Endeavour Mining : Quarterly Reporting Document

Q4 2023 Earnings Call

Company Participants

Djaria Traore, Executive Vice President, ESG and Supply Chain

Guy Young, Executive Vice President, Chief Financial Ofcer

Ian Cockerill, Chief Executive Ofcer

Jack Garman, Vice President, Investor Relations

Jono Lawrence, Executive Vice President Exploration

Mark Morcombe, Executive Vice President, Chief Operating Ofcer

Other Participants

Amos Fletcher, Analyst, Barclays Investment Bank

Anita Soni, Analyst, CIBC Capital Markets

Carey MacRury, Analyst, Canaccord Genuity

Ovais Habib, Analyst, Scotia Bank

Sandeep Peety, Analyst, Morgan Stanley

Presentation

Operator

Good day and thank you for standing by. Welcome to Endeavour Mining's Fourth Quarter and Full Year 2023 Results Webcast. At this time, all participants are in listen- only mode. After management's presentation, there will be a question-and-answer session. (Operator Instructions) Please note that due to time constraints, we will be prioritizing questions from covering analysts.

Today's conference call is being recorded, and a transcript of the conference will be made available on Endeavour's website tomorrow. I would now like to hand the conference over to Endeavour's Vice President, Investor Relations, Jack Garman.

Jack Garman {BIO 22116208 }

Hello, everyone, and welcome to Q4 and full year 2023 results webcast.

Before we start, please note our usual disclaimer. On the call today, I'm joined by Ian, Guy, Mark, Djaria and Jono. Today's call will follow our usual format. Ian will frst go through our full-year results highlights, Djaria will provide an ESG update, Guy will present the fnancials, Mark will walk you through our operating results by mine and Jono will provide an exploration update.

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After Ian's closing remarks, we'll open up the line for questions. I'll now hand over to Ian.

Ian Cockerill {BIO 1926981 }

Thanks, Jack. Hello to everyone and thank you for joining us today on the call.

Now I'm delighted to have joined Endeavour at such a pivotal time for this company. I joined the board initially in 2013 until 2019, and then I rejoined again in 2022 holding several positions on the Board. So I do have a great familiarity with the company, as well as its assets and many of its people. Now, the team and I are focused on delivering value for all of our shareholders through our strong operational performance, executing our high margin growth project construction, and maximizing our prospective exploration portfolio, all in a safe and responsible manner so that we can reward all of our shareholders, all of our stakeholders on a sustainable basis.

Now, we're currently moving to a new phase in the company's development, from one focused on investing in organic growth to one of enhanced cash fow generation, debt reduction, as well as shareholder return. However, before I highlight our key priorities for 2024, I just wanted to talk a little bit about our achievements in 2023. I'm proud to say that 2023 was another very successful year for Endeavour in which we delivered on all of our key priorities. On the operational front, we produced almost 1.1 million ounces of gold meeting our production guidance for the 11th consecutive year. Our all in sustaining cost continued to be at a level that places us amongst the lowest cost producers in the entire gold mining industry, although slightly higher than guidance, as we had incurred slightly higher royalty costs following a higher gold price environment. During the year, we were focused on growth as I said earlier.

We accelerated our two high margin growth projects, the Sabodala-Massawa expansion as well as the Lafgue development project. In total, we spent $448 million on growth capital during the year. And I'm pleased to report that both these projects are on budget and on schedule for frst gold in quarter two with Lafgue expected to deliver frst gold a quarter earlier than we had previously guided.

Now our strong exploration results continue to demonstrate our ability to generate an organic growth pipeline. This year, we put great emphasis in prioritization on our recent Tanda-Iguela discovery in Cote d'Ivoire. We reallocated resources from across our exploration portfolio to focus on Tanda because of what we realized was great potential.

As a result, we were able to deliver a 303% increase in indicated resource and the project now stands at an impressive 4.5 million ounces of indicated resource and certainly ranks as one of the most signifcant discoveries in West Africa in the past decade. Moreover, we're confdent there is more to come from Tanda-Iguela as you'll see later on when we discuss and we'll continue to explore this area further throughout the year.

