Iamgold Corporation Ordinary Shares

Thank you for standing by. This is the conference operator. Welcome to the I Am Gold third quarter 2024 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 one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star then 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 our conference call today. Joining us on the call are Bruno Adams, President and Chief Executive Officer, Martin Tannouson, Chief Financial Officer, Bruno Lemelin, Chief Operating Officer, Tim Bradburn, Senior Vice President, General Counsel and Secretary, and Doreena Quinn, Senior Vice President People. We are joining today from IAMGOLD's Toronto office, which is located on Treaty 13 territory on the traditional lands of many nations, including the Mississaugas of the Credit, the Anishinaabeg, the Chippewa, Haudenosaunee, and the Wendat peoples. At IAMGOLD, we believe respecting and upholding Indigenous rights is founded upon relationships that foster trust, transparency, and mutual respect. Please note that our remarks on this call will include forward-looking statements and refer to non-IFRS measures. We encourage you to refer to the cautionary statements and disclosures on non-IFRS measures included in the presentation and the reconciliations of these measures in our most recent ND&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 in the heading Qualified Person and Technical Information. The slides referenced on this call can be viewed on our website. I'll now turn the call over to our President and CEO, Bruno Abt.

Thank you, Graham, and good morning, everyone, and thank you for joining us. The third quarter was another exciting quarter for Ion Gold, as our operations performed well, demonstrating safe, stable production and strong cash flow growth. Gold production year-to-date for the company totals 490,000 gold ounces, driven by the strong year-to-date performance at Isacane and the turnaround of Westwood. both assets which are poised to achieve the near the upper end of the production guidance estimate. Cody Gold, meanwhile, is taking significant strides as the mine continues to ramp up and achieve multiple milestones in the quarter, including reaching commercial productions on August 2nd, demonstrating the capability to operate at or above gameplay throughput levels, completing key maintenance to improve the availability of the plant and achieving its first quarter of a positive free cash flow production. Kotter remains on track towards our goals of the mine achieving 90% NEM plate throughput exiting the year. With 2025 just around the corner, a surprising seven weeks away, IAM Gold is rapidly moving closer to our goal of becoming a leading modern Canadian gold producer with a strong balance sheet and assets that are poised to generate significant value for our stakeholders, partners and investors, further enhanced by the backdrop of today's gold price market. By the middle of the next year, we anticipate we will have our gold prepayment facility behind us. COTI will be nearing nameplate production, and Issaqan and Westwood will be capable of generating near-records cash flows. This will conceptually position IMGO uniquely among the mid-tier space, with significant cash flow generation and some very valuable near-term growth to uncover at COTI GO. Looking at a highlight from the quarter, starting with health and safety. which is a fundamental pillar of IMGO's visions of zero harm and our commitment to people and the places in which we operate. In the third quarter, our total recordable injury frequency rate was 0.46, an improvement from the prior quarter led once again by a SACANI team who achieved triple zero for safety incident in September. a testament to the professionalism and commitment to a safety culture by our people in Burkina Faso. In the third quarter, IAMGOLD produced 173,000 attributable gold ounces from our three of its operations, well above the 109,000 ounces achieved in the same period last year. This year-over-year production growth was driven by continued stable operation at Isakane the successful turnaround at Westwood and the ramp up of Cote. On a cost basis, IMGO reported third quarter cash costs and all in sustaining costs of $1,165 per ounce and $1,756 per ounce respectively. While costs were lower than the prior year period, the cost increase quarter over quarter was in line with expectation and our guidance as we will discuss in a moment. Sustaining capital expenditure increased in the third quarter to $84.7 million, up from $50.4 million the year prior, as CODI achieved commercial production in August, which allowed for the relocation of capital expenditure related to operation to sustaining for the month. Looking at our targets for the year. IMGOL reiterated its guidance estimates in the third quarter. As you will recall, last quarter, the company increased its production guidance and lowered the cost guidance targets, following a very strong first half performance from our Sakane and Westwood mine. Sakane and Westwood are well positioned to achieve the upper end of their production guidance ranges this year, with combined production year-to-date of 428,000 ounces versus guidance Guidance of 495,000 to 540,000 ounces. The 2024 cost guidance for a SACAN and Westwood combined is unchanged and is expected to be on the low end of the range of $1,175 to $1,275 for cash costs per ounce sold and $1,700 to $1,825 for ASIC per ounce sold. Costs are expected to be higher in the fourth quarter at Isakane, as Isakane is expected to report a lower head grade from an increased production of stockpile material in the mill, and Westwood conduct a scheduled maintenance plan shutdown in the quarter, both in line with our expectations. On a macro level, inflationary pressures have continued to ease, though key input, including labor, remains elevated. as well pricing for certain consumable, including cyanide and grinding media, are in line with the leveled experience in 2023. With that, I will pass the call over to our CFO to walk us through our financial results and position.

