IAMGOLD Corporation
Q1 2017 Earnings Call Transcript

Published: 10 May 2017

[Operator:]

Thank you for standing by. This is the Chorus Call conference operator. Welcome to the IAMGOLD 2017 First Quarter Operating and Financial Results Conference Call and Webcast. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. At this time, I'd like to turn the conference over to Ken Chernin, Vice President, Investor Relations for IAMGOLD. Please go ahead, Ken Chernin.

[Ken Chernin:]

Thank you, operator. Welcome to the IAMGOLD conference call. Joining me on the call are Stephen Letwin, President and CEO of IAMGOLD; Gord Stothart, EVP and COO; Carol Banducci, EVP and CFO; Craig MacDougall, SVP-Exploration; and Jeff Snow, General Counsel and Senior Vice President-Business Development. Our remarks on this call will include forward-looking statements. Please refer to the cautionary language regarding forward-looking information in our disclosure documents and be advised that the same cautionary language applies to our remarks during the call. The slides that are referred to during the presentation can be viewed on our website. I will now turn the call over to our President and CEO, Stephen Letwin.

[Stephen J. J. Letwin:]

Well, good morning, everybody. Great quarter. I decided in fairness to Shae and Carol to change the script and presentation half an hour ago. So they were a little bit surprised, caught off guard, but I want to rather than talk about the financials, which Carol is going to talk, and the operations, which Gord and Craig are going to talk to, I want Gaylene (02

[Carol T. Banducci:]

So thanks, Steve and good morning, everyone. Steve's always a hard act to follow, but I'm going to try. As you saw from our financial results, we had a very strong start to the year. This next slide summarizes our key performance highlights. We had an excellent quarter from both an operating and financial perspective. Production was up 12% year over year, sales increased 11%, cost of sales per ounce were down 7%, and the marginal increase in cash cost per ounce was due to lower capitalized stripping at Essakane and higher processing costs due to harder ore. Overall, very strong operating results led to significant improvements in gross profit and net operating cash flow. More specifically, as we turn to revenue, higher gold sales at Westwood, Essakane and Rosebel accounted for three-quarters of the 19% increase, with a higher gold price accounting for the balance. The 6% increase in cost of sales was mainly due to mine sequencing at Essakane, where we capitalized less waste and incurred higher processing costs with the harder ore. Gord will talk further about the excellent throughput rates we're seeing at Essakane, despite the harder rock. Although production doubled at Westwood, the associated increase in operating costs was offset by other favorable variables. Compared to the first quarter 2016, gross profit rose 438% to $35 million, mainly due to higher production at Westwood, Essakane and Rosebel. This resulted in a gross margin of 13.4%, which was up from 3% in Q1 2016 and from 7.6% in the previous quarter. Reported net earnings attributable to equityholders in the first quarter included a $20.2 million loss related to the call premium on our 6.75% senior unsecured notes. Although the redemption was completed on April 3, 2017, we were required under IFRS to adjust the amortized cost of $485.4 million for the notes to reflect the actual amount paid of $505.6 million. The $20.2 million was recorded as a loss and interest income and derivatives and other investment gains and losses. Westwood's costs were normalized by $700,000 in the first quarter compared to $6.1 million in the same quarter in 2016. With Westwood now operating at a normal level production, we will no longer be normalizing costs. Excluding the $20.2 million and other items not indicative of our core business, adjusted net earnings attributable to equityholders was $5.1 million in the first quarter, or $0.01 a share. The gold margin in the first quarter was $464 an ounce, up from $442 an ounce in the prior year. Net cash from operating activity was $68 million in the first quarter, up 33% from the same period in 2016. Before changes in working capital, net operating cash flow increased by 67% to $86 million, mainly the result of higher earnings. Our balance sheet remains very strong. We reduced our long-term debt and extended the maturity date by five years to 2025. On March 16, we issued $400 million in senior notes maturing in 2025. Subsequently, on April 3, we used the proceeds and existing cash to redeem the 6.75% senior unsecured notes due 2020. If we were to include the $506 million used to redeem the note, cash, cash equivalents and restricted cash at the end of the first quarter would have been $679 million. Combined with our credit facility, total available liquidity is $814 million, excluding restricted cash of $112 million. As mentioned on our last conference call, the restricted cash is related to contingent liabilities having to do with asset retirement obligations. During 2017, we expect to replace a portion of that with surety bonds or letters of credit. So to wrap up, we will continue to drive costs down and to prudently manage our balance sheet. So with that, I'll turn it over to Gord.

