IAMGOLD - Q1 2023
May 12, 2023
Transcript
Operator (participant)
Thank you for standing by. This is the conference operator. Welcome to the IAMGOLD first quarter 2023 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'll be an opportunity to ask questions. To join the question queue, you may press star, then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and 0. At this time, I'd like to turn the conference over to Graeme Jennings, Vice President, Investor Relations and Corporate Communications for IAMGOLD. Please go ahead, Mr. Jennings.
Graeme Jennings (VP, Investor Relations and Corporate Communications)
Thank you, operator, and welcome everyone to the IAMGOLD first quarter 2023 operating and financial results conference call. Joining me today on the call are Renaud Adams, President, Chief Executive Officer, Maarten Theunissen, Chief Financial Officer, Bruno Lemelin, Senior Vice President, Operations and Projects, Craig MacDougall, Executive Vice President, Exploration, Jerzy Orzechowski, Executive Project Director, Côté Gold, and Tim Bradburn, Senior Vice President, General Counsel, and Corporate Secretary. Before we begin, we are joined today from IAMGOLD's Toronto office, which is located on Treaty 13 territory, on the traditional lands of many nations, including the Mississaugas of the Credit, the Anishinaabe, the Chippewa, the Haudenosaunee, and the Wendat peoples. At IAMGOLD, we believe respecting and upholding Indigenous rights is founded upon relationships that foster trust, transparency, and mutual respect. Please note that our remarks on this call will include forward-looking statements and refer to non-IFRS measures.
We encourage you to refer to the cautionary statements and disclosures on non-IFRS measures, including the presentation and the reconciliations of these measures in our most recent MD&A, each under the heading Non-GAAP Financial Measures. With respect to the technical information to be discussed, please refer to the information in the presentation under the heading Qualified Person and Technical Information. The slides referenced on this call can be viewed on our website. I'll now turn the call over to our President and Chief Executive Officer, Renaud Adams.
Renaud Adams (President and CEO)
Thank you, Graeme, good morning, everyone, and thank you for joining us today. First off, I want to thank and congratulate the IAMGOLD teams, including our Chair, Maryse Bélanger, our board of directors and management, our operations, finance, and business development teams, and everyone at the organization for positioning the company to where it is today. The company reported a strong first quarter, responding to challenges with 113,000 ounces of attributable gold production from continuing operation while diligently focusing on managing our cost inputs. I've been asked by many stakeholders since I joined the company, what brought me to IAMGOLD and what do I see this company going in the future?
I can tell you before officially starting at the beginning of April, I spent several weeks behind the scenes getting up to speed on the company and learning about the achievement and progress of the operations in Côté. It was clear to me then, and even more so now, that IAMGOLD is on the cusp of turning the corner towards the goal of being a leading mid-tier, high-margin gold producer. Our Essakane mine has been performing well with the teams in country demonstrating great initiative and resiliency. Our Westwood Mine is starting to make real gains on completing underground rehabilitation work and development in support of the future mine plan that is highlighted by new and transformative initiatives. Of course, all eyes are on Côté, where the project continues to advance rapidly towards initial production early next year.
The project was approximately 80% complete at the end of March and is ramping up to peak activity levels with a clear roadmap in front of us to achieve success. The impact of Côté Gold on this company will be absolutely substantial. With a long life, low-cost asset shifting our production base to Canada. I'm excited and eager to turn our and the market's focus from looking back to looking ahead of what is to come. We will soon be making the transition from fixing operations and managing constructions towards the real value drivers in our business and demonstrating execution success, operation optimization, and unlocking growth potential, all to the benefit of all our stakeholders. With that, I will now walk us through the quarterly results and highlights. I'm on slide five.
Starting with health and safety, while our metrics in the first quarter have struck above our internal targets, this year remains in line with our peers, with a days away restricted transfer duty rate of 0.6 and total recordable injury rates of 0.84 based on 200,000 hours worked. Ensuring that all our employees and contractors go home safely will always be the primary focus of IAMGOLD. As we like to say, every gold ounce produced has to be done safely, and we continue to amend our systems safety protocol to ensure we achieve zero harm.
On production, in Q1, the company produced 113,000 ounces of gold on an attributable basis from continuing operations, putting us well on the path of our production guidance target of 410,000-470,000 ounces this year. As we will get into a moment, the production results were driven by higher-than-expected grades at Essakane and a continued ramp-up with Westwood. The relatively strong production results and sales volume translated to cash costs of $1,094 per ounce sold, and all-in sustaining costs of $1,525 per ounce sold, lower than our guidance estimate of $1,125-$1,175 per ounce for cash costs and $1,625-$1,700 per ounce of all-in sustaining costs, mainly due to lower-than-planned stripping at Essakane.
