Start Time: 08:30 January 1, 0000 9:42 AM ET
IAMGOLD Corporation (NYSE:IAG)
Q2 2022 Earnings Conference Call
August 04, 2022, 08:30 AM ET
Company Participants
Maryse Bélanger – Chair, Interim President and CEO
Daniella Dimitrov – CFO and EVP, Strategy & Corporate Development
Craig MacDougall – EVP, Growth
Bruno Lemelin – SVP, Operations & Projects
Graeme Jennings – VP, IR and Corporate Communications
Conference Call Participants
Fahad Tariq – Credit Suisse
Josh Wolfson – RBC Capital Markets
Jackie Przybylowski – BMO Capital Markets
Michael Parkin – National Bank Financial
Anita Soni – CIBC World Markets
Tanya Jakusconek – Scotiabank
Carey MacRury – Canaccord Genuity
Lawson Winder – Bank of America
Operator
Thank you for standing by. This is the conference operator. Welcome to the IAMGOLD Second Quarter 2022 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’d like to turn the conference over to Graeme Jennings, VP, Investor Relations and Corporate Communications for IAMGOLD. Please go ahead, Mr. Jennings.
Graeme Jennings
Thank you, operator, and welcome everyone to the IAMGOLD second quarter 2022 operating and financial results conference call. Joining me today on the call are Maryse Bélanger, Chair of the Board and Interim President and CEO; Daniella Dimitrov, Chief Financial Officer and Executive Vice President, Strategy & Corporate Development; Craig MacDougall, Executive Vice President, Growth; and Bruno Lemelin, Senior Vice President, Operations & Projects.
Our remarks on this call will include forward-looking statements. Please refer to the cautionary statement included in the presentation under the heading cautionary statement regarding forward-looking information, and be advised that the same cautionary language applies to our remarks during the call. Non-GAAP measures will also be referenced on the call and we direct you to review the cautionary statement included in the presentation and the reconciliations of these measures included in our most recent MD&A, each under the heading non-GAAP financial measures. With respect to the technical information to be discussed, please refer to the information in the presentation under the heading qualified person and technical information. The slides referenced on this call can be viewed on our Web site.
I will now turn the call over to our Chair and Interim President and CEO, Maryse Bélanger.
Maryse Bélanger
Thank you, Graeme. Good morning, everyone, and thank you for joining us this morning. Last night, we reported our second quarter operating and financial results as well as announcing the results of the Côté Gold project update. We have a lot of information to cover on this call, so we will try to expedite matters in order to allow for allotted time for questions and answers at the end.
As you will see, IAMGOLD had another strong quarter benefitting from recent productivity initiatives at our operations. We are on track to achieve the upper end of our production guidance for the year, and there are many positive developments expected in the second half. But our operations
But our operations are in challenging jurisdiction, and we see cost pressure throughout the organization. It is, therefore, essential to mitigate these impacts through a strong focus on the operational excellence progress to uncover improvement opportunities in productivity, process optimization, cost controls and capital allocation.
The Côté update represents a significant milestone for the company. This was the culmination of months of in-depth analysis by the company’s management and project teams, EPCM contractor and technical experts. Côté Gold is transformational for IAMGOLD, offering robust cash flow generation once in production.
We truly believe that what we are building at Côté Gold is not just a project, but the start of a district, with significant opportunities for growth. I like to think of it as the start of a new mining camp. The project today is over 57% complete and the updated schedule and project costs give us much improved visibility towards completion.
Given the strategic importance of Côté to achieve our goal of becoming a leading high margin gold producer, we are actively pursuing various alternatives to increase liquidity to deliver Côté on its updated schedule. I am confident we will address the near-term challenges in order to advance Côté and better position IAMGOLD as a more resilient, agile company for the current environment.
Now turning to the quarter. On health and safety, ensuring all of our employees go home safe continues to be a key focus as every gold ounce produced has to be done safely. And we applaud our teams for their continued solid commitment to zero harm and also the Côté construction team for achieving an impressive 5.7 million hours with no loss time injuries to date.
IAMGOLD delivered another strong quarter with attributable gold production of 170,000 ounces on continued strong performance from Essakane and improvements at Rosebel, and that’s bringing our year-to-date production to 344,000 ounces, positioning us on track to achieve the top end of our guidance range of 570,000 to 640,000 ounces.
The strong production results and same sales volume translated to cash cost of $1,119 per ounce sold and all-in sustaining costs at $1,604 per ounce sold. On a unit cost basis, we are seeing impacts from inflation on mining and processing costs, though these have been partially mitigated through higher grades and other operational improvement at the mines.
Cost guidance for 2022 is unchanged at this time, with cash costs expected to be between $1,100 and $1,150 per ounce sold and all-in sustaining costs expected to be between $1,650 and $1,690 per ounce sold. These estimates issued in January included an inflation assumption of 5% to 7% on key consumables.
Additional cost pressures are continuing from systemic inflation, constrained global supply chains and other global events. Further increasing the average costs are some key consumables such as oil, ammonium nitrate, grinding media, lime and cyanide. We note that continued external cost pressures may result in an increase to costs and capital expenditures.