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Alongside this year's investments in our organic growth, we're pleased to continue to pay attractive shareholder returns as we deliver $266 million in the form of dividends and share buybacks to our shareholders, and that's equivalent to $227 for every ounce of gold that we've produced. Looking ahead our goal is to further increase shareholder returns once our two organic growth projects are complete to ensure that our eforts to unlock growth can deliver immediate beneft to all of our stakeholders and we expect to provide an update on the next phase of the shareholder return program in early portion of H2 this year.

Despite investing over $800 million in growth, exploration, and shareholder returns during the year, our leverage remains healthy at about 0.5 times net debt to adjusted EBITDA. As we fnalize our two growth projects in the coming months, we expect that leverage to incrementally increase. But once these projects come online, we will then focus on deleveraging the balance sheet as well as increasing our commitment to shareholder returns. As part of our ESG strategy, we continue to focus on initiatives that protect the places where we operate and promote sustainable socioeconomic growth in our host communities to support the long term success of the business.

Today, we published our 7th Annual Sustainability Report highlighting the signifcant milestones we've achieved over the past 12 months. As you can see, 2023 was a very successful year for us, and we're really well-positioned to continue this momentum that we have built into 2024.

Now, let me just take a moment to discuss the termination of the former CEO that occurred in January this year. The decision to remove Sebastian from the role was taken by the board after an investigation uncovered an irregular payment instruction of $5.9 million to a third-party bank account in the United Arab Emirates, which was related to the disposal of the Agbaou mine in 2021.

The board then expanded its investigation to identify, to try and identify the benefciaries of the $5.9 million which was unsuccessful but did uncover two further payments that totaled $15 million that were made in August and November 2020 to the same third party company as the $5.9 million payment. These two payments were deliberately disguised as advance payments to a contractor through repeated false representations to management.

Now, there's strong evidence that the former CEO abused his position, actively misled the board and senior executive team through repeated and deliberate false representations and concealment of information over a sustained period. His termination was the most important step in protecting the company from any further conduct of this nature. We've taken very deliberate steps under the leadership of our CFO and our audit committee to improve and enhance our internal controls and processes to prevent this behavior from happening again.

And whilst we're disappointed to have uncovered some additional payments, it should be noted that we are satisfed with the integrity of our fnancial reports. And

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as such, our auditors have declared that no restatement of prior year accounts will be required or forthcoming. We're pleased the board has now completed this very comprehensive investigation and this enables us to put this matter behind us and focus on delivery. It's important to reiterate that the strong foundations that underpin Endeavour are its high-quality assets, its great people that I am -- and it's because of that that I am thrilled to now be working with this team. And together, I have absolutely no doubt that we can continue to generate value for all of our stakeholders. If we take a closer look at our operating performance last year, as I said earlier, we produced 1.1 million ounces making -- marking our 11th straight year of achieving guidance. We did that and in the process we achieved an industry leading all-in sustaining cost of $967 per ounce for the full year. Now that was slightly above the top end of our guidance range but that really was driven mostly by higher royalty costs that we had to pay of $18 per ounce.

And this was higher than originally anticipated due to the higher realized gold price and the higher royalty rates kicked in above the $17.50 that we had used in our guidance. On the safety front, despite our industry-leading LTIFR, I'm saddened to say that in February of this year, a contractor colleague passed away as a result of injuries sustained in a maintenance incident at the Mana mine in Burkina Faso.

And naturally we extend our sincere sympathies and support to his family, his colleagues and his friends. The health, safety and welfare of all of our colleagues is a top priority and we'll do everything that we can to ensure this doesn't happen again. Later, Mark will talk you through some of the work we're doing to help us achieve our zero-harm goals.

