Iamgold Corporation Ordinary Shares

Thank you for standing by. This is the conference operator. Welcome to the IAMGOLD first quarter 2022 operating and financial results conference call and webcast. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. 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 zero. At this time, I would like to turn the conference over to Graham Jennings, VP Investor Relations and Corporate Communications for IAM Gold. Please go ahead, Mr. Jennings.

Thank you, operator, and welcome everyone to the IAM Gold First Quarter 2022 Operating and Financial Results Conference Call. Joining me today on the call are Maryse Belanger, Chair of the Board and Interim President and CEO, Daniela Dimitrov, Chief Financial Officer and Executive Vice President, Strategy and Corporate Development, Craig McDougall, Executive Vice President, Growth, and Bruno Lemelin, Senior Vice President, Operations and Projects. Our remarks on this call will include forward-looking statements. Please refer to the cautionary statement included in the presentation under the heading Cautionary Statement Regarding Forward-Looking Information. and be advised that the same cautionary language applies to our remarks during the call. Non-GAAP measures will also be referenced on the call and we direct you to review the cautionary statement included in the presentation and the reconciliations of these measures included in our most recent MD&A, each under the heading Non-GAAP Financial Measures. With respect to the technical information to be discussed, please refer to the information in the presentation under the heading Qualified Person and Technical Information. The slides referenced on this call can be viewed on our website. I will now turn the call over to our Chair and Interim President and CEO, Maryse Boulanger.

Thank you, Graham. Good morning, everyone, and thank you for joining us. As you saw in the announcement last night, I have agreed to step in as Interim President and CEO. This appointment is a great honor, and I'm very pleased to be here and look forward to working closely with the rest of the management team at IM Gold, especially to navigate the challenges and opportunities ahead. The decision to come aboard was given careful consideration. Given the complexity of the business, both from an operational and project development standpoint, Further management capacity is needed to bridge the gap until a search for permanent CEO is concluded. On behalf of the board, I want to thank Daniela for effectively leading the company through a difficult period as interim CEO, in addition to her roles as president and chief financial officer. Each of these roles demands tremendous time and commitment, and my coming on board will allow Daniela to turn more of her attention to investigating measures to increase the company's liquidity. Since being appointed chair earlier this year, I have been working very closely with Daniela and the executive team I just spent the weekend at Cote and was very impressed to see the ramp-up of activities as the weather improved. I am confident we will address the current near-term challenges and know that we remain fully focused on our goal of becoming a leading high-margin gold producer. With that, I would like to turn the call over to Daniela to take us through the events of the quarter. Daniela, please.

