Endeavour Mining plc T.EDV

edv starts construction of its Houndé Project

[Monkeydonkey]

Endeavour starts construction of its Hound Project, its next low-cost gold mine

 

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> Hound to raise Endeavour's overall portfolio quality

•  Average annual production of 235,000 ounces at All-In Sustaining Costs ("AISC") of $610/oz over the first 4 years
• 10 year mine life based on current reserves
• Significant exploration upside to extend mine life
• Expected to increase the Group's production to approximately 900,000 ounces per year and lower average AISC to below $800/oz by 2018⁽¹⁾

> $328 million capex, fully funded from existing sources of capital

>   18-month construction period with gold pour expected Q4-2017

>   15-month Gold Revenue Protection Program implemented to increase cash flow certainty during peak construction period

George Town, April 11, 2016 - Endeavour Mining (TSX:EDV) (OTCQX:EDVMF) is pleased to announce that its 90%-owned Hound Project in Burkina Faso has entered the construction phase of its development, following approval from its Board of Directors.

The Hound Project is expected to deliver average production of 190,000 ounces per year over a 10-year mine life at an AISC of US$709/oz, based on current reserves. The project is an open pit mine with a 3.0Mtpa gravity circuit/ Carbon-In-Leach plant. The initial capital cost is estimated at $328 million, inclusive of $47 million for the owner-mining fleet. The Project is permitted to commence operations and early earthworks have begun.

Neil Woodyer, CEO of Endeavour, stated: 
"With the ramp-up of Karma soon underway, and our operations delivering a strong performance, we are now well positioned to build the Hound project, which will further lift the overall quality of our portfolio. Once in production, it will become our flagship low-cost mine and will rank amongst West Africa's top tier cash generating mines. Furthermore, Hound will benefit both from our construction track-record, demonstrated most recently at Agbaou, and our team's operating experience in Burkina Faso.

The Project is fully-funded based on our expected pro-forma cash position following the completion of the True Gold acquisition, the mine equipment financing, and the undrawn portion of our revolving credit facility. However, rather than draw on our revolving facility, our objective is to fund the remaining capital needs from free cash flow. We have therefore prudently implemented a short-term Gold Revenue Protection program to secure and de-risk the necessary cash flows, providing comfort even if the gold price were to fall to $1,000/oz."

 

 Hound Project Highlights

During the past year, a thorough review and optimization of the Hound Project was completed and an implementation plan was established. The mining and ore processing schedules have remained unchanged since February 2015 while the operating and capital costs were fully scoped and optimized by Endeavour, with assistance from Lycopodium Minerals ("Lycopodium").

Table 1:  Hound Project Highlights
Ownership	90% Endeavour, 10% Burkina Faso
Reserve and Resources(2)
P+P Reserves	31Mt at 2.1 g/t Au for  2.1Moz
M+I Resources (inclusive of reserves)	38Mt at 2.1 g/t Au for  2.5Moz
Inferred Resources	3Mt at 2.6 g/t Au for  0.3Moz
Mine type	Open pit
Mill type	Gravity / CIL plant
Production
Mine life	10 years
Strip ratio, W:O	8.4
Processing rate	3.0 Mtpa
Average LOM Recovery rate	93%
Total LOM gold production	1,906 koz
Average annual production	190 koz
Average LOM AISC	$709/oz
Upfront Capital	$328m, inclusive of $47m for owner mining fleet

 

Table 2: Hound Project Economics(3)

Gold Price (US$/oz)	$1,150	$1,200	$1,250	$1,300	1,350
After-tax Project NPV5%	$230	$286	$342	$398	$437
After-tax Project IRR	24%	28%	32%	36%	39%
Payback, years(4)	2.7	2.4	2.2	2.0	1.8

 

 

Hound Operating Cost Optimization

As shown in the table below, AISC per ounce has remained fairly stable following the completion of a comprehensive review and optimization of life of mine operating costs and sustaining capital requirements.

Table 3: Operating Cost Optimizations

	2015 Case(5)	2016 Optimization	Change
Mining costs, $/t moved	2.03	2.17	+7%
Processing costs, $/t	14.31	13.36	(7%)
Site G&A costs, $m/yr	10.6	9.8	(8%)
LOM Sustaining capital, $m	89	77	(13%)
AISC, US$/oz	714	709	(1%)

 

Following cost and business risk comparisons, the "Owner Operator" option was selected over the "Contractor Mining" approach. The fully scoped mining costs were revised upward mainly due to increased cost assumptions for ore re-handling, blasting and fixed cost re-allocation.

During the optimization process both the Run of Mine ("ROM") pad and the Tailings Storage Facility ("TSF") were relocated to more favorable locations. Furthermore, the TSF was changed from basin to paddock style to optimize the usage of waste material and generate nearly $25 million in reclamation and closure cost savings.

The processing costs estimate decreased due to the positive impacts of i) reagents use optimization; ii) power demand optimizations; and iii) relocation of the TSF, which more than offset the power costs increasing from $0.15 to $0.18 per kWhr.   

