IAMGOLD Corporation (IAG) Q3 2024 Earnings Report, Transcript and Summary

Thank you for standing by. This is the conference operator. Welcome to the IAMGOLD Third Quarter 2024 Operating and Financial Results Conference Call and Webcast. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] At this time, I would like to turn the conference over to Graeme Jennings, VP Investor Relations and Corporate Communications for IAMGOLD. Please go ahead, Mr. Jennings.

Thank you, operator, and welcome everyone to our conference call today. Joining us on the call are Renaud Adams, President and Chief Executive Officer, Maarten Theunissen, Chief Financial Officer, Bruno Lemelin, Chief Operating Officer, Tim Bradburn, Senior Vice President, General Counsel and Secretary, and Dorena Quinn, Senior Vice President, People. We are joining today from IAMGOLD's Toronto office, which is located on Treaty 13 Territory on the traditional lands of many nations, including the Mississaugas of the Credit, Anishnabeg, Chippewa, Haudenosaunee, and the Wendat peoples. At IAMGOLD, we believe respecting and upholding Indigenous rights is founded upon relationships that foster trust, transparency and mutual respect. Please note that our remarks on this call will include forward-looking statements and refer to non-IFRS measures. We encourage you to refer to the cautionary statements and disclosures on non-IFRS measures included in the presentation and the reconciliations of these measures in our most recent MD&A, each under the heading Non-GAAP Financial Measures. With respect to the technical information to be discussed, please refer to the information in the presentation in the heading Qualified Person and Technical Information. The slides referenced on this call can be viewed on our website. I'll now turn the call over to our President and CEO, Renaud Adams.

Thank you, Graeme, and good morning, everyone, and thank you for joining us. The third quarter was another exciting quarter for IAMGOLD, as our operations performed well, demonstrating safe, stable production and strong cash flow growth. Gold production year-to-date for the company totals 490,000 gold ounces. Driven by the strong year-to-date performance at Essakane and the turnaround of Westwood, both assets which are poised to achieve the near -- the upper end of the production guidance estimate. Code Gold, meanwhile, is taking significant strides as the mine continues to ramp up and achieve multiple milestones in the quarter, including reaching commercial productions on August 2nd, demonstrating the capability to operate at or above nameplate throughput levels, completing key maintenance to improve the availability of the plant, and achieving its first quarter of a positive free cash flow production. Code remains on track towards our goals of the mine, achieving 90% nameplate throughput exiting the year. With 2025 just around the corner, a surprising seven weeks away, IAMGOLD is rapidly moving closer to our goal of becoming a leading modern Canadian gold producer with a strong balance sheet, an asset that is poised to generate significant value for our stakeholders, partners and investors, further enhanced by the backdrop of today's gold price market. By the middle of next year, we anticipate we will have our gold prepayment facility behind us. Code will be nearing nameplate production, and Essakane and Westwood will be capable of generating near-records cash flows. This will conceptually position IAMGOLD uniquely amongst the mid-tier space, with significant cash flow generation and some very valuable near-term growth to uncover at Cote Gold. Looking at a highlight from the quarter, starting with health and safety, which is a fundamental pillar of IAMGOLD's visions of zero harm and our commitment to people and the places in which we operate. In the third quarter, our total recordable injury frequency rate was 0.46, an improvement from the prior quarter, led once again by Essakane and his team, who achieved 000 for safety incident in September, a testament to the professionalism and commitment to a safety culture by our people in Burkina Faso. In the third quarter, IAMGOLD produced 173,000 attributable gold ounces from all three of its operations, well above the 109,000 ounces achieved in the same period last year. This year-over-year production growth was driven by continued stable operation at Essakane, the successful turnaround at Westwood, and the ramp-up of Cote. On a cost basis, IAMGOLD reported third-quarter cash costs and all-in sustaining costs of $1,165 per ounce and $1,756 per ounce, respectively. While costs were lower than the prior year period, the cost increase quarter-over-quarter was in line with expectation and our guidance, as we will discuss in a moment. Sustaining capital expenditure increased in the third quarter to $84.7 million, up from $50.4 million the year prior, as Cote achieved commercial production in August, which allowed for the relocation of capital expenditure related to operation to sustaining for the month. Looking at our targets for the year, IAMGOLD reiterated its guidance estimates in the third quarter. As you will recall, last quarter, the company increased its production guidance and lowered its cost guidance targets, following a very strong first-half performance from our Essakane and Westwood mines. Essakane and Westwood are well-positioned to achieve the upper end of their production guidance ranges this year, with combined production year-to-date of 428,000 ounces versus guidance of 495,000 to 540,000 ounces. The 2024 cost guidance for Essakane and Westwood combined is unchanged and is expected to be on the low end of the range of $1,175 to $1,275 for cash costs per ounce sold, and $1,700 to $1,825 for ASIC per ounce sold. Costs are expected to be higher in the fourth quarter at Essakane, as Essakane is expected to report a lower head grade from an increased production of stockpile material in the mill, and Westwood conduct a scheduled maintenance plan shutdown in the quarter, both in line with our expectations. On a macro level, inflationary pressures have continued to ease, though key input, including labor remains elevated. As well, pricing for certain consumables, including cyanide and grinding media, are in line with the level of experience in 2023. With that, I will pass the call over to our CFO to walk us through our financial results and positions. Maarten?