[Gordon Stothart:]

Thank you, Carol. I want to start by congratulating our site teams for realizing a great operating performance across the board in Q1. There were some safety challenges and we continue to work hard on that area and I'm very pleased obviously with the operating results. So looking at the next slide, on a consolidated basis we produced 214,000 attributable ounces in the first quarter. Total cash costs were $766 an ounce and an AISC of $992 an ounce. As a reminder, due to the rainy season, we expect cash costs to be higher in the second quarter. We should expect some fluctuation in AISC through the year and spending on sustaining capital expenditures in the first quarter was lower than what we anticipate for the remaining quarters. We maintain our AISC guidance at $1,000 to $1,080 an ounce. At each of our sites, many initiatives are underway to further reduce costs and increase ounces. So I'll touch on some of these as we go through the operations. At Essakane, attributable production rose 6% year-over-year to 93,000 ounces. And this was due to a 27% increase in throughput, partially offset by lower grades, as planned and by lower recoveries. Our efforts to continually improve mill tonnage showed traction as we had exceptional throughput through the quarter. An increase for five consecutive quarters, despite an increasing proportion of hard rock in the feed which comprised 83% of mill tonnage in Q1. This throughput level equates to a 14 million tonne per year capacity, which is significantly above the mill's nameplate capacity of 10.8 million tonnes per year. These throughput levels provide significant upside over our current LOM plans which call for similar levels of hard rock blend going forward. A key factor in the improved performance was reduced maintenance downtime and a new SAG mill liner design which allows for increased grinding capacity and mill speed without risking damage to the liners. The processing of lower grade stockpiles in the first quarter compared to higher grade ore from the bottom of the pit in the first quarter of 2016 was due to mine sequencing. Recoveries continue to be affected by graphitic ore. Although the recovery rate was 5% lower than Q1 of 2016, it showed improvement over the fourth quarter of last year and continues to improve going forward. The complete of the geometallurgical study this quarter will help us better identify ore packets with graphitic material and manage processing of those. We will also be adding an oxygen plant at Essakane to improve recoveries and reduce reagent consumption. As well, we're kicking off a new study to assess the economics of heap leaching for processing low and marginal grade ore that we first talked about at the Analyst Day in November last year. Preliminary heap leach test work has shown encouraging results. Although there was a decrease in tonnes mined during the quarter due to equipment availability, we expect mining efficiency to improve in the coming months with the commissioning of an additional loader and two new production drills. All in sustaining costs of $973 an ounce was 13% lower than Q1 2016, mainly due to lower sustaining capital expenditures. Cost of sales per ounce increased with a lower capitalized stripping and higher processing costs due to harder rock. Integrating the new 15-megawatt solar power plant with our existing 57-megawatt HFO plant will save us about 6 million liters of fuel annually. Construction of the solar plant will begin in the second quarter with commissioning by the end of this year. We continue to focus on expanding resources at Essakane and are targeting resource upgrades later this year. Turning to Rosebel, attributable production was 74,000 ounces in the first quarter. The 9% increase from Q1 2016 was the result of higher throughput and grades, partially offset by lower recoveries. Throughput increased despite the proportion of hard rock in the mill feed increasing from 35% to 47%. This was due to major mill improvements completed last year, including the installation of a new secondary crusher, the switch to a power flex drive for the SAG mill and new liner designs and media size is (20

[Craig S. MacDougall:]

