Good afternoon, ladies and gentlemen. Welcome to B2Goldcorp's first quarter 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.
Hello. Thank you, operator. Welcome everyone to, beat beat your gold conference call to discuss the results from the first quarter of 2018, the company's financial results. I was speaking to you from London, and, over here, I'm seeing some shareholders, etcetera. And, So a little jet lag and a little tired, so maybe it'll be into all of your benefit.
It may be a little less long winded. And, sometimes in the past, that, great quarter. We're gonna get into that very shortly here in the details of the quarter and talk about, answer any questions, etcetera, but there's a couple of things perhaps I'd like to touch first of all. Just wanna talk a little bit about strategy and where we sit and where we see ourselves sitting today. We've been talking about that with a lot of people here in London.
The end of the day, I think the news release makes quite clear, but the strategy in the in the near term strategy here, definitely is we're not in the M and A mode. We did our heavy lifting 1. Very few were doing it and and we know Dakota went to Acola, etcetera. And we are now at this very important new point in production and also cash flow from operations. We'll see that in the numbers, dramatic projected increase in 18, of somewhere around averaging 500,000,000 cash from operations this year and over the next couple of years, after 18, with, approaching a 1,000,000 ounces this year at $800 now.
Sol and sustaining cost. So we're looking at that increase of around 500,000,000 from a 155,000,000 of cash from operations from last year. So a pretty dramatic, impact So the the focus now is not M and A, not, I think it's gonna get more competitive. We can we can not have to compete and for a number of reasons. And one is, as I said, we've done it.
Secondly, clearly, our our shares have not been rerated or for senior cash flow. And, what some observers feel we should be moving towards getting a rerating. So that's not a major reason behind our lack of interest in M and A right now. There's other more compelling reasons. In fact, one of them is what's in the pipeline of projects that we have.
So clearly, we are talking a lot about and we'll continue to talk about it and are continuing to drill with 5 rigs on Fekola North extension. And that's great results recently in our I'm drilling more right now, and we will expect by the end of the third quarter, we're now projecting that we would have a new geologic resource to look at Fekola. The potential ultimate size of the Fekola pit. Things like that and things like further drilling at Tawaka, things like, the upgrade we're looking at with studies we're doing at El Limone with the exciting new discovery of the central zone. What does that mean to El Limone and seen Nicaragua turning around.
As we said, we're starting to see the churn that we had talked about. We can talk about that. Obviously, the quarter was not just about Fekola, the other two mines to to to core assets, with Dakota and Masbate had very good quarters as well, and we expect that performance to continue. So strategically, what's in the pipeline? Let's go and spend some of the $53,000,000 we budgeted on exploration.
Most of it brownfields Let's spend that that money and do some studies to find out the potential of what we already have, and look at that from the point of view of growth etcetera. Other priority going forward. And as of now, as we've already seen, we're significantly paying down the the revolving corporate facility that we used to build Fekola in conjunction with our cash from operations. So we didn't use any equity to build Fekola, which I think was a very wise strategy, and we didn't go into silly amounts of debt. So we're able to repay debt quickly now in terms of the line.
We we do have a considerable adventure that is Evans aware that that comes up in October of this year with the 3.93 conversion price on $258,000,000 US. So pretty safe to assume given the state of the market today or at least we should assume that that is not gonna be converted into shares at 393 US. So our plan at this point is that, to pay that back. We have the capability and cash from operations and using some of our line, our revolving line, low cost, debt financing, to repay it, and then we would get back to reducing debt again on the line, wrap very rapidly as we've paid back the convert in October. So dramatically decreasing debt, ongoing and, again, after paying off the convert with the cash flows that we're starting to see.
I think one of the things we've been talking about and we talked about a lot here in London has been the company's attitude towards a dividend. We are reviewing a dividend policy now. And as we see ourselves going forward here, we would we'll be looking to introduce a dividend policy. The timing of that, we're not we we haven't nailed down yet, but we will be looking at that, and we've been talking to some shareholders about their views on that. And we don't wanna do anything with this company that impedes us from doing what we do very well in addition to running minds extremely well.
And expiration, etcetera, is is building them and growing. So we always we wanna maintain the ability to grow the company. That's really one of the points. One of the things that's really appealing now to, generalist funds, I would say, one of the few gold companies that can sell itself as a growth company, which is having specializes in gold, at the end of the day. So a dividend, we think that a a reasonable dividend can be started and grow, while you have some debt, modest on the balance sheet.