Thank you very much, Maurice, and thank you again, everyone, for joining us on this call today. I know it is a busy day of earnings, so we will do our best to expedite our presentation. Before I begin, I would like to welcome Maurice as interim president and CEO. As she mentioned, she has been actively engaged in the business since being appointed chair, and we very much look forward to working with her in her new role. Her proven strengths and experience in operational and efficiency improvements and in project development bring important additional capacity and capability to the management team as we actively address the challenges before us. Turning to the quarter, IAM Gold delivered a strong start to the year with attributable gold production of 174,000 ounces up 21,000 ounces or 14% from the prior quarter on continued strong performance from Essican and improvements at Roosevelt. The strong production results and higher sales volumes directly translated to improvement in cash costs at $1,017 per ounce sold and all in sustaining costs at $1,490 per ounce sold. On a unit cost basis, costs were effectively flat quarter over quarter. Health and safety, ensuring all of our employees go home safe, continues to be a key focus for I Am Gold, as reflected in our long-held zero harm vision. For the quarter, our DART frequency rate, which translates to days away or transfer duty, was 0.29, tracking below our annual target of 0.42, And the total recordable injuries rate was 0.85, currently above our target of 0.73 for the year. Cote Gold achieved another milestone, surpassing over 4.7 million hours with no lost time injuries to date. The COVID-19 pandemic continues to evolve, and managing the impacts of it remained a significant focus for us in the first quarter. rising positive cases at our operations, including at Roosevelt, Westwood, and Cote, resulted in rising rates of workforce absenteeism early to mid-first quarter 2022. We will address these impacts further in the following remarks. Looking ahead, our tributable gold production guidance for the year remains unchanged, and is expected to be in the range of 570 to 640,000 ounces. Cost guidance for 2022 is also unchanged at this time, with cash costs expected to be between 1,100 and 1,150 per ounce sold, and all unsustaining costs expected to be between 1,650 and 1,690 per ounce sold. As previously reported, these estimates issued in January included an inflation assumption of 5% to 7% on key consumables. Towards the end of the first quarter, additional cost pressures emerged arising from systemic inflation, constrained global supply chains, and the sanctions on trade with Russia, further increasing the average cost of certain key consumables such as oil, ammonium nitrate, grinding media, lime, and cyanide. We continue to work with our supply chain to seek alternatives to mitigate ongoing cost pressures, including the sourcing of appropriate alternatives, although at higher prices and sometimes at varying quality, as well as progressing productivity initiatives at our operations through the IMLN Operational Improvement Program in an effort to offset certain of these cost increases. Increases in oil prices have been partially mitigated by our existing oil hedge program. For reference, a $10 per barrel increase in the oil price equates to approximately $6 per ounce increase in our cash costs. Without our hedging contract, the same $10 per barrel increase would translate to a $15 per ounce increase in cash costs. In our MD&A, we noted that continued external cost pressures may result in an increase to 2022 cost guidance estimates and that we will provide further updates next quarter. The following are some key highlights of our first quarter 2022 financial results. Gold revenues in the first quarter totaled $356.6 million from sales of 196,000 ounces or 181,000 ounces on an attributable basis. The average realized gold price for the first quarter was $1,813 per ounce. These revenues and average realized prices include the impact of the physical delivery of 37,500 ounces at $1,500 per ounce under our 2019 prepay arrangement as we close monthly contracts. Adjusted EBITDA came in at $137.6 million for the quarter, translating to first quarter adjusted net earnings of $26.1 million, or $0.05 per share. Operating cash flow before changes in working capital was almost $134 million for the quarter, and mine site free cash flow was $87.5 million. In terms of our financial position, we ended the quarter with $520 million in cash and cash equivalent and almost $5 million in short-term investments for a total of just over $524 million. During the quarter, we received the first $59 million in cash of the $236 million to be received over the course of the year in relation to the 2022 prepay arrangement on 150,000 ounces, which will be physically settled in 2024. On April 29, we entered into a master lease agreement with Cat Financial to lease mobile equipment expected to be delivered over the course of 2022 and 2023 with a value of approximately 125 million. This is in line with our budgeted expectations and Cote project costs which we have been reporting net of these leases. In terms of cash flows, we started the year with $545 million in cash and equivalents, and this balance decreased by just over $25 million over the course of the first quarter. Cash generated from operations of $133.9 million net of income taxes, was offset by outflows from investing activities reflecting capital expenditures of 168.3 million at Cote Gold, Essican, Roosevelt, Westwood, and Boto. We will now walk through each of our operations in more detail. Essican delivered the highest quarter production to date with attributable gold production of 112,000 ounces or 14% higher quarter over quarter benefiting from higher head grades and optimized ore blend management at the mill. Mining activity of 15 million tons was in line with the prior quarter due to efficiencies achieved from material re-handling procedures. Mill throughput of 3.2 million tons was modestly lower quarter over quarter and was offset by higher head grades of 1.39 grams per ton higher average recoveries of 88% and higher plant availability of 95%. Head grades came in above expectations as a result of higher than anticipated ore grades in phase four. Ore blending strategies of the mill feed optimized the feed grade and helped to mitigate the negative impact of the graphitic content on recovery. Cash costs and all unsustaining costs per ounce sold for the quarter of 7.81 and 11.34 per ounce sold were lower by 14% and in line, respectively, quarter over quarter, primarily due to higher production and sales and higher sustaining capital expenditures of 47.7 million versus 22.9 million in the prior quarter. COVID-19 cases peaked at the end of 2021, and the situation is currently stable. The operation continued normally following the political developments in Burkina Faso reported on earlier in the year, although it is continually challenged by the on-the-ground security circumstances. We continue to take proactive measures to ensure the safety and security of our in-country personnel, and we continue to adjust our protocols and the activity levels at the site according to the security environment and the supply chain circumstances. We are furthering certain additional investments in security infrastructure in the region and at the mine site. These measures and investments are captured in our cost and capex guidance. Looking ahead, attributable gold production at ESSECAN in 2022 is expected to approximate the top end of the range of 360 to 385,000 ounces, reflecting the higher than expected grades in the first quarter and the potential for further positive reconciliation between mine grades and the reserve block model. Head grades are expected to normalize closer to the reserve grades over the course of the year. And we are investigating whether the updated block model may be underestimating grade as the complexity of mineralization has increased in the lower portions of the pit with higher amounts of coarse gold. Turning to Roosevelt, it had a good start to the year. The operation reported first quarter attributable production of 46,000 ounces, which is a 10% increase quarter over quarter, benefiting from improved recovery and head grades, partially offset by lower throughput. Material mined of 12.7 million tons with 8% lower quarter over quarter as waste stripping activities lagged in the quarter with a ramp up in March, due to some impact from weather and the continued challenge of managing pit intrusions by illegal miners. The grade mined at Saramaca continued to be lower than reserve grade due to the phase that is currently mined. The completion of a haul road, which is in progress, is expected to provide access to the higher grade phases in the fourth quarter of 22. Mill throughput achieved 2.3 million tons, or 6% lower, than the prior quarter at an average head grade of 0.1 grams per ton, impacted by mill maintenance work, including the relining of the sag mill. Mill recovery was 91%, which is 6% higher than the prior quarter, benefiting from improvements to the carbon ADR circuit, which was completed at the end of the 2021. Cash costs of $1,315 per ounce sold and all-in-sustaining costs of $1,784 per ounce sold were lowered by 13% and 2%, respectively, quarter over quarter, primarily due to higher sales volume and partially offset by higher sustaining capital expenditures, mostly related to stripping. The COVID situation at the site and in Suriname stabilized during the quarter, following an increase in new cases in January. Looking ahead, attributable gold production guidance for 2022 at Roosevelt remains unchanged at between 155 to 180,000 ounces, weighted to the second half of the year as the seasonal rains subside, which typically peak on the first half of the year. We note that the collective labor agreement expires in August of 2022 and negotiations for a new agreement are scheduled to commence in the third quarter and have in the past at times been prolonged and disruptive to the operations. Turning to Westwood, quarterly gold production of 16,000 ounces was 23% higher than in the fourth quarter of last year. Mining volumes of 222,000 tons were lower due to higher absenteeism resulting from COVID-19 and general labor shortages which continue in the region. This was partially mitigated by higher grades and lower dilution. Underground development improved significantly