Martin? Thank you, Renaud, and good morning, everyone. In terms of our financial position, iMGOLD ended the quarter with cash and cash equivalents, of 553.4 million, and our credit facility remains undrawn, equating to total liquidity of approximately 959.3 million. We note that within cash and cash equivalents, as of September 30 of this year, 83.4 million was held by Cota Gold, and 135.3 million was held by Issa Khan. Notably, Issa Khan declared a dividend during the second quarter of 180 million, for which the minority interest portion and withholding taxes were paid during the second quarter. And 136.3 million was received by the company in the third quarter, and the balance of 15.6 million was received in October, for a total dividend received by Aungold of 151.9 million. On September 30, 2024, the company provided Sumitomo with the required 60 days formal notice, to exercise the right to repurchase the 9.7% interest in Kota Gold and the transaction is expected to close on November 30, 2024, which will return IAM Gold to its full 70% interest in Kota Gold. The repurchase price is approximately $377 million and includes $23.7 million for the repurchase option fee accrued during 2023. The payment will be funded using the proceeds from the 300 million board deal completed during the second quarter 2024 and with available liquidity. Additionally, as of today, the company has completed a third of its gold prepaid obligations, having delivered 37,500 ounces in the third quarter and 12,500 ounces in October. The company received 13.3 million in cash as part of the delivery of the obligations. The company has remaining 100,000 ounces to deliver on its gold prepay arrangements from November 2024 to June 30, 2025. The prepay arrangements were funded at the time of entering into the arrangements, though the company will receive certain cash payments at the time of delivering into the gold prepay arrangements based on the market price of gold at the time of delivery as follows. In Q4, of the 3,700 ounces that will be delivered, 22,500 ounces will receive the difference between the spot price and 1,700 per ounce, capped at $2,100 per ounce, with the remaining 15,000 ounces pre-funded. Then in Q2 of next year, for 31,250 ounces that will be delivered through the period of April to June, the company will receive the difference between the spot price and 2,100 per ounce, capped at $2,925 per ounce. Please refer to the liquidity outlook section of the MD&A for further details. Looking at our third quarter results, we saw the impact of strong production at near record realized gold prices, resulting in the company realizing higher margins, generating higher operating cash flows and adjusted EBITDA at an important time for the company. The higher gold price, is helping set up the company to potentially expedite its plan to reduce debt levels and debt carrying costs. Revenues from operations total $438.9 million from sales of 184,000 ounces on a 100% basis at a record average realized price of $2,391 per ounce. The realized price includes the impact of gold prepay arrangements in place during the quarter that reduced the relapse price by $107 per ounce from $2,498 per ounce. Net earnings was $598.1 million during the quarter and includes a reversal of a previous impairment on Westwood of $462.3 million. The impairment reversal mainly results from the update to the long-term gold price assumptions. The strong third quarter operating results and gold price resulted in an adjusted EBITDA of $221.7 million, which was a record quarter for the company. This brings the year-to-date EBITDA to $565.2 million, with Cote still in the early stages of its ramp-up. Adjusted earnings per share was $0.18 for the quarter compared to $0.16 in the previous quarter and a $0.01 loss in the third quarter of 2023. Operating cash flow before working capital changes was 161 million in the third quarter. Operating cash flow does not include the pre-funded cash flow received as part of the gold prepay arrangement and is 64.4 million lower than what it would have been without the impact of the deferred revenue recognized as part of the levering into the gold prepay. Looking at mine site free cash flow, which is calculated as cash flow for mine site operating activities, There's capital expenditures from operating mine sites. ESACAN reported third quarter mine site free cash flow of 76.6 million and Westwood of 20.8 million. It is worth highlighting again, as Renaud mentioned in his introductory comments, that this was the first quarter for COTE to contribute positively to mine site free cash flow with 23.3 million in the quarter. which represents IAMGOLD's 60.3% portion of the cash flow. And with that, I will pass the call back to Renaud. Thank you, Renaud.

