Hi. Good afternoon, ladies and gentlemen. Welcome to the B2Gold Corp Second Quarter And First Half 2018 Financial Results Conference Call. I would now like to turn the call over to Mr. Clive Johnson, President and CEO.
You may proceed, Mr. Johnson.
Thanks, operator. Welcome everyone to the conference call today as we operator said to discuss the second quarter 2018 financial results. We, as everyone knows, pre release the production numbers. We put out a extensive, the financials yesterday with extensive MD and A management, discussion analysis. Results and the news release is quite detailed as well.
So, basically, I think the the numbers, what we're doing, it should speak for itself. So today, we'll have, a brief discussion perhaps a little bit of strategy to further just for me very briefly, and then Mike's gonna take over and talk about the some of the financials, and then Tom's gonna talk about the drilling we're doing to call north and Bill's gonna talk about the expansion, studies we're doing and and the timing of those events of a new resource and the expansion study for the Nicola. So just in terms of the the quarter, I just had a number speak to themselves and had a very strong quarter for us. Very good performance from the binds. In terms of a strategic view where we are, our strategy is that it's outlined in the news release and the DNA.
But briefly, it's to continue on what we did for a while, which to maximize, production and operations, maintain our tremendous state track record of environmental responsibility and social programs and, focus our, focus the future on repaying debt, the the maximizing cash flows, repaying debt, and also looking to grow through our pipeline of opportunities. Which, Bacola being, probably the most in the 4th office. We'll talk about quite a bit as we go through this. But the strategy is I'm looking at any significant of the M and A. Frankly, we don't like a lot of reviews we see out there.
Obviously, we wouldn't be looking to use our shares as a currency. Anytime in a severe environment, but more importantly and significantly, it's because of the dramatic potential growth from within the pipeline, such as potential to the, make Fekola substantially larger mine with a much larger resource, ultimately reserves and also looking at some of our other opportunities in the the states of Fekola and also in things like Chuega and Padilla Faso and various center projects we're we're looking to to do more work in drilling on. We have a mess. The, everyone is probably aware. We are doing very well, on schedule to look at ahead on the most body no expansion.
And we're also, are gonna come out soon, with, what we think will be positive study on the El Limon Sethro zone, the impact that that large new resource has when we put the the mine plan on it and and the the flight cost, etcetera, we think it's gonna be a game changer for around the moment in terms of my life and also, its profitability, etcetera. So that's the main points. I guess it's something that I would like to talk about on the outside just to deal with it. One of the things I I'd like to point out is that, you know, we're hearing a lot of, negativity in the sector, understandably, because of some some pretty poor performance by too many companies. When it comes to us, I guess what we're hearing a lot of is that, political risk and West African political risk, does he become a team or African political risk?
I think it's just really important. To emphasize that we, that when it comes to political risk, between VMM and V2Gold, we've really spent the last 35 years showing how we deal with political risk and often political risk in other's eyes has been opportunity in ours. But I just think it's important that people realize that everyone has put a risk everywhere. That is how you deal with it, what you do about it. I look into the premise, but you just wanna try to gold as a positive because of the way we, and the years before with being the gold, have dealt successfully with every imaginable political risk and all these countries.
So when people bring it up, I don't see it as a negative. I see it as a positive because it's how you deal with political risk, whichever one has, which separates successful companies and those that are less successful. So we're very good at it. Specifically, in West Africa, we had a great relationship with the government, we we we talked to this auto. We talked to this other time again.
Holly South Tanzania, and every project. And every country needs to be looked at installation. I wanna know people love me but want to to generalize, but that would be wrong. Specifically as well, we've just seen an announcement for Randville that they an agreement with a couple of Maui to proceed with the expansion and the project, and they got a they had, I guess, a previously existing with a government percent, some lesser taxes that may expand in the operation, but I'm not going to plan. I don't know the details of that, but what I will say is it's a positive sign the government's again, as we've always seen, the government once more go money in Mali.
And if you look at the speech to president made in February this year, risk development, for Randgold, it's very positive for the government. It's very positive for the sector and, obviously, for Randgold. It shows the government's serious about making sure other minds are that that can be economically expanded or built, get done. And and you couldn't have a better political environment to point of view of the government wanting binding that Nala has shown for over 30 years. So I really think that people have to throw around the political risk credestants and or whirier fear has not to be afraid of the light, has not to be afraid in the gold space these days, in terms of poor performance, unfortunately.