Our costs were higher than in the same period of last year as the inflations in ourself, the industry experienced in the second half of last year raised the general cost of doing business and are unlikely to decrease at the same pace. While the first quarter costs were below guidance, I will note that we expect to see our costs increase in the second and third quarters of this year due to a higher volume and of waste stripping planned at Essakane during this period. I'm now turning to slide 5. Turning to Essakane. The mine reported attributable gold productions of 92,000 ounces with higher-than-expected head grade due to continued positive grade reconciliation and a direct feed of material from the bottom of Phase IV of the pit.
Mining activity were impacted by ongoing disruptions in the in-country supply chain, with Essakane mining just over 1.6 million tons of ore and 4.6 million tons of waste, for a total material mined of 6.3 million tons versus the 15.2 million tons in the same period last year. As we saw during the period last year, the mining fleet could not be operated at full capacity during January and February as a result of disruptions and the field supply resulting from the security situation. It should be noted, though, that the situation improved during March, and the mining fleet was operating at near full capacity during April.
Mill throughput in the first quarter was 2.2 million tons at an average head grade of 1.6 grams a ton, with throughput 31% lower than the same prior year period. The decline in throughput and lower plant utilization during the quarter is primarily due to the field supply constraint discussed. The mill achieved recovery of 91% in the first quarter as the plant continues to benefit from recent improvement to ore blending practices in the gravity circuit. Recovery from the gravity continued to increase over historical levels. We are planning on installing additional screening in the second half of the year to target even further potential improvement.
On a cost basis, Essakane report cash costs of $964 per ounce, an increase from the $781 an ounce last year due to inflationary pressures being offset by lower mining and milling costs as a result of lower activity level at higher grades. all-in sustaining costs were $1,157 an ounce, coming in below estimate as we were unable to undertake the planned stripping program in Q1. Looking ahead, Essakane is on track to achieve its gold production guidance range of 340,000-380,000 ounces of gold.
Mining activity is trending towards normal operating levels in April. It's expected that we will be able to operate nearer the normal levels during the remainder of this year, including the planned waste stripping in the second and third quarter to provide access to the required mining areas in order to meet the 2024 to 2025 production plans. Mill throughput is expected to return to normal levels, with head grades expected to decrease over the course of the year as the mill feed incorporates lower-grade material from stockpile. Turning to Westwood. Gold production was 21,000 ounces of gold as a result of higher volume in ore grades from underground as well as the contribution for the Grand Duc Gold pit.
Underground development in the first quarter experienced near record development rates with 1,494 meters of lateral development completed to secure safe access to multiple ore phases, including high-grade past producing area, which will allow for increased operational flexibility in support of the 2023 production plan. I was on the ground at Westwood last month, standing in some of the key stops in the central zone. It is absolutely impressive what the teams have done to bring access back into this area. With a strong first quarter, Westwood is well on track to achieve its guidance range of 70,000-90,000 ounces of gold this year. We expect to see an increasing proportion of ore sourced from the underground mine as the year progresses.
Mill feeds will continue to be supplemented from available surface deposits. We should note that our guidance includes supplemental mill feed from satellite deposits, including from the Fayolle property in the second half of the year. Cash costs and all-in sustaining costs continue to remain high at Westwood Complex. The rehabilitation work decrease, we expect to see significant costs step down with the goal of positioning the asset for free cash flow starting towards the end of the year, on time for a better and profitable 2024 and beyond. Turning to Côté Gold. As mentioned by Graeme in the operating remarks, I am pleased to have our Executive Project Director with us today. I will hand off the call to him in a moment.
One of my first initiative was I, when I started, was to be at Côté, where I spend time on site with the team. It is very exciting to see the progress the team has made and see the project firsthand. Côté Gold, once up and running, will be Canada's third largest gold mine. The impact that Côté will have on this company will be substantial. With a long life, low cost asset, shifting a significant proportion of our production base to Canada. Côté is now ramping up to peak activity now that the spring is nearing completion and there is a clear roadmap in front of us to achieve success.
Looking at the project spending, in Q1, the project UJV incurred $158.6 million in project expenditures on a 70% basis, bringing the project to date expenditure to $1.37 billion on a 70% basis or $1.96 billion on a 100% basis. Côté Gold remains on schedule and the estimated attributable cost to complete the construction on a 70% in incur basis was $625 million-$700 million, assuming a US CAD rate of 1.32. According accounting for the Sumitomo funding agreement, which Maarten will go into more detail, IAMGOLD is expected to fund $460 million-$535 million during the remaining of 2023 to bring the project to production based on its today 60.3% ownership in the joint venture.
I will turn the call over to our executive project director for additional remarks. Go ahead, Jerzy.
Jerzy Orzechowski (Executive Project Director, Côté Gold)
Thank you, Renaud. As mentioned, the first quarter saw important progress for the project, achieving significant milestones in earthworks, processing plant and operation readiness. At the end of the quarter, the project was approximately 80% complete, having achieved 7% progress in the first quarter of this year during which was a cold winter season. We currently have over 1,700 workers on site, having recently added an additional 264 beds to support additional workforce for peak SMPEI construction activities, commissioning operation resources this spring and summer. On earthworks, we have achieved the first target of the TMF, reaching the elevation of 292 in March in preparation for the spring freshet, to allow for the water accumulation to support commissioning activities later this year.