Thank you, Martin. We will start with COTE, which you can see here on the left image on the slide, with a view of active mining activity early in the summer. Last month, we announced the COTE's preliminary Q3 operating result, ahead of what was a well-attended mind tour by analysts and institutions. I want to take this moment to once again thank all the attendees for the great turnout and thank our COTE team for hosting what was a very engaging tour. Looking at the quarter, a highlight for COTE was the first quarter of positive free cash flow, as Martin just highlighted. from productions of 68,000 ounces on a 100% basis. However, I believe the real advancements were on the progress of the ramp-up and improved understanding of the operation. I am very proud about the progress we achieved in the third quarter, as we saw a definitive sign that the improvements that were deployed throughout the quarter and during the shutdown in September are having a miserable and meaningful positive impact on operation. Mining activity totaled 10.4 million tons in the third quarter of 2024. In line with the prior quarter, an R-ton mine increased to 3.2 million tons during the period with an associated decrease in the strip ratio to 2.321 waste to ore. The average grade of mine ore was 1.02 grams a ton in line with the mine plan. The reconciliation between the grade control and reserve model is also in line with the expected tolerance. Within the pit, the mine currently has two CAT 6060 electric shovels and 18 CAT 793 autonomous haul trucks in operation, with an additional three haul trucks to be commissioned before the end of the year. Utilization rates of the primary mining equipment has been improving. Drilling and blasting activity has seen month-over-month improvement from enhanced drill fleet performance with better blast pattern preparations, resulting in a higher level of in-pit blasted ore inventory available for loading and hauling. The current mine plan is using multiple stockpiles segregated by grade, with the 43-101 estimating a total of 78 million tons of rehandled ore mill feed over the life of mines. This strategy is proving today to require higher than expected amount of rehandling, which are seeing indication of flowing through to mining costs. Year-to-date, mining costs have averaged $3.77 per ton. This is higher than expectation due to the rehandling, as well as higher contractor costs to support the ramp up the mines. We expect to see unit mining costs decline as we bring in the full fleet and reduce the need for external support. Further, we are looking at refining some aspects of the mining strategy to optimize ore handling and move towards more of a bulk mining scenario when economically possible and as the mill continues to increase its overall throughput. The ramp up of the plan was the primary technical focus of our efforts in the quarter, with a headline milestone of achieving commercial production midway through the quarter, as well as multiple days of achieving above nameplate. Mill throughput in the third quarter totaled 1.6 million tons, a notable improvement quarter over quarter, though throughput was impacted by the mid-September plan shutdown, and an unplanned shutdown at the end of the month from an electrical failure in a motor control center. Head grade of 1.41 grams a ton were in line with the mine plant, which required feed material from a combination of higher grade direct feed ore and higher grade stockpile. Recovery in the plant averaged a wonderful 93% in the quarter. As we noted on the last call, the main component of the processing plant including primary, secondary crushing, HPGR, conveyors, ball mill, leaching, etc., all have now proven their capability to operate at or above design load when provided with stable conditions. During the ramp-up, the primary areas of focus for the plan were, one, the crushing circuit before the course are done, and two, everything else after the course are done. or the downstream circuit, which is the HPGR2 to the west side of the plant. With the course of Dome fill, the downstream processing circuits demonstrate very strong performance and availability and capacity. So we have focused on a crushing circuit to improve the availability and capacity. In September, the companies completed an eight-day meal shutdown at Cote to deploy key optimization and improve the operating availability of the plant in support of the goal to ramp up throughput to 90% of NEM plate by the end of the year and achieve NEM plate in 2025. The priority of the work performed during the shutdown was to stabilize the crushing circuit and attend to the primary causes for low availability in the second quarter, which include in replacing 90% of the chute with higher abrasive resistant material to reduce the level of wear, and using new types and sizes of screen in the coarse core screening area. These improvements have made a difference, and the plant has seen further increases in availability and performance of the secondary crusher and screening over the last few weeks, achieving multi-day performance above 40,000 tons per day in the crushing plant. We are now well positioned to ramp up the overall processing facility to our 90% of nameplate objective as we exit the year. In October, we averaged just under 80% of the nameplate as daily throughput. Achieving the additional 10% at COTI is primarily about stability. The objective is to eliminate daily variances. and processing as we already know that we can meet nameplate capacity of 36,000 tons per day and potentially more. Every downtime brought new information and an opportunity to further improve. It is really now about achieving stability, more consistency. This is how we will earn the additional 10%. Furthermore, We will be installing a second cone crusher in the second half next year at the low capital requirement to provide additional capacity and redundancy in support of the operation and throughput maximization. Lastly, and as we noted previously, Codigo added a mobile crusher unit and conveying system that act as a dom-refeed system. This addition provides flexibility and redundancy in time of shutdown by delivering up to 1,000 tons per hour to the dome and can operate in parallel with the crushing circuit for extra daily capacity when sporadically required. Based on a year-to-date ramp-up progress, we maintain our guidance set last quarter for animal production to be at the lower end of the previous guidance range or closer to 220,000 ounces on a 100% basis. At the exit rate of 90% throughput, we estimate that cash costs will, at that time, average approximately $700 to $800 per ounce, and all in sustaining costs to be approximately $1,100 to $1,200 per ounce. We know, though, that costs may exceed these ranges depending on the timing and a one-time cost of finishes and improvement implemented to achieve the ramp-up target. Looking at 2025. we will advance COTI towards the nameplate throughput rate of 36,000 tons per day