Thank you, Gord, and good morning, everyone. Please note that the results I refer to today have been previously disclosed in accordance with Security Regulations and signed off by the qualified persons within the company reporting them. I'll start with an update on Saramacca and then give you a bit of an update on our greenfield projects. At Saramacca, the delineation drilling program initiated at the start of this year is nearing completion, with three diamond drill rigs operating during the quarter. During our last conference call, we reported results from the 2016 drilling program, which were extremely positive. In 2017, our focus is on infill drilling to confirm the continuity of those previous results. On March 29, we announced the assay results from the first 29 holes of our 2017 drilling program. The results continue to exceed our expectations when we acquired the property. We continue to intersect numerous zones of mineralization with high grades of gold over wide intervals and coming from both shallow oxide and deeper sulphide intervals. Highlights include 40.9 grams per tonne gold over 60.5 meters, which included 75.9 grams per tonne over 19.5 meters, 9.9 grams per tonne gold over 16.7 meters, and 5.3 grams per tonne gold over 52.6 meters. To-date, the mineralized zones remain open along strike and at depth. Further drilling results will be reported as they are validated and compiled and they will be incorporated into a deposit model to support an initial 43-101 complaint resource estimate for which we're targeting completion in the third quarter of this year. Now turning to some of our greenfield projects; at our Boto Gold project in Senegal, we completed 7,700 meters of diamond drilling focused on expanding the Malikoundi deposit. Exploration also continued along known mineralized trends associated with the Boto 5 and 6 zones, where we see potential for additional resources. The results from this year's drilling program will also be used to support a resource update for 2017. At Pitangui in Brazil, we received the permits for drilling the up-plunge extension of the São Sebastião deposit. So this year we aim to determine the potential for additional shallow resources. In the first quarter, we completed 2,300 meters of drilling and are targeting a resource update for the end of this year. Technical and environmental studies to advance economic evaluation of both Boto and Pitangui continue. Moving on to the Siribaya project in Mali, in February, we completed the transaction to acquire all of the issued and outstanding shares of Merrex that we did not already own. As a result, we now own 100% of the Siribaya project. Approximately, 6,300 meters of diamond and reverse circulation drilling was completed in the first quarter. This year we want to increase our confidence in the known mineralized trends at the Diakha deposit and extend mineralization north and southward along strike. With the completion of this year's program, we also expect to complete a resource update at the end of 2017. At our Eastern Borosi joint venture project in Nicaragua, a little over 3,100 meters of diamond drilling was completed in the quarter. Program is evaluating the resource potential of the Guapinol, Riscos de Oro and East Dome veins. If the drilling results are positive, we will use them to complete an initial resource estimate. This year we expect to vest an initial 51% interest in the project, upon which we may then elect to enter a second option to earn up to a 70% interest. Closer to home at our Monster Lake project in Quebec, we're also targeting an initial resource estimate by the end of the year depending on the results of this year's drilling program. We continue to work at extending the 325-Megane zone and testing a possible second zone to the north that we discovered last year. Drilling during the first quarter totaled just over 8,600 meters. At our Nelligan project, 15 kilometers south of Monster Lake, assay results from the drilling program in the fourth quarter of last year were released in March by our project partner. Drilling had focused on a newly-discovered mineralized zone north of the previously-identified Liam zone. This new target is a little over 1 kilometer long and still open along strike. Highlights include 15.6 meters grading 2.2 grams per tonne gold and 6.4 meters grading 12.3 grams per tonne gold. During the first quarter, approximately 6,900 meters of drilling was completed at Nelligan to follow up on these results and further explore the new discovery. Overall, our exploration projects are progressing at a great pace and we look forward to providing further updates during the year. With that I'll hand you back to Steve.

[Stephen J. J. Letwin:]

Thanks, Craig. Well, we had a great quarter and in fact an outstanding first quarter. As a number of our team has indicated, we are maintaining guidance. We've been able to improve our already strong balance sheet and as I messaged earlier, we're going to continue to reduce costs over the next three to five-year timeframe which will really improve our margins with the 1 million ounce production that we're going to be achieving. I think probably one of the most common words that we've been hearing is execution and – which is a good word to hear about. We've been executing on what we said we're going to do. And again, the credit goes to the team on that. So we're going to continue to execute on our growth strategies and execute on delivering what we've forecasted to the market. Our catalysts are going to be Westwood doubling production this year, this resource estimate for Saramacca, which I'm anxious to see that'll come in Q3, our resource upgrade for Falagountou by year-end. Carol and I will be in Burkina here in the next couple of weeks, so we'll see that first hand. Our update for Sadiola, which we continue to work on; our pre-feas for Côté by the end of Q2, as Craig mentioned, our updates for Boto, Pitangui and Siribaya, and initial resource estimates from Monster Lake and Eastern Borosi. So we're going to have a very active year on all fronts. We already have had a very active year and we're going to see some nice adds to our resources. We're going to see some very good performance at our sites and we're going to continue to work on cutting costs. So, thank you for taking the time this morning and we'll turn it over to questions.

[Operator:]

We will now begin the question-and-answer session. The first question is from Steven Butler, GMP Securities. You may go ahead.