We continue to see benefits from our oil hedges. This year, we have an 80% hedge ratio on WTI contracts and a 71% ratio on Brent, between $38 and $65 per barrel. For reference, a $10 per barrel increase in the oil price equates to approximately a $6 per ounce increase in our cash costs. Without our hedging contract, the same $10 per barrel increase in the oil price will translate into a $15 per ounce increase in cash costs.
Now Essakane. Turning to Essakane, it continued to deliver reporting gold production of 107,000 ounces, benefiting from higher head grades and strong recovery. Mining activity totaling 11.4 million tonnes in the second quarter was lower than the prior quarter, primarily due to lower waste stripping activities because of constraints in consumables from supply chain challenges in country and abroad. We will work to rebalance this stripping shortfall. But as of today, the reduction in stripping activities is not expected to materially impact production in 2022 and 2023.
Mill throughput was 2.7 million tonnes at an average head grade of 1.52 grams per ton of gold and plant availability of 86% with recovery of 90%. Mill feed rate and availability were lower during the second quarter due to higher volumes of hard rock in the mill feed, as well as annual planned maintenance and supply chain challenges.
The security situation in Burkina deteriorated during the second quarter and impacted the in-land supply chain, resulting in delays in the delivery of consumables. The company continues to take proactive measures to ensure the safety and security of in-country personnel and managed to limit the impact on production in the second quarter.
We continue to adjust our protocols and the activity levels at this site according to the security situation. The company is furthering some additional investment in security infrastructure in the region and at the mine site, and that is with the support of the government.
Looking ahead, attributable gold production at Essakane in 2022 is expected to approximate the top end of the range of 360,000 to 385,000 ounces, reflecting the higher than expected grade in the first half of the year and the potential for further positive reconciliation between mine grade and the reserve block model.
Turning to Rosebel now, we were very proud of the second quarter which historically sees lower production due to the impacts of the rainy season. The operation reported second quarter attributable production of 49,000 ounces, benefiting from improved recovery and head grade, bringing the year-to-date total to 95,000 ounces.
Mining activities have returned to pre-pandemic levels, mining 15.5 million tonnes in the quarter with a ramped up stripping program as required in the updated mine plan we released earlier this year, which by the way are going to pass for Rosebel to return to being a plus 300,000 ounce per year producer.
Mill throughput achieved 2.2 million tonnes at an average head grade of 0.88 grams per tonne, and throughput was lowered due to mill maintenance work required on the SAG mill feature in chute and refurbishment of the apron feeders. Mill recovery of 92% continues to benefit from the ADR circuit improvement put in place at the end of 2021.
Looking ahead, attributable gold production guidance for 2022 at Rosebel remains unchanged at 155,000 to 180,000 ounces. In the first half of the year, additional cost pressures emerged through rising oil prices and they continue to be partially mitigated by the existing hedge program.
The company also expects higher power costs compared to 2021, which we know as relates to the price of gold and oil. We note that the collective labor agreement at Rosebel expires in August 2022, and negotiation for new agreement has commenced and have been cordial and professional. The strategic review process of Rosebel is active and ongoing, and we will provide updates when appropriate.
Now with Westwood, gold production was 14,000 ounces in the quarter as the underground development continues in order to support the full ramp up of the mine. Importantly, in June, mining activities recommenced in the higher grade West and Central zones and the main ramp broke through the 180 level in the lower part of the mine, which will allow for additional flexibility and development of hybrid zones, including Zone 230.
Gold production guidance at the Westwood complex in 2022 remains unchanged in the range of 55,000 to 75,000 ounces, and in assumed that the safe and stable result of the Central and West underground zones can continue throughout the year.
Now turning to Côté Gold. Activity at site has accelerated dramatically this summer following the strike action by crane operators and construction laborers in May, which reduced headcount at site by approximately 250 people over that month. We currently have approximately 1,200 workers on site. Work inside the plant is progressing with the ball mill foundation being set and preparation ongoing for mechanical, electrical and piping installation.
Last night, we announced our updated estimate of cost to complete project economics and life of mine plans for Côté. The results will be included in a new NI 43-101 technical report to be filed on SEDAR before or on September 17. This project of the complete [ph] Côté Gold schedule and cost execution strategy and risk review or Supertrend initiated by the company earlier this year.
Looking at the life of mine plan highlight, there are a few key changes from the previous technical report. We have the higher production extended over the first six years versus five years previously. And also we are have lower waste tonnes translating into an improved strip ratio, both of which helped to mitigate an increase in unit and cash costs on updated costs and operating assumption.
The net result is a project that continues to be transformational for IAMGOLD. Côté Gold is a project with an 18 plus year mine life, producing nearly 500,000 ounces per year in the first six years of operation and offering significant growth potential with the addition of Gosselin and historically underexplored land package.
We will now quickly step through key components of the operation and highlight changes of assumption in the new mine plan. First, on mine design and sequencing, we saw some opportunities to add value to the project and maximize early cash flows. Through this work, the pit phasing was modified to target a hybrid zone early in the life of mine plant, moving to five phases with an extended Phase 1 pit design.