And while are still growing the company. And that's something we're gonna be looking at a policy for that going forward. Final slot for me, I'll just get it out upfront because we saw yesterday in Kinross and Martania, and we've had lots of things and and lots of talk about what's happening in Africa, etcetera. I I guess we really would like to see people focus on every company in isolation to some extent and every country in isolation to some extent. At the end of the day, let's talk about Molly for a moment.
What we see in in other countries in Africa is is different from what we see in in Mali. And it's always disturbing to see rumblings or discussions about increases in taxes, etcetera. But I really think that the state of the industry today is all about a fair share for governments and countries involved in deals we're in. The Fekola mine and the under the 2012 mining code is the most expensive mining code in the history of Molly. We're okay with that because clearly we have shown that what the royalties we're paying there 6% plus in a royalty with the 10% the government gets us a free free period interest.
And the other 10% that the government is purchasing that will be we will retain the dividend of that until the amount of the purchase is realized. This is a very good and fair deal for government, and we believe they're a company. So we need to get out there more to to explain to people that we think that $500,000,000 that we've lent invested down into Molly from beach of gold to high risk of building the mine, we think we should get paid back at a reasonable interest rate while the government's getting their royalties and while the government's getting their 10% free carry. But if you look at the 1st 10 years, the mine, the mine life is, as we talk about it for Fekola, important to realize that we think 1 it's fair that once we've got our loans paid back with a reasonable interest rate. Now if you look at the economic benefit for the 1st 10 years of the mine life, based on our current projections, including $15,000,000,000 goal, the government would realize about somewhere around $1,000,000,000 through royalties dividends from their interest to taxes, etcetera.
Now that represents 50% of the economic benefit of Fekola roughly once we are repaid our risk investment infrastructure and a reasonable interest rate. That seems like an Emily fair deal. It seems like an Emily fair deal to the government. Fekola. So when people talk about a new mining code, it's very important that we realize that the history of Maui, they've never gone against an, a codes they've been that they have had 1919 91, 1999 Codes.
They've never gone back on those codes and tried to change fundamental issues. Those codes are protected as ours is with a stabilization agreement as part of it agreed with the government. And if and the government has never looked back and tried to arrive and try to change things. Anyone in my opinion, that's under the 91 code or the 99 code in Molly, if they believe they're gonna get the the the benefits they have then in a different world, at a different time of tax holidays and 3 percent in the smelter royalties in a new code going forward. They're dreaming.
That's not going to happen. The government is not very unlikely to do anything as that would change the 2012 code to a new code, not looking backwards looking forward, very unlikely the government would why would they change anything in that code to diminish their return and what we feel and they feel is a fair code and a fair deal So we're not afraid of a new mining code. We've it's been openly discussed publicly. And with the government saying it'd be great for everyone to get on one mining code looking forward. But we don't need to see any need to go and spend time negotiating with the government about the new code because we expect the new code is gonna be the 12 code with the amendments we made different when there is a new code.
Otherwise, it's gonna be the 12th. That's set a new bar. And if some people don't a bar that's set. That's not our problem. This is a modern era in mining, and you need to show deals where governments win and the people win and they feel that they are.
So if you look at incidents and events like yesterday in those conversations, look at the royalty rate that those companies are paying on their existing deals with government and look at the the benefit to the government of these and the people of these countries from those deals. So I think it's very important that we don't start looking at this and saying everyone in Africa feels gonna crop deal from the government point of view and the people point of view, and they're gonna wanna change, existing minds and future minds, and they're gonna wanna kill the the goose that lays the golden egg. Not happening, not happening in Molly for sure. So I think it's really important that we try to get people as hard as it's not to generalize. Look at company by company, mine by mine and country by country in Africa.
We understand why taxes in Africa and the same breath right now are are saying off alarm bells. We get that. People we need people to dig a little deeper to understand realities. We have our deal with the government going for the final ratification all agreed with the government repurchased it for 2nd, 10% at fair market value. All of that is agreed with the government.
And then the final step of that is the approval, the formality of approval in parliament. The only reason that hasn't happened so far, which they did change the prime minister, and therefore, they delayed the session of parliament for a period of time. It would have been approved in our view before this. It's now on the docket in June to be approved. That's the final step.
This is them purchasing another 10%. We're not asking them for anything. That number has been negotiated and agreed in a fair market value, and that will be released as the government does to file a ratification out of respect for the government. But that's where we stand. We're we're we are looking to crystallize with the ratification of the government's 10 of the government's extra 10%.
