% interest in the Côté Gold Project to Sumitomo. The $42 million tax adjustment was mainly related to changes to deferred income tax assets and liabilities resulting from the reversals of the impairment charges. Excluding these items, and others not indicative of our core business, adjusted net earnings attributable to equity holders was $4.3 million, or $0.01 a share in the second quarter. Slide 9 presents the company's hedge position as at August 1, 2017. With the continued weakness in the oil market subsequent to the quarter end, we extended our hedge coverage for fuel exposure to 2020 and added coverage for 2018 and 2019. Additionally, with the strengthening of the euro in July, we also hedged some of our 2018 exposure to the euro. On Slide 10, you'll see that our balance sheet remains strong with $776 million in cash and cash equivalents. During the second quarter, we replaced short-term restricted cash of CAD 124 million with uncollateralized surety bonds. This cash had been held by the Government of Québec to guarantee the asset retirement obligation related to the Doyon mine. Combined with our credit facility, total available liquidity is more than $1 billion. With that, I'll turn you over to Gord.

Thanks very much, James. So operationally, we had another great quarter. Westwood is ramping up, production is planned, mining efficiency continues to improve and mill's throughput is increasing. Credit goes to the site teams that have work hard to raise the performance bar, who demonstrated that the search for improvement opportunities is endless. Slide number 12 presents the production and cost numbers for the second quarter. In total, we produced 223,000 attributable ounces. Total cash cost per ounce was $735, and all-in sustaining costs were at $975 per ounce. Our outlook for the year, for both production and cost remains positive, and our production and cost guidance for the year remains unchanged. As we said before, the guidance we provide is annual. Fluctuation in unit cost throughout the year is not unusual. And as we look at the second half, we do expect some modest increase in costs due to the timing of capital stripping and overall sustaining capital expenses, increases in the drawdown of stockpiles, especially at Rosebel and some increased contractor charges at Essakane. Additionally, we are using some prudently conservative assumptions on inputs such as fuel prices and exchange rates. We will reassess guidance after the Q3 results. Turning specifically to Essakane. Attributable production this past quarter of 101,000 ounces was up 13% from Q2 of '16 and 9% from the first quarter of 2017. Throughput is outstanding. Despite hard rock climbing from 70% to 85% of mill feed, tonnes milled rose 24% year-over-year. With the cadence for annualized throughput reaching nearly 14 million tonnes, the mill is performing 30% above the nameplate capacity of 10.8 million tonnes per annum. This provide significant upside over our current life of mine plans, which have similar levels of hard rock blend going forward to what we're seeing right now. Although the recovery rate improved in the second quarter, with the increase in mining in nongraphitic zones, we still intend to find a permanent recovery improvement solution for future graphitic ores as we know we will see them again. The geometallurgical study we started last year to better identify and quantify graphitic pockets in the orebody has been expanded, and we should complete the study by the end of this year. Additionally, recoveries will benefit from an oxygen plant, which should be in operation in the second half of 2018. All-in sustaining costs of $922 an ounce at Essakane were 15% lower than Q2 of 2016, mainly due to lower sustaining capital expenditures. Cost of sales per ounce increased with the lower capitalized stripping and higher processing costs due to harder rock. The construction of the 15 megawatt solar plant began in the second quarter and should be completed by the end of this year. As you heard from Steve, heap leaching has the potential to dramatically increase the business -- enhance the business model at Essakane. By the second quarter of next year, we expect the prefeasibility study to be completed. Heap leaching would give us a low-cost method for processing marginal and low grade ore, including stockpiles and will justify additional pushbacks of the existing pit. We believe that the addition of heap leaching, together with our existing carbon-in-leach plant, has the potential to increase Essakane's annual input by 15% to 20% above where we are now. Moving on to Rosebel. We published a reserve and resource update on July 26. Given our conference call, following the announcement, I won't go into a lot of detail other than to repeat some of the key messages. The 80% increase in attributable reserves to 3.5 million ounces extends the life of Rosebel to 2028. Saramacca was not included in the reserve and resource update in July, but we expect to release a maintenance resource for Saramacca later this quarter. Only