Additional opportunities for value creation included the adjustment of the ramp gradient which allows for shorten haulage distances and the extension of mining activities in Phase 1. Further, we have lowered our ramp up in utilization assumption for the mining equipment to increase the allowance for learning of operation and maintenance of the autonomous haulage system, with increased windows for operating alongside our contractors to achieve better knowledge transfer.
Also, to de-risk the first year of operation, we are executing on a 48,000 meter grid control drill program on a 10 by 10 drill spacing, which covers 78% of the tonnes to be mined in the first 12 months of operation. The new mine plan includes updated assumptions and input for the ramp up of the processing plant [indiscernible] nameplate capacity.
Based on updated modeling and analysis of OEM data for plant equipment, we revised the mill operating time or utilization rate to 92.6% from 94% previously. Further, we have extended the ramp up to steady state to 20 months from 10 months previously to account for an increased frequency of inspection, shutdowns and also improve learnings.
The HPGR tertiary crushing unit is a major focus for our plant and operational readiness team. We have revised our HPGR operating assumption for additional downtime in the early years and overall maintenance activities. Preparation is well underway with our teams visiting Weir HPGR operations globally to exchange best practices for ramp up and operations.
Key spare parts are being procured with an extra set of rolls already purchased. We are very fortunate that Côté Gold is located only a couple of hours from the Weir facility in Sudbury where essential maintenance and road resurfacing will be supported. Our teams will be working alongside Weir engineers during commissioning, ramp up and operations.
Now on operating costs. Over the life of mine, total cash costs are expected to average $693 per ounce of gold sold and all-in sustaining costs are expected to average $854 per ounce sold. Mining unit costs are estimated at $2.62 per ton of material mined or if accounting for capitalized waste stripping $6.20 per tonne of processed ore.
Mining costs increased by 15% from the 2021 technical report due to increased headcount, extended ramp up and updated cost models. Processing costs increased 8% to $7.97 per tonne related to higher maintenance costs and shutdown assumptions during ramp up, including with the HPGR, as I mentioned before, and we also have an increase in TMF operations and monitoring activities.
As the plant is connected to Hydro One, we are classified as a Class A customer and our costs only account for 14% of processing costs. The highest component of reagents, spare and maintenance, which combined together account for nearly 50% of the processing costs.
As estimated in the updated technical report, as of May 1, 2020, the remaining costs attributable to IAMGOLD to complete Côté and achieve initial production is estimated at just over 1.3 billion. This, by the way, includes 185 million in contingency and $80 million for escalation.
As announced in our second quarter results, we estimate that the remaining spend to complete Côté as of July 1, 2022 is 1.2 billion to 1.3 billion after incurring approximately $100 million in May and June. The project today is over 57% complete and the updated schedule and project costs provide us with improved visibility towards completion.
In the last number of months, the Côté Gold project has seen several changes in leadership and oversight, both at the project level and corporate level. Since the appointment of a new executive project director, teams have been strengthened to target deficiencies while leveraging knowledge, experience, and team integration between the owner’s team, EPCM contractor and the various other project contractors.
The update also represents the conclusion of the Supertrend process initiated earlier this year. It is important to note that the Côté Gold project is being developed with the background of COVID-19, inflation and other global events and their impact including on the global supply chain, labor availability, productivity and a raised cost of material, commodities and consumables.
As discussed in our May announcement, the estimated remaining spend to completion resulted from additional costs and schedule impact in the general project cost category that you can see on our slide, and includes estimated impacts related to delays due to COVID-19, recent labor action in Ontario and inflation.
Outside of the Supertrend process, a study by an independent capital project management service company estimated direct and indirect COVID-related impacts to the project just for IAMGOLD to be in the range of approximately $200 million to $400 million.
Looking at the schedule, Côté Gold is expected to commence production in early 2024. This year is critical for project advancement, as project activities are ramping up through the summer and into the fall with the coordination of earthworks, concrete, plant structure, mechanical, piping work and our installation, and they all being very, very important.
The increase in the oversight team managing contractors and contracting packages will facilitate the expected increase in the number of contractors as the headcount increase to over 1,500 people is expected during this construction season.
The company cautions that potential further disruptions, including without limitation caused by COVID-19, Ukraine war, weather, potential labor disruption in the tight labor market could continue to impact the timing of activities, availability of workforce productivity and supply chain and logistics, and consequently could further impact the timing of actual commercial production and project costs.
Taken together, the Côté Gold project was being developed in a challenging environment offers robust economies for IAMGOLD. On a go-forward basis from May 1, 2022, the after-tax NPV at a discount rate of 5% of the Côté Gold project was estimated at $1.1 billion with an implied after-tax IRR of 13.5% under the base case gold price assumption as spot metal prices of $17.75 per ounce gold over the life of mine, the Côté Gold project has an estimated after-tax NPV of $1.56 billion and implied after-tax IRR of 16.5%
Following the project review and risk analysis, the Board retained an independent technical consultant to assist with the Board’s review of the results. This independent review supported the updated estimates as presented, confirming key project areas to focus on, aligning with those we outline today while offering insights into further optimization opportunities.