So the company, they will own 20% of the company. And we'll give you more detail on that as it's ratified, but that is not a problem area as far as we're concerned at all has been well negotiated with the government from both sides, and it's a good deal for both. So we're not concerned about that. So that's, just wanted to touch on that point because I know it's a hot button topic, and we understand people's concerns or frustrations when they hear this noise about taxes in Africa. Wanted to talk about that from our perspective.
Otherwise, Nicaragua, as we said, before, we weren't in a rush to go and sell the assets because our jobs get value one way. The other for the assets Nicaragua starting to turn it around as we expected with the permits we've been waiting to get for the Libertad and with the new discovery at El Limon and the permit for the Mercedes pit that we got recently at El Limon to allow it to go back to underground mining and open pit mining together. That's turning it around, and and we believe that the new discovery of central with its high grade open pit nature and product size and proximity to the mill, 100 meters away will be a game changer. And we're looking at expansion, 2 expansion, 1 of 25% and 1 of a 100% expansion at El Limon, the first ID of that will come out at around the middle of the year on the on the smaller expansion, then we'll have a study on the larger expansion. So either way, as we leave it as it is, if we expanded by 20 And if we double the size of the throughput at at, El Limon, this is a very positive thing at the end of the day for for the Nick Gargon assets.
Once we get them up, to the value we think that they hold, we will make a decision. But if we're gonna produce 200,000 ounces a year plus in Nicaragua, a profitable production in the country, we've been then accessories for 11 years. Why would you sell that when it represents 20% of your production if it's profitable production? So that's the strategy we've had for some time on that and the strategy seems to be, the right strategy as well. So that's kind of just a a couple of things I wanted to touch on about strategy and where we see ourselves, where we see ourselves growing hugely transformative time for the company as were these uncharted waters of significant cash from operations and free cash flow.
We're very much interested in looking at what's the best thing to do with that in terms of continuing to run this company, grow this company, but also look to reward our shareholders for what we've been able to accomplish and what they've supported as an accomplishing. So I'll leave it there, and I'll pass it over to Mike now to talk about some of the great numbers we had in the quarter. And I guess, the only other comment I've seen some of the analyst stuff and a good comments back. We're pleased that most of you recognize the beat that this represents. It's a real mystery to us as to how many of you think that We met your projections for earnings at 6¢.
We have no idea how you got 6¢, and that's something we might wanna you might wanna have some more detailed conversations with us in the future. Because how can we have beaten in so many areas in cost and still, and and have you guys reflecting that kind of earnings projection, which huzzles us, frankly, and there's not really based on reality. So at the end of the day, though, great support, and we do appreciate it on not being critical. Any of that, we were just surprised to see that, you know, meet met expectations. So the real question is what they were, the expectations, and how were they arrived at?
What model would give to someone, the the kind of projections when we feel we beat projections including earnings from what we had expected to see. So an interesting point to try and get you on the same page going forward, but great support. Good, good, good, write ups and, very much appreciate the support of of, of all of you from the Amazon and obviously from the shareholder side. I'm not I've given up on predicting a rerating. In terms of timing for b 2 goal.
Let's just say that, they believe that if you build it, they will come eventually and we're pretty much long term players. And on the same page as our shareholders, being founders and significant shareholders of the company ourselves. So with that over to you, Mike,
Thanks, Clive. I think Clive did some good work there for the quarter and it's transformative. Compared to the prior year quarter and very transformative in the results here and reflect the first full commercial production quarter from Fekola being included in the company's results. So I'll run briefly down the income statement and financial statements. Some thoughts.
So first thing on the revenue side, revenue $344,000,000 for the quarter. So increase in the revenue of 135 percent, which is based on 117 percent increase announced to sold a lot of that from Fekola, most of that from Fekola and also a 9% increase in the gold price. If you look at the difference between production and sales, sold approximately 20,000 ounces more than we produced. And mainly that represents us drawing down and selling. 27,000 ounces of both that propolar inventory that we built up and in the last quarter last year, and it was it was on the balance sheet.
And we we drew it down and sold it this quarter. We saw the benefit of it in this quarter. Production sites, very good quarter consolidated basis 239,000 ounces, which was 16,000 ounces higher than budget. A lot of those came from Fekola and another 6,000 of that fleet came from Masbate. Fekola was 114,000 ounces, and it was a lot of 1000 ounces higher than budget.