a limited amount of ore from the saddle zones is included in the resource model as drilling was incomplete at the time of the cutoff date. There's potential to see more on from these areas. The vast majority of the reserve increase is due to mine planning optimization and cost reduction, which allowed us to economically bring in more ounces. Grade for the updated reserve remained unchanged versus the prior reserves despite applying a dilution assumption of 8% for satellite ore and 10% for transition and hard rock. This is because the new pit designs are mining deeper into higher grade ore zones of several of the ore bodies. Previously Rosebel had not applied dilution factors. Rosebel has done an outstanding job in improving their cost profile through productivity improvements, better equipment reliability, operational enhancements, stabilization of mill feed and a lot a focus on reducing dilution. As Rosebel continues to work at reducing costs, and once Saramacca is integrated into mine plan, we expect that we'll have a further positive impact. Turning to Rosebel's second quarter results. Attributable production was 74,000 ounces, virtually flat with the same quarter in 2016. Throughput was about the same despite hard rock increasing from 36% to 42%. Again, the result of major mill improvements, I spoke about last quarter. The volume of ore mine was up 20% as a result of mine sequencing and less rainfall than expected. All-in sustaining costs were 12% below Q2 of '16 due to lower cost of sales and sustaining capital expenditures. Looking ahead, once we publish an initial resource for Saramacca next month, and Craig will talk about that a little bit more, we'll be able to complete project plans and mine designs that incorporate the Saramacca feed into the overall Rosebel life of mine plan. And I remind everybody again, we will be having an analyst tour in about a month's time at Rosebel. Looking at Westwood on Slide number 15. We continued to ramp up production and open up more stopes for mining. Quarterly production was again double that of the previous year, bringing our 2017 year-to-date production to 63,000 ounces. We're seeing excellent grades. I want to point out that the grade mined underground is much higher than the total reported head grade. This is because marginal surplus ore stockpiles are being processed to take advantage of available mill capacity. When we exclude the marginal ore, the head grade in the second quarter from underground is actually 8.6 grams per tonne gold, which is 35% higher than the combined number reported. Turning to underground development. At 11 kilometers to-date, more than 50% of the 20-kilometer target for the year has been achieved. Excellent progress with ramp breakthroughs and the ongoing development of infrastructure in the lower mining sectors. By the end of this year, we should be producing at a commercial level from two mining sectors, including the zone where remedial work was completed last year. The normalization of cost at Westwood was discontinued in the second quarter as we are now operating at a normal level of production. As production increases, we should continue to see Westwood's unit cost trend downwards. At our Sadiola joint venture, attributable gold production in the second quarter of 2017 was 14,000 ounces. The decline of the previous year was the result of a 24% drop in grade, partially offset by higher throughput. We continue to negotiate with the government on the progress of SSP, but I don't have much further to add in that area. Lastly, I'll make a few comments about the Côté Gold Project. Many of you who were on the June 6th conference call, following the announcement of our JV with Sumitomo as well as the results of the prefeasibility study, which we had just completed at that time, so I'll be brief. Since acquiring Côté several years ago, we've been focused on de-risking the project. Our drilling program significantly increased the size of the resource, and we have received positive decisions on both the provincial and federal environmental assessments. The deal with Sumitomo and the prefeasibility study publish -- I mean publishment are critical milestones as they enable us to advance the project towards development. With Sumitomo owning 30% of the project, we have someone with whom to share the capital cost. They bring both technical and business development expertise. Not only are they as interested as we are in advancing the project, they are also interested in pursuing future growth opportunities together with us. Based on the results of the prefeasibility study, Côté is shown to be an economically viable project. 3.8 million attributable ounces of reserves, a 17-year mine life averaging 207,000 attributable ounces of annual production at an average life of mine all-in sustaining costs of $689 per ounce and generating an after-tax IRR of 14%. The feasibility study will be fully underway shortly with the completion date expected in the second half of 2018. I'll now turn it over to Craig to talk about exploration.