At the end of the day, people wanna throw around political risk at least know what they're talking about. So I would invite you to dig a little deeper if you wanna talk about political risk be too golden. So, that's what I really all I wanted to say. I'm gonna pass it over to Mike now to review the financials and, and Tom will talk about the resource in drilling, as I said, Nicole and we'll talk about the expansion state of the goal. And then we'll open it up for your questions, and we'll try to be concise and brief.
It'll be a nice one.
Okay. Thanks Clive. So as Clive said, a very positive quarter in the second quarter for V2. We had on the sales side, we sold 221,000 ounces, which was 89,000 more than the comparable quarter last year. And that's driven almost exclusively by Fekola being online, for the full since the start of the year at full commercial production, we had sales for Fekola 100,000 ounces.
Overall, revenues increased to $285,000,000, which was driven 68% by an increase in ounces sold and a 3% increase in the gold price. On a production side, consolidated gold production for the Q was 240,000 ounces, which was 16,000 ounces higher than budget. And that beat on budget comes from the outperformance of Fekola and Masbate slightly offset by some minor shortfalls in that June Nicaragua production. Breaking it down to Fekola had 113,000 for the queue against the budget of 101,000, so it beat it by 12,000 ounces. And that came from the what you call it though.
The whole eternity of higher throughput. We were 8% over budget. And I think the mill is now running comfortably. It's somewhere around 5,500,000 tons per annum. And we tested that now over a variety of ore types and rock types.
It's also run higher recoveries, 95.3 against a budget of 92.7%. Ojikoto 41,000 ounces is basically in line. Masbate 54,000 ounces, which was 11,000 ounces over budget. Masbate had higher recoveries and higher grade in the queue. And that's mainly from an unexpected hire grade in backfiller that we actually took from old underground mine workings as we mine the Colorado pit.
That backfiller was higher grade than originally the original plant in Situar that we were going to mine and for it increased the overall grade. Libertad 21,000 ounces, which was about 3000 ounces under budget. Libertad was progressing well through a second quarter through April and May, basically on budget. But we had some roadblocks related to the current political unrest in Nicaragua, which was directed to supply of key consumables, mainly lime and fuel in June. And so therefore in June, we are he ran some lower grade spent or to just to manage that supply issue and reduce lime and fuel consumption.
And then Limon Lamon had 11,000 ounces in the queue, again, both 3000 ounces under budget. It also was impacted by some block 8 in June related to local employment issues, which have since been, rectified and resolved. The moment in April of May was actually tracking slightly better than budget. And now with the resolution of the June, issue, we've tracked back to budgeted levels again. Overall, 240,000 ounces for the Q, with Nick, with Fekola's continued, outperformance.
It's basically being beat in budget by around about 10,000 ounces for the 1st couple of quarters. We've now reguided up Fekola. We'd note that its annual production is expected to be somewhere in the 420,000 to 430,000 ounce range. And with Nicaragua, when production shortfalls in June, we've actually reguided both Libertad and Limon down by 5000 ounces each for the for the period, which results in an overall revised consolidated production forecast of between $920,000 960,000 ounces. We haven't re guided anything on the cost side just on the production side.
Moving to
the cost side. Cash costs for Q2 consolidated cash costs very healthy $4.74 an ounce, which was $86 less than budget driven, mainly again by that higher production in Fekola and Masbate along with other cost savings at those operations. So Fekola was $3.18 an ounce, $73 under budget. And it benefited from, firstly, the higher gold production and then also lower than budget at mighty costs During the quarter, we were in a zone, that was near with the near surface weather, rockstone and phase 4th Fekola Pit, which didn't require drilling and blasting, and hence we had lower, operating and maintenance costs for the period. Ojikoto $505 an ounce almost pretty much on budget.
We did have a strengthening in the rand in the period, but that was offset by other cost savings. And it should also comment that we had Ojikoto's solar plant grand opening at the end of May 2018, which no, that solar plant is expected to replace approximately 13% of the generator electricity needs at Otjikoto And, we think overall, it'll reduce operating costs by approximately 3%. For the Q5.31 an ounce. That was $199, almost $200 an ounce less than budget. So it beat the the budgeted cost ranged again due to higher production and also significantly lower mining costs with cost savings and drilling blastic and grade control.