in the first quarter with over 800 meters of lateral development completed, which is double that of the prior quarter. The COVID-19 situation at site and in the district stabilized in the second half of the quarter. Gold production guidance at the Westwood complex remains unchanged for 2022 in the range of 55 to 75,000 ounces and assumes the safe restart of the central and west underground zones at the end of the second quarter of 2022, which is on track. I will now provide you with an update on our Cote Gold construction project. Before we get into the updates on the project review and risk analysis and cost and schedule estimates, I will provide some key project updates. In the first quarter, we expended $82.3 million and incurred $130 million in project costs. The balance between spent and incurred costs relates to completed work not yet invoiced and timing of payments. As previously announced, our concrete batch plant was rendered inoperable following a fire on February 24th. Our project and contractor teams quickly enacted a mitigation plan, starting with sourcing concrete from local suppliers in Timmins and Sudbury. This was followed by the sourcing of a mobile batch plant in mid-March, which could handle small to medium-sized pours, And then a replacement batch plan was commissioned and has been operational since mid-April. The impact to the project schedule as a result of the batch plan flyer has been incorporated into the ongoing schedule and project cost re-estimation work, which we will discuss in a moment. We do want to take a moment to applaud the efforts of our project and contractor teams in their rapid and agile response and proactive mitigation of this event. All critical infrastructure is complete for the spring thaw. Earthworks productivity improved over the quarter, however, continued to lag due to COVID-19 absenteeism in January and February, lower productivity rates compared to plan, as well as reduced equipment due to spare parts availability and other maintenance challenges faced by the contractor. The concrete foundation work inside the grinding area is nearing completion and should be completed in the second quarter, allowing for the preparation of the commencement of structural and mechanical installation in the interior of the building. Structural steel erection in the high bay grinding section of the building has been completed. Installation of the pre-leach thickener and leach tank concrete foundation has commenced. Wall panel cladding installation has progressed with over 90% completed for the high bay building section, including the roof of the plant. However, this is not on a critical path. The camp was connected to grid power and pole installation work on the 42 kilometer power line is ongoing. We reported with our year-end results that the rapid rise in cases in Ontario and other provinces had a negative impact on construction activities in the first quarter. Site staffing was approximately 60% of plan in the first part of January with a large number of infections including in the steel construction workforce. A mandatory vaccination policy was introduced in January And 100% of site personnel had two doses of a vaccine by April 1. Cote Gold is a project that is being developed with a background of COVID-19, inflation, and global events, and their impact, including on the global supply chain, labor availability and productivity, cost of materials, commodities, and consumables. As previously disclosed following the appointment of Jerzy Orzekowski as Executive Project Director in December 2021, a project cost, schedule, execution strategy, and risk review commenced to assess the previously estimated cost and schedule along with the evaluation of potential mitigation and or optimization opportunities. This project review and risk analysis is continuing and is being undertaken by the IAM Gold project team, EPCM contractor, and certain other technical experts, and has been dubbed Supertrend. Following this, on February 23rd, we announced that certain inflationary and other cost pressures had been identified, impacting earthworks, electrical and instrumentation components, operations spare parts, key consumables, and other indirect costs, resulting in projected remaining cost to completion at that time to trend upwards above the high end of the previous estimate range of 710 to 760 million and the timing of cost to potentially vary. Based on the ongoing analysis assessment and preliminary information available to date, including provisions for certain commodities escalation and contingencies, The company currently estimates that the remaining project costs to completion at April 1, 2022 could be between approximately 1.2 to 1.3 billion net of leases and with a preliminary increase in project costs estimated at an FX rate of 1.25. This range includes between approximately 100 million to 150 million in contingencies and other risk. Accordingly, the company has withdrawn its 2022 and 2023 Cote Gold project cost guidance. We do caution that this is a preliminary estimate and that the company intends to provide a more detailed updated cost and schedule estimate before the end of the second quarter once the ongoing work is completed. In the last number of months, the Cote Gold project has seen several changes in leadership and oversight, both at the project level and corporate level. Since the appointment of a new executive project director, teams have been strengthened to target deficiencies while leveraging knowledge, experience, and team integration between the owners team, EPCM contractor, and the various other project contractors that are working at Cote Gold. The preliminary estimated updated cost to completion excluding contingencies result from additional cost and schedule impact in the cost categories which I will review shortly and include COVID-19 related impacts and delays as well as inflation impacts. Earthworks, approximately 25% of the increase is associated with scope gaps, lower than expected productivity as a result of an overestimation of earth-moving equipment efficiencies based on geotechnical data, and scope gaps in additional dams and dewatering. Process plant and infrastructure. Approximately 25% of the increase is associated with scope gaps relating to the processing plant, underestimation of winter concrete and steel costs, impacts on the underground utility construction, and received bids for the SMPUI packages. Number three, indirects. Approximately 40% is associated with impacts from increased project costs and schedule extension, including EPCM, owner's cost, mining, operations readiness, and other indirect costs. And finally, others, including procurement, account for approximately 10% of the increase. As part of this work, a study by an independent capital project management service company estimated direct and indirect COVID-related impacts to the project to be in the range of approximately $150 to $300 million on a 70% basis at an exchange rate of 1.3. Looking at the schedule, Based on preliminary results, the timing of commercial production is expected to be extended to approximately the end of 2023. While this is consistent with previous guidance of the second half of 2023, it does represent a four to five month delay resulting from certain of the factors that we previously discussed. This year has always been critical for project advancement, as project activities are expected to ramp up into the summer and fall months, with the coordination of earthworks, concrete, plant structural mechanical piping work, and power, and electrical installation being very important. The increase in the oversight team, managing contractors, and contracting packages, which will facilitate the expected increase in the number of contractors working at site, Our board of directors has also retained an independent technical consultant to assist with the board's review of the results of the Cote Gold project review and risk analysis. We do caution that potential further disruptions, including caused by COVID-19, the Ukraine war, weather, potential labor disruptions, and the tight labor market could continue to impact the timing of activities, availability of workforce, productivity, and supply chain and logistics and consequently could further impact the timing of actual commercial production and consequently project costs. Taking a look at the project metrics, Cote Gold continues to be a transformational asset for the company with the addition of a Tier 1 long life generational asset in Canada to our portfolio. We know that the results of the ongoing re-estimation work will also include a re-analysis of the project ramp-up assumptions and other project metrics, including operating costs, which we expect will increase based on headcount assumptions and to better capture the current pricing environment for consumables and increased labor rates. As we mentioned, these results will be issued before the end of the second quarter. Turning to liquidity, as of March 31, the company had $524.4 million in cash, cash equivalents and short-term investments, coupled with approximately $498 million available under our secured revolving credit facility, resulting in total available liquidity at quarter end of $1 billion. We drew down $100 million on the credit facility at the end of April, to prepare for Cote Gold cash calls during the remainder of the second quarter while we complete certain cash repatriation initiatives, including a dividend declared unpaid by ESSACAN at the end of April. Based on current information, total current available liquidity taken together with estimated net cash from operations is expected to be sufficient to continue to fund the construction of Cote Gold to meet obligations and to fund planned investing activities at our existing operations for approximately the next 12 months. We expect that the change in the remaining cost to complete and schedule of the Cote Gold project will result in the company requiring additional financing in 2023 in addition to the existing credit facility to complete the Cote Gold construction through the ramp-up period to take us to positive free cash flow. We are therefore actively investigating measures to increase liquidity and capital resources, including additional debt and or equity financing, strategically disposing of assets, and or pursuing joint venture. Thank you to everyone for joining us today, and I will now pass the call back over to the operator for Q&A.

