Allied Gold - Q3 2023

Transcript

Operator (participant)

Thank you all for joining us this morning. Before I turn the call over, I need to advise that certain statements made during this call today may contain forward-looking information, and actual results could differ from the conclusions or projections in that forward-looking information, which include, but are not limited to, statements with respect to the estimation of mineral reserves and resources, the timing and amount of estimated future production, cost of production, capital expenditures, future metal prices, and the cost and timing of the development of new projects.

For a complete discussion of the risks, uncertainties, and factors which may lead to actual financial results and performance being different from the estimates contained in the forward-looking statements, please refer to Allied Gold's press release issued yesterday announcing third quarter 2023 results, as well as the management's discussion and analysis for the same period and other regulatory filings in Canada. I would like to remind everyone that this conference call is being recorded and will be available for replay later on today. Replay information and the presentation slides accompanying this conference call and webcast are available on Allied Gold's website at alliedgold.com. I will now turn the call over to Peter Marrone, Chairman and CEO. Please go ahead.

Peter Marrone (Chairman and CEO)

Thank you. I am accompanied on this first quarterly conference call by our senior management, including Daniel Racine, Basie Maree, Jason LeBlanc, Greg Winch, and Gwennael Guillen. In early September, we completed our $267 million financing and subsequent public listing on the Toronto Stock Exchange after an extended due diligence process that affirmed our belief in the significant upside present in Allied's portfolio of assets. This was followed by our decision to consolidate ownership in Kurmuk and move forward with our development plans. These plans are anticipated to yield industry-leading growth at attractive costs, resulting in multiples of cash flow growth compared to production growth. Our management team has come from Yamana, Equinox, Barrick, Endeavour, AngloGold, and other leading precious metals companies.

While management was formally appointed only late in Q3 on September 11th, we have already made progress on asset management and the pursuit of our growth. We have shifted the company's focus from asset accumulation to asset optimization, adding to that development of growth projects. Daniel?

Daniel Racine (President)

Thank you, Peter, and good morning, everyone. I think it is important to reiterate what Peter just touched upon. During our extensive due diligence process, as Peter, myself, and the rest of the former Yamana principal integrated into Allied's management, committed significant personal capital, and completed the public listing process, we spent considerable, considerable time affirming the quality of the existing team at Allied. With the current management we have here today, which include additional seasoned mining engineers, mining executives from leading precious metal producers, we have appointed all the executives of the, of the company and have rolled out the integrated management team. This ongoing integration and collaboration mark a significant milestone as we transition to evaluating our collective efforts on delivering asset optimization and the company's robust growth pipeline.

Our focus has now shifted to the implementation of operational excellence initiatives, including streamlining processes across our sites, investing in instrumentation, automation, and power generation upgrades, as well as debottlenecking and digitization initiatives. Additionally, we are dedicated to enhancing our mine plans, refining grade control and mine planning processes, optimizing our supply chains, and effectively managing our mine contractors. Furthermore, we are structuring and strategizing our project development efforts, ensuring comprehensive controls are in place to drive our company's success forward. As we embark on this new chapter, I want to assure you that despite the transition and new beginnings, our unwavering commitment to health, safety, and sustainable development remains at the forefront of everything we do.

While I will briefly highlight some of our sustainability initiatives to date, I'd like to take this opportunity to mention that Gwennael Guillen, Chief Sustainability Officer for Allied Gold Corporation, is here with us today. She's more than happy to address any question you may have regarding our sustainability initiative at the end of this call. Firstly, I'm pleased to report that our lost-time injury rate stand at 0.37 for the first nine months of 2023. Ensuring the well-being of our employees is paramount, and we are committed to achieving even higher safety standards as we move forward. We have adopted a zero mindset when it comes to health and safety target, leaving no room for compromise.

Secondly, I'm proud to announce that we have had no environmental incidents for the first three- and nine-month period ending September 30, 2023. This underscores our dedication to environmental stewardship and our goal to minimize our ecological footprint. In addition to our safety and environmental achievements, I'm excited to share our commitment to the development and disclosure of Allied's first set of ESG targets. These targets will be applicable for the 2024 period. Our new management team is diligently working on a 100-day plan to enhance Allied's already strong ESG approach, and is working towards establishing a comprehensive, comprehensive framework addressing governance and ethics, people, community, and environmental goals. We recognize the importance of transparency and accountability in this process, and we will keep our stakeholders informed as we progress.

Moreover, we are embracing national employment and gender equity targets to ensure inclusion and fairness across our operation. Diversity and equality are not just goals, for us, they are integral parts of our operational ethos. Lastly, we are actively working on aligning our ESG framework with the World Gold Council Responsible Gold Mining Principles. We firmly believe that the mining industry, in collaboration with governments and communities, share the responsibility to collectively deliver positive sustainability outcomes. As we move forward, rest assured that our commitment to these principles will only strengthen, not only because they invariably lead to better operation results, but because it's the right thing to do. We are determined to make a positive impact, not only in the mining sector, but also in the broader business community.

Together with the support and collaboration of our employees, we are confident in achieving our shared goals of sustainability, responsibility, and progress. With that, I will hand the call over to Basie.