As you can see on slide 8, production from continuing operations decreased during 2023 compared to the prior year as production decreased at Mana and Sabodala- Massawa mines. And that was partially ofset by record production at Hounde and Ity mines. Both achieved over 300,000 ounces of production for the year. Meanwhile, all-in sustaining cost, as I said earlier increased to $967. But we did maintain our status as one of the cost leaders in the sector.

On slide 9. You can see in the chart here, the all-in sustaining cost of $967 positions us not only in the frst cost quartile of the sector but as one of the lowest-cost producers in the industry and one of only a few large gold producers that been able to maintain an all-in sustaining cost below the magic $1,000 mark. Hopefully, we're not going to stop there. Following our two -- the startup of our two new growth projects, we certainly hope that we'll be able to maintain that strong cost performance as we bring online lower cost production. We don't want to produce ounces for the sake of producing ounces but rather we want to continue to focus on delivering high-margin ounces because that's what generates decent returns for our stakeholders.

On slide 10, you can see that our high margin ounces supports our robust EBITDA generation. And on this slide, you can see we generated over a $1 billion of adjusted EBITDA during the year. And again, that's due to our high-quality portfolio which has

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been supported by our low operating costs as well as the naturally higher gold price.

Over the last two years, we've been focused on delivering the two growth projects, Sabodala-Massawa expansion and the Lafgue development project. As we're approaching completion of both projects, I'd like to take a moment just to provide a bit of a short update on each project. At Sabodala, 90% of the $290 million initial CapEx is now committed, and the project remains on budget and on schedule for frst gold sometime in early May.

Since late February, wet commissioning has been underway, and last week we started feeding ore through the crushing, milling and fotation circuits. We've already started feeding our own Massawa concentrate through the BIOX circuits, and I'm pleased to report this has been very successful with the BIOX inoculum taking to Massawa concentrate very well. And as I say, the bugs are bugging, so we're really pleased with what they're doing there.

As a reminder, we expect to produce over 100,000 ounces of gold from this plant during the year. And once fully ramped up, there's no doubt that Sabodala-Massawa will rank as a Tier 1 asset. So thereby increasing the overall quality of our portfolio and further diversifying the geography of our production base.

Turning now to Lafgue on slide 12, we've now committed 92% of the initial capital of $448 million. And not only we're on budget but we're also nicely ahead of schedule with our targeted frst gold pour now expected in Q2, not, as we said earlier. As we said earlier, a full quarter ahead of the original schedule. Now remember, we launched construction at Lafgue in October 2022, and we're now expected to deliver gold in less than 21 months since the start of construction. I think that's a pretty impressive achievement, giving we're building a brand new cornerstone asset from scratch in under two years. It's also another example of a competitive advantage that we have with our projects team and our understanding of how to operate here in West Africa, where we can build and commission projects far more quickly and for lower CapEx than many other people in the region.

Lafgue is expected to deliver around 100,000 ounces this year, and that will increase to about 200,000 ounces when we get a full year's production over next year. And once fully ramped up, obviously, costs will improve to become in line with life of mine expectations.

I'll leave Mark to provide a detailed update on how both those projects are progressing. Turning to slide 13, our exploration success continues to be a fundamental contributor to our organic growth and is really very much a fundamental part of the DNA of Endeavour Mining.

This year, as I said, we prioritized our Tanda-Iguela discovery in the Cote d'Ivoire. We

• delivering record annual resource discoveries of 3.6 million ounces at a cost of less than $25 per ounce. This brings the total measured and indicated discovered since

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we launched our frst exploration plan to 18.6 million ounces. Over this period, we've produced 7.6 million ounces. So that reinforcing the value that our exploration program generates in terms of additional resource base that we can exploit.

On slide 14 during 2023, we quickly identifed that Tanda -- the Tanda-Iguela exploration program as a high priority as we saw the potential to signifcantly increase the resource base at the Assafou deposit on the Tanda-Iguela property. The increased resources that will defnitely underpin the preliminary feasibility study, which is now underway, and it's our plan to have this out by the end of 2024.