Thank you, Gord, and good morning, everyone. Please note that the results I will refer to have been previously disclosed in accordance with securities regulations and signed off by the qualified persons within the company reporting them. I'll begin with Saramacca. Within 4 weeks, we intend to publish an initial resource estimate for Saramacca as promised. Results to date from a 180 diamond drill holes totaling nearly 34 kilometers completed since we acquired the property in August of last year are impressive. Notable highlights this quarter includes 76.6 meters at 7.7 grams per tonne gold, starting at a depth of only 0.9 meters. Also 41 meters of 5.6 grams per tonne gold, starting at a depth of 9 meters, 43.5 meters at 12.3 grams per tonne gold at a depth of 152 meters. As we have been reporting, our drilling program has intersected numerous high grade intersections over wide intervals, including soft rock intersections close to surface. All drilling results have now been incorporated into a deposit model to support the initial resource estimate currently in progress. As Gord said, we will be working to incorporate the delineated resource in Rosebel's life of mine plan next year. Turning to our Greenfield projects. At our Boto Gold Project in Senegal, we reported final assay results from diamond drilling to test foot wall mineralization at Malikoundi deposit as well as its extension to the north. Results reported on May 31, will be incorporated into our revised geologic model, which will lead to an updated reserves estimate by the end of this year. We continue to explore known mineralized trends associated with the Boto 5 and 6 zones, where we see potential for additional resources. Pitangui in Brazil, we are focused on the up plunge extension of the São Sebastião deposit, where we believe there is potential for additional resources. We received the permit to drill this densely vegetated area late last year, and in the second quarter completed 2,000 meters of drilling. We continue to target the resource upgrades for the end of this year. Technical and environmental study to advance the economic evaluation of both Boto and Pitangui continue. Our Siribaya project in Mali, we completed approximately 12,700 meters of diamond and reverse circulation drilling in the second quarter. Our objective is to increase our confidence in the known mineralized zones at the Diakha deposit and to extend mineralization north and southward along strike. At our Eastern Borosi project in Nicaragua, approximately 3,500 meters of diamond drilling was completed in the second quarter. Again, our objective is to evaluate the resource potential of selective vein systems, and if the results proves -- prove positive, use them to complete initial resource estimate by the end of the year . Also during the quarter, we satisfied our first stage earn-in commitment and vested an initial 51% interest in the project and exercised our right to enter the second option to earn up to 70% interest. Turning to Monster Lake in Québec. Drilling results were announced during the quarter and in July. Highlights included 121.7 grams per tonne gold over 3.1 meters and 80.3 grams per tonne gold over 5 meters. We completed more than 2,000 meters of drilling in the second quarter. Our objective is to better define and extend the 325-Megane Zone as well as test new areas of mineralization along strike to the north and in the lower parallel shear zone. Results are showing continuity of high grades associated with the Megane Zone as well as mineralization and extent in the northern part of the shoot. We will continue to drill these new areas in order to establish the resource potential of these high-grade structures. At the Nelligan Project south of Monster Lake, drilling year-to-date totaled 7,700 meters. Our main objective is to follow on the encouraging results from the 2016 drilling program and to explore the newly discovered mineralized zone located to the north of the previously known mineralization. And finally, following the announcement of Rosebel's R&R update at the end of last month, we created this next slide. This year will be a standout year with a significant reserve replacement for IAMGOLD, something that is a big challenge in our industry these days. With the conversion of resources to reserves at Côté Gold, followed by the 80% increase in reserves of Rosebel, our consolidated reserves at the end of July are up 69% from the end of 2016. Our objective is to keep adding to that, with Saramacca, Boto, Monster Lake and the others in our portfolio of long cycle projects. With that, I'll call on Steve to wrap up.

Thanks, Craig. Well, again, another outstanding quarter. We're going to just keep our heads down, keep working hard and execute as planned. As you know, the company is driven by measured results. So every day, when I come into work in the morning and Stothart's been there since 6:00, we can take a look at the dashboard, and we measure things literally everyday as does Craig and Carol. And we haven't forgotten where we've came from. And we learned some hard lessons about costs. And I can tell you that our commitment is not to go back there. We've got one of the lowest G&As in the industry. We plan on keeping ourselves lean and mean and continuing to transform our company one step at a time. We've got some great catalysts to come. Westwood to double production this year. Craig's talked out about Saramacca few weeks away, the heap leach prefeas completed by Q2 '18. The feasibility study for Côté. And by the way, Jeff Snow and Carol Banducci are headed over to Japan to meet up with Sumitomo. And interestingly enough, as some of you probably know about 11% of our shares are held in Asia, Hong Kong primarily, but we've been asked with the Sumitomo investment to come over. And we've got three full days of meetings over in Japan with fund managers, who are very keen on the company. And obviously, this comes with the Sumitomo investment, but along with the capital that we're going to see from Sumitomo and their expertise and experience, we're seeing some very significant interest from the Japanese, which is very, very positive. And Jeff is committed not to come home until he ends up with some shareholders coming IAMGOLD, so we'll wait to see. At the end of the year, we're targeting an initial resource estimate for Monster Lake and Eastern Borosi, as Craig talked about, and resource estimates for is Falagountou, East Boto, Pitangui and Siribaya. So we'll keep working hard and keep our heads down and keep delivering some results. On that note, I'll turn it back to Ken.