Really through as my executive issues, higher, higher throughput, higher grade, higher recovery. So those are all the things that you want. The caller came out of the gate, very well in the last quarter last year and continue to do so as we move forward this year. Otjikoto 39,000 ounces 2000 ounces over budget, slightly higher grade and higher throughput in the period. Masbate 53,000 ounces against the budget of 40,000, and Masbate higher recoveries and higher throughput.
And it continues to be in Masbate outperformed for the last 2 years against budget and continues to do so this year, we're still going to hire, Colorado Pet Material Moore oxide award from Colorado that was budgeted. We expected in the budget that we did 50%, mill feed from, Colorado oxide feed, and we actually had 78% of the period. So continue to outperform, we should remember that Colorado is forecast currently to be mined out by the fourth quarter of this year.
Then on the Nicaragua side,
look at that 19,000 ounces production against the budget 21. So 2000 ounces less than we budgeted, and that that really reflects a delay in in getting in and starting up activities in the Bend Eagle pit. We, there have been some delays in, in permits, as you know, over the last year. And, Nicaragua for Lovett because we now have all but one in hand. And we did forecast that we'd be in and start work on San Diego, have production right from the start of the year.
It took us a little longer to get in, but we're now in fully operational up and running San Diego. The one remaining permit, for a lot of other cats in order for us to execute the full mine plan is the Jabali Antenna open pit. I'd like to currently forecast that this heavily antenna open pit will come online in the third quarter of this year, and we're still anticipating that. But we have put in place a contingency plan whereby if that gets pushed out and we actually start production from the antenna open pit at the start of next year, then we have a contingency plan from our existing operations, including, flash tracking and the sort of advanced stage that we're at on heavily underground to actually optimize production from the existing areas that we have and still meet guidance this year and then push heavily intend open pit production to start of next year. And Limon, it's 14,000 ounces against budget 15, so almost right on budget.
There was a slight delay in advancing Mercedes, but that's Lamon, as Clive mentioned, Mercedes did earlier, we had clients to be in there in developing Mercedes at the end, right at the end of 2017. The time again, it actually came in just at the start of 2018, but Mercedes is up and running now. And we think Le Mans had it back to steady state. Reminders well as the budget that are out there for Limon. They don't include anything from Central again.
We're still working on Central, to get come up with, initial mine plan and how we think we might process over there sometime by the middle of this year to get an idea of what we want to do. Central to move forward. On the CashCall site, Consulting CashCom $4.81 an ounce, which $60,000 less than budget. And not over all beat against budget was driven by Fekola. Fekola is a much greater part of the mix.
Of our production now in the cash crops and also continued outperformance of NISTADA and Otjikoto. Fekola's for the period was $2.68 an ounce, $0.78 an ounce less than budget. And Part of that was, as I said, they had the trade back then, better grades or to put better recovery. Mining is producing above plant production rates at Fekola, but unit cost is still below budget. We might assume some mining costs increase slightly as we move forward due to maintenance requirements increase, but we think it should remain out of the low budget for the rest of the year.
Otjikoto, $5.69 announced, which is $50,000 an ounce left in budget. Umjikoto was a lower than budget operating costs were related to the savings in processing and site general costs, along with stronger production. Now this was partially offset by some decrease in Jewelry's event is a strengthening the $1,000,000. For Masbate, $5.42 less than budget, And Masbate, like I said, just continued to outperform, mainly black with a higher oxide content from Colorado. Mining cost in Masbate for order were roughly 10% below budget, but mine come in higher than budget, which was planned to support future increases in mill throughput due to the expansion of the meds value from 6,800,000 tons to 8,000,000 tons.
That operation and that, that extension is underway now. And we forecast that that will come online sometime in early first quarter of 2019. In Libertad was $89 higher than by the due to the lower production we discussed earlier at Limon. Was, a $1000 an ounce, which is $200 higher than the budget. And that, that was higher due to slightly lower production.
It was only 1000 ounces left.
But also,
due to the pre stripping that we did in Mercedes in the first quarter that we originally had thought. We would do it in the last quarter of last year. And just to point out that pre strip isn't deferred or capitalized anyway because Mercedes is planned to be in line commencement mining and be mined out in 'eighteen. Therefore, it's all expected to be incurred. If we move on to the all in sustaining costs, we We basically see that benefit of the lower operating costs flowing in there too.
All interest income for the quarter on a consolidated basis were $7.50 an ounce, which was $147 less than budget, So part of that is the $67 per ounce fee on the cash comp site and also some timing delays in in CapEx. We think most of those CapEx always, the main the main lower CapEx really happened at Lelivertad where constantly we're going to incur and develop in heavily in the first quarter have been pushed out to slightly later in the year. So we think those will reverse and fine. So overall, we have a piece on quarter, we'll we'll see some of that close back as we move forward, but we should still keep the beat that we already have on the cash cost side. Just looking at some other items in the income statement to comment on royalties were higher.