Site General and Administrative ("G&A") costs have decreased due to favorable exchange rate variations and re-allocation of fixed labour costs into mining costs.

 

 Hound Capital Costs and Project Management

The optimized and fully scoped upfront capital cost has been estimated at $328 million, inclusive of $47 million for the owner-mining fleet and $28 million for contingencies, which is in line with the 2015 estimate of $32 million.

Table 4: Project Capital Cost Summary in US$m
Mining (inclusive of $47 million for the fleet)	75
Owner Project Costs	68
Treatment Plant Costs	57
Infrastructure (inclusive of $17 million for the 91kv overhead power line)	47
EPCM Management Costs	17
Owner Operation Costs	15
Construction Indirect Cost	14
Reagents and Services	7
Sub-Total	300
Contingency	28
Total	328

The current upfront capital cost estimate is based on power supply from Sonabel, the national electricity utility, consisting of a 38 kilometer, 91kv overhead power line.

Project capital commitment in 2016 is expected to be approximately $180 million, with the remainder in 2017. Within the coming weeks, Endeavour expects to lock-in approximately 25% of the total capital cost by placing firm orders for the SAG and Ball mills, purchasing the mining fleet and paying land compensation and related taxes.

Replicating its successful construction partnership at both Nzema and Agbaou, Endeavour has awarded the EPCM contract to Lycopodium Minerals, and detailed engineering is now commencing. Lycopodium has already had detailed involvement in the Hound Project, through the completion of the Detailed Feasibility Study and the recently completed optimization reviews.

The overall duration of the Project construction is estimated to be 18 months. Endeavour plans to self-perform 72% of the project build, while Lycopodium will focus primarily on the processing facility which is the remaining 28% of the total capital commitment for the project. Endeavour's Project Management Team will include approximately 90 personnel to perform all remaining construction tasks. Endeavour's team will also be responsible for all concrete work, which was the successful approach employed at Agbaou.

The contingency allocation for the Hound Project is based on evaluating the risk level of confidence and experience of the Construction Services Team, for every line item. This method for determining contingency is deemed to be more realistic as opposed to applying a single, all-encompassing contingency for the entire Project. The design of the processing plant and supporting infrastructure for the Project has been carried out in sufficient detail to arrive at cost estimates of appropriate accuracy of +/-10%.

 

Hound Project Funding and Gold Revenue Protection Strategy

The Hound Project is expected to be funded from internal and existing sources of capital, as well as the planned mining equipment financing (as per Table 5). In addition, the free cash flow generated during 2016 and 2017 from Endeavour's five operating mines is expected to increase total financing sources to above 1.5 times the total capital cost, representing in excess of 50% financing headroom.

Table 5: Funding Sources in US$m
Cash Balance (as at Dec 31, 2015)	110
Undrawn RCF (as at Dec 31, 2015)(6)	110
Proceeds from Youga Sale	20
La Mancha Anti-dilution Equity Investment (True Gold acquisition)	62
Mining Equipment financing	50
Total Existing Sources of Capital Excluding 2016-17 Cash Flow	352
Hound Initial Capex	328

Endeavour's objective is to fund Hound utilizing its free cash flow generated over the construction period rather than accessing its Revolving Credit Facility ("RCF"). To support this funding approach it has put in place a short-term Gold Revenue Protection Strategy consisting of Gold Option Contracts evenly spread over a 15-month period, to increase the certainty of its upcoming free cash flow. The Gold Option Contracts have been structured to limit Endeavour's debt requirements even if the gold price drops to $1,000/oz.

A deferred premium collar strategy using written call options and bought put options has been put in place for the 15-month period from April 2016 to June 2017. The program covers a total of 400,000 ounces, representing approximately 50% of Endeavour's total estimated gold production for the period. The total premium payable for entering into this program was $9.2 million, which is deferred and settled as monthly contracts mature. 

The advantages of the Gold Option Contacts during the construction period include:

• ~50% of production will be protected if the gold price falls below $1,200/oz
• 100% of production will benefit from gold price upswings between $1,200 and $1,400/oz
• ~50% of production benefits from gold price upswings beyond $1,400/oz

Once the Gold Option Contracts program ends, Endeavour will return to a position where its gold production is fully exposed to spot gold prices.