Thank you. We will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You'll hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. The first question is from Josh Wolfson with RBC Capital Markets. Please go ahead.

Thank you very much. Maybe Daniela, on some of the points you made about the funding gap for 2023, could you first highlight perhaps what would be some higher priority assets that could be divested? There's been, I guess, various views partially by some of your shareholders that have pointed to assets with the potential that may no longer be a priority for sale. And then also, when you talk about joint ventures, Is that related to Cote or other assets? And then how would that work with your existing partner there, if it is Cote?

Thanks very much for the question, Josh. We certainly are actively investigating measures to increase liquidity and capital resources as we talked about some of the options that are available to us. At this time, we're not going to speculate on specific alternatives or on potential outcomes and updates will be provided when warranted. We're very much focused on completing the super trend work and getting the report done and the detailed information out into the marketplace, which will also allow us to provide us the tools to complete the liquidity analysis that we're going through on that. And certainly non-core assets in our portfolio are something that we're certainly looking at.

Okay. But are you able to sort of identify what the specific non-core assets would be? Would those be the non-operating assets or could that be some of the producing assets as well?

When I indicate non-core at this time, I do not mean the operating assets. We do have some assets in our portfolio where we've been doing some exploration in non-core jurisdictions, for example, in Brazil.

Okay. On Cote, with obviously a lot of changes on the capital side, Should we expect any update on the operating cost expectations with the update later in the second quarter, or is that still under review?