while looking for easy win to increase the processing plant capacity. As we have noted in the past, several components of the plant have been designed for 42,000 tons per day, and we have seen multiple days above 40,000 tons per day early on in the life cycle of the project. The addition of the second corn crusher next year is aligned with our strategy of unlocking maximum value by monetizing at low capital requirements a maximum number of tons of ore mined as they become available for processing. Alongside this, as mentioned, we are evaluating the potential to adjust certain aspects of our mining plan at COTE to potentially shift over time to a more bulk mining approach as the mill throughput capacity is unlocked, which offers numerous efficiencies advantages, including reduced re-handling, improved pit sequencing, and less reliance on segregations for the mine plant and more on maximizing mill throughput and monetizations of gold mine. Over the current life of mine, the mining rate of ore was estimated to average approximately 50,000 tons per day and this compared to our processing rate of 36,000 tons per day. The CODI deposit has estimated mineral reserves of 7.6 million ounces that form the basis of the current economics of the project. On a measured and indicated resources basis, the CODI zone is currently estimated at a total of 12.1 million ounces, as seen here in the dark blue bit shell at the bottom left. This does not include mineralization outside of the pit shell, highlighted in red, in what we will unofficially call the Cote Norte zone. Further to the adjacent Gosselin zone has an additional 4.4 million ounces of measured and indicated resources and nearly 3 million ounces of inferred, bringing the project to a total of 16.5 million ounces of measured and indicated and an additional 4 million ounces of inferred. The size of Cote and Gosselin together put the project in a very exclusive category amongst large scales producing Canadian assets. We need to consider what Cote will be when it grows up. And that is to say, we need to consider Cote not as a 7.6 million ounces project, but as a significantly bigger deposit and how to bring this value to the market. Our exploration program on Gosselin and ADDEP under the Cote and Gosselin Zone progressed well this year, demonstrating extensions of mineralizations outside of the resource pit shell. Next year, we will plan to further increase our drilling efforts to upgrade the mineralization in Gosselin and the Cote Zone in support of a potential updated study intended for the latter part of 2026. Turning to Westwood, our other Canadian asset. It was another strong quarter for the mine as underground activity are now able to focus on operations and less on legacy rehabilitation. It may surprise some to say, but Westwood so far this year has generated 53.1 million in mine free cash flow. And the third quarter out of cost profile below is a cut. Looking at operation, Westwood produced 32,000 ounces in the quarter for a total of 99,000 ounces year to date. Our mine from underground continued to play a more pivotal role in a higher grade with 84,000 tons in the third quarter at an average head grade of 9.09 grams a ton. The mill throughput was relatively flat quarter over quarter at 289,000 tons processed at an average blended head grade of 3.67 grams a ton and 93% recovery. The plant availability in the quarter of 90% was higher than the same period, the same prior year period of 86%. With plants to further improve availability through an ongoing maintenance program in addition to an annual meal shutdown plan in November. The margin for Westwood continues to improve with a strong gold price in stabilizing costs. Cash costs average $1,150 an ounce, and all-in sustaining costs average $1,617 an ounce in the third quarter. Looking ahead, Westwood production is expected to be at the top of the guidance range of 115 to 130,000 ounces, while costs are expected to be at the low end of the range of $1,200 to $1,300 for cash costs per ounce sold and $1,775 to $1,900 for ASICs per ounce sold. Four-quarter unit costs are expected to be higher than the third quarter due to the scheduled meal shutdown in November. This is to better position the operations for next year. Later this month, we will be issuing an updated technical report and mine plan based on reserve only for Westwood, which should demonstrate the value that has been created by the Westwood teams over the last three years of rehabilitation, redesign, and operation. Finally, looking at a second, it was a static water at the mine with operation being able to perform effectively to plan in the quarter. The second reported attributable gold productions of 100,000 ounces in the third quarter, bringing the year-to-date total to 329,000 ounces. Mining activity totaled 12.2 million tons in the quarter, with only 1.9 million tons of ore mined. As mining prioritized, waste stripping sequences in support of the 2025 production plan including the opening of the upper benches of phase 7. head grades were 1.26 grand a ton in line with estimates average head grades decrease in the third quarter from level in the first half of the year and are expected to continue to trend towards reserve grade in the fourth quarter as the volume from phases six and seven increase and from increased proportion of stockpile or included in the mill fee. On a cost basis, it's a kind of reported third quarter cash cost of $1,223 per ounce, and all in sustaining costs of $1,730 per ounce, an increase quarter over quarter on lower ounces sold. With both cash costs in ASIC, on our track to be at the low end of our cost guidance range. Looking ahead, a second attributable production is expected to be at the top end of the guidance range of 380,000 to 410,000 ounces. The mill is expected to continue operating at nameplate capacity and the positive reconciliation of phase five is expected to continue. However, The average feed grades are expected to decrease during the fourth quarter as mining activities continue to transition into the next phases of the pit, resulting in the lower level of ore mine requiring ore feed to be supplemented with low-grade stockpile material. The focus in the fourth quarter will be to further enhance the phase positioning in the pit for a strong start next year. As we begin to look into next year, this economy continues to be a significant cash flow contributor for I&O. With a current mine life through 2028, this operation has the capability to generate over a billion dollars of cash flow at current gold price and is a significant part of our Lartan plan to deliver the company. Looking beyond the mine plan, we are continuing to examine the to examine opportunity to extend the mine life at Isakani, targeting options within the fence to ensure the safety of our teams. So thank you all, and I look forward to an exciting year ahead. With that, I would like to pass the call back to the operator for the Q&A portion. Operator?