Okay. Then operator, I guess, we're ready to take some questions.

[Operator Instructions] The first question comes from Anita Soni with Crédit Suisse. Please go ahead.

So my first question is with regards to Rosebel. So I guess, the plan now going forward is to put some of this lower grade material that you're seeing and defer putting higher rate, is in the higher grade and harder rock material into the mill?

Sorry, Soni, I really didn't hear your question. You were sort of fading in and out there.

It's Anita.

Anita, sorry.

Yes, Anita. Yes. So I was just wondering what's your plan going forward is in terms of the tonnage and grade in 2018, 2019 for Rosebel, and actually for Essakane as well?

Right now, our LOM plans for Rosebel the next two years are sort of in the 11 million tonnes to 11.5 million tonnes a year with the bland we see right now. Beyond that, it's really tough to say, because we need to sort of understand where Saramacca is gone to come out at. At Essakane, although we're running at a cadence this year of close to 14 million tonnes, as we look forward until we get a little bit more data behind that, we're still, I think we're planning in around 13.2 million tonnes, 13.5 million tonnes somewhere in there with the blends we have.

Right. And so at Essakane, you're running below your reserve grade right now, not substantially, but would that uptick as you go forward? Or is that as the throughput come down, we get the higher grades? Or is that..

The grades are slightly below right now mostly because we've come up to a new phase. So the end of last year and the first quarter of this year, we are mining right in core of the deposit on the P2 central zone. Now the ore is coming -- the Essakane deposit ore is coming from the south in a new pushback, so we're up into -- up into some more this delirious of the deposit. We are still seeing some decent grades out of Falagountou, but it's really just timing of phasing that's sort of changing the grades quarter-over-quarter. The site is doing a great job on throughput, which is helping to fix that. And as you'll see when you look at the results, as we've come out of that P2C zone, our recoveries have improved significantly, because we're not encountering the quantities of graphitic material that we had previously.

And just continuing on Essakane, just so I understand what's going on there. I mean, you've got -- your tonnes of ore mined for the last few quarters at least has been below what you've been milling. So do you have -- what's the stockpile level that you have there?

We have very significant stockpiles of lower grade satellite material, so that is -- that's helping us with a little bit. We have made a number of changes within the mine department and we are -- we do have a contract miner helping us on-site right now. So we are shooting to increase the tonnes of ore mined here in the next two quarters.

So can you let me know what the tonnage level is on that low grade stockpile is?

I don't have that at hand, Anita. I'll have to get back to you. I mean, I do know what's in the marginal stockpile that we're looking at potentially for heap leaching, but the actual stockpiles for mining on now, I don't have those numbers. I'd have to look them up.

And just 1 last question on Essakane. The stockpiles that you're mining from right now, could that be also heap leached?

Potentially, we're a little -- we haven't done a lot of work on leaching of saprolite. Most of the heap leach test work has been done on transition and hard rock material. When you get into saprolite, then you have to look at things like, what agglomeration and potentially some anti-dilution. So some of it may be amenable to heap leaching. In fact, all of it may be amenable to heap leaching, but one of the real upsides we saw out of the early test work on heap leaching earlier this year was that the hard rock doesn't require agglomeration or cement. So potentially, yes, we could go after those stockpiles as well. I'd rather have the gold in my pocket today than four years from now.

So then back to Rosebel. Does the -- what -- and this, Michael love this, what's your strip ratio in 2018, 2019?

2018, sorry, I was just doing my calculation in my head here. I think we're running at about five-is-to-one over the next two years on average.

And then just a similar question on stockpiles there. So you're running -- you're mining more than you're actually milling. So what's happening with the ore that you're not putting into the mill right now?

They're going in stockpiles.

And so what's the grade of that stuff?

Typically, it's -- I want to say it's sort of 0.7 to 0.8.