Basie Maree (COO)

Thank you, Daniel, and good morning to all. Starting with the main performance drivers for the quarter, gold production totaled 84,400 ounces, with sales at 91,000 ounces. Our all-in sustaining costs came in at $1,546 per gold ounce sold. As anticipated, sales exceeded production for the quarter due to a carryover of gold at Sadiola from quarter two as a result of weather-related delays in a final gold doré dispatch for quarter two. We experienced a progressive increase in production ounces year to date. Production in the first quarter was 78,000 ounces, after which several efforts were undertaken to stabilize and normalize production in the second and third quarters in a range of 84,000-86,000 ounces.

These operational improvements are expected to continue into the fourth quarter, with production expected to reach around 100,000 ounces, making it our strongest quarter of the year. The improved performance is expected to be driven by ongoing mining and process optimization efforts. For example, mining equipment performance at Sadiola, the Stage 1 stripping completion at Bonikro, and higher grade and mining rates from our Agbaou operation. Based on our current progress, we anticipate our annual production to range between 350,000-360,000 ounces for the year. Our ability to reach the higher end of the range depends largely on the performance of Agbaou. These steps are ongoing to improve short- and longer-term performance of this operation, such as contract mining management and processing optimization initiatives.

These initiatives are expected to impact short-term production, but bring significant benefits to the longer term and sustainability of the asset. Taking a closer look at the operational results of our portfolio, I'd like to start with Sadiola. Production was 43,500 ounces, with total sales at 51,400 ounces. Cash costs came in at $1,414, with all-in sustaining at $1,504 per gold ounce sold. At Sadiola, we continue to improve the feed plant between run-of-mine ore and stockpile ores to allow for optimal mill throughput based on ore hardness, power consumption, and recoveries. Sadiola remains on track to achieve its production targets for the year between 175,000-180,000 ounces.

Moving on to Bonikro, production was 23,600 ounces, with sales at 21,500 for the quarter. Cash costs, $1,107, sustaining coming in at $1,220 per ounce sold. The Q3 production results at Bonikro represents a significant increase over quarter two production, benefited from the inclusion of the Akissi Pit and being ahead of schedule of the dewatering of the Bonikro pit. The completion of these planned actions, together with ongoing work to improve spatial compliance and grade control, are expected to support the improved fourth quarter production. Moving on to Agbaou. The operation was impacted during the quarter by an unusually severe rain season, which caused delays in our mining. Also, as planned, all of us have now mined out the currently available oxides and transitional ores.

The fresh material that we're mining now is impacting mining rates and milling rates. Work is underway to evaluate the processing plant upgrades needed, and to be able to improve the mill throughput and also the availability of new oxide deposits, such as Agbaou-Li. Additionally, we have started to consider Agbaou as part of a mining district alongside Bonikro. We are looking at further improving the efficiency of our mining operations, including that of our mining contractors.

Mostly, we are looking at modest modifications to the existing plant to accommodate more fresh ore that is outside of the existing resource to extend mine life. Bonikro and Agbaou together remain on track to also produce between 175- and 180 thousand ounces of gold for the year. Lastly, before passing the call over, I think it's important to note that I believe we now have an integrated management team, but it only came about since the middle of September. As Peter and Daniel noted, we have completed our management rollout and are in the process of integrating across the organization as we begin to evaluate the wider team performance in the execution of our optimization initiatives. While optimizations have begun, we expect the full impact to become increasingly evident in quarter four and into 2024.

I will now hand the call over to Jason LeBlanc, our Chief Financial Officer, to go over the financial results for the quarter. Thank you.

Jason LeBlanc (CFO)

Great. Thank you, Basie, and good morning, everyone. As mentioned earlier, this quarter marked a significant transformation and evolution in the corporate structure of Allied. The transformation brings earnings volatility in the third quarter due to transaction costs, excuse me, normalization of working capital and other one-off accounting events, although this is temporary in nature. Turning to our third quarter performance, we generated revenue of $176.7 million, resulting in gross profit, excluding depreciation and amortization, of $42.3 million for the quarter. Net earnings attributable to owners of the company were significantly impacted by non-recurring one-off items related to the recent public listing and corporate transformation. Adjusted net earnings for the quarter were $1.4 million, or $0.01 per share, although we saw a larger headline loss.

As mentioned, adjusted earnings for the quarter were normalized for primarily non-cash and one-time items stemming from the public listing and RTO Transaction. Most significant was the $80 million value of the shares issued, although expense per IFRS, as part of a three-way amalgamation and RTO that resulted in the formation of Allied Gold as a public company. In addition, following a portfolio review, the company fully impaired the carrying value of its Egyptian assets by $20 million after it let the exploration licenses lapse to redirect focus and spending to better opportunities in the company. Other significant adjustments included the revaluation of historical put and call options of certain shareholders of the private company that were extinguished on the go-public event, as well as advisory fees from the transaction.

Net cash generated from operating activities was $2.2 million, but this was negatively impacted by one-time transaction costs related to the public listing, which are unrelated to the ongoing operations and the company's cash-generating ability. Including the transaction-related items, net cash generated from operating activities would go from the reported $2.2 million to $35.5 million on a normalized basis. Cash flow generation is expected to increase in the fourth quarter, driven by higher production and ongoing asset optimization. As part of the transformation of Allied, during the quarter, the company closed its $267 million financing, including a substantial investment of $40 million from the company's management and directors.