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 will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. We will pause momentarily to assemble our roster. Our first question comes from Lawson Winder of Bank of America. Please go ahead.

Yeah, thank you, Operator, and good morning, everyone. Thank you, Renault and team, for today's presentation. Could I actually just start off with a pretty basic cash flow question on working capital? Martin, I mean, there's been a moderate headwind of free cash flow in 2024 year to date, something like $90 million from working capital bills. First of all, at what point do you expect that to stabilize? And then assuming flat gold prices from here, what does the working capital bill look like for Q4? And then what about 25?

Good morning, Lawson. A big part of the working capital this year was at Cote. We had considerable accounts payable balances due to the construction, still outstanding. And we've been paying those down over the course of the year as we are closing out those contracts and paying back holdbacks. That will continue in Q4, but then we will be at the back end of that. Part of the working capital is also some of the taxes that's building up and we are accruing taxes at SACAMP. that is increasing because of higher gold prices. But other than that, we expect our accounts payable still to decrease, specifically at Cote, and then stabilize after that from next year onwards.

Okay.

And then just thinking about your net debt. So, I mean, well, look, at spot gold, I think IAM Gold could be in the net cash position by year end of 2025. How are you thinking about what is a sufficient debt reduction target? At what point is your net debt level sufficient? First question, yeah.