 

  Hound Reserves and Resources

The Vindaloo deposits represent 88% of reserve ounces and benefits from the 2003 Burkina Faso Mining Code tax rate of 17.5%, while Bour and Dohoun, which make up the remainder of reserve ounces, are under the 2015 Mining Code tax rate of 27.5%

Table 6:  Hound Project Reserves and Resources(7)

	Vindaloo Deposits				Bour				Dohoun				Total
	Mt	Au g/t	koz		Mt	Au g/t	koz		Mt	Au g/t	koz		Mt	Au g/t	koz
P&P Reserves	28.3	2.00	1,822		1.1	5.20	181		1.2	1.90	72		30.6	2.11	2,075
M&I Resources	35.7	1.98	2,276		1.1	5.37	189		1.2	2.35	87		37.9	2.09	2,551
Inferred Resources	3.0	2.57	247		0.2	3.43	20		0.1	2.91	6		3.2	2.62	274

Resources inclusive of Reserves, on a 100% basis as at Dec 31, 2015

Exploration Upside to Significantly Extend Hound's Mine Life  

The Hound exploration tenement covers over 1,075km² within Burkina Faso's highly prospective Birimian belt. However, in light of the Project's already robust economics, limited exploration has been done over the past years, aside from the short 2014 drilling campaign which outlined the Bour and Dohoun deposits and resulted in a 34% increase in Mineral Reserves to 2.1 million ounces.

Historically, exploration focused mainly on the Vindaloo trends, however at least 15 significant targets located within 20km of the planned mill that have been identified by previous limited drilling campaigns.  Most of these targets are untested and Endeavour expects to explore high grade targets of greater than 5 g/t as its priority.

The Hound long-term exploration strategy is currently being integrated in Endeavour's ongoing exploration strategic review.

 

Community and Social Responsibility Actions

Endeavour recognizes that an active CSR program is the foundation of long-term success. As such, it established a dedicated Hound Project Safety, Occupational Health and Environment department and hosted a significant amount of stakeholder meetings. Endeavour has also launched community development programs including livelihood restoration and community derived micro-project initiatives, and is currently reviewing its extensive Human Resources database to promote local employment.

The Project continues to benefit from strong stakeholder support. The Provincial Resettlement Committee, which was set up two years ago, re-validated and approved the resettlement plans at the end of February and the compensation process began shortly after, in April 2016.

 

Conference call and live webcast

Management will host a conference call and live webcast on April 11, 2016, at 11:30am Toronto time (EST), 4.30pm London time (GMT); 5.30pm Paris time (CET), to discuss the Hound Project. 

 

The live webcast can be accessed through the following link:

https://edge.media-server.com/m/p/tzxdg664

 

Analysts and interested investors are also invited to participate and ask questions using the dial-in numbers below:

International:	[phone]
North American toll-free:	1 877 280 2342
UK toll-free:	0800 279 4992
Australian toll-free:	1 800 040 158
Confirmation code:	249724

 

A replay of the conference call and webcast will be available on Endeavour's website.

 

 

Contact Information

Vincent Benoit EVP - Strategy & Business Development [phone] [e-mail]	DFH Public Affairs in Toronto John Vincic [phone] x.224 [e-mail]
Martino De Ciccio VP - Strategy & Investor Relations [phone] [e-mail]	Brunswick Group LLP in London Carole Cable, Partner [phone] [e-mail]

 

Qualified Persons and Technical Note

 Adriaan "Attie" Roux, Pr.Sci.Nat, Endeavour's Chief Operating Officer, is a Qualified Person under NI 43-101, and has reviewed and approved the operational analysis, operating and capital estimates, and other technical information in this news release.

M. Zammit MAIG (Cube Consulting) is an independent Qualified Person for the Vindaloo mineral resources. Kevin Harris CPG (Endeavour) is a Qualified Person for the Bour and Dohoun mineral resources. R.M. Cheyne FAusIMM (Orelogy) is an independent Qualified Person for the Vindaloo mineral reserves and the overall mining schedule. Michael Alyoshin MAusIMM CP Min (Endeavour) is a Qualified Person for the Bour and Dohoun mineral reserves. Most recent filed report is "Hound Gold Project - Burkina Faso, Feasibility Study NI 43-101 Technical Report" effective date October 31, 2013, prepared by M. Zammit MAIG (Cube Consulting), M. Warren MIEAust CPEng (Lycopodium), R.M. Cheyne FAusIMM (ORELOGY), D. Morgan CPEng (Knight Pisold), P. O'Bryan MAusIMM (CP) (Peter O'Bryan and Associates).

The Hound Mineral Resource has been estimated using a gold price of Us$1,500/oz and a lower cut-off grade 0.5 g/t Au.  The Hound Mineral Reserve has been estimated using a gold price of Us$1,300/oz and a lower cut-off grade between 0.4 and 0.8 g/t Au, varying by distance from deposit to the mill and ore type.

About Endeavour Mining Corporation

Endeavour Mining is a TSX-listed intermediate gold mining company which operates 4 West African mines in Cte d'Ivoire, Mali, and Ghana. In 2016, it expects to produce between 535,000 and 560,000 ounces at an all-in sustaining cost of US$870 to US$920 per ounce, after adjustment of the recent Youga sale and excluding the Karma mine (where the transaction with True Gold is expected to close at the end of April 2016). Endeavour Mining is focused on effectively managing its existing assets to maximize cash flow as well as pursuing organic and strategic growth opportunities that benefit from its management and operational expertise.