The net proceeds from the financing will be utilized to execute the company's growth strategy for its fully permitted project pipeline, as well as for general corporate needs. We are also expecting a growing cash flow profile from operating mines during the project development period. As at Q3, we had cash of $198.6 million. Furthermore, the company expects to have financing available under a three-year, $100 million facility to provide additional financial flexibility for the execution of the company's business plan. Active efforts have been undertaken to simplify the capital structure of the company and enhance its financial flexibility. This involves repaying historical debt concurrent to the recent financing, along with the repayment of other debt and the normalization of outstanding payables.

Repayment of the obligations with Orion Mine Finance and Auramet, the latter of which was repaid subsequent to quarter end, significantly enhanced the company's financial position as it starts the deployment of capital for its exciting growth phase. Additionally, Allied has adopted a corporate governance approach aligned with the best practices of other companies, establishing rigorous risk management and sustainability practices. Looking through near-term volatility, we expect our robust growth to drive disproportionate increase in earnings and cash flow in future years. With that, I'll hand the call back to Peter to discuss our broader strategic outlook.

Peter Marrone (Chairman and CEO)

As I mentioned at the outset, the company has transitioned from assembling and accumulating a portfolio of high-quality and high-potential assets, to stabilizing and optimizing operations and developing high-quality growth projects. A series of strategic initiatives over the short, medium, and longer term optimize cash flow in support of our growth pipeline. Enhancement of operations involves implementation of several operational excellence programs. We have undertaken upgrades in instrumentation, automation, power generation, accompanied by debottlenecking and digitization initiatives to modernize our operations. We are improving our mine planning, improving grade control, and more effectively utilizing equipment. We are streamlining and, where possible, changing our supply chain while also better managing our mine contractors and worker relationships. We are maximizing oxide ore feed with high-impact oxide deposits like Diba, while continuing exploration efforts to increase oxide ore resources.

We have made oxide discoveries and are in progress on the upgrade of those resource, the resources and reserves. At the same time, we're advancing our Phase 1 expansion at Sadiola and improving efficiencies at our Côte d'Ivoire complex. These actions create a sustainable production of not less than 275,000 ounces per year, which eliminates the variability year-over-year of production between 350,000 and 375,000 ounces per year, but also with production expected to surpass this figure in 2024 and 2025, and then from 2026 through to 2029 and beyond. These initiatives maximize cash flow, and that, coupled with our current cash balances, will fund development of Kurmuk. This will yield a substantial increase in production over the intermediate term, with production at Kurmuk slated to commence in mid-2026.

And this will boost medium-term production to over 600,000 ounces per year, and the resulting cash flows will enable us to proceed with the Sadiola Phase 2 expansion, transforming that mine into one that is world-class. And this will further elevate our sustainable production, reaching levels above 700,000 ounces per year. That based on our current mineral reserves alone, but potentially exceeding 800,000 ounces per year, with continued exploration success that is in progress to extend mine lives at our CDI, our Côte d'Ivoire complex. More specifically, at Sadiola, to begin, we have made improvements in power generation, plant instrumentation, mining efficiency, and supply chain management. We are increasing our oxide feed beyond those currently in mineral reserves. This will maximize revenue and margins as oxide ore recoveries are higher and production costs are lower.

We have begun a program to better engage with our workforce and mine contractors with better performance drivers. We have approved the Phase 1 expansion plan at Sadiola, with a budget of $61 million allocated for next year. This initiative sets us up for an increase in production to over 200,000 ounces per year between 2025 and 2028. Additionally, the contribution from Diba, the oxide orebody and other oxide areas will play a significant role, helping us to achieve an average production at Sadiola of 200,000-230,000 ounces per year in 2024 and 2025. But more importantly, at better costs because of great improvements and higher recoveries coming from oxides, oxide contributions to production. In Côte d'Ivoire, two mines, roughly 15 kilometers apart, will be managed effectively as one complex.

Our focus also includes better contractor management, supply chain optimization, process enhancements, and improved mine planning. We have also made a priority of continued exploration and development of Oumé, north of Bonikro, to extend mine life. We are also completing technical studies to make modest plant adjustments at Agbaou to accommodate fresh ore outside of existing mineral resources, which will extend its mine life. These adjustments will allow us to bring into inventory ounces in fresh ore that are not yet resources. These short-term measures advance our strategic objective of a sustainable production from the complex of 180,000-200,000 ounces per year, but over a 10-year period. And that will occur as we deliver on our intermediate and longer-term growth projects. We expect to increase resources and reserves into the next year that showcase how we will meet that objective.

Growth from Kurmuk serves as the intermediate target for the company. We plan to spend $185 million through next year and a total of $500 million for the project through the middle of 2026. The initial phase to the end of next year encompasses groundwork, engineering, and infrastructure development. Utilizing our existing equipment, our objective is to enhance our annual production, averaging 240,000 ounces per year throughout the mine's lifespan, but with over 275,000 ounces per year during the first five years. With efforts that we're now making on optimization, this production profile will likely further improve. This mine is expected to have all-in sustaining costs below $950 per ounce. Reinforces our cash flow profile as we pursue longer-term growth from the Sadiola Phase 2.