Now, let’s talk a little bit about Gosselin. So we believe that Côté Gold is not just a project, but the start of a new mining district. The Côté Gold life of mine plan as defined in the technical report is based on mineral reserves of 7.2 million ounces as the Côté deposits. The Gosselin deposit is located immediately adjacent to Côté, and contains 3.4 million ounces of measured and indicated resource with an additional 1.7 million ounces of inferred.
Gosselin has only been drilled to at the depths of Côté and is open along strike and [indiscernible]. Taken together, Côté and Gosselin has a total of 13.5 million ounces in measured and indicated and we believe there is significant upside to be uncovered, as there has been minimal historical exploration targeting these Côté/Gosselin style intrusion-hosted deposits within our 595 square kilometer land package.
With that, I will turn over the call to Daniella for the financial review.
Daniella Dimitrov
Thank you, Maryse. The following are some key highlights of our second quarter and year-to-date financial results. Revenues in the second quarter totaled $334 million and $691 million year-to-date. The average realized gold price for the quarter was $1,799 per ounce, reflecting the physical delivery of 37,500 ounces at $1,500 per ounce our 2019 prepay arrangement as we closed monthly contracts.
The average gold price in the second half of 2022 will continue to be impacted by the completion of physical deliveries of 75,000 ounces at $1,500 per ounce as we close out the remainder of the 2019 prepaid arrangement. Adjusted EBITDA came in at $110 million for the quarter and $247 million year-to-date.
Higher income taxes for the second quarter that included withholding taxes on the repatriation of funds from Essakane impacted net earnings, resulting in net loss per share of $0.02. Adjusting for non-cash items, adjusted net loss per share was $0.01 in the second quarter. Year-to-date net earnings and adjusted earnings per share were $0.03 and $0.04, respectively.
We have updated our income taxes paid guidance for 2022 to between $69 million and $79 million from $55 million to $65 million set out in our previous guidance released in January to primarily account for withholding taxes on the additional repatriation of funds from Essakane that we expect in the second half of 2022.
Operating cash flow before changes in working capital was 94 million for the quarter and 228 million year-to-date. And mine site free cash flow was $42.8 million in the quarter and $130 million year-to-date.
In terms of our financial position, we ended the quarter with $453 million in cash, cash equivalents and short-term investments, and we had approximately 349 million available under our credit facility after drawing down $150 million in the quarter.
Our current available drawdown under the credit facility is approximately 250 million, as we drew down 80 million subsequent to quarter end, primarily to manage the timing of the receipt of a dividend from Essakane and we issued a $90 million letter of credit under the credit facility in support of a surety bond.
Based on the recently updated cost estimate and schedule of construction of the Côté Gold project, information currently available and prevailing market prices, we note that IAMGOLD will require additional liquidity to complete the construction of the project. We are working to implement a fully funded financing plan by the end of the year and prior to the necessity to make any potential adjustments to the timing of the advancement of Côté based on the updated schedule.
We are actively pursuing various alternatives to increase liquidity and capital resources, including disposition of one or more of the company’s assets and/or interest areas and/or joint venture partnerships, additional secured debt which could be provided by banks, private capital providers, and/or institutional investors, additional unsecured debt, including unsecured and/or convertible notes, sales of common shares and the extension of the 2022 prepay arrangements.
In January 2022, we announced that we were commencing a strategic review process to evaluate options for the Rosebel/Saramacca mining complex, including a potential sale of this complex. We advanced this process in the second quarter of 2022. In addition, we just announced that we are evaluating strategic alternatives for certain development and exploration assets in West Africa, excluding Essakane, and in South America that may include the disposition of all or an interest in one or more of such assets. These processes are well advanced, and we will provide an update when warranted.
Back to you, Maryse.
Maryse Bélanger
I guess at this point, we will open it up for questions.
Question-and-Answer Session
Operator
Thank you. We will now begin the question-and-answer session. [Operator Instructions]. Our first question is from Fahad Tariq with Credit Suisse. Please go ahead.
Fahad Tariq
Hi. Good morning. Thanks for taking my question. Maybe first for Daniella, can you — from what you can tell in your forecast what is the funding gap right now between the end of this year, the cash flow generated and what is needed for Côté?
Daniella Dimitrov
So we’ve disclosed that the remaining spend for Côté Gold is 1.2 billion to 1.3 billion from July 1, 2022 to production. We disclosed our cash balance at quarter end and following the drawdown at the end of July that we have about $250 million available under our credit facility. We’ve also disclosed that not all cash is readily available, as some of the cash is held within our operating subsidiaries and operations need working capital. We’ve also disclosed that our Côté joint venture — under our joint venture agreement, we need to stay ahead two months of construction costs in cash. And until the end of July, that period was three months. And we also have hedges that do require gross settlement rather than net settlement which impacts the total cash that we need to have on hand at any one time. We’ve also talked about in the past that taking all of these factors into consideration we view that at any point in time, our minimum cash balance that we would need to maintain would be somewhere around $200 million. So that and the gold price and of course our operating performance all go into the range of additional liquidity that the company needs to go into production.