[Steven Butler:]

Okay. Good morning, guys. Thank you for the quarter. A great quarter. Gord, a question for you on Essakane. You talk about 14 million tonne per year and that's exactly kind of the rate you ran the mill at Essakane in Q1. And you talked about 8.8 million tonnes per year. So are you basically – and that's a good amount of hard rock feed in the quarter. Ultimately, I guess your hard rock goes towards 100%, but I mean, are you operating this mill at substantially better than you thought you could?

[Gordon Stothart:]

Yes. The nameplate, it's not 8.8 million, the nameplate is 10.8 million.

[Steven Butler:]

10.8 million.

[Gordon Stothart:]

And when we design our mill expansions and it's a standard within the company. We design them fairly conservatively and historically we sort of get anywhere from 10% to 15% over nameplate when we actually go in. It's done by design that way. We want to give the operators some opportunity to perform. We did – this quarter we switched from – and there's variability in the hardness of the hard rock throughout the pit. So we switched from a harder zone to a more moderate hardness hard rock zone during the quarter. But yeah, we continue to push it hard. They've done a lot of work on improving the reliability of the circuit. Our circuit availability on the grinding circuits is significantly higher than what it was. We've done a lot of work on streamlining the performance of the primary crusher. Early on, as we got into hard rock that was a challenge for us, but we've again really improved the uptime there, put an engineered stockpile sort of strategy in place as we did at Rosebel to stabilize the feed and maintain steady feed. We've done work, as I discussed, on the liner design within the SAG mills. The other thing we do there is we've done some optimization. We have two grinding circuits. We don't feed them the same blend. Each one is managed independently with a different blend. And we've done a lot of work on optimizing the grade sizing (33

[Steven Butler:]

Okay. Sounds good. And then you mentioned the savings on fuel. Was it 6 million liters of fuel savings on the – going to solar?

[Gordon Stothart:]

Yeah. That's what our projection will be, the annual savings once that plant is up and running, hopefully at the end of this year.

[Steven Butler:]

Okay. And just quickly at Westwood, Gord, again, were you surprised there by your mining rate of just over around 1,600 tonnes per day? Or that was where you're planning for that sort of level in the first quarter?

[Gordon Stothart:]

Yeah, we were planning that level. I mean, we've been lining ourselves up in Q4. We knew – or the team at site was well aware that effectively doubling your ounce production year-over-year would represent a real shift in gears. But we were prepared for it. And again, looking forward at our forecast, we're comfortable with where we've guided.

[Steven Butler:]

Okay. Thanks very much.

[Operator:]

Our next question comes from David – I'm sorry. Our next question comes from David Haughton with CIBC. You may go ahead.

[David Haughton:]

All right. You got there eventually. Good morning, Steve and everybody. Thank you for the update. Maybe a question on Saramacca, if I may. I know that you're working on the 43-101. Looking forward to see that, especially with the great grades coming in. But what's the circumstance with the permits, the access, the timeline, the logistics of the haul road, et cetera? Can you just give us a bit of a picture as to how it might fit into Rosebel?

[Gordon Stothart:]

Yeah. So at the start of this year, we brought on a new team member, a mining engineer, who's working with the exploration team on those aspects. We've seconded in some community support and some legal support from within the Rosebel team dedicated to the Saramacca effort and continue to talk to the government. I mean, right now access is by pave road to within about 12 kilometers I think of the operating site. There is active logging in the area, so the roads are not – they're not too bad. We did push another road through from the closest part of the Rosebel mining concession, basically improved an old bush road through there. So we do have access in that direction. We are looking at the engineering of a number of different transport alternatives, road haul being an obvious one, but we are looking at other transportation initiatives, which were somewhat dependent on the size of the resource we find down there. Engineering is progressing. The baseline environmental work we need to do is progressing. We've started our community relations work. We have contracted the parties, who will be carrying out the ESIA work. So we're progressing on a lot of different fronts there. To make things conservative, we're not currently expecting any ore delivery to Rosebel before 2019 given the permitting processes and the amount of time it will take to secure access. But it's looking very good and with the improvements we've seen at Rosebel itself, 2018 itself looks pretty attractive just from Rosebel. So I'm thinking the timing is just about right.