A strong contributor to these low costs is power, at $0.026-$0.04 per kWh. We have begun discussions with government on the construction of a power line and a power purchase contract. The Sadiola Phase 2 Expansion entails the construction of a new carbon-in-leach processing facility to process over 7.3 million ounces we're already carrying in reserves in fresh ore. Construction is set to commence in 2027, with a target for commercial production by 2029. In the initial four years, average annual production is expected to be 400,000 ounces per year, followed by a consistent output of 300,000 ounces per year over almost two decades. Our objective is to maintain all-in sustaining costs below $1,000 per ounce, ensuring this becomes a world-class operation.

The improvements to mining and efficiencies we are making, beginning this in Q3, will ensure that we achieve that objective. To tie all of this together, let's look at our immediate, intermediate, and longer-term production outlook. We expect a steady increase in production from Q1 to Q4, with production stabilizing in Q2 and the recently completed Q3, and poised for significant increase in Q4. This should get us to 350,000 ounces per year. Moving in, into 2024, 2025, we're gearing up for an increase in production, driven by additional oxide ore, excuse me, sources and the Sadiola Phase 1 Expansion. With better grades, more oxide ore, lower costs, this will enhance our EBITDA and cash flow. More detailed insights will follow once our inaugural budget process, which is in progress now, is completed and guidance is issued early next year.

Kurmuk, as I mentioned, will materially increase production over the intermediate term, surpassing 600,000 ounces on an annualized basis from 2026 onward. Looking further into the horizon then, the Sadiola Phase 2 will take that production platform at least to 700,000 ounces per year and likely exceeding 800,000 ounces per year. We are focused on delivering permitted, fully funded, low-cost growth to maximize revenue at lower costs, driving a compounded increase in cash flows and profitability across the short, intermediate, and longer term. Ladies and gentlemen, Allied, as a private company, demonstrated its ability to consistently increase mineral inventory and extend mine lives. With this track record and a renewed management focus on maximizing optionality through the drill bit, I am also, and particularly excited about the exploration upside across our asset portfolio.

With that, I will hand the call to Greg, our Chief Geology and Strategic Officer, to delve into the exploration efforts that back up this perspective.

Greg Winch (Chief Geology and Strategic Officer)

Thank you, Peter. Good morning, all. Yeah, I'll have a few words briefly on how the exploration, just the group in its forward production and its growth. During Q3, we drilled circa 50,000 meters of drilling, which is a large number, but it's typical for the group to be drilling with 13-16 rigs, 24 hours a day for a quarter, about 50,000 meters. Year to date, that's borne out by 128,000 meters we've already drilled. The focus very much remains for the exploration group to support the operations in their growth. We are definitely staying in front of any depletion and increasing year-on-year the reserves for the company. So going to the individual resources, Sadiola is a world-class gold system.

It's already produced over 10 million ounces of gold. It has phenomenal potential, both in near-surface oxide and deep sulfide mineralization. We'll continue to investigate that and add to reserves. I think, you know, the philosophy behind the exploration effort in Allied previously and going forward, is always to be drilling for reserves. That's borne out by, you know, the mineral resource statements we have, where over approximately 70% of our resources are in the reserve category. So it's very much a focused effort. It's an intensive effort. The group well supports exploration in their funding, and exploration is delivering into reserves. In Côte d'Ivoire, across Agbaou, Tabala, Hiré, and Bonikro, you know, it's historic. We have 32 kilometers of greenstone belt there. Historically, there's been over 5 million ounces of gold identified and mined from that greenstone belt.

We are stepping further outside the in specific mine areas now, like at Tabala, identifying large areas of significant economic mineralization that will come into reserve relatively quickly. It's a prolific belt. We're very conscious of the effort to be able to produce long mine lives with stable production based off robust reserves of gold. Kurmuk is a gold province. The mining license that you see on the presentation there is 100 sq km. We have over 1,500 sq km of exploration land surrounding this. Uniquely, this mining license can expand, if needed, into that exploration license under the same permitting arrangement. This is a brand-new gold province. It's very exciting. We're currently drilling out to the west of the mining license at Tsenge. We've got some holes in there. It's looking very promising.

We look forward to continuing the drilling effort there, we've been drilling for five years, and increasing the reserve for that project. It's, there's a huge amount of potential there, and our focus-now that we have the feasibility study finished and production and the construction is beginning, look forward to the exploration group being able to add to that significantly over the next several years. Thanks very much. Yeah, we'll continue to find more reserves for the company.

Peter Marrone (Chairman and CEO)

Before taking questions, and to supplement Daniel's comments, let me also highlight our efforts to improve our health and safety performance. We mentioned our 100-day plan, but it's more than that. We intend to create a culture supportive of health and safety. In assembling a collection of assets, it isn't unique to find that each of the assets has different approaches and cultures. We are now progressing our efforts to integrate these cultures into a unified Allied Gold culture that promotes health and safety, and with it, a better and more efficient business. As a management, our experience is that companies that create cultures that promote health and safety perform better and are more profitable and last longer. As Daniel mentioned, we have Gwennael here, our Chief Sustainability Officer, to answer any of your questions on our efforts and approach on health and safety.