Yeah. The first part of our, so we'll be looking at our debt as it comes due when we look at that and using excess cash and equity to deal with that. But we've restarted paying debt this quarter already by delivering into the gold prepay. And then we'll continue doing that over the course of this year and the first half of next year. Based on spot gold prices, that has a significant impact on cash. So getting that off a balance sheet is important for us. Then in the middle of next year, our second lien notes becomes callable. And we have an opportunity to pay that back at $20 million increments with excess liquidity when we can. So that would be our next target using excess liquidity. And then after that, the biggest portion of our debt that remains is our high yield notes. And that is a 5.75% coupon. We won't be in a rush to pay that down off of our balance sheet. And then lastly, the leases that we have, about $133 million or $130 million at the moment, and we expect to increase that slightly still. We'll pay that down just based on the scheduled payments. So that's kind of our way that we look, and based on the date agreements we have about needing to make amendments, that's what we can do.

Great, yeah, that's very good. I appreciate that detail tremendously. Okay, so looking beyond that repayment, which I mean, it'll be mostly wrapped up by some point in the second half of next year, what would be the capital priority considerations at that point? And I mean, at what point do you start thinking about a dividend or share buybacks?

Before we go to the share buyback and, you know, it is the most important thing once we put the prepaid behind us is to really turn the company into a net, you know, positive cash. So that's the priority number one. So this would at all 25 for us is a rather, considering the ramp up of Cote and quite frankly, Westwood and Esacanis should be like in a pretty city state, you know, type of year, maximizing cash flow. As we enter 26, as I mentioned, it could be some opportunity of extending the life of mine at Esacanis or where you would remain always positive cash flow, but maybe you could take a little bit less in 6-7 and extend the life of mine. So, I think once we turn the company on the positive cash flow side, we'll be capable to first look at unlocking additional organic growth for the assets, as everyone will be capable to take care of themselves, and that's what we'll be. I've mentioned, you know, opportunities at Cote as well, at the low capital requirement, the crusher, we'll eventually look back after that on the west side, is there any some opportunities. But net-net, this Companies should not be entering any additional important capital allocation more than benefiting from the free cash flow of each asset to further unlock some potential and continue to improve on the balance sheet. Even though Cote has poised with some opportunity to increase, we do not see this as a potential important capital allocation, but rather benefit just from the free cash flow. hope this will get clarified.

Yeah, no, that's very clear. And then just one final thought. At some point, it might really benefit IAM Gold shareholders to consider increasing IAM Gold's ownership of Cote Gold. Are there certain milestones or timelines or pre-established economic considerations that would allow IAM Gold to even marginally increase that position from 70% at some point in the future?

I would say at this stage, the main limiting factor is this whole thing was designed at a 70-30, right? So we do have a partner, and we're very, very happy in the partnership we have. Should it be any opportunity down the road with our partner, Simitomo, for sure we would be considering to increase. But at this stage of the design, that was designed at a 70-30, which we should be back soon. But Cote is from far our best opportunity, right? So any opportunity we would seize that makes a lot of sense and generate return, we'll be looking at improving our positions or the NAV or any unlocking in the Organic Girls. That would be always our priority in Cote Girls.

Okay, fantastic. Thanks very much, guys. Thanks.

The next question comes from Anita Soni of CIBC World Market. Please, go ahead.

Good morning. Good morning, Renaud and team. A couple of questions. So just firstly on Westwood, you said there was a mill shutdown in November. Could you tell us how long that mill shutdown would be for? How many days?

Yeah, we're targeting five. If we see a further opportunity, we'll do it. I would say five to seven, but hopefully we do it in five.

Okay. And then next on Essa Kane, just to understand what Q4 and 2025 look like there? Q4, you indicated that you're going to be pulling more stockpiles as you are focusing on stripping waste. Could you just give us an indication of what the strip ratios would be, both the operating and the capitalized strip ratio?

Yeah, yeah. So next year, we'll be back with more standards. I could already tell you that. It's a year where we should see reductions of total capital as well as aligned with the 43.01. And the Q4, we should normally increase. It's going to be like a much lower or a great nine. So we could go probably as far as probably four or five to one. depending on how it goes and the opportunity in the base positioning. But in 2025, we would be back to a more regular in line probably with what we've done this year or even lower.

So around two, is that correct?

Two, two, between two and three, always seizing the opportunity. Like this year, what we've done, considering, you know, the very positive year, the free cash flow, so we took advantage, you know, to push improve the positioning and the bid, do more waste, but you can start towards maybe a 2-5 plan, and you could go a little bit higher. So follow the 43-101, which I think remains very relevant for 4-25.