In order to expedite the exploration program, we allocated additional resources to bringing Tanda-Iguela to ahead during the year. And then at one time, we had up to 10 drill rigs [ph] operating there, just -- and that enabled us to deliver this over 300% increase in resource. This year, we're going to focus on resource-to-reserve conversion across the group, particularly at our core assets, as well as Tanda-Iguela, where we expect to be able to convert a high portion of the current indicated resource to reserve throughout the year.

Thanks to the discovery at Tanda-Iguela and our core assets, we've been able to deliver over 10 million ounces of measured and indicated resource discovery since 2021 when we launched our fve-year exploration program, and we're now really well positioned to achieve our 12 million to 17 million ounce indicated resource discovery target by the end of 2025 with a $65 million spend outlined for 2024, as well as a focus on the cornerstone assets Sabodala, Ity and Hounde, as well as continued focus on looking at the potential around Tanda-Iguela.

Now we're going to prioritize Sabodala and Ity where approximately 50% of the full year spend will be allocated. Elsewhere, we're going to continue to explore in close proximity to Lafgue processing plant where we've seen some encouraging drill results and will advance our early-stage greenfeld opportunities across the region. We're also going to continue to advance the high-priorityTanda-Iguela project where we're going to be expanding resources, but converting that to reserves as in parallel to us progressing the preliminary feasibility study.

Now, Tanda-Iguela is an excellent example of the opportunities that lie in West Africa and our ability to historically unlock these projects. In just over two years, we've delineated a potential Tier 1 deposit with a 4.5 million ounce resource at 2 grams a ton that was discovered for a complete discovery cost of $11 per ounce.

And Tanda-Iguela is one of the most signifcant low cost discoveries made in West Africa in the last decade. It's got signifcant upside potential remaining along its 20 plus kilometer corridor, as well as potential satellite targets in adjacent structures within close proximity of any processing facility that we will put up on site. I'm going to let Jono provide you with some more detail later on when he steps up to the microphone to talk.

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Moving to slide 16. We will be completing our two organic growth projects in the coming months. I just wanted to touch on our capital allocation priorities as we transition from the phase of investing in organic growth and move to one of more increased cash generation. As I mentioned earlier, we consistently invest in our exploration as I believe that exploration underpins our long term growth and as we've demonstrated on more than one occasion, our exploration program can deliver high-quality projects into our pipelines at low discovery cost. But exploration is not something you can just start and stop and still be successful at. So we're going to continue to invest in exploration particularly when we know that we have the ability to discover ounces at less than $25 per ounce. We certainly -- we've taken a phased approach to growth over the recent years and it's not the end of our growth. Obviously, Tanda-Iguela will be coming forward in due course as well. When we completed our last growth phase, having invested around $788 million in the Hounde and Ity builds, we were able to fully delever our balance sheet in less than 18 months and at which point we launched our shareholder returns program. We've continued returning capital to shareholders throughout our current construction phase, and the importance of maintaining a high-quality portfolio and a disciplined approach to capital allocation is refected in our ability to deliver sector-leading shareholder returns while simultaneously investing well over $700 million in the two current growth projects.

We're now exiting that -- this current phase of growth at the end of H1 2024 and we're going to enter into a cash fow generative phase where we will focus on strengthening our balance sheet, deleveraging it and increasing our shareholder returns, which will refect the stronger cash fow outlook over the next few years. And we certainly look forward to outlining our updated shareholder policy -- return policy later on this year. Touching on shareholder returns for the fscal year '23 on slide 17. We're certainly proud that we've returned $266 million to our shareholders this year. That was $200 million in dividends and $66 million in share buybacks. That's equivalent to a very attractive indicative yield of around about 6% or as we said earlier, $227 per ounce for every ounce that we've produced throughout the year.