Just a few more questions last on Westwood. So can you talk about the unit cost overall this quarter? Just from a total overall sort of mining, processing SG&A, my assumption is they went up considering to get back to back into your total cash cost? And I'm just wondering what sort of precipitated that? And I'm sort of -- I get to the point that you haven't been able to direct -- put as much direct ore feed because you've been working on development work in the quarter. And then you put this lower grade material in, which I've calculated to be around 1 gram per tonne material in order to fill the mill a little bit. And I'm just wondering was it the processing or the mining costs that went up as a result of some of the things around this quarter?

I believe what drove the costs up slightly, and I don't have the costs on my fingertips. We did do more non-expansion development, so sustaining development in the ore production zones over the last quarter. So that gets added in the mining cost. The reason the ore was down a little bit was slightly lower dilution than as planned. And we never did have the mill filled with underground material in this year's plan. So we're using that spare time to -- as I said, to treat lower grade material, and we're also doing some custom milling in that spare time. There was a little less custom milling in Q2. So some of the milling costs on a per tonne of ore basis is probably slightly higher as well than we would have seen in Q1, because we weren't able to distribute some of those costs to the custom milling on a pro rata basis. It would have all come in to the existing plan, but generates profits.

The next question comes from David Haughton with CIBC.

Probably back to Gord, if you don't mind. The throughput you've been getting at both Rosebel and Essakane really are quite good. And I guess, reflects some of the remedial work that you've been doing and some of the enhancements you've been doing to the milling. I heard what you were saying, Gord, about 11 million to 11.5 million tonnes per annum for the next couple of years through Rosebel. And I'm wondering whether that kind of number includes the benefit you've been seeing at least in recent quarters of that secondary crusher on the additional power flexibility that you've got?

Yes. That definitely does include that. And it is high -- I mean, I mentioned that year-over-year hard rock have moved from sort of high 30s to mid-40s. In addition to that, the remainder of the material is almost all transition material. So we have very little saprolite going into Rosebel these days. It's all transitioned in hard. So with that blend, there is some impingement of the throughput, if you will, versus the blend where in the past we've sort of seen equal amounts of transition in soft rock. So -- and the trans itself by -- obviously, by definition is quite a variable material. So the tonnages that we quote typically are based on the specific blends we're expecting for those periods. And yes, they do incorporate the existing enhancements of the mill. While we're seeing some nice -- some benefit both at Rosebel and Essakane is on up time, so we're getting a lot of -- some higher availabilities in both the plants than we had originally booked.

Okay. So excluding the potential impact of Saramacca, I understand that next year at Rosebel, you kind of moving into 60-plus percent hard rock. Would we see that throughput going down towards the $10 million tonnes per annum range into 2018 and '19 with the increased level of hard rock with the exclusion of Saramacca?

Yes. It's not linear. So we have to get to sort of 85% or 90% before we get down to the 9 million tonnes a year, and it's not a linear relationship. So yes, I would say without Saramacca, looking at 2019 -- end of 2019 and 2020 certainly then we'd start to see some throughput reduction. The new mine plan that went with the reserve and resource increase does contemplate some fairly heavy use of stockpiles, just because the stockpiles are much higher throughput than the hard rock. So the way the mine sequencing wants to work is it does want to take some of those softer stockpiles even though they are lower grade over the next couple of years. And then use that period to strip down to the better hard rock material in some of the beds.

Yes, and David, it's Steve here. I wouldn't underestimate the ability of the site to find additional resource in the soft rock category. As Gord outlined, we really haven't completed the saddle drilling. And they continue to surprise themselves and us with the addition of resources that may not be pure hard rock. So I would make the assumption that we're going to be able to run this mill fairly hard with fairly reasonable throughput until Saramacca comes on, which obviously will change the entire throughput of the mill.

Okay. Thinking still with Saramacca, and I guess we'll get more details in a month or so is in production 2019 and beyond?

Yes. That's the goal we're aiming for. I mean, there's still permitting to do and mine design and from some infrastructure to build, but that's where we'd like to see it sometime in 2019.

The next question comes from Tanya Jakusconek with Scotiabank.

So I'm just going to circle back on a few on Essakane and Westwood for Gordon and then Sadiola Sulphide throughput for Steve. Just on Essakane, and I appreciate that we're going down to that 13.2 million to 13.5 million tonnes per annum going forward, but Gord, are we in the 14 million tonne for the rest of the year?

In our forecast, yes. That's what they're projecting.

Okay. And just moving on to Westwood, Gord, how long -- or when do you see it not supplementing the underground with the stockpile? We have seen that...