Having reached the freshet milestone with the schedule float on the earthworks, we have used this opportunity to slow down a bit the earthworks progress to advance more aggressively the progress on the process plant construction. Our focus in Q2 and Q3 will be on completing the construction of the portions of the plant and starting pre-commissioning activities. Q4 will be focused on finalization of pre-commissioning and preparation for the ore introduction to achieve first gold in Q1 and sustainable production next year. Let me give you a quick commentary to the pictures on your screens. Taking it from the top left corner, this is the status of the high voltage incoming substation. We are planning to start early commissioning activities in this area early Q2 in preparation for utility collection of the primary power in August. Moving clockwise, this is a grinding area.
You can see the ball mill with installed BM gear and vertical progress. We have a very good progress in our fleet assembly and commissioning. All procurement is essentially complete, and we currently have 14 Cat 793 haul trucks, 2 994 loaders and D10T dozers delivered, with assembly quite advanced on the first electric shovel. We have started the autonomous operation in the pit in early January, with 4-6 trucks operating depending on the material delivery target area. We are running autonomous fleet during the day and are planning to start 24-hour operation in Q3. Finally, you can see in the bottom left corner the bird's eye view from the tank farm site. This is another area which we are pushing hard to start pre-commissioning activities. Moving to the timeline, this is the high-level view.
Côté Gold continues to track well with the updated project schedule towards initial production in early 2024. We are working in close alignment with our partners, Sumitomo and our contractors to ensure that Côté is built safely on time and on the current budget and scope. At this time, the critical path of the project continues to be through the processing plant as mining operations are well advanced. A key event this summer will be connection of the Côté substation to the power line. This will allow for electrification of the equipment in the plant as well as the rope shovel in the pit. The Hydro One power line has been completed to site, and the substation made significant progress in the quarter.
We are very much reliant on our workforce and are a major employer in the region. I want to tip my hat to our human resources team, ensuring the project is well staffed up. We are only as good as our people, and I am impressed with the team on the ground. With that, I will turn back to you, Renaud. Thank you.
Renaud Adams (President and CEO)
Thank you, Jerzy. Of course, we cannot talk about Côté without talking about Gosselin. Earlier in the quarter, we reported asset result from the 2022 drill campaign, which successfully intersected mineralization to Renard and below the current resource boundary of the deposit. Gosselin, with its mining resources of 3.4 million indicated ounces and 1.7 million ounces inferred, continued to be in the early stage of discovery. The deposit has only been drilled with a fraction of the meters compared to Côté and to half the depth, and remains open along strike and at depth. When you look at this Côté life of mine, there is a step down in productions in the year 2030 through to 2033, which could be a logical fit to bring Gosselin into the mine.
While there is still a lot of work to do in order to realize this year we will be advancing technical studies to start reviewing alternatives of potential inclusion of Gosselin into a future Côté life of mine. We believe we are in the early days of the Côté District, and believe that Côté Gold is not just a project, but the start of a mining camp with substantial upside to be covered within our nearly 600 square kilometers land package. I will pass the call over to our CFO to walk us through the financial review. Marteen?
Maarten Theunissen (CFO)
Thank you, Renaud. Good morning, everyone. It was a busy quarter for the company following the strategic announcements at the end of last year. Before we look at the earnings, cash flows, and liquidity picture, it is probably worth a moment to review the transactions and associated implications. Early in the first quarter, we closed the sale of the Rosebel mine, with total cash proceeds received of $386.4 million. We still expect to receive an additional $9.8 million by the end of the second quarter related to the cash still held at site and related working capital adjustments. Subsequent to the quarter end, on April 26, we announced the closing sale of our Bambouk assets for pre-tax gross proceeds of $197.6 million.
The closing of the other facets of this deal, including the assets in Guinea and Mali, are expected to close in the third quarter. The Sumitomo funding agreement announced at the end of last year began to take effect in the first quarter, with Sumitomo contributing $189 million of the total $250 million of the IAMGOLD funding obligations during the quarter. This effectively equated to a 7.5% transfer of interest in the project to Sumitomo. Subsequent to the quarter end, and as of May 1st, Sumitomo has contributed the remaining $61 million to bring their project interest to 39.7, and IAMGOLD's interest to 60.3%. As a result of their increased interest in the project, Sumitomo contributed $7.1 million in incremental funding for project construction.
Over the remaining construction timeline, Sumitomo will outlay approximately $82.8 million, for a total of $90 million of incremental expenditures based on their increased 10% exposure to construction costs. As a reminder, IAMGOLD has the right to repurchase this 10% interest at one of 7 future dates up to November 2026, and we want to reinforce that it is ours and Sumitomo's intention for IAMGOLD to ultimately return to a 70/30 joint venture structure in the future. With regard to the accounting for the transaction, IAMGOLD will continue to account for 70% of the assets and liabilities of Côté on our balance sheet, and the transferred interest will not be recognized as a sale due to the existence of the repurchase option.