Fahad Tariq
Okay. And then just as a follow up, I know there’s a number of alternatives available. Is there a preference that you can highlight, whether it’s an asset sale, additional debt, diluting the 70% ownership, any color there would be really helpful?
Daniella Dimitrov
We are looking at various options, as we’ve disclosed, and we do expect that the financing package will have several components, considering the cost of capital, maximizing shareholder value and providing the necessary additional liquidity to get Côté to production.
Fahad Tariq
Okay. And then maybe just the last question. In the press release, it mentioned like one potential option if the financing isn’t secured in time that potentially the Côté timeline could be extended. And this would “significantly increase project costs.” Can you just maybe give some clarity on what that means?
Daniella Dimitrov
We are working to implement a fully funded solution by year end, and that is our focus. We talked about the fact that the processes are well advanced. And we are cautiously optimistic that we will get to that fully funded solution by year end.
Fahad Tariq
Okay. Thank you.
Operator
The next question is from Josh Wolfson with RBC Capital Markets. Please go ahead.
Josh Wolfson
Thanks very much. A couple of quick questions for Côté. For the updated study, what was the oil price assumption included, either short term and long term?
Daniella Dimitrov
I believe that for the second half of the 2022, it was $93. For 2023, it was $82. And from 2024 onwards is about $70.
Josh Wolfson
Okay. And looking at the updated plans, which incorporate I guess a bit of breathing room with the scheduling and the ramp-up period, where would you see the risk now with developments, either in terms of the bottleneck or critical path items?
Maryse Bélanger
Thanks, Josh, for the question. Considering that detailed engineering is done at 99.6% that most of our contracts have been led, procurement is — all of the equipment is at site at the lay down area. I do not expect any major issues. The plan is to deliver on what we say we’re going to do. And in fact, the team is targeting mechanical completion as soon as possible. So I don’t see a lot of risk. And if you consider what we’ve disclosed that the $1.2 billion to $1.3 billion costs remaining, that we have more than $235 million in contingency and escalation in there. At this stage of the project, it’s quite unusual to have up to 12% contingency built in cost estimates. So my job, Josh, is to deliver on this project, on schedule and on budget.
Josh Wolfson
Okay. And then maybe a final question for Côté. Has there been any feedback or discussion with your joint venture partner, either about your views on the updated economics or about coming in as a party that could assist with funding here?
Maryse Bélanger
I’ll take that. Josh, Sumitomo is very supportive. As noted in our MD&A, we made an amendment to the Côté joint venture and we are in regular contact. We work closely with Sumitomo. They have people integrated with the team at site. So I would say that we are actively pursuing various alternatives to increase liquidity and capital resources. But at this point, we will not discuss specific alternatives.
Josh Wolfson
Understood. Great. Thank you very much.
Operator
The next question is from Jackie Przybylowski with BMO Capital Markets. Please go ahead.
Jackie Przybylowski
Thanks very much. Maybe to start, I’ll just follow up on that last question that Josh asked on Sumitomo. Sumitomo put out a press release I guess overnight, which it says really briefly that it’s continuing to review the estimates for the Côté project and will — the way that it’s written, it doesn’t sound like Sumitomo is entirely committed even to funding its existing portion of the project. So is there a formal commitment in place that Sumitomo is going to fund its commitment, or is that still something that you guys are in negotiations with Sumitomo on?
Maryse Bélanger
Thanks for the question. And I think what I would say at this point is that what we seen last year when the — in July 2021 when there was an increase in capital cost debt was announced. As part of normal process for Sumitomo, it took the company close to probably the end of October, early November, to go through the approval process internally. So in this case, we have been told that the normal process would take its course, and I don’t see anything unusual about that, just normal course of business for Sumitomo internally.
Jackie Przybylowski
That’s really helpful. Thank you. Yes, it’s good color. And maybe another question on Côté. I know the full study is coming out in September, so I’m sure we’ll get more details then. But just for modeling purposes, can you give us some color in terms of the cadence for spending on the project, like the capital spending? And specifically, I guess I’m asking for maybe for this year and next year, can you just talk about like how much you’re anticipating you’ll spend at Côté?
Daniella Dimitrov
Yes. Hi, Jackie. We expect our spend to be somewhere between $60 million to $70 million per month.
Jackie Przybylowski
Okay. Thanks, Daniella. It’s really helpful. And maybe if I could just ask one other question just with respect to the commentary about the process on the review for Rosebel and potential sales, how would that impact if at all your debt covenants? Do you have commitments to maintain a certain sort of cash flow level, or is it easy for you to sell an asset like Rosebel without tripping those debt covenants?
Daniella Dimitrov
So we are — certain of the asset sales we are looking at, including the sale of Rosebel, are part of the security package under our credit facility. We have been working closely with our lead lenders who are aware of the process and the ultimate necessity to release the security on a successful completion of a sale, and we’re comfortable. That is part of working with our lenders. We have a good handle on it.