And we also have some higher deferred strip adjustments than we had originally budgeted. Libertad was $8.75 announced pretty much on budget, although we had, reduced production in June, aggressive cost control, basically held Libertad's overall operating cost of budget. And then at the moment, $8.93 an ounce only marginally $33 an ounce over budget. Again, it outperformed budget in April of May. And then we saw It pulled back some levels to lower June production numbers.
But overall, Limon pretty much on budget. And as I said before, Limon has now returned sort of steady state budgeted numbers as we move forward. So that'll end the consolidated cash cost $474 an ounce, which $86 under budget. When you translate that into the oil and sustaining costs, $7.21 an ounce 146 dollars under budget. That reflects the $86 beat on the cash cost side plus some lower CapEx at some of the operations.
Fekola was $4.45 an ounce, $160 plus under budget. So that's good from lower operating costs. And then it also had some mining costs and CapEx that were lower than budget, specifically some of it on the stripping side. Ojikoto, $8.24 announced $58 over budget. And that's mainly a reflection of, some CapEx.
That's a timing issue. Some of the CapEx we had in Q2 for fleet rebuilds was originally expected to happen later in the year, but it happened in Q2. So we should see that timing difference reversed later in the year. Vasadis $7.27 announced $2.70 under budget, and that's just a function of the lower cash costs on the higher than budgeted production. And Libertad is below Libertad is $1200.27 under budget, and that reflects slightly lower cash costs.
And then also, it had some lower than budgeted pre strip costs at San Juan. We think overall what the final pit design final pit design of San Juan, we're going to have slightly lower overall CapEx there. Limon's $16.14 an ounce, it was $2.20 $2.22 over budget, higher cash costs, and then it also reflects some higher development costs in Santa Pancha. Now with CapEx that we originally planned to Q1 that was actually done in Q2. A couple other general comments on the offices before I move on to the cash flows.
So, I've been valued. The expansion has progressed well. We're still scheduled to come online by the first quarter of 2019. And that expansion has expanded to mill from 6,800,000 to 8,000,000 tons per annum. And it's on time and on budget.
And then Nicaragua, we did have a delay in developing the heavily open pit with some of the social unrest that was there. So we're now scheduling Havily Antenna open pit to come online in Q1 twenty nineteen. And we also had a couple months delay in furthering the Jabali Antenna underground development temporarily delayed in Q2, and we now expect it to come online at the end of Q3. And then with Limon, with the Revlimus and the issues in June, Limon has returned to steady state and the big focus there now. Is on updating the Limon Central, feasibility study.
And my plan, I think we'll hear more about that from Tom shortly. So I'd like to move on just kind of a couple of things on the income statement. G and A was up marginally by about $1,000,000 and that really reflects affected Fekola is now online and SG and A costs are being expensed. They were previously capitalized. Derivative gains in the income statement, we saw realized and unrealized dilutive gains of approximately $6,000,000 or $5,000,000.
That reflects, gains from fuel derivatives, offset by smaller losses on Namibian go forwards. Those Namibian go forwards were contracts we put in place. And an earlier version of the RCS a few years ago when Otjikoto was being built, we only have 21,000 ounces left on that to be delivered and that'll be delivered into through the remainder of 2018. And then on the fuel side, we're still following our hedging policy of hedging 50% of the next 12 months production and then 25% of the subsequent 12 months production. And We continue to watch fuel prices and put on, forward when we think it makes sense.
The other thing to comment on the income statement or income taxes the significant increase in the quarter to $23,000,000 from $2,000,000 in the prior year quarter. And that almost exclusively reflects the fact Fekola's come online. Of that, $23,000,000 number 19 related to Fekola. So fourteen of that is Fekola corporate income taxes, and then $5,000,000 of it is the Fekola government priority dividends. The first 10% of the government will hold in Fekola, they get a priority dividend that would, which is equal to 10% of net earnings.