[Stephen J. J. Letwin:]

Yeah. Maybe I could add to that, David. The negotiation of the UJV, which dates back to 2011, basically extended our reach 45 kilometers in every direction from the mill at Rosebel. And the idea there, with myself and the president at the time was that we do exactly what's happening today is that on a 70/30 split, we get softer-rock, higher grade material in the Rosebel, similar to what you're seeing at Essakane. So the exploration, obviously, permits are there and the idea is that with the UJV in place, we can accelerate the exploitation of the resource. Now, it is Suriname and don't want to get overly optimistic, but the country is desperately in need of revenue and this would be a great source of new revenue for the government and for the (39

[David Haughton:]

Sounds good. Look forward to the update.

[Stephen J. J. Letwin:]

Why don't you come? You should come and we're taking the directors down there, David, in September. The ELT will be down there and then we're inviting analysts. I was just down there a couple of months ago. It's great walking the property. You'll see for yourself the road access and you'll see the extent of the property, which is significant. So please come down. It'd be good to see you.

[David Haughton:]

I'd love to. Maybe Ken can send out some save-the-dates kind of things for all of us, so that we can take a look.

[Ken Chernin:]

Absolutely, we'll do.

[David Haughton:]

Over to Essakane, if you don't mind, Gord, you'd mentioned an oxygen plant of $5 million. Is that included in your growth CapEx for the year? And what kind of impact do you envisage from that, I presume, for better recovery?

[Gordon Stothart:]

Yeah. It's partially included in the CapEx for this year, partially next year. I received a few gibes yesterday from the team saying that it's the one question I ask them every time is when is that going to be built? So they are moving at pace on that. The justification for the plant was based around a 0.5% recovery, which I – looking at the test work, is probably a relatively conservative estimate.

[David Haughton:]

All right. Okay. And what sort of number you are looking at for total CapEx? Are we talking here about $5 million, give or take?

[Gordon Stothart:]

Yeah, I think it's in that neighborhood. I want to say $6 million is the number that's sort of peg (42

[David Haughton:]

(42

[Gordon Stothart:]

$5 million to $6 million.

[David Haughton:]

Okay. Now approval for getting into Mining Block 104 at Westwood, it's good that you've got clearance to do that. What's the implication for mining? Is that included in your expectation going forward for Westwood? Does it change any of your sequencing? Does it have any material impact on you?

[Gordon Stothart:]

So the plan for 2017 did include material from the 104 block, but at a pretty modest pace. We are in there. We actually have already started picking up some ore that was blasted prior to the seismic incident and had been sitting in those stopes the whole time. So we've sent (42

[David Haughton:]

Okay. And one last question. Thank you for your patience on this and it's probably testing your patience too, Sadiola, Steve. I know that you must be quite frustrated with the very slow progress being made here, I'm hoping it's inching forward. Where are you at?

[Stephen J. J. Letwin:]

Yeah. That would – frustrated would be an understatement, you're right. We're totally aligned. This is (43

[David Haughton:]

All right. Thank you, Steve and team.

[Operator:]

Our next question comes from Dan Rollins with RBC Capital Markets. You may go ahead.

[Dan Rollins:]

Yes. Thanks very much. Gord, I was wondering what's the sort of the long-run mix at (46

[Gordon Stothart:]

Well, this year by the end of the year we're supposed to be up in the 60% to 70% hard rock. And as we move forward, it sort of goes up to about 80%. The other difference is we don't actually have a lot of soft rock left. The rest of the mix is primarily transition material. So that's where we're headed. We are doing some additional work on replanning. We've talked about the drilling of the saddles and other zones in an adjacent to the existing pits (47

[Dan Rollins:]

Okay.

[Carol T. Banducci:]

I can just add to that. It doesn't get up to that 80% until 2020. So we got a few years ahead of us to again get access to that softer ore.

[Dan Rollins:]

Yeah. That's what I was trying to lead into. If you do get Saramacca in there, and as you mentioned, Gord, it basically you're putting it in there. You'll have some trucking costs, but it's going to mill itself for free. What type of lift do you think you could get on throughput here, assuming maybe you get 10% to 20% of your mix from Saramacca?

[Gordon Stothart:]

I think we could quite comfortably move up – back up. In prior years we were running at around 13.5 million tonnes a year. I think that 13.5 million, 14 million tonnes a year, given the other improvements we've made in the mill circuit, is quite attainable at the right blend.