Okay, and then the last question on essecane would be, The grade reconciliation, I know you tried to do work on it in the past, but it's clearly beating and continuing to beat. I think the plan for Q2 was lower grade, plan for Q3 was lower grade, and it's still hanging in there well above the reserve grade. So how should we think about that on a go-forward basis? I know you'll probably tell me to use the reserve grade, but I mean, is that realistic at this point?

Well, as I mentioned in my opening comment, I mean, one of the big contributors is the phase five, and we've seen like some extension that's going to prolong in 25. So on that point of the phase fives alone, it would bring normally opportunity beyond the 43-101. So we'll look at this for next year. Now, we're not at the beginning of the phase five, but we should benefit at least another quarter, if not more, from the phase five. So yes, we should normally... Should the Phase 5 continue, as I mentioned, we should normally be able to improve beyond the 43-101 in terms of grades for next year.

Thank you. I'll pause there and let someone else ask questions. Thank you.

Thank you so much. Once again, if you have a question, please press star, then 1. Our next question comes from Tanya Jakuskonek from Scotiabank. Please go ahead.

Great. Thank you. Good morning, everyone. Thank you for taking my questions. Renaud, maybe just to circle back on Lawson's question on capital allocation, did I understand correctly that the priorities for you in 2025 are obviously paying down the prepaid and the notes and some of the leases, et cetera, et cetera, dealing with the debt side? And then you have some capital that you put into Cote on the plant side. And is it safe to assume and you want to extend the mine life as it can? So that's 2025. And so as we go into 2026, do you think at that point you will have any additional free cash flow to look for returns to shareholders. I'm just trying to see whether returns to shareholders via dividend and or share buyback is a 2026 part of your review. It's not 2025 is what I'm understanding.

Thanks for your questions because Our shareholders obviously means a lot and will always be taking into account. So my capital allocation answer was really focusing more on what we see as real kind of mine site capital needs, which we still see within. But as you mentioned, and as we have mentioned in previous quarter, as we turn this company positive cash flow, and address properly level of debt reductions will continue to generate excess free cash flow. And we have mentioned in the past that we will be looking down the road to how could we find a better way to reward our shareholders. This is not for a 25. We will see how the gold market goes, but I'm expecting this company to be in excess of cash flow as we advance 26, 25 and beyond. and which will represent some opportunity. We don't have any decision made. This is all part of strategic approach as we advance in time. But I'm looking at 24, looking how we are advancing. I'm very excited about what this company could be next year towards the Q3. There is some big priority that would make a difference for the shareholders. As you know, the second lean is very expensive, and we must find a way to reduce cost of that. But after that, down the road, once you adjust your balance sheet, I think there would be opportunity for a shareholder. So thank you for this question.

Okay, looking at 26 and beyond for that opportunity.

Yeah, that cannot really be before that because we do have, so I think as we advance 26 and beyond, looking at the needs, the excess cash flow, we'll be looking at what could be done, yeah. Perfect.

And then, Renaud, my second question is just on Westwood. I know the 43-101 technical study is coming, and I think Anita asked this on one of the other calls, but can you just remind me what you have kind of set as a long-term production target and cost target for this asset? Was that 150,000 ounces or one? If you could do that, that would be great.

Yeah, no, thanks for your question, because we will be filing the 43-101. But in all fairness, the 43-101, you know, by the nature of the mine, it's a deep mine. There's quite a bit of ounces, you know, not quite in the reserve category. So you've seen the reserve at the end of December is about a million ounces, and the 43-101 is based on reserve only. But there is quite a significant amount of other ounces that, of course, part of the life of mine and so forth. So an average of 130, 140. So I like to see, I see this mine down the road that is a steady 125 to 150 type of range. And this is just with the current life of mine. But, you know, once the Grand Jig is done, there will be further opportunity, you know, and extra capacity at the mill, down the road, that could be. So I would say as a base case, it's probably 125, 140. And in term of cost, I would wait for the 43-101 to highlight a little bit more of that. So I don't want to be ahead of my ski here. So a few weeks will be a better answer to this question. It's But you will see a drop from the current range just because of the level of rehabilitations that would ease down, so that would lower some costs. So if we do 1,600 today, you should expect down the road the mine to be capable to do better than that.