We certainly are doing work on updating our mine plan. We've had the scheduled extension that we talked about, which take us closer to the end of 2023. um on that so the um the production under our original schedule we were expecting to see a greater production in 2023 we have identified a number of opportunities to optimize the mine plan particularly in the first couple of years of operation and so we're incorporating that optimization in there and are doing and have been doing an assessment of headcount, labor rates, and other operating costs, which have obviously been impacted by the inflation that we're seeing on key consumables that we and all of our peers have been talking about. And so we will be publishing... we will be providing an updated information on those metrics.

Okay, and then one final one. On Rosabelle, is there any more information you can provide on some of these proposals from the government? Is this kind of the typical royalty tax type of increase, or could it be something more?

They fall within three categories, Josh. Number one is VAT. which currently does not exist in the country and is a measure that has been talked about for a bit of time now. The original plan on the part of the government was to introduce this in 2022. And of course, there's a lot of administration that comes with implementing something like this. And we're not seeing that come right around the corner yet. However, that is one of the measures. Number two is, to your point, royalties. And that's something, again, that's been talked about. It's nothing that's come forward, but it is a discussion point as the government looks for additional measures to increase revenues. And the third one is through solidarity payments and where the government would be, in a sense, looking for advanced payments on future taxes. and the ability to then offset those payments against future taxes that then become due. So those would be the three categories.

Great. Those are all my questions. Thank you.

Thank you, Josh. The next question is from Jackie Prusilowski with BMO Capital Markets. Please go ahead.

Morning, Jackie. Good morning, Danielle and Maurice. Thanks very much for the call. I think I just want to ask, just to start, what do you see as the differences between yesterday's release and the detail you've given us and the upcoming full results from the study later this quarter? Do you expect material changes in in the dollar amounts or is it really more just adding detail into the existing estimates? I'm just a little confused about why the numbers sort of came out ahead of the full update.

Thanks, Jackie. We felt that our work had progressed sufficiently that it warranted providing this information to the market. The work that we're going to be completing over the course of May is some update work and risk analysis around the schedule, particularly around the peak period. And we're doing, we're completing work on the contingency and we do have some follow ups in some of the contracting packages. However, we are not expecting a material change to the range that we provided in yesterday's release.

Okay. And with the full study completion, you expect to reinstate your 2022 and 2023 guidance. Is that right?

Yes. Yes, we do. We would intend on providing a more detailed update of the final cost estimate, as well as the timing of payments over the course of 22 and 23. as well as confirmation of the preliminary estimate that we provided with respect to the schedule, as well as providing the updated mine plan information, as we've just chatted about with Josh.

Okay. And can you maybe give us a sense of what you're looking at in terms of the financing options? I realize you still have over a year left. before you need to complete any kind of financing or fill any financing gaps. But would that include potentially equity, new debt, stream, all of the above? And have you been in discussions with Sumitomo in terms of its plans to participate in any new financing?

And so with respect to Sumitomo's involvement, they've been involved in the work that has been ongoing. along with their own technical experts on that. And they continue to progress their review of the preliminary estimate and the expected extension of the start of commercial production. And similar to our board retaining an independent technical expert to conduct a similar review of the results, they have done the same. With respect to financing alternatives, we are investigating measures to increase liquidity and capital resources, as we've talked about. And similar to what I've just said, we're not going to speculate at this time on the specific alternatives or on potential outcomes. I can comment on one alternative which would relieve some pressure off us in 2024, which relates to the prepay, the 2022 prepay, which is physically to be delivered in 2024, and that really results in an obligation on our part to, in a sense, repay $240 million of debt over a 12-month period. That is one of the things that we are considering similar to what we've done last year to, in a sense, extend that obligation. And beyond that, we're not going to speculate at this time on specific alternatives or potential outcomes.

Got it. And if I can just bother you with one last question. We were at site at Cote in October, and the personnel at site at the time were incredibly insistent that they had uh you know dotted all the i's across all the t's uh so it's a little disappointing but you know frankly not super surprising i guess to see uh some scope changes um with material impacts on the budget um can you maybe go through and i know i know you've changed coach at the leadership level but can you maybe go through um you know any other changes uh whether it's personnel or or just um you know in the process, I guess, that you've gone through to make sure that you've got things nailed down a little bit tighter going forward?

Sure. So in addition to detail engineering, which is just about complete, and the addition of Jersey, which you mentioned and we talked about, we've updated these estimates based on performance productivity metrics. And so, for example, for Earthworks, which is 25% of the increase, the updated estimate takes into consideration actual performance productivity metrics that we achieved or the contractor achieved over the course of the second half of last year. We've also supplemented the completion of Earthworks with an additional contractor. for some of the work and this contractor comes in with smaller available equipment and they are currently mobilizing. We have incorporated escalation in the contracts to manage potential additional quantity problems. We are re-estimating contingencies and other risks to the schedule. We've increased oversight with resources or additional resources in area management, project controls, site coordination, both on the part of wood and on the part of iron gold. We've got better integration between our teams, the EPCM and contractors. We've got a more robust tracking progress of construction progress and trends. And I would add that, you know, I think that we really have increased the agility to drive flexible execution strategy. and that is the ability to rapidly pivot in response to problems such as the response that we executed on to increase COVID cases in January and February and the response to the batch plant fire, which the team executed on. So it's that agility to deal with the unplanned challenges that has very much increased over the last number of months. There are things, obviously, in the earthworks and in the dewatering and water management infrastructure that has led to the increases. And we talked about the performance productivity metrics that we included on the re-estimation. And with respect to water management and certain of that infrastructure, you know, a lot of that work is – is now behind us in terms of water management. So those are some of the examples.