And so that's tender force attacks and flow through the tax line. We also saw a $1,000,000 increase on Masbate taxes and Masbate would previously have that income tax holding. Which expired in June of last year. And then for those of you that like deferred income taxes or care to know, The $27,000,000 charge in the year, and that just relates to foreign exchange. We saw a strengthening of, Vascepa is in Namibian dollar.
And with that, that creates some timing differences that were reflected in the per day contacts. And again, those will reverse over time. Net income for the quarter of $21,000,002 cents a share and adjusted net income for the quarter was $46,000,000 or 0 point 0 $5 per share. Few comments on the cash flows. Operating cash flow for the period of the quarter was $86,000,000 $0.09 a share.
That did include just under $20,000,000 of, working capital inventory adjustments where we built up some goal in Fekola and his value and we expect that we'll see that. That's just the timing of shipments issue. And we expect that we'll see that difference reversed in the third quarter. Year to date, we've generated $233,000,000 or $0.24 a share of operating cash flow. On the financing side, we repaid a net $50,000,000 on the revolver for the quarter.
We paid it down again. And so far, in the end of June, we paid down in that $125,000,000 year to date. Subsequent to the end of June, we repaid another $25,000,000. So total repayments on the RCF for the year are $150,000,000, and that takes our drawn balance the amount that we've actually still owe under the RCF down to $200,000,000 at the current time, which means we have $300,000,000 undrawn and available under the facility. And that facility runs to 2021.
It's our intention, at this point in time, the financing side, as we've said, a few times before the converts and exports are major data and will be the maturity of the convert, $258,000,000 on October 1, of this year and it's our intention to repay that cash unless the, those notes are converted, the conversion options are exercised. We have lots of liquidity. We have $107,000,000 at the end of the period in cash and also now have $300,000,000 available under our facility. So we have lots of liquidity to deal with the convert. On the investing side, a quick comment.
We spent $80,000,000 in the period, pretty much on budget, for most tops. We were under budget at La Libertad, which by approximately $12,000,000. And that relates to a couple of things. One is to have Elite's development costs. We expect the push was out now.
It's the end of the year, early next year. Of $8,000,000. And then we were also wondering San Juan pre stripping, as I mentioned earlier. Exploration for the period was $33,000,000 and, that's for year to date. And the total that's pretty much Right on budget, we did increase expiration comp as a budget for expiration by $4,000,000.
This quarter and that money is scheduled to go into the ground in the Fekola North extension expiration activity. And then final comment in 2019, as we move forward, reducing our debt load, which is part of our overall strategy, We intend to revisit the dividend discussion. So we'll evaluate cash flows in 2019 and then potential for a dividend based on where the company and what its current growth activities are at that time. I think those really were the main financial items. I was planning to cover, but happy to answer any questions.
Do you think you want Tom now to talk about?
Tom, okay. So I guess Tom's going to maybe talk about exploration right now. And then I guess we can take questions after that.
Thanks, Mike. Good morning, everybody. Just to further talk about the just the Fekola expiration. As Mike said, we've significantly expanded the budget of Fekola. Largely to do the infill drilling in an area to the north of the current, reserve pit.
In fact, the area that we're covering with drilling right now is approximately a kilometer north of the pit and to a depth of just over 3 150 meters. This is the area we're doing infill drilling. By the end of the year, we'll have drilled about 25,000 meters of diamond drilling
and
38,000 meters of RC. Now the area that we're drilling is for to complete a resource by October. But once that infill drilling is done, we're gonna continue drilling to the north of that because the deposit remains open in that direction. We expect to have this resource out in October and is pretty good chance, we'll have some real results coming out in September to back that up. I will make a and about this resource, really, you know, a lot of people will say, well, why are you going north?
Is it keeps on plunging down to the north? Well, what impact has happened is, although it's still lunges northwards, the main part of the ore body has come up towards surface either a second chute or the main chute itself is expanded. But either way, with that coming closer to surface, it actually allows the pit to be driven out in that direction. And that's what's driving this larger resource that we're looking at. If there's any questions, just pass them on.
Thanks.
Yes. Tom, maybe just to add to what you're saying, Clive, mentioned that we talked a little bit about the expansion potential. We are currently looking at it, from an engineering standpoint, John Raulis, VP of metallurgy is currently working on a grinding study, basically to figure out how much capacity we have in the mills and how much how big we can go there. And it issues that doing a debottlenecking study, which would give us an indication really what the largest we could make that mill is and what the cost would be associated with that in a standard or VP of project development, either VP of project development, is leading a study, which looks at, both the infrastructure and the mining fleet. So how big could we make the mining fleet?