[Dan Rollins:]

That's a nice lift, considering the grades you could get there. And then just moving on to Essakane, what's the sort of the scope you're looking at on this heap leach study? Obviously, you've had some good results. Is the intent to basically use an elevated cutoff grade within your reserves, put that higher grade material through the mill? Or is this really about taking advantage of lower grade material that's sitting outside of the reserves and resources right now. And if so, sort of what are the cut-off limitations you're looking at? Like what will (49

[Gordon Stothart:]

Well, I mean, both things are at work. So there is some marginal material that isn't currently hitting the mill. It's pretty early days to throw numbers at it, but on the back of an envelope sort of thing, a point three (49

[Dan Rollins:]

Okay. So really allows you to go deeper and potentially grab another 500,000 or 1 million ounces of reserves that are at – and resources at depth. Okay.

[Gordon Stothart:]

Yeah.

[Dan Rollins:]

And then just sort of longer-dated projects, obviously you've been drilling a lot of the projects here in West Africa for a while. Where do you – how do you see that organic exploration pipeline coming together? And what could soon, maybe in the next five years, could be one of the – your organic projects you've brought up internally from a baby into a teenager into an adult? Which are sort of the top ones we could be looking at here in the next three to five years?

[Craig S. MacDougall:]

Dan, it's Craig here. I get to start these things when they have diapers on them, so that's where I am. But I think going forward, we think Boto is getting pretty close. We've done a lot of work with that project. We're getting a good feel for what it can do for us and what price of gold's going to be required. So I think that's the next one that could come in. The Pitangui, we're taking a hard look at right now in Brazil. It's an underground situation, iron-formation hosted. So that's another one that's coming up. And I've skipped over Côté, which obviously everybody knows about and is the big kid on the block. So when you look at where we're going in the next few years, we have a number of projects staring us in the face and a lot of optionality with which one we pull the lever on next. So it's a pretty robust pipeline for us.

[Dan Rollins:]

Okay. And when do you make the decision as a company to sort of cut ties with an asset and maybe put it in hands (52

[Craig S. MacDougall:]

I don't think we're at a divesting point just yet. I mean, resource projects, looking forward, looking out, are going to be highly valuable. This is not the time to sell them on. There may be a time when there's more value selling it than developing it yourself. But it really depends on how this next cycle develops and resource stage projects are going to be highly valuable and that will be a strategic decision on do we have enough on our plate that there's more value in turning it over to somebody else and moving ahead with our core portfolio. So those are strategic things that we look at all the time.

[Dan Rollins:]

Okay. Perfect. Just one last question from me. At Saramacca, most of the drilling you have been doing, is this sort of infilling the historical work that was done by the past operators or is this more of it step out to expand the resource?

[Craig S. MacDougall:]

Right now we've been focused totally on infilling the main deposit area that was identified in the mid-1990s. Now remember that was very wide space drilling so by no means was that zone fully defined back in the 1990s, but it certainly gave you a footprint of where you needed to target. And by the end of this program, we'll have drilled the main area out on 50-meter centers but we won't have stepped outside of that just yet. That's the target of future exploration later this year.

[Dan Rollins:]

Okay. Perfect. Thanks so much.

[Stephen J. J. Letwin:]

That's an experiment target.

[Craig S. MacDougall:]

Yeah.

[Operator:]

Our next question comes from Tanya Jakusconek with Scotiabank. You may go ahead.

[Tanya Jakusconek:]

Great. Good morning, everybody, and thank you for taking my question. Just a few questions. Maybe I can just follow up on Dave's question on Sadiola. I know that, Steve, we mentioned that we're working with the government on this. But I know that we're running out of this oxide material. At what point do we run out and sort of at the point of no return on moving forward on this?

[Stephen J. J. Letwin:]

Well, yeah, we can actually – we have a couple things that mitigate that. The biggest threat is that we actually carry costs while we don't have production. So regrettably we can manage that by laying people off. And we don't want to do that, Tanya, but if the government doesn't move fast enough then we'll be forced to let people go and that will reduce our costs significantly over this timeframe. So I would say that we have this three to four-month timeframe, maybe as much as six, but it gets pretty skinny after that. And we're very Canadian when we deal with the Malians, but I will become very un-Canadian soon and we don't like doing that. But it's got to move ahead and – it's a great project. It would be a tragic thing for Mali, if it didn't move ahead, so...