We have recognized a repurchase option liability that represents the amount that Sumitomo contributed on behalf of IAMGOLD, that is also equal to the amount that IAMGOLD needs to pay Sumitomo to repurchase our transferred interest and eventually return to 70% interest in the unincorporated joint venture. This is as at March 31, 2023. After achieving commercial production, we will account for 60.3% of the revenue and costs in our income statement and receive 60.3% of the cash flows. Turning to the Q1 financials, revenues from continuing operations totaled $226.2 million from sales of 119,000 ounces at an average realized price of $1,893 per ounce.
Adjusted EBITDA from continuing operations was $83 million for the year, translating to an adjusted earnings per share of $0.05. Net cash flow in Q1 from operating activities was $28.1 million, this includes investments in working capital related to the buildup of the stockpile at Côté and the reduction in accounts payables. Net cash from investing activities for the fourth quarter was for the first quarter was $160.6 million, includes $386.4 million in proceeds received from the disposition of Rosebel, offset by capital expenditures of $215.1 million. Net cash used in financing activities for the first quarter after a $2.1 million adjustment to foreign exchange rate impacts on cash and cash equivalents was $64.4 million.
This includes the repayment of the credit facility of $255 million, offset by proceeds received through the Sumitomo funding arrangement of $196.1 million, of which $189 million related to the funding obligation and $7.1 million of incremental funding associated with Sumitomo's increased project interest. In terms of our financial position, we ended the quarter with $532.1 million in cash and cash equivalents, and $257.3 million available under the credit facility after a $255 million repayment in the quarter. Taken together, this translates to approximately $739.4 million in available liquidity at the end of Q1. We note here that approximately $260 million of our cash and cash equivalents is held by the Côté Gold UJV and Essakane.
As the Côté Gold UJV requires its joint venture partners to fund in advance 2 months of future expenditures and, at Essakane, the company uses dividends and intercompany loans to repatriate funds from its operations. The timing of dividends is usually in the second and third quarter of every year. We typically hold and guide our investors to account for between $200 million and $250 million of cash being held on our balance sheet for these normal course business purposes. As we discussed, we expect to see the Bambouk assets to close by Q3 this year for a total of $282 million of proceeds on a before tax basis. We are guiding this will translate to approximately $240 million-$250 million on an after-tax basis.
The closing of the sale in Senegal assets was completed in April for $197.6 million. We received $165.7 million in cash, with the remaining $32 million expected by the earlier of six months and the closing of the remaining transactions. We expect the remaining transactions to close during the third quarter. When we look at the funding picture for Côté, as Renaud outlined earlier, we estimate the remaining funding requirement by Anglo to complete Côté of $460 million-$535 million, with the project still on schedule as outlined by Jerzy.
Based on the prevailing market conditions, which could impact project expenditures and operating cash flows, the company believes that its available liquidity at March 31, 2023, combined with the cash flows from operations, the Sumitomo funding arrangement and the expected proceeds from the sale of the Bambouk assets, that is sufficient to complete construction and ramp up of the Côté Gold Project based on the current estimated cost and schedule. We continue to advance additional financing initiatives to strengthen our balance sheet and improve liquidity in order to place the company in a strong position to return to 70% interest in the Côté Gold project. Thank you, Renaud.
Renaud Adams (President and CEO)
Thank you, Martin. I want to take a moment here to thank everyone on the IAMGOLD team with a special thanks for our construction team at Côté for their tireless efforts and dedication as we continue to position the company for success. This is a real exciting time for this company. With that, I will pass the call back to the operator for the Q&A portion of this call. Operator?
Operator (participant)
Thank you. We will now open the lines for questions. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. Our first question is from Mike Parkin with National Bank. Please go ahead.
Mike Parkin (VP – Strategy and Investor Relations)
Hi, guys. Thanks for taking my questions. Just with respect to Côté, can you give us an idea of what the split is between mining overburden versus hard rock in the open pit? Like currently.
Graeme Jennings (VP, Investor Relations and Corporate Communications)
Don't have Renaud Adams here, I don't have those numbers right now in front of me. I can tell you that the overall strip ratio of the project is in the range of the two to one as we move forward. I don't have the numbers and the detail with me now when it comes to overburden versus the waste rock and our mining preparedness. I'll follow up with you.
Mike Parkin (VP – Strategy and Investor Relations)
Okay. Maybe just a high level-
Graeme Jennings (VP, Investor Relations and Corporate Communications)
Just hold on, maybe Jersey has some more detail on this.
Jerzy Orzechowski (Executive Project Director, Côté Gold)
We have-
Just really looking in terms of like how are you progressing with the pit? Is it, you know, going as expected? Are you coming across, especially with spring breakup, is there any kind of challenging parts of the pit, or are you able to kind of, you know, stay in harder rock while things kind of dry up and then getting back into overburden? Any kind of color that you can share on that would be appreciated.