Operator, with that, if we can open the call to any questions.

Operator (participant)

Yes, certainly. Thank you very much. We will now take questions from the telephone lines. If you have a question and you are using a speakerphone, please lift your handset before making your selection. If you have a question, please press star one on the device's keypad. You also can cancel your question at any time by pressing star two. So please press star one at this time if you have a question. There will be a brief pause while the participants register. We thank you for your patience. The first question is from Anita Soni, from CIBC World Markets. Please go ahead. Your line is now open.

Anita Soni (Managing Director and Senior Gold and Base Metals Research Analyst)

Hi, thanks, Peter, and team for taking my questions. So, firstly, I do have a good idea of the big picture, so I'm gonna ask a lot of nitty-gritty questions. I just recently launched, so kind of have an idea of the strategy. But, firstly, at Sadiola, the strong Q4 that you're talking about, is that more grade driven or tonnage driven? I'm just wondering, you know, I think I noted in the MD&A that you're gonna be mining more direct ore feed, so does that result in slightly lower grades and higher tonnage? I think you also mentioned that you were drawing high-grade stockpiles in Q3, so I just wanted to get an idea of what Q4 is gonna look like.

Basie Maree (COO)

Anita, thanks. Lastly, I can answer that. The run-of-mine grades for quarter four is gonna stay similar to what we've had in the third quarter. The difference comes in with the higher grade stockpiles. I've mentioned that we're working on our power generation. That allows us to bring a higher proportion of the high-grade stockpile in, and overall, the plant feed will have a higher grade, but it's not coming from fresh ore mine. The mining section is, at the moment, gearing up for stronger 2024, with higher grades in 2024. So quarter four, we'll see higher grades from Sadiola from our stockpiles.

Anita Soni (Managing Director and Senior Gold and Base Metals Research Analyst)

Okay, and but similar tonnage levels as well?

Basie Maree (COO)

No, the tons will remain about the same, because of the harder material, we will have limitations on the amount throughput.

Anita Soni (Managing Director and Senior Gold and Base Metals Research Analyst)

Okay. So secondly, on Bonikro, you mentioned the dewatering was finished earlier than normal and will set you up for Q4. Again, is that in the form of better tons or better grade? Like, how do we sort of think about Q4 in terms of the relative production?

Basie Maree (COO)

Bonikro will, for the last quarter, see much higher grades because of that, the completion of the prepping in Stage 1, as we call it. It was previously very close to the water levels. We're now able to get to that. And also in Bonikro, we're preparing the higher oxide level, Stage 5, which will set us up for 2024. But for the fourth quarter, it's higher grades coming from Bonikro, but which was previously not available to us due to.

Anita Soni (Managing Director and Senior Gold and Base Metals Research Analyst)

Okay. And then at Agbaou, is that, I think because you're in the sulfides, you're sort of in a lower mining rate that's mentioned in the MD&A. So are we still looking at. Would that be one of the areas where you would see significant improvement, because of the rainfall event that you had, or is that more, would I expect that the improvement in the assets are more focused on Bonikro and Sadiola?

Basie Maree (COO)

No, there's a lot of initiatives I go with Agbaou, because of the backlog we sitting with from third quarter and higher rainfall, we're getting on top of those issues now, and we will now start seeing the higher grades, which we previously expected in third quarter, coming out in the fourth quarter for us. In the meantime, we also opened up Agbaou as a new oxide pit by the northern side of the complex, close to Bonikro, and we're now cross-training that to Agbaou as well, which will help with the throughput, not so much on the grade, but throughput to the goal.

Anita Soni (Managing Director and Senior Gold and Base Metals Research Analyst)

Okay. And so presumably all of that will also have, for all three assets, will have an impact on the mining rates, or, sorry, the mining unit costs and processing costs to the better, right?

Basie Maree (COO)

So, with all of that, there is ongoing initiatives to also look at cost and efficiency.

Anita Soni (Managing Director and Senior Gold and Base Metals Research Analyst)

Okay. And then one more question I had, actually, I have two, but the one more on the op. In terms of seasonality, just as I sort of familiarize myself or refamiliarize myself with these assets, what specifically is it for all three? Q3 is the main rainy season, or is there anything else that I should think about in terms of rainy season or, you know, sort of sequencing in the pit where, you know, you tend to be in a low-grade portion in a certain quarter or things like that?

Basie Maree (COO)

You know, it's a question I wish I could answer differently, but the reality is, rainy season has fallen quarter three. We had a very, very heavy rain season. Quarter three is over, but it's still raining, so we're working very, very hard to get on top of those things. And then there's a dry season and a small second rain season, sort of the early part of the first quarter of 2024. The big impact of rain for us is during quarter three, normally.

Anita Soni (Managing Director and Senior Gold and Base Metals Research Analyst)

Okay, so there is a bit of rain.

Basie Maree (COO)

Yeah, that's for Agbaou and Bonikro. Sadiola has also got two seasons, but they shift a little bit more, overlapping in the third and the fourth quarter, and then in the middle of the year again.

Anita Soni (Managing Director and Senior Gold and Base Metals Research Analyst)

Okay. So you said Q3, Q4, like a bit of rain into Q4, and then there's a. Did you say Q1 had a small rainy season as well?