Thank you, Renaud, and good morning, everyone. In terms of our financial position, IMGOLD ended the quarter with cash and cash equivalents of $553.4 million, and our credit facility remains undrawn, equating to total liquidity of approximately $959.3 million. We note that within cash and cash equivalents, as of September 30 of this year, $83.4 million was held by Cote Gold, and $135.3 million was held by Essakane. Notably, Essakane declared a dividend during the second quarter of $180 million, for which the minority interest portion and withholding taxes were paid during the second quarter, and $136.3 million was received by the company in the third quarter, and the balance of $15.6 million was received in October, for a total dividend received by IMGOLD of $151.9 million. On September 30, 2024, the company provided Sumitomo with the required 60 days’ formal notice to exercise the right to repurchase the 9.7% interest in Cote Gold, and the transaction is expected to close on November 30, 2024, which will return IMGOLD to its full 70% interest in Cote Gold. The repurchase price is approximately $377 million, and includes $23.7 million for the repurchase option fee accrued during 2023. The payment will be funded using the proceeds from the $300 million board deal completed during the second quarter 2024, and with available liquidity. Additionally, as of today, the company has completed a third of its gold prepaid obligations, having delivered 37,500 ounces in the third quarter, and 12,500 ounces in October. The company received $13.3 million in cash as part of the delivery of the obligation. The company has the remaining 100,000 ounces to deliver on its gold prepaid arrangements from November 2024 to June 30, 2025. The prepaid arrangements were financed at the time of entering into the arrangements, though the company will receive certain cash payments at the time of delivering into the gold prepaid arrangements, based on the market price of gold at the time of delivery, as follows. In Q4, of the 37,500 ounces that will be delivered, 22,500 ounces will receive the difference between the spot price and $1,700 per ounce, capped at $2,100 per ounce, with the remaining 15,000 ounces pre-funded. Then in Q2 of next year, for 31,250 ounces that will be delivered through the period of April to June, the company will receive the difference between the spot price and $2,100 per ounce, capped at $2,925 per ounce. Please refer to the Liquidity Outlook section of the MD&A for further details. Looking at our third quarter results, we saw the impact of strong production at near record realized gold prices, resulting in the company realizing higher margins, generating higher operating cash flows and adjusted EBITDA at an important time for the company. The higher gold price is helping set up the company to potentially expedite its plan to reduce debt levels and debt carrying costs. Revenues from operations totaled $438.9 million from sales of 184,000 ounces on a 100% basis, at a record average realized price of $2,391 per ounce. The realized price includes the impact of gold prepay arrangements in place during the quarter that reduced the realized price by $107 per ounce from $2,498 per ounce. Net earnings was $598.1 million during the quarter and includes a reversal of the previous impairment on Westwood of $462.3 million. The impairment reversal mainly results from the update to the long-term gold price assumptions. The strong third quarter operating results and gold price resulted in an adjusted EBITDA of $221.7 million, which was a record quarter for the company. This brings the year-to-date EBITDA to $565.2 million, with Cote still in the early stages of its ramp-up. Adjusted earnings per share was $0.18 for the quarter compared to $0.16 in the previous quarter and a $0.01 loss in the third quarter of 2023. Operating cash flow before working capital changes was $161 million in the third quarter. Operating cash flow does not include the pre-funded cash flow received as part of the gold prepay arrangement and is $64.4 million lower than what it would have been without the impact of the deferred revenue recognized as part of the levering into the gold prepay. Looking at mine site free cash flow, which is calculated as cash flow from mine site operating activities, there's capital expenditures from operating mine sites. Essakane reported third quarter mine site free cash flow of $76.6 million and Westwood of $20.8 million. It is worth highlighting again, as Renaud mentioned in his introductory comments, that this was the first quarter for Cote to contribute positively to mine site free cash flow with $23.3 million in the quarter, which represents IAMGOLD's 60.3% portion of the cash flow. And with that, I will pass the call back to Renaud. Thank you, Renaud.