So -- yes, I mean, so nameplate capacity -- I mean, in the past, Westwood was treated up to 1.2 million tonnes. When we did the refurbishment, we didn't completely refurbish the whole comminution circuit. So the nameplate is basically 900,000 tonnes a year under the current configuration of that mill. So this year, I believe we're looking at something like 550,000 tonnes of ore from underground. Next year, I believe, we're looking at 650,000 tonnes from underground. So there's still another give or take 250,000 tonnes of capacity available to us in 2018. We're evaluating our options right now. We could look at either custom milling there and/or we have been doing supplementing with this low grade material. In the low grade material, I mean, we're very rigorous about it. It is generating a profit, but it's also reducing our ARO, because as it sits right now it's an environmental liability. So as we're able to process it through the mill and send some of it underground has paced back fill in calculated tailings, it's reducing our ARO obligations down the road.

And the life of mine plan, when do you see yourself not supplementing the mill?

2019.

2019. Okay. And Steve, maybe coming to you, I know you have perhaps by now have updates on this Sadiola Sulphide. But I think I asked the question on the Q1 conference call, at what point do we start having to look to walk away from the project or close down the project if we did not have approvals for the government to move forward? And I think we have talked about sort of midyear to like Q3 or so. Can you give us an update on where we stand on that? And also is there a possibility of shutting it down -- Sadiola down and then restarting again, is that a possibility? So maybe just a little bit more on that.

Yes. It's an excellent question, Tanya. I mean, here is the fundamental problem. The mine operated for 20 years on the 1991 mining code. The government -- and that real code extends to about 2020 for us. So although we'll operate under the code as the mine continues to produce some oxides, it doesn't address the deep sulphide expansion that we want to do. So the government basically said, look, we want get to move to a 2012 code and that make sense so that we can extend the mine life another 10 years. The problem with the 2012 code is it doesn't have a sustainability clause and they want the reclamation cost paid upfront. So while other companies have build mines recently they're under the 2012 code, it doesn't really fit the risk profile for ourselves and for Anglo, not to speak for Anglo, but I think Vanguard and myself are fully aligned here. So we have asked for amendments to the 2012 code, because I feel and Vanguard feel very strongly that certain amendments have to be made in order for that code to be viable and fit the risk profile for our shareholders. And so we continue to negotiate on that. If we are not able to negotiate that then we will have to take certain actions. Our mining permit runs to 2024. I have made a commitment to our shareholders and to our board of directors, and I know Gord Stothart and Carol Banducci walk beside me on this, is that we are not going to invest US$200 million into a -- and make an investment in a mine that doesn't show acceptable economics for our shareholders at a $1,200 gold price. So -- and then we're going to stick to it. We're very disciplined, as I said before. We've learned from the past, and there are lots of places for us to put our money. As you can see, from the short cycle capacity opportunities that we have at the company, there is a plethora of robust economic activity that we can pursue. We really like the Sadiola project. I think it's a great project, but it has to have the economic metrics that fit a good investment for our shareholders. So I would tell you what I said in the first quarter holds, I'm hopeful that we will make progress, but it is obvious that if we don't make progress, certain actions will have to be taken and news at 11 on that, we're still in negotiations with the government. I want to respect that. And we'll know by the third quarter where we sit and we'll be able to give you a much more fulsome update at that time.

And maybe just to remind us, the remaining oxides, where -- how long do we have on that in the current life of mine?

Craig, how many -- or Gord, you can answer that? I would say another year, I'm not totally sure. Craig, what you would say to that?

We still have oxides that we're mining through the end of 2018 followed by some marginal stockpiles into early 2019.

And then maybe just -- maybe someone can answer the question, can you shut down and the restart it, is that an option at all?

Sure. It's an option. Absolutely. We can do that. We don't want to do that, but we're not going to be carrying costs with no production either. So again, we're going to give you a better answer in our third quarter. I just ask for your patience, Tanya, but I think I've given you a fairly good picture of what we're looking at.

Yes. And maybe someone just remind me what the reclamation obligation is at site?

James, do you know that, or Gord?

I don't remember exactly what the...

Why don't we get that, Tanya, offline.

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

Thank you, Yvonne. And thank you ladies and gentlemen for your continued interest in IAMGOLD. We look forward to having you join us for our third quarter conference call in November. Thank you very much.

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