Now, 2023 marks the last year of our existing shareholder return policy with slide 18 showing the cumulative returns to shareholders since the start of that policy. And this slide really is a testament to the strength of the underlying business and the commitment Endeavour has to reward its shareholders by paying above the minimum shareholder return commitment. Over this three year period, we returned $903 million to shareholders that was 77% above the $510 million minimum commitment and represented over $200 returned to shareholders for every ounce of gold that we've produced over that period. To put that in perspective, $903 million is equal to roughly a quarter of the market cap of the business. Of course, shareholders are only one of our stakeholders. Alongside our full-year results, we also published our sustainability report today. So I wanted to hand over to Djaria, EVP of the ESG and Supply chain, who can talk you through to some of our achievements this year. Djaria, over to you.

Djaria Traore {BIO 23333772 }

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Thank you, Ian. I would like to start with our industry-leading ESG initiatives as we believe that mining has the potential to be one of the most impactful industries, particularly in West Africa where we operate. Our strong ESG performance in 2023 saw us achieve nearly all our ambitious targets, but on today's call, I will only focus on few highlights as we will be engaging with you on an individual basis to go through our ESG performance in more detail over the coming weeks and month.

On the environment side, we were pleased to beat our mission target for the year. This put us well on the way to achieving our 30% reduction target by 2030 and with the anticipated commissioning of the solar power plant at Sabodala-Massawa by year-end, we expect to continue that momentum. Mark will discuss this in more detail in his section. On the social side, we continue to be a signifcant contributor to our host countries with $1.4 billion spent on our in-country suppliers, which represent about 81% of total spend. But what I'm particularly proud of is our 22% women new hires, which exceeded our 15% target. This has boosted the group's overall female representation by 20% to 11% in just one year.

Given the countries and the industry within which we operate, this is a truly phenomenal achievement.

Turning to governance, we are particularly proud to have achieved compliance with the responsible gold mining principles across all our sites during the year reafrming our status as a responsible producer. It's also encouraging to note that our positive impact continues to be recognized by the rating agencies as both Sustainalytics and MSCI have reiterated our sector-leading rating this year, frmly embedding Endeavour as an ESG leader not just within the sector but also across other sectors as well. Our 2023 sustainability report was published today and it provide further details on our 2023 performance as well as our target for this year. You can fnd it on our website along with our ESG data center and I encourage you to read it as it provide further insight into our impact and positive contributions to our host communities and our host countries.

I will now hand over to Guy to talk through the fnancial highlights. Guy?

Guy Young {BIO 17903323 }

Thanks, Djaria. I'll now walk through the Q4 fnancial highlights. Q4 production was stable in line with Q3 while our all-in-sustaining costs and the realized gold price both improved by 2, driving an 11% higher adjusted EBITDA. Similarly, our operating cash fow before working capital increased by 103%, supported by lower income taxes paid in Q4 due to the timing of income and withholding tax payments. Operating cash fow increased by 45% quarter on quarter and was impacted by a working capital outfow largely due to an outfow of trade and other receivables as well as some stockpile build.

If we look at slide 22 and the quarter-on-quarter variations in a little bit more detail, Q4 production was stable compared to the previous quarter at 280,000 ounces as stronger production at Sabodala-Massawa, Ity and Mana ofset the expected

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decrease in Q4 production at Hounde. Importantly, our all in sustaining cost decreased by $20 per ounce in the fourth quarter despite the increase in sliding scale royalty rates in Burkina Faso that were efective as of November 2023 and the group benefted from cost decreases at Sabodala-Massawa and Mana due to higher production and gold sales.

Turning to slide 23 and our all in sustaining margin, our quarter-on-quarter cost improvements coupled with the improving gold price resulted in an improvement in Q4. Importantly, our all in sustaining margin has remained relatively stable over the past year at a very healthy 50%.

Moving to slide 24. You can see that during Q4 we continue to generate strong adjusted EBITDA and maintained a healthy EBITDA margin contributing factors that led to the improved Q4 result include increased quarterly production, improved all- in-sustaining costs and the higher realized gold price.