Thank you, Martin. We will start with Cote, which you can see here on the left image on the slide, with a view of active mining activity early in the summer. Last month, we announced the Cote's preliminary Q3 operating results ahead of what was a well-attended mine tour by analysts and institutions. I want to take this moment to once again thank all the attendees for the great turnout and thank our Cote team for hosting what was a very engaging tour. Looking at the quarter, a highlight for Cote was the first quarter of positive free cash flow, as Marten just highlighted, from productions of 68,000 ounces on a 100% basis. However, I believe the real advancements were on the progress of the ramp-up and improved understanding of the operation. I am very proud about the progress we achieved in the third quarter. As we saw a definitive sign that the improvements that were deployed throughout the quarter and during the shutdown in September are having a measurable and meaningful positive impact on operation. Mining activity totaled 10.4 million tons in the third quarter of 2024, in line with the prior quarter, and our ton mines increased 3.2 million tons during the period, with an associated decrease in the strip ratio to 2.3:1 waste to ore. The average grade of mine ore was 1.02 grams a ton, in line with the mine plan. The reconciliation between the grade control and reserve model is also in line with expected tolerance. Within the pit, the mine currently has two CAT 6060 electric shovels and 18 CAT 793 autonomous haul trucks in operation, with an additional three haul trucks to be commissioned before the end of the year. Utilization rates of the primary mining equipment has been improving. Drilling and blasting activity has seen month-over-month improvement from enhanced drill fleet performance with better blast pattern preparations, resulting in a higher level of in-pit blasted ore inventory available for loading and hauling. The current mine plan is using multiple stockpiles segregated by grade, with the 43-101 estimating a total of 78 million tons of rehandled ore mill feed over the life of mine. This strategy is proving to date to require higher than expected amount of rehandling, which are seeing indications of flowing through to mining costs. Year-to-date, mining costs have averaged $3.77 per ton. This is higher than expectation due to the rehandling, as well as higher contractor costs to support the ramp-up of the mine. We expect to see unit mining costs decline as we bring in the full fleet and reduce the need for external support. Further, we are looking at refining some aspects of the mining strategy to optimize ore handling and move towards more of a bulk mining scenario when economically possible and as the mill continues to increase its overall throughput. The ramp-up of the plan was the primary technical focus of our efforts in the quarter, with a headline milestone of achieving commercial production midway through the quarter, as well as multiple days of achieving above nameplate production. Mill throughput in the third quarter totaled 1.6 million tons, a notable improvement quarter over quarter, though throughput was impacted by the mid-September planned shutdown and an unplanned shutdown at the end of the month from an electrical failure in a motor control center. Head grade of 1.41 grams a ton were in line with the mine plan, which required feed material from a combination of higher-grade direct feed ore and higher-grade stockpile. Recoveries in the plan averaged a wonderful 93% in the quarter. As we noted on the last call, the main component of the processing plan, including primary, secondary crushing, HPGR, conveyors, ball mill, leaching, et cetera., all have now proven their capability to operate at or above design low when provided with stable conditions. During the ramp-up, the primary areas of focus for the plan were one, the crushing circuit before the coarse ore dome, and two, everything else after the coarse ore dome or the downstream circuit, which is the HPGR tube to the west side of the plan. With a coarse ore dome fill, the downstream processing circuits demonstrate very strong performance and availability and capacity, so we have focused on the crushing circuit to improve the availability and capacity. In September, the companies completed an eight-day mill shutdown at Cote to deploy key optimization and improve the operating availability of the plan in support of the goal to ramp up throughput to 90% of nameplate by the end of the year and achieve nameplate in 2025. The priority of the work performed during the shutdown was to stabilize the crushing circuit and attend to the primary