Jackie Przybylowski
Okay, super helpful. Thanks, Daniella. Thanks, Maryse.
Operator
The next question is from Mike Parkin with National Bank. Please go ahead.
Michael Parkin
Hi, guys. With respect to Côté, can you just give us an update on the dike that you’re putting in, how is that progressing? And have you got to the point where you’re starting to dewater the side that you need to dewater? Or if not, when does that start?
Maryse Bélanger
Thanks, Mike, for the question. Dewatering is ongoing, and we have dealt with a pretty intense pressure but we are through, and no issues with dewatering whatsoever at this point. In fact, I think we have really good visibility into the first benches of the pit.
Michael Parkin
Okay. So you’re not getting kind of surprised by excessive water penetration?
Maryse Bélanger
No, not at all.
Michael Parkin
Excellent. And then just in terms of cash flow, your exploration spend still remains fairly high. Is that anything that you’re considering trimming back in the near term just to help preserve the balance sheet?
Daniella Dimitrov
Hi, Mike. So we’re through I guess more than 50% of our exploration spend. Part of that spend was focused on Gosselin and we’ve got a spend on Karita. We put out some pretty great drilling results recently on that. We are going to continue with the completion of that program specifically. We think that is important to get that across the line to give us better visibility in terms of value, particularly on that asset that is part of the West Africa sale process.
Michael Parkin
And what about into 2023, is there any — is it too early? You haven’t really kind of worked on budgets yet.
Daniella Dimitrov
Yes, it’s too early to comment on 2023.
Michael Parkin
Okay. Thanks, guys. That’s it for me.
Operator
The next question is from Anita Soni with CIBC Capital Markets. Please go ahead.
Anita Soni
Hi. Thanks for taking my questions. So firstly, can we talk about the life of mine plan? A couple of things that you mentioned were seeping up the pit walls and also the ramps from 8% to 10%. Can I ask? Did you have an independent third party review, those technical assumptions, from a geotechnical standpoint?
Maryse Bélanger
Anita, in fact, there’s been extensive geotech work done. And originally, the assumption was that we needed to be more prudent with the pit design and the ramp because of the autonomous haul trucks. But those constraints now have been removed in the sense that actually then that’s really good news. Last weekend, the first fully autonomous truck was operating on our calibration pad and we feel really confident we can achieve those ramp gradients and design parameters.
Anita Soni
All right, considering all weather factors that you have there?
Maryse Bélanger
Yes.
Anita Soni
Okay. Second question, the assumption to go to 5% over nameplate capacity when doing this life of mine plan, what was the genesis of that? Why go higher? And I noticed you guys commented this was a 1 on the McNulty curve. And given that you’ve got HPGR and autonomous haulage, I’m not sure that I would classify it as a 1 on the McNulty curve.
Maryse Bélanger
Okay. I think your comment was more related to the capacity overall of the equipment. What we have is a plant with oversized [indiscernible] overall capacity. And as we’ve seen, in the industry it’s not uncommon. Once you get mills going, it’s not uncommon to get an extra 10%, 15% tonnage throughput. So we feel very, very confident we can reach that throughput. It’s going to take some time. But considering the size and really the oversized equipment in that plant, I don’t see any issues with quoting that 105.
Anita Soni
Okay. So then let’s just move on to the capital cost estimate. I just wanted to circle back. The updated estimate is the same number that you guys put out three months ago, right, and you’ve spent $172 million in the quarter. So by my math, I think that’s about 15% or 16% escalation in three months. How do we — can we talk about how that went up and why it went up by so much in three months? Just in context of now you’ve got $185 million contingency and trying to figure out whether that’s enough when your costs just escalated in three months by $172 million?
Maryse Bélanger
Okay. First of all, I would like to mention the strike that caused some delay. And that was first — there was a number of strikes; the first one to crane operators, followed by laborers. And as you know, costs are largely driven anyway in the indirect categories by schedule. So what we’ve seen is actually a delay because of this strike, so five to six weeks. And that does impact not only our schedule, but also the timing of first revenues that we can realize. And, Daniella, if you want, you can add to this.
Daniella Dimitrov
Sure. So the number that — the estimate that we issued on May 1 was on a preliminary basis, and we did caution that we had not fully completed our work. In the first week of May, as Maryse noted, there were a number of strikes. We thought we had hoped and expected that those strikes would be avoided. They did result in approximately a six-week plus extension to the schedule as we had to demobilize quite a number of workers and then remobilize following the completion of the strikes. And it always takes longer to get back to where you were than it takes to demo. So that really were the primary factors that drove that increase that resulted in a slightly extended schedule with a slight increase to indirect primarily, and more of those operating costs now being part of project costs, because our production, initial production and commercial production, were extended from the schedule that we were assuming back on day one.