What's the optimal size based on the potential resource that Tom is developing. In addition to that, he's looking at all the infrastructure, things like tailings facilities, and warehouses, HME shops, those types of things, just to make sure that by the end of the year, we have sufficient information internally, to make some decisions on how big we really think this thing can get and how big we want be based on capital influx. So I don't know if there's anything you want to add on that. Okay. Back to you, Clive.
Okay. Well, I guess with that, we'll open it up to, questions. Just one comment on the the dividend that Mike talked about. But looking into the policy next year, I just wanna reiterate that We think that, our shareholders want us to, be a profitable company that, continues to grow as we've done successfully for our living units so far. So we hope that what they aspire to be in the company, but they're still a growth company.
And as Mike said, we'll start to look at that as we get 19, part of it will be dependent upon cash flow, of course, and therefore, that will be part of the dependent upon the gold price. But we, see ourselves as wanting to be able to do both, aspire to get you to the point where we continue to grow, which we do well, you know, so get to a point where we can do both throw and pay a dividend to our shareholders as well. So with that, I think we'll open it up to the questions.
Questions compiled. Your first question comes from Lawson Winder from Bank of America Merrill Lynch. Line is open.
Hi guys. Congratulations on a really great quarter. Just wanted to maybe start Fekola, you mentioned that the mine was, you were mining 20% above budget. I was just curious, is that being driven just the softer rock that you're experiencing or is there something else to that?
I'll take that one for sure because it was in the press release, but in discussion this morning, with site, they actually chastised me a little bit. Certainly, it obviously, we're in the honeymoon phase of our equipment, brand new equipment. But with that being said, we're seeing much higher productivity than we had anticipated certainly much higher availability. The fact is we're not that deep in the pit and you do have we're in the upper zone for sure. So, we do think the costs are going to come up a little bit.
We don't think that they're going to approach what the feasibility costs are.
That's in 2018? Or are you talking 2019 2020 as well when you're looking out and saying that you don't think you'll approach those feasibility costs?
Going forward as well.
Okay. Okay. That's great. And then, are you are you able to share with us just what your cost was, your mining cost per total ton move was at Fekola then?
For Q2. For Q2? You
can for sure. Let me just roll it up here so I get the right number. So for the current period, our cost for Rockton Mine was, about 34
$1.34. And then, yes, just one more sort of follow-up then on that cost. So it actually did up a little bit versus Q1 just on a cost per ton milled basis. Is that just the evolution of the pit as you do actually do go a little bit lower?
Was your question on the mining side or on the processing side?
Just total cost. So you just take the cash operating cost convert that on a per ton to a per ton process basis.
Maybe someone else can chime in after I answer if they had a different answer. But the way I see it is, remember, we're still only in our second quarter of production. So we still are testing something. As you can see, like the mill cost is still kind of moving around a little bit. As we look at reagent consumption and optimization, Mining costs for the year is kind of stuck right there at the kind of $1.35 $1.34 per U.
S. Dollars per ton. Site general is actually down a little bit for the half year, but down for the quarter. So we continue just to optimize. I'd say we're still in Q2 and it's still too early to say where it's going to settle in kind of steady state and we're well under budget.
And we're well under budget.
Yes. No, definitely. Great. Absolutely amazing quarter if I call. And then just one last one for me on Libertad.
So with Jabali Antenna open pit now not included in the guidance, like the tons processed in the grade be materially different from what you originally guided to. So originally, back in early 2018, you said 2,300,000 tons at around 1.75, I believe. Is that Is that still in line or is that?
Well, Lawson recall in our stated guidance, we've dropped our production forecast by 5000 ounces. And in the interim developed, our sources basically remixed our existing, mine sources, which will be heavily underground, late in the third quarter. San Juan, San Diego and Sandor.
Okay. Got you. Okay. That's great. Thanks a lot guys.
Your next question comes from mix
a couple of questions on my end. Just that Fekola, do you see a foresee a decrease in recoveries from that 95 percent range as more fresh material is processed?