causes for low availability in the second quarter, which included replacing 90% of the chute with higher abrasive-resistant material to reduce the level of wear and using new types and sizes of screen in the coarse ore screening area. These improvements have made a difference, and the plan has seen further increases in availability and performance of the secondary crushing and screening over the last few weeks, achieving multi-day performance above 40,000 tons per day in the crushing plant. We are now well positioned to ramp up the overall processing facility to our 90% of nameplate objective as we exit the year. In October, we averaged just under 80% of the nameplate as daily throughput. Achieving the additional 10% at Cote is primarily about stability. The objective is to eliminate daily variances in processing, as we already know that we can meet nameplate capacity of 36,000 tons per day and potentially more. Every downtime brought new information and an opportunity to further improve. It is really now about achieving stability, more consistency. This is how we will earn the additional 10%. Furthermore, we will be installing a second cone crusher in the second half of next year at low capital requirements to provide additional capacity and redundancy in support of the operation and throughput maximization. Lastly, and as we noted previously, Cote d'Ivoire added a mobile crusher unit and conveying system that act as a dome refeed system. This addition provides flexibility and redundancy in time of shutdown by delivering up to 1,000 tons per hour to the dome and can operate in parallel with the crushing circuit for extra daily capacity when sporadically required. Based on a year-to-date ramp-up progress, we maintained our guidance set last quarter for annual production to be at the lower end of the previous guidance range or closer to 220,000 ounces on a 100% basis. At the exit rate of 90% throughput, we estimate that cash costs will, at that time, average approximately $700 to $800 per ounce and all in sustaining costs to be approximately $1,100 to $1,200 per ounce. We know, though, that costs may exceed these ranges depending on the timing and a one-time cost of initiatives and improvement implemented to achieve the ramp-up target. Looking into 2025, we will advance Cote towards the nameplate throughput rate of 36,000 tons per day while looking for an easy win to increase the processing plant capacity. As we have noted in the past, several components of the plant have been designed for 42,000 tons per day, and we have seen multiple days above 40,000 tons per day early on in the lifecycle of the project. The addition of the second cone crusher next year is aligned with our strategy of unlocking maximum value by monetizing at low capital requirements the maximum number of tons of ore mined as they become available for processing. Alongside this, as mentioned, we are evaluating the potential to adjust certain aspects of our mining plan at Cote to potentially shift over time to a more bold mining approach as the mill throughput capacity is unlocked, which offers numerous efficiencies advantages including reduced rehandling, improved pit sequencing, and less reliance on segregations for the mine plant and more on maximizing mill throughput and monetizations of gold mines. Over the current life of mine, the mining rate of ore was estimated to average approximately 50,000 tons per day, and this compared to our processing rate of 36,000 tons per day. The Cote deposit has estimated mineral reserves of 7.6 million ounces that form the basis of the current economics of the project. On a measured and indicated resources basis, the Cote zone is currently estimated at a total of 12.1 million ounces, as seen here in the dark blue pit shell at the bottom left. This does not include mineralization outside of the pit shell, highlighted in red in what we will unofficially call the Cote Northeast Zone. Further to the adjacent Gosselin Zone has an additional 4.4 million ounces of measured and indicated resources and nearly 3 million ounces of inferred, bringing the project to a total of 16.5 million ounces of measured and indicated and an additional 4 million ounces of inferred. The size of Cote and Gosselin together put the project in a very exclusive category amongst large scales producing Canadian assets. We need to consider what Cote will be when it grows up, and that is to say we need to consider Cote not as a 7.6 million ounces project, but as a significantly bigger deposit and how to bring this value to the market. Our exploration program on Gosselin and at depth under the Cote and Gosselin Zone progressed well this