[Tanya Jakusconek:]

So if you push it out to six months, it would put you to year-end? Would that be...

[Stephen J. J. Letwin:]

Yeah. And I mean it gets skinny and as I say, we would have to take action between now and then in terms of reducing the labor force and people that have been gainfully employed will be out of work, so that is coming. And we have sent messages to the government here and the Canadian government, we contribute $100 million a year to the country in donations. We have a trade agreement in place. So we get – this gets – just we don't want this to get ugly, but if they don't move, it will. Now I'm not going to sit back and watch an asset that we value as something that's going to add value to IAMGOLD shareholders, and just sit back and let some bureaucrat impair it. I'm a long way from not fighting that. I will fight that very hard. So, the diplomats have been working on it, the negotiators. We've got our Henry Kissinger, Jeff Snow, working on it. And we're trying to do it the nice way, but it gets to a point where you stop being nice. I don't want to get there, but it's been going on too long.

[Tanya Jakusconek:]

And Steve, what is the main sticking point between the old mining code and the new mining code that the government's not bugging on?

[Stephen J. J. Letwin:]

The main sticking point is sustainability. So in one word, 1991 has a lot of protection in there to make sure that whether there's a change in government or not everything is sustained, the VAT, the taxes, the royalties, et cetera. In the absence of that, 2012 needs – I think 2012, the lawyers believe that we can amend it to the point where it mirrors 1991, we've yet to see that. But we need the government to move to a point where that it reflects the 1991 spirit and we're not going to (58

[Jeffery A. Snow:]

No, you're right, Steve. I mean, the 2012 Code has provisions, which are not easily changed for any of the constitution of Mali. So we have to find a work around that allows us to make the changes that are needed to make the project viable, but ensure that those changes are sustainable pursuant to the constitution so that a subsequent government isn't going to challenge it.

[Tanya Jakusconek:]

Okay. So the focus is not so much the getting the tax holiday, the five-year tax holiday with this new project?

[Jeffery A. Snow:]

No. It's ensuring that whatever changes are made to the 2012 Code will be permanent and will not be challenged down the road.

[Tanya Jakusconek:]

Okay. Okay. Well, thank you for that. And maybe just, Gord, coming back to Essakane, can you remind me what percentage of the ore body is this graphitic ore that you're encountering?

[Gordon Stothart:]

I mean, I don't have a grain handle on it. It's very spotty and very localized. So, last year, the main ore zone we were in was graphitic, but as of today we mined down to the bottom of that zone and moved north. Total ore body, who knows? It's probably somewhere in the neighborhood of 10% to 15% when we actually get the definitions down type.

[Tanya Jakusconek:]

And so that geometallurgical work that you're doing, when is that coming out again? When will you...

[Gordon Stothart:]

Well, I don't know. I mean, the study is coming to a conclusion right now. I doubt that we will disclose it in its entirety. We may summarize it, but it's an internal document. It's not the kind of thing that goes out for general dissemination.

[Tanya Jakusconek:]

Okay. Okay. And then, maybe just I think I heard just from a quarterly guidance perceptive that Q2 is going to see higher cash costs for the company than Q1. Is there any variability further than that on production at all on a quarterly basis? Given there is the rainy season in Q2, but besides that, is there anything else?

[Gordon Stothart:]

I mean production is relatively flat quarter-over-quarter, but we do see some different cost pressures in different quarters. And the other impact is, as I talked about, was just the distribution of sustaining capital through the year, sustaining capital being driven by capitalized stripping in a lot of cases and that is not constant quarter over quarter. So that's one of the impacts.

[Tanya Jakusconek:]

That's fine. Yeah. Okay. We're just more on a production and cash-cost basis?

[Gordon Stothart:]

Yeah.

[Tanya Jakusconek:]

And then, just lastly, maybe for Carol. Depreciation was quite low in this quarter. Are we still within the guidance range that you're guiding?

[Carol T. Banducci:]

That's correct, Tanya. So we haven't changed guidance on depreciation.

[Tanya Jakusconek:]

Okay. All right. That's it from me. Thank you.

[Operator:]

Our next question is from Tony Lesiak with Canaccord Genuity. You may go ahead.

[Anthony Hermann Lesiak:]

Thanks. Good morning, everyone. Gord, can you discuss any high level changes that may come out of a revised life of my plan at Westwood? In particular, I'm looking to see if you can smooth out that steep 2018, 2019 ramp profile?