So I'll answer it now and then you can correct me if I'm wrong because we talked about
it a
little bit. So the 95, once again, we still haven't tested all the sites of rock. What we can say, and I think we said it in the press releases, is we do believe we're going to be above the 92.7%. And so right now, we're bracketing between that kind of 95.3% and the 92.7%. Think it's going to be somewhere between there.
We don't think it's going to be ultimately 95.3 or we can't say that yet. We don't have enough information. We think it definitely hired 92.7. John?
Yes. I agree with that, Bill. We'll exceed feasibility study recovery, but still too early to make a projection on the where the recoveries will settle in for the future.
Okay. Thanks for that. And on the processing side of things, you said that the it has been shifting around the processing cost per ton. You able to provide us with an indicative budgeted processing cost to your shooting for in 2018?
I'll turn it down.
I don't have those costs in front of me, but we've been below budgets. And
we expect to continue,
below budget for the remainder of the year. I believe we're averaging about $14 to $15 a ton.
I'm just showing John, I've got some of the tables here from the variances work.
As you said, we're kind of in the
between $14.15 and we had $17 in the in the budget for 2018. So we're going
to be below significantly below budget. We're well below budget. And those $17 a ton costs were those were feasibility projected operating costs were processed.
Okay, excellent. Thanks for that. And finally, we didn't see any of Anaconda, Ada or Mamba. Is there any reason for lack of disclosure on the Fekola saprolite deposits?
Tom, you want to take a look at that?
Kevin, but I think, honestly, just consistent with what going on there, if you look back at what we said?
We lost you, Clive.
I can answer. In terms of, the Anaconda area, it's not a question of not being something we're interested in. It's just that, you know, we're looking at expanding the Fekola pit by, you know, could be up to a kilometer.
Maybe even a bit more,
why would we not focus on that right now? And that's really what we're doing.
Okay. Excellent. We are doing some internal test work on Avocado. We are tried we are advancing some things there with internal studies and things of that nature. So, we are working on it.
Yeah.
Are you still drilling at Anaconda?
Yes, we still have a rig working on Anaconda. Slow down a bit with the rainy season, but yeah, we'll be there in the back half of the year.
Yes, just one time for Mike.
If you want some more detail
on that, if you look at page 24 of the MD and A, just a discussion about what we're currently doing there.
Start the call.
Your next question comes the line of Matthew McPhillan with Canaccord Genuity.
In on the Austin quarter. Just talking about the Secolus group that you're seeing, you're comfortable with the pension increase, long term over current nameplates. Just to confirm, that's with no incremental capital. Correct? That's just based on the, kind of experience you've had with the different worksites.
That is 100% correct. If you remember, the feasibility was designed to we went at 4,000,000 tons per annum during construction due to expiration success and the success we were having with the construction process, we went ahead and expanded to 5,000,000 they've now tested it and feel very comfortable that we could set the minimum that we can run at over a course of the year is $5,500,000.
Okay. And is that the 5.5, is that, consider that to be a little bit conservative, or do you think you can go a little bit higher than that, or is that aggressive or conservative? What do you think?
That is exactly what we're testing right now.
Okay. I'll just add. Yeah, we have a grinding study in progress. We just completed a sampling and data collection program July. And then that will feed into the grinding study, which, will be completed in about mid September.
So at that time, we'll know a lot more about our potential then.
Okay, great. And then just a follow-up on that. Someone may it may have been brought up previously, but the you're saying that, recoveries, you're looking at sustainably above 95%. With that number even at the higher throughput, the 5.5?
Well, what we said actually was that a lower we announced 95 point 3 or whatever it was for this quarter, the feasibility at 92.7 and we think it's going to fall somewhere in between there and we're still doing the studies.
Okay, all right. Thanks for the clarification. Those are all the questions I had. Thanks guys.
Your next question comes from Chris Thompson with PI Financial. Your line is open.
Sweetie. Fantastic quarter. Two quick questions. One on Masbate. Obviously, Yuri, you explained that performance was very much on the back of high grade on the backfill ore from Colorado.
Can you give us a sense of what the second half of year looks like as you, I guess, prepare to enjoy the merits of the expanded mill.