year, demonstrating extensions of mineralizations outside of the resource pit shell. Next year, we will plan to further increase our drilling efforts to upgrade the mineralization in Gosselin and the Cote Zone in support of a potential updated study intended for the latter part of 2026. Turning to Westwood, our other Canadian asset. It was another strong quarter for the mine as underground activities are now able to focus on operations and less on legacy rehabilitation. It may surprise some to say, but Westwood so far this year has generated 53.1 million in mine-free cash flow, and the third quarter at a cost profile below Essakane. Looking at operations, Westwood produced 32,000 ounces in the quarter for a total of 99,000 ounces year-to-date. Our mine from underground continued to play a more pivotal role in a higher grade, with 84,000 tons in the third quarter at an average head grade of 9.09 grams a ton. The mill throughput was relatively flat quarter over quarter at 289,000 tons process at an average blended head grade of 3.67 grams a ton and 93% recovery. The plant availability in the quarter of 90% was higher than the same prior year period of 86%, with plans to further improve availability through an ongoing maintenance program in addition to an annual mill shutdown plan in November. The margin for Westwood continued to improve with a strong gold price and stabilizing costs. Cash costs averaged $1,150 an ounce, and all in sustaining costs averaged $1,617 an ounce in the third quarter. Looking ahead, Westwood production is expected to be at the top of the guided range of 115,000 to 130,000 ounces, while costs are expected to be at the lower end of the range of $1,200 to $1,300 for cash costs per ounce sold and $1,775 to $1,900 for ASIC per ounce sold. Four-quarter unit costs are expected to be higher than the third quarter due to the scheduled shutdown mill shutdown in November. This is to better position the operations for next year. Later this month, we will be issuing an updated technical report and mine plan based on reserve only for Westwood, which should demonstrate the value that has been created by the Westwood teams over the last three years of rehabilitation, redesign, and operation. Finally, looking at Essakane, it was a steady quarter at the mine, with operations being able to perform effectively to plan in the quarter. Essakane reported attributable gold productions of 100,000 ounces in the third quarter, bringing the year-to-date total to 329,000 ounces. Mining activity totaled 12.2 million tons in the quarter, with only 1.9 million tons of ore mine, as mining prioritized waste stripping sequences in support of the 2025 production plan, including the opening of the upper benches of Phase 7. Head grades were 1.26 grams a ton, in line with estimates. Average head grades decreased in the third quarter from level in the first half of the year, and are expected to continue to trend towards reserve grade in the fourth quarter as the volume from Phases 6 and 7 increased, and from increased proportion of stockpile are included in the mill fee. On a cost basis, Essakane reported third quarter cash costs of $1,223 per ounce, and all-in sustaining costs of $1,730 per ounce, an increase quarter over quarter on lower ounces sold, with both cash costs and ASIC are on track to be at the low end of our cost guidance range. Looking ahead, Essakane attributable production is expected to be at the top end of the guidance range of 380,000 to 410,000 ounces. The mill is expected to continue operating at nameplate capacity, and the positive reconciliation of Phase 5 is expected to continue. However, the average feed grades are expected to decrease during the fourth quarter, as mining activities continue to transition into the next phases of the pit, resulting in a lower level of ore mine, requiring ore feed to be supplemented with low-grade stockpile material. The focus in the fourth quarter will be to further enhance the phase positioning in the pit for a strong start next year. As we begin to look into next year, Essakane continues to be a significant cash flow contributor for IAMGOLD. With a current mine life through 2028, this operation has the capability to generate over $1 billion of cash flow at current gold price, and is a significant part of our Larkin plan to deliver the company. Looking beyond the mine plan, we are continuing to examine opportunities to extend the mine life at Essakane, targeting options within the fence to ensure the safety of our teams. Thank you all, and I look forward to an exciting year ahead. With that, I would like to pass the call back to the operator for the Q&A portion. Operator?