Sure. As you've seen from the picture, we've managed freshet very well in the pit. There was some which worked very well, so we didn't really get affected this year at all by the freshet season. We have accumulated just shy of 1 million tons on the various ore stockpiles up to now. Obviously the blend between the rock for construction overburden is now very little left, and the ore is changing dramatically over time because we are transitioning out of construction into the more into the mining activities. It's a very dynamic situation I would say, but that should give you the color where we are in the, in the overall progress there.
Graeme Jennings (VP, Investor Relations and Corporate Communications)
Michael, what I can add to this as well, I was there, not a long time ago, and obviously visited, you know, the mining operations. As you know, I've been involved in previous lives, you know, with the early days and following freshets. Quite frankly, it looks extremely good, very impressive. Very impressive to see this, those autonomous trucks operating. It really looks like a solid operation. Quite frankly, even though after the recent freshets, you know, it looks pretty dry and we're gonna be consuming too often. What I'm seeing now is I'm seeing, you know, the operation meeting their objective and can't wait for the electric shovel to join the dance. No, it looks very good.
Mike Parkin (VP – Strategy and Investor Relations)
Okay. No, that's great. We're finding a lot of companies are kind of reporting an easing of inflationary pressures, especially on diesel, but kind of commenting that, you know, price pressures on steel, concrete are stabilizing. Are you seeing any winds, like, obviously the weak Canadian dollar is helping you, but is there any winds that you're kind of seeing, you know, starting to materialize as we move into 2023, where pricing is actually improving or stabilizing that's giving you a bit of a tailwind?
Maarten Theunissen (CFO)
Good morning, Mike, it's Maarten. We are seeing inflationary pressures easing and certain costs are in line with what we experienced in Q4, but not necessarily lowering. The decrease in oil prices is not reflected in our Q1 costs due to the lagged impact of oil prices on the local pump prices, especially at Essakane. The impact of oil price changes is also less due to our hedging program that already offsetted some of these increases previously recognized. We are seeing price pressures on explosives at the mine, the cost of cyanide as well as grinding media, which is related to steel in line with what other people have seen.
Maybe, Jerzy, additional comment.
Jerzy Orzechowski (Executive Project Director, Côté Gold)
Yeah. On the project, we have 100% procurement complete. We are 99% plus fabrication complete. All these elements are not really affecting the purchase piece. There are inflationary pressures on the labor market, driven both by the wage raises and also by the tightness of the market. I think that's where the biggest problems usually will be right now.
Mike Parkin (VP – Strategy and Investor Relations)
Just switching gears over to Essakane, can you give us an idea of what your inventory capacity is there? How often do you need to, at a minimum, you know, bring in delivery of fuel? If you had to kind of lock down due to a potential security heightening situation there, could you know, kinda operate on an isolated basis for months to get, you know, through any kind of challenging surrounding issues?
Graeme Jennings (VP, Investor Relations and Corporate Communications)
Yeah. No, thanks for that. As I mentioned, Renaud is with us in the room, so please, Renaud, comment on that.
Renaud Adams (President and CEO)
Yes. Thank you, Renaud. For the fuel inventory, we've been seeing some tightness in terms of supply chain. However, in April, we were able to resume our convoys to the site, and we were able to also replenish our stocks. We have four big reservoir, and we're able now to operate close to full capacity for now. Obviously, when we have difficulty to get and secure these stocks, those reservoir get depleted and we have to slow down the mining or mining activities while prioritizing our milling activities. We have enough rock stockpiles close to the mill to be able to continue gold production.
Mike Parkin (VP – Strategy and Investor Relations)
Okay. Thanks. That's it for me.
Renaud Adams (President and CEO)
Thank you, Mike.
Operator (participant)
The next question is from Anita Soni with CIBC World Markets. Please go ahead.
Anita Soni (Research Analyst)
Good morning, everyone. Firstly, Renaud, congratulations officially on your appointment as CEO at IAMGOLD. My first question, tailings dam 1 and 2, I'm just looking at the chart at Côté, it seems like those two particular aspects as well as a couple of the power projects are a little bit delayed. Can you talk about what the key items that you need to get those back on track? I would assume it's the rope shovel and for the tailings dam once that's assembled, you can get moving a little bit more on the tailings.
Renaud Adams (President and CEO)
Well, thank you. Thank you, Anita, and thanks for your kind words. I'll let Jerzy comment more on the critical path forward. The power is under control. The connection of the power grid to the power grid in August is actually not on a critical path.
Anita Soni (Research Analyst)
Mm-hmm.
Jerzy Orzechowski (Executive Project Director, Côté Gold)
The substation commissioning, as I said in my opening notes, was scheduled to start in early Q2. It did start as planned. We don't see that as a risk piece. The TMF itself, we still have to finish raising the dam before the end of the year, there was a float, and that's what I said. We defocused on this area and pushed harder the process plant. The critical path runs through the process plant current, which is the dry section with crushing and then grinding and refines.