On slide 25, in Q4, our operating cash fow before working capital increased by over 100% as I said to $246 million as the prior quarter was impacted by higher withholding tax payments while the fourth quarter delivered robust production at the lower all-in sustaining costs for the year.

On slide 26, we have a bridge showing that our operating cash fow increased by 45% over the third quarter to $167 million. Higher gold prices, higher gold sales and lower operating expenses were signifcant drivers, but the biggest impact was the materially lower withholding taxes paid during Q4 compared to Q3, which were associated with cash upstreaming as well as the lower income taxes paid in Q4.

You will note that working capital was a signifcant outfow this quarter. This is mainly driven by an outfow in trade and other receivables relating predominantly to the timing of VAT receipts and an outfow of inventories relating to the increased stockpiles at Sabodala-Massawa and Ity.

You will see on slide 27. As a result of all of this, our net debt increased during the quarter by $110 million to $555 million as we spent $155 million on growth capital and $23 million on exploration as well as completing $26 million in share buybacks. We're in the enviable position of having sufcient cash fow generation to fund our organic growth while delivering shareholder returns and preserving a robust balance sheet position.

Looking forward, as we advance our growth project towards completion in the coming months, I expect our net debt and our leverage to increase and once the growth projects are up and running, we'll be able to quickly delever the balance sheet whilst maintaining our returns to shareholders.

Looking at a more detailed breakdown of our quarter-on-quarter change in net debt on slide 28, our operating activities generated $167 million while we invested $211 million in our existing operations and our growth projects during the period. Our

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fnancing cash fow was an outfow of $79 million as we paid $37 million in interest for our debt facilities and continued to buy back our shares as part of the overall share buyback program. We also saw a $15 million gain incurred as the value of our cash on hand was positively impacted by the relative appreciation of the euro against the US dollar. Overall, this resulted in our net debt increasing to $550 million -- $555 million at the year-end.

Moving lastly to our net earnings from continuing operations on slide 30. Our net earnings were lower quarter on quarter due to the impact of several predominantly non-cash items including impairments, higher other expenses, higher losses on fnancial instruments, and higher tax expenses while our adjusted net earnings were slightly lower quarter on quarter due to slightly higher tax expenses and higher realized losses on fnancial instruments. Rather than talk through every line item, I'll just focus on a few of the key numbers as we've marked on the slide.

For the quarter, we booked an impairment of mining interest and goodwill of $108 million consisting of $51 million against exploration properties where we see no near term programs planned and $57 million recognized against the Kalana project in relation to the envisaged changes to the capital expenditure assumptions within the ongoing technical study. Within other expenses, we recognized $45 million, which included a $23 million ECL or estimated credit loss charge against the deferred cash considerations for the Boungou and Wahgnion asset sales as we have now launched legal action to recover these proceeds and a tax settlement of some $23 million.

The loss on fnancial instruments decreased from a gain of $7 million in Q3 '23 to a loss of $84 million in Q4 '23, largely due to increases in unrealized losses on gold hedges as the gold price increased quarter on quarter and a change in the fair value of NSRs from the divested Boungou and Wahgnion assets, where we updated our assumptions to a more conservative reserve only assumption based on performance from those assets after we divested them.

Adjustments included the previously mentioned noncash impairment charge of $108 million, a net loss on fnancial instruments of $67 million, other expenses of $45 million and a net loss from discontinued operations of $2 million, partially ofset by a gain on non cash tax and other adjustments of $15 million that mainly relate to the impact of foreign exchange re-measurements of deferred tax balances.

I would now like to hand over to Mark, who will take you through our operating performance.

Mark Morcombe {BIO 18316915 }

Thank you, Guy, and hello to everyone. Before I jump into our mine and by mine detail, I want to talk briefy about our safety performance. We have maintained an industry-leading Lost Time Injury Frequency Rate from continuing operations of 0.05 per million hours worked. But even with our strong safety culture, we are always conscious that just one incident is one too many. As Ian mentioned earlier, we were saddened to report that a contractor colleague passed away in February as a result

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