Basie Maree (COO)

Yes.

Anita Soni (Managing Director and Senior Gold and Base Metals Research Analyst)

Okay, and that's Agbaou and Bonikro. And then Sadiola was what?

Basie Maree (COO)

Sadiola is, it's a little bit between quarter three and quarter four. It's the main rain season, and then we'll have another small season, sort of at the end of quarter one, beginning of quarter two. That's normally a very small one, and doesn't impact us at all regarding this dryness.

Anita Soni (Managing Director and Senior Gold and Base Metals Research Analyst)

Okay. And then, one question for Jason. I was just wondering, is there anything else that we should be thinking about in terms of one-time items going into Q4, or did Q3 encapsulate it all?

Jason LeBlanc (CFO)

No, I think most of it was Q3, Anita. We did highlight in the disclosure, we expect a little bit of payables normalization into Q4 as well. So that'll be a bit of a cash outflow. So probably low tens of millions of dollars there.

Anita Soni (Managing Director and Senior Gold and Base Metals Research Analyst)

Okay. And then, not a question, but just a comment. I would, I really did appreciate at Yamana, where you guys had your unit cost information. So, if I could put a plug in that for when you get a chance to, to getting around to that, that helps us, keep better track of what's going on, and more visibility means, more investors. So anyway, thank you very much for taking my questions, and I'll leave it there.

Basie Maree (COO)

Thank you.

Operator (participant)

Thank you. The next question is from Don DeMarco, from National Bank Financial. Please go ahead. Your line, your line is now open.

Don DeMarco (Precious Metals Equity Research Analyst)

Thank you, operator. And hello, Peter and Allied team. Congratulations on, you know, the transition and your first quarter of reporting. Encouraging to see Q4, you know, reiterated as strong. My first question, I'll start off with on Diba. So nice to see the Diba transaction close, and I see that you're looking at getting into mining in Q2 2024. Could you just let us know, what are the sort of steps to get there? Is there any final permitting needed? Maybe some comments on the strip ratio that's required, any pre-strip that's required before you start mining and the CapEx associated with that, et cetera. Thank you.

Greg Winch (Chief Geology and Strategic Officer)

Don, it's Greg Winch. Sorry. Don, it's Greg Winch here. I can answer some of those questions. So, establishment of Diba to supply ore in Q2 of next year requires some upgrading of the road between the two. It's about 14-15 kilometers between the two, so it's an upgrade to that road. We're doing a grade control program down there in Q1. We will put a bit of, at some fairly modest, side pit services, some refueling and, you know, temporary service base. It has us down there for two years mining, basically. One month of pre-strip. Pre-capital expenditure was in the order of $10 million for the road, side pit services and the grade control drilling that the exploration department carry out. So yeah, a month, one month pre-strip, and that $10 million includes that number. Does that answer your question, Don?

Don DeMarco (Precious Metals Equity Research Analyst)

Yeah, it does. Yeah, yeah. So I guess, things are pretty, pretty well locked down for, for mining of Diba in Q2, then none of those seem to be, you know, potential risk to timeline. So I guess we would look to see some of that, Diba reflected in the, the guidance that Peter was mentioning to be released early next year.

Basie Maree (COO)

That's correct.

Don DeMarco (Precious Metals Equity Research Analyst)

Okay. So just talking about the Côte d'Ivoire assets, Anita had covered some of my, my questions, but maybe just in general, versus the feasibility study that came out late last year, are the assets running as you would expect they would? I mean, we did see the grades a little bit light at Agbaou, but of course, there was the rainy season. Aside from the rainy season impact, are they pretty much operating as you would expect this time?

Basie Maree (COO)

Yeah, I would say generally, yes. At Agbaou, issues we faced in the third quarter, I think we discussed that we're a little bit behind on mine pit development. On the processing plant, we are working with the transition between oxides to fresh material. That's mainly an oxide circuit that we have there. We're looking at what can be done to improve the mill throughput rate. But even during this period, we've had running higher fresh material through it. The metallurgical recoveries in that plant stayed well up into the 90s, 92%-93%. So, process-wise, it's performing where we expect it to be. We are working on increasing throughput, and we're working to get the mining plan back to where it's supposed to be. So, that would meet all of the previous.

Expected performance criteria of that operation. Bonikro is currently, I would say, my star performer. I don't know if it's for Allied, the star performer, but as the operator here, that mine just keeps on producing. We had good grades coming out in the middle of the quarter from Akissi, all oxides that help with throughput on that mine. The process plant is running well. We've had quite a lengthy shutdown this quarter to do some major maintenance on the elution circuit. That's going well. The Oumé raw results and metallurgical test work came back, performs very similar to our existing orebody. So that operation is well set up for the future in a couple of the forthcoming years.

Don DeMarco (Precious Metals Equity Research Analyst)

Okay, great.

Peter Marrone (Chairman and CEO)

And Don, I know the biggest difference, you asked the question, is it performing according to the technical studies? I think the way that I'd answer the question is to say that we can do better than the technical studies. If one looks at the efficiency of mining at Bonikro versus Agbaou, there's a huge difference. That's where we see a lot of the things that Basie mentioned, and I mentioned in the formal part of this presentation on the changes to the plant, will accommodate longer mine life. But in terms of how to, in the shorter term, run Agbaou more efficiently, we're looking at Bonikro as an analogy, as an analogue. The principal difference is that mining is more efficient at Bonikro.