[Operator Instructions] We will pause momentarily to assemble our roster. Our first question comes from Lawson Winder of Bank of America. Please go ahead.

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

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

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

So the first part of our -- So, we'll be looking at our debt as it comes due when we look at that and using excess cash and equity to deal with that. But we've restarted paying debt this quarter already by delivering into the gold prepay, and we'll continue doing that over the course of this year and the first half of next year. Based on spot gold prices, that has a significant impact on cash, so getting that off our balance sheet is important for us. Then in the middle of next year, our second lien notes becomes callable, and we have an opportunity to pay that back at $20 million increments with excess liquidity when we can. So, that would be our next target, using excess liquidity. And then after that, the biggest portion of our debt that remains is our high-yield notes, and that is a 5.75% coupon. We won't be in a rush to pay that down off of our balance sheet. And then lastly, the leases that we have, about $133 million, $130 million. At the moment, we expect to increase that slightly still. We'll pay that down just based on the scheduled payment. So, that's kind of our way that we look, and based on the debt agreements we have, without needing to make amendments, that's what we can do.

Great. Yeah, that's very good. I appreciate that detail tremendously. Okay, so looking beyond that repayment, which will be mostly wrapped up by some point in the second half of next year, what would be the capital priority considerations at that point? I mean, at what point do you start thinking about a dividend or share buybacks?

Before we go to the share buyback, the most important thing once we put the prepaid behind us is to really turn the company into a net positive cash. So, that's the priority number one. So, this would allow, ‘25 for us is a rather, considering the ramp up of Cote, and quite frankly, Westwood and Essakane should be in a pretty steady state type of year, maximizing cash flow. As we enter ‘26, as I mentioned, it could be some opportunity of extending the life of mine at Essakane, where you would remain always positive cash flow, but maybe you could take a little bit less in 6-7 and extend the life of mine. So, I think once we turn the company on a positive cash flow side, we'll be capable to first look at unlocking additional organic growth at [indiscernible] assets, as everyone will be capable to take care of themselves, and that's what we'd be. I've mentioned, you know, opportunities at Cote as well, at the low capital requirement, the cross-share. We'd eventually look back after that. On the West side, is there any some opportunities? But, net-net, this company should not be entering any additional important capital allocation more than benefiting, you know, from the free cash flow at each asset to further unlock some potential and continue to improve on the balance sheet. Even though Cote has this voice with some opportunity to increase, we do not see this as a potential important capital allocation, but rather benefit just from the free cash flow. Hope this clarifies.

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

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

Okay, fantastic. Thanks very much, guys.

The next question comes from Anita Soni of CIBC World Market. Please, go ahead.

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

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

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

Yes. So, next year, we'll be back with more standards. I could already tell you that. It's a year where we should see reductions of total capital as well, as aligned with the 43.01. And the Q4, which should normally increase. It's going to be like a much lower ore grade nine. So, we could go probably as far as probably 4.5:1, depending on how it goes and the opportunity to interface positioning. But in 2025, we would be back to a more regular inline, probably with what we've done this year or even lower.