That's great. Thanks very much for the color. And I will let somebody else ask a few questions. Thanks, Daniela.

Thanks, Jackie. The next question is from Mike Parkin with National Bank Financial. Please go ahead. Hi, Mike.

Hi. Thanks for taking my questions. In terms of productivity assumptions, have you re-budgeted the schedule based off your productivity rates as of today, or are you assuming any kind of significant improvement on those productivity rates through the course of 2022 and 2023?

Particularly on Earthworks, we've updated the estimate based on performance productivity metrics to date. And we've supplemented that with the additional contractor that we've talked about. And that is one area where we did see a scope gap that was much different than in the original project cost estimate. And that was not really visible to us mid last year. We had just started the earthworks at the beginning of 2021. Um, and as we were coming into the summer in that sort of two to five month period, we did not have enough additional full data, including in relation to ground conditions, um, throughout Keyside areas to, um, to, to really, uh, you know, sort of recast that, uh, estimation as, uh, as we, uh, took over earthworks in the summertime. and work to recalibrate and improve productivity and supplement getting the work done, we had pushed to try and recover some of that underestimation as we progressed through the second half of 21 and just did not get there. So to answer your question, certainly on Earthworks, that is how we approached it. And in terms of the overall schedule for the summer and getting into the fall, Mike, we're at about 950 people at site right now. We're expecting that to increase to about 1700 or so peak construction in the summer and heading into the fall. And that's where those additional resources in terms of oversight and managing the contractors the contracting packages and making sure that we don't have any hiccups as a result of congestion at site is going to be very, very critical.

Okay. And in the release, you mentioned challenges with maintenance and spare parts for the Earthworks fleet. Is that just excessive wear and tear? Can you give us a bit of color in terms of like is the overburden proving less ideal for the equipment it's using like i recall some other operations uh kind of scoping out larger equipment when smaller equipment would have been more ideal just given the the topography and challenges of the wetness of it is that what you're looking at facing or any additional color that would help yeah that that is definitely one of the factors uh mike the additional contractor that we're mobilizing

does come in with smaller available equipment than the current contractor is using. And therefore, we're being more selective around which area is being progressed by which of those two contractors. With respect to the existing contractor with the larger equipment, it's just simply what we're seeing in the supply chain and just accessing and parts to do regular maintenance on the equipment. And, again, that's something that we've addressed by escalating, you know, our own relationships and our own arrangements with a particular distributor of the spare parts and really pushing to unblock.loggem for them really slash for us.

Okay. And then the revised budget for COTE, what are you assuming for oil or diesel price?

So in that 150 to, in that 100 to $150 million range that we're calling contingencies and another risk, there is some escalation included in there for oil, really. At the project level, we're using $70. We're tracking the escalation in that range, the $100 to $150. And then we've got obviously the hedges that are laid out in detail in our MDNA. And we've actually just done a bit more work to help people understand the value of our hedge book and we've broken down more distinctly the DFX oil hedges and then separately the gold hedges that we have in place. And we layered on a few more gold hedges in the quarter in accordance with our current policy on how much of the production we're hedging.

Okay. Okay, that's it for me. Thanks so much.

Okay, thanks, Mike. The next question is from Anita Stoney with CIBC World Markets. Please go ahead.

Good morning, Daniela and Maurice. This may be a question for Maurice. I'm not sure if she's still on the call, but I'm trying to take a step back here and look at the NPV of the project. I think originally it was around $1.6 billion. and we've had, you know, capital cost escalation, and now you're reevaluating the OPEX. And, you know, I know down the site tour that the mining costs, in my opinion, were pretty optimistic, you know, at a, I think it was 227, when that had already been revised up a couple of times. At what point do you look back and evaluate whether or not, like, this project needs a pause in terms of, you know, I mean, we've seen blowouts like this with, like, Pascal and Cassius, and you know, those companies, they have to basically step back, relook, reconfigure, rather than just continuing to push forward and hoping that, you know, the operating costs will be okay and that they'll have something at the end of all of this.

Do you want to take that, Marie? Okay. Maybe I'll give it a shot and see if Maurice can jump in here. You know, at the end of the quarter, we were 49% project completion. Construction was about 35% or so complete. And, you know, certainly with the major components in place. As we chatted about, we are looking at an update at operating costs and expect that some of that impact will be taken into, will be softened, the impact of that by the optimization that we're doing on the mine plan. We've got 18 years of life there. We've got Gosselin two kilometers next door, and the additional drilling that we've done since that resource has come out has, I believe, is demonstrating that the mineralization is extending both at strike and at depth. To your point, we have seen MPV erosion, and certainly there will be MPV erosion when we put all of this into it. We do expect this asset to be here, to be a multigenerational asset, and certainly look at it from that perspective. And I'm not sure, maybe I'll check that Steve Maurice can now hear me. I know she spent the weekend at Cote and perhaps she would like to supplement my comments.