Anita Soni (Research Analyst)
Okay. The TMF is not on the critical... sorry. The TMF is not on the critical path, but, I mean, how much capacity would you have by the end of this year for the tailings dam?
Jerzy Orzechowski (Executive Project Director, Côté Gold)
On the capacity. Basically, after this year, we'll be planning, you know, for execution of a raise next year.
Anita Soni (Research Analyst)
Okay.
Jerzy Orzechowski (Executive Project Director, Côté Gold)
We are, we're gonna be operating like this on a phase by phase basis.
Anita Soni (Research Analyst)
Phase IV. Okay. For the next year. Okay.
Jerzy Orzechowski (Executive Project Director, Côté Gold)
Yeah.
Anita Soni (Research Analyst)
Remind me what kind of a tailings dam? Is it downstream or center line?
Jerzy Orzechowski (Executive Project Director, Côté Gold)
The current construction is downstream. The next year raises are center line.
Anita Soni (Research Analyst)
Next year's are centerline.
Jerzy Orzechowski (Executive Project Director, Côté Gold)
Yeah. Yeah.
Anita Soni (Research Analyst)
The second question on Essakane. I'm just trying to understand the sort of overall cost structure. This quarter you adjusted out some supply chain, I guess, fuel disruption costs. When you're, when you're guiding to what you're guiding to right now, like I'm trying to understand. It's gonna go up over the next couple of quarters, I think is what I saw in the commentary. Then you're also saying that it'll be at the higher end of what you guided to. This quarter you came in at the lower end. I guess I just want a little bit more color about all of these moving parts with, you know, on our costs for Essakane. I just.
I'm trying to understand, would that, like, be prior to, like the overall guidance, would that be prior to adjusting out fuel disruption costs? Or is that including the fuel disruption cost?
Jerzy Orzechowski (Executive Project Director, Côté Gold)
Yeah. The first comment on this is obviously when you look at the current cost structure and you look at the capital ways, the capital component that was not achieved, and if you would do the simple math and additional capital, you know, but not to forget that even though the operation was not at 100%, there is a significant part of the fixed costs that are still there. It's not a direct math. As we advance and we bring back the operations to its full capacity, there will be an adjustment here on the ratio fixed variable.
Yes, there is a chance that by the end of the year we might be more like towards the high end of the guidance, but it's not like a direct math, basically. We're confident that our unit cost for instance, you know, on a per ton basis would lower as a highest volume and so forth. We remain confident, but yes, there is a chance we're more in the high end on the Essakane basis.
Anita Soni (Research Analyst)
Okay. Thank you. I'll step back in the queue for other questions. Thank you very much.
Jerzy Orzechowski (Executive Project Director, Côté Gold)
Thanks.
Operator (participant)
Once again, if you have a question, please press star then One. The next question is from Farooq Hamed with Raymond James. Please go ahead.
Farooq Hamed (Managing Director and Senior Equity Analyst)
Thanks, operator. Hi, good morning. My question really was, I just wanted to, you know, maybe contextualize and understand the additional Sumitomo funding that you had at the beginning of the year, that's now, you know, reached $250 million and will, I guess by the end of this year, reach $340 million. I'm just trying to understand kind of the cost of this funding. Based on the fee that you'll be paying, which is the SOFR plus 4%, does that work out to basically somewhere in the kinda high 8% range for the fee that you're paying on that, you know, funding?
By the end of the year, are we looking at something like $30 million a year in funding costs for that, for that Sumitomo funding? That's the first part of the question.
Maarten Theunissen (CFO)
Good morning, Farooq. Yes, the funding that they've made, the $250 million, that is the cash calls that IAMGOLD was supposed to make, but they actually submitted our cash call. The $250 million is the amount that then reduces our interest in the project. That is now complete. The 60.3 ownership won't change further as we continue on. They now own 9.7% extra in the project, they are actually contributing
More to the project than what it was before. The reason we mention it is this approximate incremental contribution by them of $90 million is important to understand IAMGOLD's liquidity position because the on a 70% basis, the UJV required funding of $800 million-$875 million and Sumitomo is effectively funding $340 million of that. From a cost perspective, the charge would be on the $340 million. Based on SOFR, it's between 89%. Yes, I we've had $2.6 million of a fee in Q1 on that, and then we expect that to be about $13 million, as you said, by the end of the year.
Farooq Hamed (Managing Director and Senior Equity Analyst)
Okay. Okay. Thanks. That's helpful. Then that's. The next question was really what's the frequency of the payment? Like, will you have to pay that on a quarterly basis, or, kind of, what's the cadence over how you'll be paying those fees?
Maarten Theunissen (CFO)
During this year, the costs will be included in the repurchase price. We have to pay $340 plus this repurchase option fee that accrues during 2023. Then starting in next year we'll be paying the option fee in cash. The fee for 2023 will only get paid once IAMGOLD exercises the repurchase option.