Still around two, is that correct?

Between two and three, always seizing the opportunity. Like this year, what we've done, considering the very positive year, the free cash flow, so we took advantage to push, improve the positioning a bit, do more waste. But you can start towards maybe a two to five plan, and you could go a little bit higher. So, follow the 43-101, which I think remains very relevant for 2025.

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

Well, as I mentioned in my opening comment, one of the big contributors is the Phase 5, and we've seen some extension that's going to prolong in 2025. So, on that point of the Phase 5 alone, it would bring normally opportunity beyond the 43-101. So, we'll look at this for next year. Now, we're not at the beginning of the Phase 5, but we should benefit at least another quarter, if not more, from the Phase 5. So, yes, we should normally, should the Phase 5 continue, as I mentioned, we should normally be able to improve beyond the 43-101 in terms of grade for next year.

Thank you. I'll pause there and let someone else ask questions. Thank you.

[Operator Instructions] Our next question comes from Tanya Jakusconek from Scotia Bank. Please go ahead.

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

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

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

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

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

Thanks for your question, because we will be filing the 43-101, but in all fairness, the 43-101, by the nature of the mine, it's a deep mine, there's quite a bit of ounces not quite in the reserve category. So you've seen the reserve at the end of December is about a million ounces, and the 43-101 is based on reserve only. But there is quite a significant amount of other ounces that are, of course, part of the life of mine and so forth. So an average of 130, 140. So I like to see – I see this mine down the road, and it's a steady 125 to 150 type of range, and this is just with the current life of mine. But once the Grand Duc is done, there will be further opportunity and extra capacity at the mill, down the road, that could be. So I would say as a base case, it's probably 125, 140. And in terms of cost, I would wait for the 43-101 to highlight a little bit more of that. So I don't want to be ahead of my ski here, so a few weeks will be a better answer to this question. But you will see a drop from the current range just because of the level of rehabilitation that is down, so that would lower some costs. So if we do 1,600 today, you should expect down the road the mine to be capable to do better than that.

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

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

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

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

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

It should not increase.

It should not change.

There only should be a slight decrease.

You're saying that 35% includes your employees and labor and your contractors in that 35%?

Correct.

Okay. Can you give me the split of that is? And also what is your thoughts and what is contractors in that 35%?

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

Okay. Thank you for that. And then that 10% should decrease as Cote starts on next year, is how I understood it?

Yes.

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

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

Okay. And so when you look at overall, and I think, Renaud, you mentioned that consumables is in line with, you know, depreciation in that portion of the cost structure, obviously the higher gold prices and royalties that you see. So as you think about 2025 and you have, you know, this labor inflation at that, 3%, 3.5% and if they flattish on some of the other stuff, plus you have a higher gold price for the royalties, would we be thinking like 5% would be a reasonable assumption for year-over-year change ‘25 to ‘24?

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

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

Yes. Got it. Okay. Really appreciate that. Thank you for taking my question.

Our next question comes from Simon Wildsmith of Canaccord Genuity. Please go ahead.

Hey guys, morning. Thanks for taking my question and congratulations on the quarter. Maybe for Maarten, with strong gold prices and, and then what seems to be an improving balance sheet, is there an opportunity to refinance the relatively high cost term loan early?

Good morning, Simon. The deadline becomes callable or we can start repaying it now, but there is a prepayment penalty that's quite large at the moment. So in May of next year, that reduces to 104%. So to do anything before then, if you look at the cost of new debt and all of those costs, we don't believe that that is the best way to increase value and reduce our debt carrying costs. But by middle of next year, that's when there would be an opportunity to do that. And we are still delivering into the gold prepay now as well. So that is using a lot of the extra free cash flow at high gold price.

Okay. Sounds good. That was my only question. Thanks guys. And congratulations again.

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

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

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