And so what we're looking to do is how to optimize the way that we manage the mine contractor there, so that we can make production coming from the mine more efficient.

Don DeMarco (Precious Metals Equity Research Analyst)

Okay. Okay, thank you for that. Maybe shifting to Greg, back to you with a question on exploration. I saw that in the different buckets for exploration spending, Q3, one of them was about $9 million in the other category. Can you just let us know where specifically that spending was made?

Jason LeBlanc (CFO)

That's a Kurmuk, Don.

Don DeMarco (Precious Metals Equity Research Analyst)

Okay.

Jason LeBlanc (CFO)

Not, not currently in operation, but development, yeah.

Don DeMarco (Precious Metals Equity Research Analyst)

Okay, I figured. Then, as a last question, once you start generating free cash flow from Sadiola, from Mali and Côte d'Ivoire, are there withholding taxes to upstream the cash and then redeploy the funds to Kurmuk in Ethiopia?

Jason LeBlanc (CFO)

Well, maybe just we use the Sadiola cash in the, you know, the interim development years of Kurmuk. You're right, Don, and then we pivot to the cash flow at Ethiopia. But all the withholding rates are, you know, in line with international between 5 and kind of 7% as we do that. But there's, you know, loans as well to they have to repatriate that would have lower rates of withholding.

Don DeMarco (Precious Metals Equity Research Analyst)

Okay. Okay, that's good for now. That's all for me. Thanks a lot, and good luck with the rest of the year. Thank you.

Jason LeBlanc (CFO)

Thank you.

Operator (participant)

Thank you. Once again, please press star one on the devices keypad if you have a question. The next question is from Ingrid Rico, from Stifel Canada. Please go ahead. Your line is now open.

Ingrid Rico (Precious Metals Analyst)

Thank you, and good morning, Peter, Daniel, and team. A couple questions for me, perhaps starting with Sadiola. I know you've talked about the initiatives on improving cost, and you mentioned power generation, plant infrastructure, and supply chain. Perhaps, Bas, if you can comment a little bit more on what are those sort of initiatives, and what can we expect over the next couple of quarters in terms of seeing that reflected into an announced cost guidance improvement?

Basie Maree (COO)

There's a number of initiatives there, but at the moment, we're focusing on the top 10 or so that can make a difference. One of the main initiatives of Sadiola is one that benefits our capital spend. The Sadiola tank farm, as you know, the mine is 26 years old. We've done a very comprehensive study of that tank farm to see if we can stretch the life of those units for another five or eight years. The results came back very positively, and this has got a major benefit for us in our capital spend going forward. So that work has been done, and the few tanks where we need to do repairs is in our budget for next year, which is not a significant spend for us. Our generation is the other one.

We have 21 generators there. We that can generate an order of 16-17 MW a day. We only need to have 11 MW available to us. But due to lack of instrumentation, you know, that failed over the years, I guess, we're running more generators than what we needed because we don't have automatic stop starts. We're in the process of installing a DMC control system on our generators so that it stops and starts on demand. By doing that, there will be a major saving in our diesel consumption on the mine. That is would be a very quick turnaround on spend savings going forward for this quarter and for 2024. There is a small project on the go at Sadiola looking at our G&A costs.

You can imagine over 26 years where there might be a bit of a staff creep, for lack of a better word, and we're reviewing all of that to understand if you really need all of the, you know, especially on the G&A costs. It's a sensitive topic, and we're treading quite carefully on the implementation and reviewing that one. But there's an opportunity. The group as a whole is looking at introducing Oracle as a supply chain and warehouse maintenance management system. That project is well underway, and it'll have significant benefits on stockholding of spares, better maintenance planning, and then obviously a flow through to the cost as well. That project is well underway at Sadiola and due for implementation early 2024. Bulk reagent purchases, previously, each mine would buy its own reagents.

We've recently completed an exercise where we buy bulk chemicals between the three. We've identified the top five reagents, steel balls, lime, cyanide, caustic soda, and we're gonna work on explosives as well and get bulk deals with better deal costs. That one in itself produces a significant benefit in operating costs for us, and it's in our new budgets going forward. That is about on the, on the high, you know, the, the top ones that we're working on at the moment. There's the ongoing improvements in mill instrumentation that will increase throughput through the mill. I don't know if that sort of answers the questions. We should also mention that we're looking at better performance drivers with our mine contractor as well.

Yeah. So that is a big initiative for us. Together, once again, with Bonikro, Agbaou, and Sadiola, we're starting to see if there might be synergies between the various contractors we have. Maybe going to one contractor between the three mines, so they can share space and management, which will bring the cost down for us. We have in our process plants over the last year, worked very hard on managing key performance areas in the process, plant downtime analysis. We want to roll that toolset out to our contractors as well, to help them manage their own equipment better. We thought they would push back on it, and they're actually welcoming it. So we're helping them with our, as I call, the tool, to better understand their availabilities, and obviously, the utilization will improve, and cost will benefit from that and output.