Well,
I mean, I know you want to, right? Go ahead, John. Okay. Hi, Chris. Yes, what we see really is a continuous of the performance through July, August, timeframe.
And then we'll track closer to our budget forecast as we complete color out of pit, which we anticipate doing in August So we'll track close to budget for the remainder of the year, but September through the end of the year with declining recoveries as we reduce the off-site content. 3rd quarter, 30% final quarter of the year, closer to 5% to 10% oxide.
Perfect. Thanks for that, Dale.
Chris, it's almost final like you said, something that you thought that the expansion would impact this year, but that only comes on next year. Right.
Okay, perfect. Thanks. And just the final question for me, just Ajikoto. Again, I guess, an asset in transition high strip for this year, but looking at the grades, do we expect to see a grade sort of, improve towards the end of the year here, head grade?
Well, maybe the geologist can answer that. But the answer is, we've kind of tracked right on budget there. So we would at the halfway point, we're kind of at exactly the halfway of where we thought we'd be for the year. So I don't think they're going to change that much difference. As you know, this year, we're primarily in Otjikoto, except for a very little bit at the very end of the year.
And then, of course, Wolfshag comes in for 2019, and we're currently looking at The resource model there and seeing if there's any changes continue to occur there and what that means for 2019.
All right guys. That's it for me. Congratulations.
Your next question comes from Steven Butler with GMP Securities. Your line is open.
Thanks, operator. Hey, Mike, a question for you or 2. On the Fekola, the extra 10% that will go the government's way. I know they're waiting that process is, I guess, you say imminent here. So we'll wait for that at some point.
What is the level of intercompany loans right now that existed Fekola and the interest rate that you deem on those loans?
Well, we'll deal with the interest rate point first. Those loans, there's a West African sort of group estates rate, which I think is currently 3.5% or 4.5%. And then the loans themselves carry an additional incremental 2 So we're kind of looking at 6.5 percent on the loan. That's the rate. And then, you know, the loans, the loans comes around.
Obviously, we're repaying back now as we generate cash flow, but probably the number you probably want to work off is what did they peak out at in terms of when just when construction was complete and we went into operation. And you're looking somewhere around 700,000,000 because remember, there were historical loans in the local entity. So US700 $1,000,000 is roughly the number we should work up.
Okay. Mike, will that flow through the income tax line as well or separately?
No, that'll be a separate line item now remember as well that we have disclosed before. We haven't disclosed the final agreement yet because we're waiting for the which is you're right. We say we think it's imminent. But when that does happen, any amount that the state is going to pay us for that 2nd 10 percent post construction cost volume. We're going to that's going to be set up in form of a loan and we're going to receive those loan repayments until that loan plus interest is repaid.
So that's what you'll see on the that's how we reflect nationals. They'll be a loan payable to us by the state of Maui for their purchase price and you'll see that loan reduce over time as left evident is paid.
Okay. I got it. Yeah. And then, what's, Mike, what's your hedging level of oil price on your hedges to that roughly?
You mean, what are we actually
hedging at
the levels, the volumes, etcetera?
I think the best
through it
all
in this call. I think if you look at note 11 to the financials, we've laid it out in there for you. The volumes and the strike prices.
Okay, got we'll look for that. Yeah. And then, lastly, Mike, maybe you could clarify a bit. I saw it on the financial statements of course, in the cash flow statement that fairly large $49,000,000 for interest and commitment fees on your debt as an additional, if you will, interest related expense, but maybe you could elaborate a bit more on that. $14,000,000 there plus the extra $8,500,000 on the income statement, is a hefty level of total interest and commitment fees, maybe you could just elaborate a bit more?
No, you've got to remember that the way we show it on the cash flow is we show all interest payments as part of financing activities. As you companies either decidedly showed all those operating or financing. So we showed as financing. So at the 8.5 you see on the income statement, actually get that added back up top.
Oh, it does? Okay. It's up top.
Yes. So we're not looking at
a combination. You're looking at a total of 14. Okay.
So it must be Those
reflect fees on the revolver and on the convert and some lease interest, but the main ones are the revolver and the convert. And you got to remember as well when you compare like for like on the income statement that last year, we were capitalizing interest as part of the Fekola construction costs, which we no longer are.