And I think it's a bit early. We probably need an extra month now to fully assess some of the opportunities at the mine. And these opportunities will be included with the new mine plan. probably a bit of a more aggressive mining schedule in the first two years. And on top of that, I see some other opportunities to really optimize and develop the pet in a way that's – sorry – that would allow also for better interaction between the pit itself and the water body to the east. So there's some ideas that have been explored, and as the full assessment continues, we will be looking at integrating some of those opportunities.

And then as you looked at the, so you mentioned a more aggressive mining plan in the first couple of years. I mean, you guys are using autonomous haulage, right? And contracting this from Caterpillar and from Torremont. And I believe the delivery of the truck schedule was also pretty tight timing to when you needed a lot of the mining and the stripping to be done. So, I mean, how are you incorporating the autonomous haulage fleet and, you know, and given that it's a new technology, it's a mine that's starting up. You've seen other people who've used autonomous halogen have had startup issues, and those were at established mines. So have you factored, as you look at this, have you factored in the extra complication of using AHS?

Yeah, it has been factored in, and I must say that at this point, we have a 994 being erected. We have a calibration pad that's already... ready to be utilized, and the first 793 will be at site early July. So I think there's ample time to be working on the autonomous trucks. And at this point, I don't see any issues with further delays. And I see also some opportunities to – really take the time for the implementation. So Calibration Plan 994, the system's implementation, will start in earnest the first week of July, which gives us lots of time, in my mind.

Okay, thank you very much, and I'll pass it off to someone else for questions.

Thank you.

The next question is from Lawson Winder with Bank of America Securities. Please go ahead.

Hi. Good morning. And thank you for the detailed update so far. This is all very useful. I maybe wanted to ask a question about your partners in a bit of a different way, which is I know you can't speak for them, but Given the potential situation that they may decide to dilute their interest down, what would your preference be? Would it be to find another partner or to just assume whatever interest they dilute down?

I'm going to put that in the category of we're not going to speculate on that at this time. Sumitomo continues to review the, you know, the preliminary results in terms of cost and schedule estimates. At this point in time, I think although, you know, none of us are obviously happy about, you know, These circumstances, we're all very, very disappointed and are working diligently to address it. We've not received any indication that they're looking to otherwise exit the project. There certainly is a lot of interest in the exploration activities that we have undertaken to date. And if you recall, part of our 2021 budget we only allocated $2.1 million for our account to exploration activities. So we really, you know, we achieved those results with very little capital allocated to that. And they've certainly indicated their desire to get more involved in the exploration initiatives in relation to the site. And that's, you know, that's the extent of the communication that we've had around

uh the current developments uh okay that that is helpful thank you very much um and so my next question might also fall into the bucket of not wanting to speculate but look i'm going to ask it anyway and you can take it for what it is but let's do it when you think okay when when you think about uh sort of financing the additional cost i mean at this point can you you know say that equity is off the table or is it being considered

That does fall into the categories of not looking to speculate on the outcomes at this time. Listen, we're really pushing to finish this work. We're working diligently on getting this done. And in really all hands on deck and having a good summer at the project, this is really, really critical work. you know, for the project schedule on having a very productive summer and fall months before the winter comes. I'd say that's, you know, that's the key focus. And, you know, we'll look forward to achieving that and demonstrating that to the market as the project gets more de-risked.

Okay. And then maybe if I may ask just one more, just thinking about, you know, you know, your decision, I mean, it seems like you're moving ahead with the project. And so, you know, at this point, when you factor in the higher OpEx and the higher CapEx, I mean, is the decision to proceed based on an IRR? And are you able to share with us kind of what your, you know, IRR expectations are at this point?

I'm going to say that bit of a dissimilar response in the sense that we are well-progressed on the project. We believe that a number of the areas have continued to be de-risked. The preliminary cost estimate, as we've talked about, incorporates actual productivity rates, particularly on the Earthworks side of it. And we feel with the work that does still need to get completed that we're working to very much have our arms around that range. As we complete the work and look at the updated cost metrics and schedule, we'll complete our assessment. on that. However, again, we're looking at this as a multi-generational asset and certainly have expectations that the current mineral inventory, that is there. There are tremendous opportunities to continue to grow that and extend the mine life.

Okay. All right. That's very helpful. Thank you very much for your time today.

Thank you. The next question is from Kerry McCrory with Canaccord Genuity. Please go ahead.

Good morning, Danielle. Just in terms of potentially additional debt financing, do you have a sense of what your debt capacity could be or what you'd be comfortable with at this point?