[Gordon Stothart:]

We're looking at it right now where the meetings this week are actually LOM review. I think there is some opportunity to address that. We're overshooting on our development schedule so far this year. We don't want to pull on the rains because that can have a deleterious effect. The teams are producing at an extremely high level right now. So what that potentially does for us and obviously it's a strategic decision, because it will entail bringing a little bit of capital forward from next year into this year. But it, on the flip side, provides the opportunity to bring that ramp-up a little bit further forward as well. So it's a discussion we're having right now and that's sort of where we sit.

[Anthony Hermann Lesiak:]

Okay. Thanks. A question for Steve. Could you comment on how you see the buy versus build tradeoff currently?

[Stephen J. J. Letwin:]

Well, yeah, I would say it's build, build, build. Saramacca for very little capital, probably in the range of $40 million to build the road, or whether it's a road or a railway, depending on how big this resource is. It would be massive for the company and for Rosebel. At Essakane. we're seeing just phenomenal opportunities around the mill. The heap leach opportunity to the north, extension of Falagountou East to the south we're seeing some great satellite deposits, as Gord said. Côté, 6 kilometers off the highway, 9 million to 10 million ounces, 20-year mine life, 300,000 ounces a year; Sadiola, an incremental 100,000 ounces a year at current production for us for $200 million. You can't beat these economics. So it has to be pretty compelling, Tony, to buy something. It's hard to find. As you know, it's a very narrow space and so we're blessed with some fantastic opportunities to add value in our backyard without having to extend our reach in any kind of M&A opportunity. If it's there and it's compelling enough we'd always look at it and hopefully execute on it. But it would have to be compelling for us right now given the economic returns we're looking at over the next three years.

[Anthony Hermann Lesiak:]

Yeah, I mean you've got an envious cash position right now and obviously market valuations are down quite steeply. So would there potentially be a scenario where you could see yourself taking on an operating situation not a development situation?

[Stephen J. J. Letwin:]

Well, if it was there but you've been around longer than I have in this part of the world, although I'm much older than you are. We've had these conversations and you probably have been privy to some of them too. It's very difficult to get gold CEOs to actually believe that the price in the market reflects the value of their company. And I'm not criticizing, I would be the same way. But to get any kind of friendly transaction where we would be able to acquire something for something that you would call reasonable is very difficult. It's been that way since I started and it's the same way in the oil and gas business as well. I mean, gold and oil and gas CEOs fall in love with their assets and it's very difficult to change their minds about the fact that they think they should be three or four times higher. So if the opportunity is there, Tony, we would certainly look at it. We have a very strong team here. And if you looked at our sign in that reception and a number of investment bankers that come in through here to see Jeff Snow, it's a long list. So we have no short list of opportunities, it's whether or not you can execute. But as you say we're blessed with some great organics. So we're not in any kind of pressure situation to execute.

[Anthony Hermann Lesiak:]

Okay. Thanks, Steve. Just finally for Craig, I mean should we ignore your previous tonnage in grade forecast for Saramacca that you gave us?

[Craig S. MacDougall:]

Well, it wasn't a forecast it was an exploration target range and I guess, as a qualifier, the results we're seeing, obviously, we think we're trending towards the high end of that initial range. And if we continue with success, maybe we can surpass that. But certainly, I think the lower end of it is we're probably going to eclipse that for sure.

[Stephen J. J. Letwin:]

Tony...

[Anthony Hermann Lesiak:]

And that would be – sorry that would be just both on tonnage and grade? I think it was 40 million tonnes at the top end and 1.8 grams?

[Craig S. MacDougall:]

Yeah, I think, look, at the end of the day, we're probably heading to the top end of both those variables.

[Stephen J. J. Letwin:]

Tony, I've tried. I've put him in headlock and tried to squeeze it out of him, but until he produces that 43-101 at the end of August, he's not going to change it.

[Anthony Hermann Lesiak:]

I know, everyone's getting impatient. All right. Thanks very much.

[Stephen J. J. Letwin:]

Thanks, Tony.

[Operator:]

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

[Ken Chernin:]

Thank you, operator. And thank you, everyone, for joining us today and for your continued interest in IAMGOLD. If you have any further questions, please contact me or any member of my team. And we look forward to speaking with you again on our Q2 2007 (sic) [2017] (01

[Operator:]

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