Anita Soni
Okay. I’m just looking — okay, all right. Thanks. And then I just want to circle back to a question that Fahad asked, and it was about the minimum cash balances that you referenced. You said, keeping everything in mind, you would need 200 million as a minimum cash balance. Did that include the two months lead for the construction capital? So is it 200 flat, or should we be thinking more along the lines of 320 to 340 when you include 60 million to 70 million per month to spend in a two months lead on it?
Daniella Dimitrov
It’s plus or minus 200, including staying ahead by two months.
Anita Soni
Okay, all right. Thank you very much.
Operator
The next question is from Tanya Jakusconek with Scotiabank. Please go ahead.
Tanya Jakusconek
Great. Thanks for taking my questions. Just wanted to follow back. Thank you for the oil assumptions on Côté. Do you have the sensitivity for a $10 moved barrel, what it would do to the cost so that we can just have an idea on that front?
Daniella Dimitrov
We’ll follow up and provide that. We do have some oil hedges that we have done for our own account, rather than at the project level. And so we’ll provide that information as well.
Tanya Jakusconek
Okay. And just falling back to this funding gap, just looking at and I appreciate there’s a lot of moving parts, but for us trying to figure out what this funding gap is, and we know we need to have that minimum 200 million in cash on the balance sheet. As we look into next year, is it safe to assume or we’re assuming similar production in costs overall for the company as we have in 2022? And on that basis and the spend that we’re seeing at Côté of that 70 million a month or thereabout, is it safe to assume with that minimum 200 million in cash on your balance sheet plus, let’s say, spot gold prices, that 600 million, 700 million of a funding gap is — are we within a reasonable range?
Daniella Dimitrov
I would think about — depending on whether ultimately Rosebel is in our portfolio or not, and I would take that into consideration as well. And I would think about that range being — the lower end of the range being your high end of the range.
Tanya Jakusconek
Okay, so about 600 million. I appreciate. Obviously, I’ve had to include Rosebel in there, because it’s not sold yet, but just trying to understand. So assuming Rosebel is in, assuming the assumptions I gave you with that minimum cash, 600 million gap would be something thereabout at spot pricing?
Daniella Dimitrov
Yes. Rosebel, I think we noted when we released the update, a technical report back in January, that again depending on what gold price you’re using, as we ramp up to that 300,000 ounce production range in 2024, we were still expecting and are seeing Rosebel be a user of capital, both in 2022 and in 2023.
Tanya Jakusconek
Yes, okay. And can I circle back to obviously, maybe Rosebel is going to be sold, maybe it’s not. We’ve got two mines otherwise that are going to need to generate cash flow for us to get us through this period. Can we talk about Essakane just in general, like it’s a bit concerning about this security issue? So can you just talk a little bit, it’s a big cash flow generator for you, like what exactly is going on there? And how is July looks, like are we getting material to site here? Did we have a decent July? And what are we doing there to make sure we keep this mine going?
Maryse Bélanger
Yes. Okay, let’s talk a little bit about Essakane, because it’s a very interesting one. Some challenges around security, but working very closely with the government on some security measures. And we’re also working on things like extending the air strip at this site to have more flexibility. We have found ways to organize convoys where we have very large numbers, you can just imagine hundreds of — 100 large trucks going to site all at once. We are taking measures also to increase our capacity of storage — storage capacity at site as well, so that we are not dependent as much on those convoys. And there’s a number of measures that are being put in place. Essakane is an interesting one, because we have a positive grade reconciliation. And what Essakane can provide is very steady production where we also have 53% average gravity recovery. And what we’ve seen is adept [ph] an increase in grade and also an increase in Côté Gold to some extent, which has led the team to decide to go back, build a new block model, which will be implemented I expect in September or early in the fall. So Essakane, despite the challenges, we’ve had a higher grade than expected. We’re looking at it. We’re going to implement new block model and redo our mine plan and forecast. So more to come on Essakane, but so far it’s been very solid producer and it’s been a very, very steady producer also.
Tanya Jakusconek
Okay.
Maryse Bélanger
So that’s a bit of color on Essakane challenges, but we’ve been — our team has done an awesome job managing around the security issues.
Tanya Jakusconek
But, Maryse, like on site, what sort of inventory levels do we have on fuel, cyanide, other consumables? Should we have to close down because of uncertainty around the mine site? What do we have on site that we can keep going?
Maryse Bélanger
We keep close to a month of supplies on site.
Tanya Jakusconek
Okay, that’s helpful. And so far in July, things have gone okay?
Maryse Bélanger
Yes, absolutely. July was in fact a great month at Essakane.
Tanya Jakusconek
Okay. Perfect. And Maryse or Daniella, just on the financing package and I’ll leave it to somebody else because it’s gone over time. I just wanted to understand that we’re going to get some sort of financing package by year end. It appears that it’s just not going to be one thing i.e. not just that, it could be components of it. Is it something that we’re going to see just come through, like bit by bit from now until year end? Or are you looking to put one big package together? Like, I’m just trying to understand how you’re going to attack this finance package. I understand it’s the sale of an asset that happens when it happens, but everything else is it — you want to get something in place and then potentially we see a CEO coming in? I’m just trying to understand how this is all going to work?