Farooq Hamed (Managing Director and Senior Equity Analyst)
Okay. I see. You're saying the 2023 fee will only get repaid when IAMGOLD exercises the repurchase option, but 2024 through 2026, that'll be an annual payment?
Maarten Theunissen (CFO)
It, correct on the 23 piece. In 24, it will be a quarterly payment.
Farooq Hamed (Managing Director and Senior Equity Analyst)
On a quarterly basis. That fee will basically be accrued and paid until you exercise the right to repurchase, correct?
Maarten Theunissen (CFO)
Yes.
Farooq Hamed (Managing Director and Senior Equity Analyst)
Okay.
Maarten Theunissen (CFO)
Also this fee, this is not seen as interest, so it does not form part of our covenant calculations.
Farooq Hamed (Managing Director and Senior Equity Analyst)
It doesn't. Okay. In terms of, you know, your ability to repay or your desire to repurchase that 9.7% that you mentioned at the beginning of the call, that, you know, it's your intent to repurchase it. I would assume that this, you know, source of financing is probably one of the higher costs of your capital structure. When you talk about other financing alternatives, would you look at other financing alternatives to help finance the repurchase sooner rather than later?
Maarten Theunissen (CFO)
When we negotiated this deal, we wanted to ensure that we have multiple options and timelines to repurchase it. For us, it would make the most sense to repurchase it once the project is profitable, because then going forward, you're buying free cash for 9% extra free cash flow. We will be basing it based on that. That is kind of what's driving the economics of this deal as well, because once Sumitomo retains the additional 9.7% of project economics going forward, repurchasing that makes the deal more cost effective for us.
Farooq Hamed (Managing Director and Senior Equity Analyst)
Okay. All right. That, well, that's understood. Thanks very much.
Operator (participant)
The next question is from Jackie Przybylowski with BMO Capital Markets. Please go ahead.
Jackie Przybylowski (VP)
Thanks very much. I maybe I'll start by following up on Farooq's question. On the Sumitomo financing arrangement, I know you mentioned in the release last night and then again in your remarks that you're looking for other options to, you know, to shore up your liquidity or maybe repay that sooner rather than later. Can you talk a little bit about what those options might look like, in terms of where you see other sources of potential funding today?
Maarten Theunissen (CFO)
Jackie, we're looking at a broad spectrum of options, and when we analyze our options, we consider that the 5 years of Côté production is a lot higher than the life of mine production profile, with significant cash flows coming from that period. When we look at options, we would prefer something that helps us to get back to 70% interest, but that we can reverse something that is less permanent in nature because Côté can repay high levels of cash flow. We don't necessarily want to further encumber the asset with permanent type transactions.
Jackie Przybylowski (VP)
Okay. Thank you. Maybe similar question on Essakane, is there any thought at this point to selling Essakane in your portfolio? I recognize that would probably not be possible today, until Côté's up and running. Once Côté is up and running, do you think you will view Essakane as core to your operations still at that point?
Maarten Theunissen (CFO)
Well, I can say that any asset that produces this amount of ounces of that kind of margin and a free cash flow is absolutely welcome. To be very frank, what we're really busy now is to really looking at all kind of alternatives to extend the life of mine. You know, we have to look at the business for IAMGOLD today as-
Renaud Adams (President and CEO)
Megamined capacity of generating significant free cash flow for this company. We do appreciate that we had, you know, some security disruptions and so far, you know, in the last month. The focus of the company right now is to make sure that the operations, you know, is back on track at 100% capacity, generates the free cash flow that I have. I'm sure, in the opinion that the asset has a lot of capacity for extending the life of mine. One thing that unfortunately has occurred in the last, in the last while has been, you know, the parking of our drill.
This is also one thing where we're looking at how could we get back the drill at play, you know, and how could we look at those, this significant potential and so forth. What the future is gonna bring to us, you know, as we advance in time, is as we continue to design, you know, this company to become a long life company, you know, and high free cash flow, high margin and so forth. We'll see. I don't, I don't have a crystal ball on everything, but I can assure you that the focus of the company right now is to make all of our portfolio working at its full capacity and potential.
Jackie Przybylowski (VP)
Thanks, and congrats on a great quarter, and Renaud, congrats on your new appointment.
Renaud Adams (President and CEO)
Thank you so much, and all the best to you as well.
Jackie Przybylowski (VP)
Thank you.
Operator (participant)
The next question is from Tanya Jakusconek with Scotiabank. Please go ahead.
Tanya Jakusconek (Managing Director and Senior Equity Analyst)
Good morning, everyone, and Renaud, again, my congratulations on your new appointment, and I look forward to working with you. I'm sorry, I just got on the call as I was stuck on another call this morning. Maybe just, you know, circling back to a couple of things. One is just on this additional source of funding. What I heard from the previous question is that you didn't want to you know, impair the asset any further, Côté, in, within those, first five years because of the significantly higher production coming out. Can I assume from that an additional royalty and/or stream on that asset is not something you're looking at? I'm just trying to understand, like, the priorities of your additional funding options.