Okay. So on the operating activity, adjustments up above. It's under, I guess, it's under non cash charges. It wasn't quite clear to me as to where it might be taken out
of the Yes. If you go look in Note 14, you'll see it getting added in there.
Okay. Got to look
a little deeper. Okay. Thanks guys.
Your next question comes from Chitamiqaluku Musanda from Global Mining Research. Your line is open.
Thank you. Hi, Clive and team. Thanks for taking the question. Just want a quick follow-up on Fekola. Did you say you're already at 5,500,000 tonnes per year or are the grinding studies looking to get you there?
We said absolutely that we are $5,500,000 and comfortable saying we can sustain that overall rock pace.
Okay. Thank you.
That's all for me.
Your next question comes from Don DeMarco with National Bank Financial. Your line is open.
Hi there. Thanks for taking my call. I guess the last question, just to build on that, regarding the 5.5, like I see in Q2, you're running at around 5,300,000 annual run rate. So given the fact you're comfortable at 5.5, does that suggest that we might see a quarter over quarter increase in throughput in Q3?
I believe the answer is yes.
Okay. And, you know, I was looking at the grades, the technical report calls for grades at Fekola to to edge a little bit higher I think it's like 3.2 grams per ton in the 2nd year of operations. That's the mill grade. Is that, is that still a reasonable assumption to make?
Yes. What you have to remember is we did a little bit different than the feasibility. We actually started mining in March of last year. So we have this very large stockpile that we've accumulated, like 3,700,000 tons or something like that. And so we're actually being very selective right now and we're actually mining or we're managing our mill throughput as far as what we're actually putting into the mill.
So we have, we have a kind of an interesting scenario where we were trying to blend this out over the next couple of years, what our out production will be. So the answer is yes, we could run at 3.2%. We may run higher this year. We may run higher next year. We're still looking at what that looks like.
Okay, okay. That's all for me. Thanks a lot guys.
Your next question comes from Dan Rollins with RBC Capital Markets. Your line is open.
Yeah, just a question regarding the potential upcoming expansion at Fekola. Just given the fact that the throughput is running well above design capacity, your unit costs are trending well below expectations. Any thoughts about potentially dropping the cutoff grade when you move to reserves given the improved economics of the ore body?
We're looking at it, yes.
And impacts trade off on grade, any thoughts or is it really the just more ounces of the same cost structure and just more free cash flow to you?
Too early to tell.
Okay. And then if we look one of the challenges we have in the gold sector versus other copper, other mines is the sustainability of production. Are you looking at sort of a 10 year mine life with the expansion? Or are you thinking maybe pushes out to 15, give yourself a 15 year cash flow, Cal? In Fekola and then take the risk of having to chase 400,000, 500,000 plus ounces of production to replace every year.
Yes, I'm sure Clive wants to answer that one, but from an operational standpoint, it's what we're looking at, right? That's what this expansion study does. We don't have a final resource yet and we certainly don't know what our throughput is going to be. Perfect.
It's fine. I would just add that. I would just add that we're gonna obviously look at what the best economics are and thinking within the best business or shareholders. So the first next step is the resource. How much bigger does it get?
So you'll we get our views. This is it looks like, well, I don't significantly longer my life than the current, pertaining to my life. We started with it at 5,000,000 tons. So the question will be, do we want to expand, and there's just more gold, or do we want to have a longer buy life? And you're right.
Those are those are always, challenging our sector, which way you go. And we'll we'll be looking at that by the end of the year. We'll have, you know, not only the new resource, we'll have, ideas about what expansion looks like. It doesn't make sense and and what my life is together. And don't forget, we have mistakes to the north.
It's early days, but we're starting to see under the saprolite with with with the material. We're starting to see, some good hits early on, but good hits in the bedrock, sulfides below, which is what we're looking for. Another Fekola potential. So there's 5 kilometers, 5 kilometer to drill there at saprolite Materials. So, we'll be looking at all that as we go forward this year and into next.
Much appreciated. Thanks for the color.
There are no further questions queued up at this time. I'll turn the call back over to Clive Johnson.
Okay. Thanks everyone. Thanks for, for your interest in your good questions. We'll, we'll keep you posted. Follow-up with me and if you have any other questions that we were in, that we didn't answer on the call.
Thanks for your time.
This concludes today's conference call. You may now disconnect.