Peter Marrone (Chairman and CEO)

Ingrid, you asked the question, what should we expect as an improvement to costs? Some of this is an improvement to operations, more ounces, and that should improve the unit costs. But we're just evaluating overall then, these optimizations, improvements, cost-cutting measures, what is the impact? You are aware that we indicated that we'd like to get to, in the range of $200 per ounce as improvements beginning next year. But just to give you an indication, power, we're running at Sadiola with power costs, because of the inefficiencies that Basie mentioned, between $0.365-$0.39 per kWh. That represents about $200-$220 per ounce.

So, by taking the actions that Basie mentioned on improving power generation, a better utilization, we are looking at other things as well, the reliance on solar, that is more intermediate term. Let's say in the next 18 months to two years. Ultimately, we'll be on the grid, and being on the grid is $0.12/kWh rather than $0.36-$0.39/kWh. But even reducing that $0.36-$0.39/kWh through these efficiencies by half is already about $100 per ounce. So we can see some very low-hanging fruit to improve costs at Sadiola, and that applies at Faské.

Ingrid Rico (Precious Metals Analyst)

Appreciate all, all that color, and really look forward for, 2024. It looks like it's, it's a lot of work, a lot of work ahead, but as you said, low-hanging fruit. My follow-up question would be to Greg. Greg, you mentioned staying in front of mining depletion with, all of the drilling that you're doing. From what I understand, Agbaou, very aggressive exploration program. How should we think about reserve coming year? And perhaps, we might see more of a mineral resource inventory increasing, but, you know, just, just some thoughts on, on the, reserve at Agbaou.

Greg Winch (Chief Geology and Strategic Officer)

Thanks, Ingrid. Yeah, so today, we've drilled over 100,000 meters of core drilling, resource reserve core drilling at Agbaou. That's coming to fruition at the end of this year. We're doing a new resource now. It's being modeled and putting into reserve. So that's been very promising. So, you know, we're both at Bonikro and Agbaou, when Allied first got to the site, as we turned up as a management team, we came with exploration drill rigs, which was a vote of confidence in the project. It's really good for the morale of people on site who have been living with the operations and maybe not having a job in the next year or the year after. And we did that at Agbaou as well, with all the other projects and Sadiola.

So, over 100,000 meters of resource drilling completed, mostly core. The ore bodies are, are pretty strong at depth. A few more opportunities and shallow oxide around as well that have been drilled, and, and that's all coming to fruition in, in Q4 and when it's being remodeled and, and put into pit design. So we, we expect that to be really positive.

Peter Marrone (Chairman and CEO)

Ingrid, Oumé, what we were calling, Dougbafla, and these, this Agbaou drilling, to be clear, is not in reserves. And so this is, when we talk about Bonikro, seven years of mine life and Agbaou four years of mine life, that's based on proven and probable reserves as of the end of last year. So Oumé alone is likely to increase the mine life of Bonikro well in excess of, 10 years, and these Agbaou initiatives certainly increase the mine life of, of, Agbaou. So we're increasingly confident, based on what we've already seen, at getting to that strategic objective of 10 years of 180,000 to 200,000 ounces per year from that complex.

Ingrid Rico (Precious Metals Analyst)

Perfect. And so reserves for Diba would be in the coming year. Is that, is that correct?

Greg Winch (Chief Geology and Strategic Officer)

Currently, Ingrid, it's not even in resources. It will be by the end of the year, and it will be in reserve when that mining license is granted from hopefully within 12 months. So it'll be resources at the end of this year and, you know, conservatively, end of next year reserves.

Peter Marrone (Chairman and CEO)

There's no geological reason to put it into reserves. It's entirely just waiting on the usual ordinary course of completing the permitting process.

Greg Winch (Chief Geology and Strategic Officer)

Yeah.

Ingrid Rico (Precious Metals Analyst)

Perfect. Understood. And one final, just touching on Diba again, but more on the exploration. Is there additional low-hanging fruit in terms of, more sulfide, that you can drill off to increase, the sort of ore or oxide that you have right now?

Greg Winch (Chief Geology and Strategic Officer)

Very much so, Ingrid. I think what was noticeable to us is as we put the pit design around it, and then we've draped that over the recent satellite photography, that over a third of the artisanal mining activity that's relatively recent down there from several years ago, a third of that activity falls outside of the designed pit crest. So yes, would be the answer to that question. And even north has some potential as well. So that exploration group will stay down there now and find and define all the shallow resources on Diba mining license before they leave, as we have two years of mining down there, so they need to define it all. But yes, there's that belt of that part of the geological setting of Sadiola to the south and the north, both remains really prospective.

Ingrid Rico (Precious Metals Analyst)

Thank you, and I'll leave you there.

Operator (participant)

Thank you. There are no further questions registered at this time. I will turn the call back to Mr. Marrone.

Peter Marrone (Chairman and CEO)

So, ladies and gentlemen, all of this is roughly within a month or so, a bit less than a month, to the completion of the third quarter. This management team is now ready to move forward. We're already seeing advancements and improvements to the fourth quarter, as we mentioned at the formal part of the presentation, and we look forward to providing some of those improvements, the highlights of those improvements on the upcoming conference calls for Q4 and then into 2024 and 2025. Thank you once again for participating on this call with us.

Operator (participant)

Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.