Would it be, you know, selling of assets, maybe Westwood and-or or Essakane first, and then it would be equity, and then it would be streams? I'm just trying to understand priorities of your options and what specifically the options would be.
Renaud Adams (President and CEO)
A wide range of possibility you're giving me. First and foremost, thank you for your kind words. As Maarten was highlighting, you know, Côté is gonna be the cornerstone asset of this company moving forward. The two priorities, obviously, is first, you know, eventually being in possibility and the positions to get back to our 70%, which is my joint venture. As we see it as a cornerstone asset, I think the last thing we want at this stage is to, you know, to add, you know, anything on top of the curve. So this is not really what we see for this asset.
How exactly, you know, we're gonna be capable over time to address the additional financial flexibility that Maarten was talking about, the 70%, there is a wide range. I think the way we're looking at this company moving forward is to make sure to not make any move that will position us for the long term. That's what I can say at this stage. I think the focus of this company is to make sure that as we move forward, we keep improving the product as we move forward and not at the early stage, being in a position to maintain or to position this asset with anything that would remain some time. Maarten, if you wanna add anything to this.
Maarten Theunissen (CFO)
No, I think that is exactly the thing. We look at our capital structure and future cash flows very closely when we make this assessment.
Tanya Jakusconek (Managing Director and Senior Equity Analyst)
I guess I get from that streams and royalties would be like the lowest, down the pecking order of options, and equity and asset sales would be higher. Would that be a fair statement?
Maarten Theunissen (CFO)
We don't really want to say exactly, but yes, if we look at permanency of things in our capital structure, debt is the least permanent. Then as you look at things like royalties, if you can't buy it back, that would make it more permanent.
Tanya Jakusconek (Managing Director and Senior Equity Analyst)
Okay. That's great. Thank you. Maybe Renaud, and I apologize I was late on the call again. Maybe if you could just, you know, and I know you've just been on the roll for a month and a half or so. Maybe if you could just outline sort of your three key strategic focuses for IAMGOLD for, let's say, you know, the next, you know, few months or the rest of 2023, just so that I can try and understand as you look at, you know, the year, what are your three priorities?
Renaud Adams (President and CEO)
The first one is, well, you know, health and safety and I really don't want anyone to think that it's just a financial exercise, this and that. Sustainability, ESG, health and safety, people, what would always remain. I think your questions goes more, you know, like, to the business side. The priority number one is obviously the completion, the successful completions of Côté and the very successful ramp up as we move into 2024. If there is one objective, is to achieve a very successful ramp up.
Completing the construction in a way that would allow together with the operating readiness of it, is what really is the key, the key on the business side of this company as a priority number 1. But equal to that, when you're looking at as a company, for instance, you know, like what this asset has provided to us over the past, yes, there's been some security, but I think we're turning slowly the corner. I've seen significant progress. I see Bruno mentioned on the previous questions, you know, our fuel inventory has increased to a level that we haven't seen for a while. That's that kind of thing, you know, is where, like, the team is focusing.
If there is one thing that I would like to achieve before the end of the year is to see the asset, you know, returning to his 100% capacity, generating the free cash flow that he was planned to, see the drill, if possible, being back at play as well and start working on extending the life of mine. I must say that I remain cautiously, you know, optimistic to the Westwood. What I've seen at Westwood when I visited the asset, I think is an unprecedented, you know, like, set of initiative. Whether it's how we look at the ground control, how we look at seismicity and the control of it, how we look at how we mine the sequencing of it.
I've seen for the first time a team that is addressing the situation in a different way. Sometimes you need to stop and have the courage to stop and think and bring, you know, a different view. I think that remains a very, very important objective for us to work towards, you know, returning... Not returning, but positioning the asset to the free cash flow towards the end of the year so we can start looking at a bright future for Westwood. Those are really the three assets. Maarten talked about the financial piece of it. We're well-funded. We have no concern about our ability to complete the constructions of the Côté to ramp it up. We're good at that. This is a cornerstone asset.
I wouldn't tell our stakeholders or shareholders and, you know, that we're not gonna be looking at alternative to how we could improve our financial flexibility and eventually position this company for a successful return to the 70%. This is all a lot of activities ongoing, but we have strong team in every pieces of the puzzle. My role is to make sure that we achieve all of them and working and supporting the team. I hope this answers your question.
Tanya Jakusconek (Managing Director and Senior Equity Analyst)
Great. It gave me some clarity on it. Thank you very much. Again, congratulations and welcome.
Renaud Adams (President and CEO)
Thank you. Thank you.
Operator (participant)
This concludes the time allocated for questions on today's call. I will now hand the call back over to Graeme Jennings for closing remarks.
Graeme Jennings (VP, Investor Relations and Corporate Communications)
Thank you very much, operator. Thank you everyone for joining the call this morning. As always, should you have any additional questions, please reach out to Renaud or myself. With that, we'll end the call. Be safe and have a great day.
Operator (participant)
This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.