Currently, our net debt to EBITDA financial covenant in our credit facility is three and a half times. our certainly at quarter and um we were um uh you know close to you know net net cash or or or slightly uh in a net debt uh scenario so we we do have capacity uh assuming the full drawdown under our credit facility to assume additional debt The prepay arrangements do not count as debt in our financial covenant, although, of course, as far as we are all concerned, they are debt, and they do need to get paid back. And when I was talking about the extension of the prepay from 24 as an alternative to uh, to help us manage through 23, 24, um, on, on that. Um, and so, um, and then of course it ultimately, you know, what, what is, what is the price deck, the price deck that we used to make the comment in the liquidity outlook, uh, around having sufficient liquidity for the next 12 months, um, is 1800 for this year.

1700 for 23 and then 1600 for 24 and thereafter great and then maybe one other question just in terms of when you sort of get to the peak spending rate like how much are we talking per quarter you know the past quarter you spent about 80 million again your share the last quarter is about 140 is this going to ramp up to like 200 million a quarter or where do you see the sort of spent peak spending rate at

Yeah, we're just finalizing the updated timing of the spend. The one thing that we share when we talk about liquidity is the following. We have the obligation, along with our joint venture partner, Sumitomo, to stay ahead by three months in terms of... expected expenditures under the joint venture and so therefore when we manage our liquidity on a monthly basis you know we've talked about in the past that our monthly um you know that our minimum cash balance that we're targeting to maintain is somewhere around 200 million dollars um and and we talked about the fact that you know look look look look for drawdowns when when our cash balance might be well above that as we're as we're repatriating funds and and so on So just to come back to your question, we'll update the timing and provide an updated cost estimate when we come out before the end of the quarter. So we'll provide you with what we're estimating our 22 and 23 spend to be. And just keep in mind that we're managing that liquidity on our ongoing basis and have a bit more cash tied up. as we progress the project. All right. Thanks, Daniela. Thanks.

The next question is from Tanya Jakuskanik with Scotiabank. Please, both, go ahead.

Yes. Good morning, everyone. Thank you for taking my questions. I just want clarification on the prepaid that you mentioned, Daniela. Did you say that That's the potential to push it out a little bit beyond the 2023-2024. Did I hear that correctly?

That is one of the alternatives we are looking at, as we did last year. In a sense, you're settling, as you would know, you're settling the contracts that you've entered into and you're layering on new contracts. And that is an option to sort of manage liquidity better. beyond project completion and into commercial production on that and sort of manage whatever our capital structure ends up looking like. So that is one of the options we're looking at.

Okay, and so then your ability to layer on debt as a financing option will give you a bit of breathing room if you're able to push that out a little bit.

That's exactly, that would be the intention of it. It is, you know, it's an obligation in a sense to repay $240 million in 2024 as it sits right now.

Okay. And maybe someone can just help me with a bit of sensitivity on the costs on your Cote project. We did notice that you're using $89 million. sensor leader for your fuel pricing. Is someone there that can give us a sensitivity for your diesel exposure at COTE?

We can take that back, Tanya, and come back to you on that.

Okay. Because that would be helpful. And maybe a question to Maryse, if I could. As you look at this project, Maryse, what do you think an appropriate internal rate of return should be on this project?

Tania, thanks for the question. Until we finalize all the work in the next month or so, I cannot give you a firm answer. Typically, I would be looking at 10%, 12% at a minimum, and this is just based on my experience. It is not based on the COTE and what I've seen so far. So we will continue with the work for the next month or so. We will finish that rebaselining, and then we'll share with the market the results. That's all I can say at this point, Tanya.

Yeah, it's just looking, and a follow-up to Anita's questions, and we've all seen these projects. There comes a point in time when you're putting so much money behind them, and sometimes you have to pause. And so I'm just wondering, what internal rate of return would you need to see at these prices that, I guess, Daniela gave us, $1,800, $1,700, $1,600 long-term, for you to pause? Like, is it 5%? We're just trying to understand at what point there is a pause.

At this point, no formal answer for you, but it's definitely something that's going to be assessed in the next four weeks.

Okay.

And then we'll have to get back to you.

When's that study going to be released to the market so we're going to be able to see it? You said at the end of Q2. Is that when it's going to be finished? Will we get it with Q3 results? I'm just trying to understand when we can see the study.

It will be before the end of the second quarter, Tanya.

Okay, thank you very much, and we'll take it offline on the sensitivity for the... Thank you. Thank you.

This concludes the time allocated for today's call for questions, and I would now like to hand the conference back over to Mary Ballinger for closing remarks.

Thank you very much, Operator, and thanks to everyone for joining us this morning and for your continued engagement with I Am Gold. There is no doubt that we have many challenges and lots of hard work ahead of us, but myself, the board, and the management team are 100% focused on advancing COTE to production, addressing our capital needs, and continuing on the solid operational performance at our operating mines. I intend to be very hands-on to provide support to our teams. I also wanted to say that I look forward to directly engaging with you, our investor and analyst community. So please reach out to myself or Graham Jennings if you would like to set up a meeting and have a separate conversation. Thank you all and have a good day.

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