Daniella Dimitrov
We are working to implement a fully funded package with our various components.
Tanya Jakusconek
Okay. So one pack is fully funded. And that then, Maryse, would help us with the CEO, trying to finalize the CEO for the company?
Maryse Bélanger
Yes. So the CEO search is ongoing, and the Board wants to ensure that we’re doing it right, that we ask the right person. So stay tuned on this one.
Tanya Jakusconek
Okay. I appreciate it. Thank you for taking my questions.
Operator
The next question is from Carey MacRury with Canaccord Genuity. Please go ahead.
Carey MacRury
Hi. Good morning. Maybe just back on the Côté CapEx, 1.2 million to 1.3 million to complete, how much of that is now fixed price versus how much of it is really still exposed to either price or volume changes?
Daniella Dimitrov
That’s a good question. I may have to go back to you to provide more details. But when we do look at it is all of the large contracts have been led, and right now it’s the work — what’s remaining is all time and material.
Carey MacRury
Maybe I’ll follow up. Maybe on just the sales processes, I know you said that they’re well advanced. I’m just wondering maybe you could give a bit color on or how long it’s been, is there any sort of expected timeline to complete that process?
Daniella Dimitrov
So we are very active on both of those processes. And we’ll update the market when we have an update.
Carey MacRury
Okay, fair enough. Thank you.
Operator
The next question is from Lawson Winder with Bank of America Securities. Please go ahead.
Lawson Winder
Hi. Good morning. A couple of questions, maybe just quickly on Côté. One would be what percent of the CapEx is in Canadian dollars, so we can just think about the sensitivity there?
Daniella Dimitrov
90% to 95% of the CapEx is in Canadian dollars. We’ve used 1.25 as the FX rate for the remaining spend. The previous estimate was on at 1.3. The average at which we’ve incurred the expenses is somewhere around 1.27. And we have a number of FX hedges at 1.30 and slightly above, all of which are listed in a table on the MD&A.
Lawson Winder
Got you. Thank you. And then with regards to Sumitomo, under the JV agreement I was just kind of curious what kind of rights Sumitomo has? Do they have the right to decline additional funding?
Daniella Dimitrov
They have the ability not to contribute to cash costs, in which case they would be diluted. There are two different dilution mechanisms depending on how much of the costs have been spent. We can share with you that we’re cash calling on the updated schedule and costs. And a cash contribution that was due August 1 was made.
Lawson Winder
Okay, that’s very helpful. And then just coming back to your existing operations, we’ve definitely touched a lot on Essakane, but maybe just on Rosebel as well. So number one question would be on the labor contract expiring in August, do you have any insight into when that could be resolved? And I’m going from the point of view of both risk to possibly disruption impacting your cash flow, but also potential buyer or partner for that asset and they want to see that result? So that would be my first question.
Maryse Bélanger
Okay. I’ll try to address that. But obviously, it’s going to be based on past years experience and past negotiations. What we have seen in the past with some one to two month delay in signing final agreements. And in terms of disruptions, we have seen in the past really just one week of, what do you call that, word to rule, for example. But I would say one week is a good estimate at this point of possible delays in production.
Lawson Winder
Okay, that’s helpful. And then maybe just asking you about your guidance. So to be honest given how strong the first half was, I would have expected you to increase the guidance. The implied for H2 is 55,000 to 85,000 ounces, which would be a substantial decline from H1. Are you factoring in disruptions from the labor negotiations, or is this strictly grade tonnage or operationally related? Thanks.
Maryse Bélanger
Yes, and thanks for the question, because I said in my remarks that we’ve had a great quarter, a good half of the year, and I expect even some improvement in the second half of the year. I understand there’s a bit of disconnect. We decided to simply reiterate guidance, not increase it to be a bit conservative. And I would say that with the team here, we really want to focus on meeting and beating expectations. Okay? So decided to reiterate guidance that allows us to take into account some of the risk around production, but definitely being conservative from my perspective. So no, we don’t expect that second half of the year. It’s not the case, no.
Lawson Winder
Okay, great. That’s helpful. Maybe just one follow up on Burkina Faso, if I may? Are you currently relying strictly on sort of government, military support from a security point of view, or have you hired a private security team? And if not, is it something that you’re seriously considering?
Maryse Bélanger
We are working with the government and military people, and we do not use private military support in country, no.
Lawson Winder
Okay. Thank you.
Operator
This concludes the time allocated for today’s questions. I will now turn the call back to Maryse Bélanger for closing remarks.
Maryse Bélanger
Thank you very much, operator. And thanks to everyone for joining us this morning and for your continued engagement with IAMGOLD. There’s no doubt that we have solid work ahead of us, but myself, the Board and the management team are entirely focused on advancing Côté to production, addressing our capital needs, and continuing on the solid operational performance at our operating mines.
I look forward to directly engaging with you, our investor and analyst community. So please reach out to myself or Graeme Jennings if you would like to set up a meeting. Thank you all. Goodbye. Have a great day.
Operator
This concludes today’s conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
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