Okay, look forward to getting there. And then maybe my final question, I just wanted to circle back on something you said earlier, which was on inflation. very focused on this. I think that 35% of your cost structure is labor, correct me if I'm wrong. Can I just understand, number one, what is your labor inflation currently and how are you thinking about that into 2025? That's my first question. So is 35, Martin, the right number as a percentage of cost for labor and then inflation?

I'll pass it to Martin for more sort of detail now.

Good morning, Tanya. So 35% is still the amount for labor and contractors in our cost structure. That will change slightly as COTA becomes a bigger part of our organization now going forward, because COTA has less labor than ESSA can, for example. When we look at our budget, which we're still working on, and we look at what industry is doing, as well as CPI, we're seeing like 3% to 3.5% increases for labor on average. And I think that's in line with what other people are seeing as well.

And as we go forward, would that 35% move to 40% in labor, or would it be higher? Like with the contractor, I'm just trying to understand what that 35% would move to.

I think that 35 would maybe decrease because of the labor component, the higher labor component in ISACAN than at COTA. But we're just working through those numbers as well still. It should not increase. It should not change.

It should be a slight decrease.

You're just saying the percent, that 35% includes your employees and labor and your contractors. In that 35? Correct. Okay, can you give me the list of what that is now? So what is yourself and what is contractors in that 35?

So based on our plan for this year, I've not checked the actuals recently, but it was about 25, 10, 25% of the 35 and then 10. So labor, 25, contractors, 10 of that 35.

Okay, thank you for that. And then that 10% should increase as the next year, how I understood.

Yes.

Yes, okay. And still within the 35, it's just the shift of contractors increasing versus your employees.

And then, Renaud, you mentioned... It's more that... Sorry, Tanya. It's more that our total... The percentage of labor of our cost structure, the 35%, we expect to maybe slightly decrease as COTA becomes a bigger part of our overall cost structure. The split between labor and contractors may not change, but it depends on how we operate the business.

Okay. And so when you look at overall, and I think, Renaud, you mentioned that consumables is in line with, you know, appreciation in that portion of the cost structure, obviously the higher gold price impact royalties that you see. So as you think about 2025 and you have, you know, this labor inflation at that, you know, three, three and a half percent, and let's say flattish on some of the other stuff, plus you have a higher gold price for the royalties. Would we be thinking like 5% would be a reasonable assumption? for year over year change, 25 to 24?

There's lots of other price inputs as well. Like we need to look at oil and that's been changing. So energy costs. So we will be providing our guidance early next year and we're still working through our budgets and plans as well. So it's hard to confirm that number at this point.

Yeah, and the thing is that you may have some, like Cote, for instance, right? Like Cote is a good example. It's the first year. It's a ramp-up. So you're looking at your consumptions that are not optimized. So you may face some increase in some unit price paid, but you have further possibilities. So I think $24, $25. We'll do anything possible to offset, you know, any possible increase. But as Martin highlighted, you know, so we'll be more specific at the start of the year. But I definitely do not, because Cote has so much of an improvement and opportunities, I think we still can target to offset most of the increase, other than the labour.

Yeah, got it. Okay. Really appreciate that. Thank you for taking my question.

Thank you. Our next question comes from Simon Wildsmith of Canaccord Genuity. Please go ahead.

Hey, guys. Morning. Thanks for taking my question, and congratulations on the quarter. Maybe for Martin, with strong gold prices and what seems to be an improving balance sheet, is there an opportunity to refinance the relatively high-cost term loan early?

Good morning, Simon. That loan becomes callable or we can start repaying it now, but there is a prepayment penalty that's quite large at the moment. So in May of next year, that reduces to 104%. So to do anything before then, if you look at the cost of new debt and all of those costs, we don't believe that that is the best way to to increase value and reduce our debt carrying costs. But by middle of next year, that's when there would be an opportunity to do that. Okay. And we are still delivering into the gold pre by now as well. So that is using a lot of the extra free cash for a high gold price.

Okay. Okay. Sounds good. That was my only question. Thanks, guys. And congratulations again. Thanks. Thank you.

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

Thank you very much, operator, and thank you, everyone, for joining us this morning. As always, if you have any questions, please reach out to Renaud or myself. Thank you all. Be safe, and we will see you next quarter in 2025.

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