This quarter, they're $21,000,000 in the first quarter versus $6,000,000 last year and that reflects higher sales. And also the fact that Fekola has higher royalty rates. Then the other operations, as Clive mentioned, there's 6% government royalty there, and there's another 0.6% spam duty, which is also treated like a royalty tool in total, the government royalty is 6.6%. So with the higher sales from Fekola and those higher royalties, we saw a jump in the total royalty pounds. G and A was $12,000,000 for the period against $7,000,000 in the comparable quarter last year.
That looks like a big jump, but a couple of things comments on there. Firstly, the comparable period in 2017 had a accrual reversal flowing through it, which is nonrecurring. So like for like, we'd be, we'd be comparing $12,000,000 with approximately $10,000,000. And the $12,000,000 this year include $2,000,000 for Fekola. Those G and A costs were capitalized during the construction date, but not as Fekola's fully operational.
We see those launch in the income statement. There is a there is a charge, impairment along with assets for $18,000,000 that relates to McCoy. McCoy's property B2s basically had in its package of properties since inception. And it was just during the period that we were focused our exploration dollars, in other areas where we see the much closer near term benefits for the company areas like exploration around the Fekola property in Molly. So decision was made to, dispose of the Mekola property to junior company.
So we've taken back some shares in a junior and a 2% NSR. And invoking that transaction in light to $18,000,000 noncash impairment charge. We have a gain in the income statement of $11,000,000 related to convertible notes. The notes continue to trade slightly above par. They're just over 101%.
As of the end of March, they, they, they mature on October 1st when they'll be back to par value of $258,000,000. And Transcribe for the period where you know, you know, just to highlight, for everyone's comment that if they look high or weren't anticipated. And prior prior year, there were only 2,000,000, but in the prior year, we were still capitalizing interest. We would capitalize interest right up until Fekola came online in commercial production. In, Q4 last year.
So not all of interest charges from our various facilities are being expensed in the income statement, that's why we've seen increased 30. On the tax side, significant increase in taxes, $39,000,000, current taxes against $5,000,000. In the prior period. And some the reasons for that, well, Fekola is the biggest driver, 22,000,000 of that increase came from Fekola income taxes.
Just to
point out an acre for, what's after your models, etcetera Fekola doesn't have any significant accelerated capital deductions at the start of mine, like like we've seen in other operations, but they don't have a lot of rules where accelerate a lot of your initial capital of deductions. So basically, what you see again deducted for depletion is pretty close. We get deducted for tax. First thing I'd point out about Molly and it's in the tax expense of 10% pre carrying interest that the government holds. That dividend is treated like a tax, for the purposes of opening up the financial statements.
The reason for that is, is that, it's a It's a right that's conferred by law, and it's based on a measure of net income. And for accounting purposes, when you pull all those characteristics in to the model. It's treated like a tax. So within that tax charge, there's a $5,000,000 expense, which is basically, the Fekola 10% priority dividends, but that's being expanded through their problems of CFP suck as a dividend later. I mean, the other thing that impacted tax is this period that's different from prior periods is the value that we had the benefit of an income tax holding for for the processing plant site of Masati, for the 1st 5 years that we owned and operated that mine.
That tank called the fired in the middle of 2017. So we're now fully tactical there as we move forward. And, of approximately $8,000,000 of that charges over the Lakeland Society, which is higher than we've seen in prior periods. Put all those elements together, create results, operating results, and some there's slightly more unusual one off items there or or different nonrecurring items. We had net income for the peers $57,000,000 or $0.06 a share, basic and $0.04 a share diluted.
On an adjusted EPS basis, it's still $0.06 per share with, the write down of McCullough, when it's taken up, basically, being offset by stripping out the mark to market in vertical notes.
I'll turn to the cash flow statement. I'll now comment on
a couple of things. I'd like to already addressed some of them. First of all, on a cash flow from operating activities, it was $407,000,000 increase in cash flow from operating activities in the period. That's from us. We had $147,000,000 in the period versus $40,000,000 in the prior period.
And that's driven by revenue increases and offset by higher production costs and higher royalty costs and taxes. On the financing side, again, I think Clive mentioned that we repaid $75,000,000. We drew down our we paid back $75,000,000 on the revolver. In the period, subsequent to the quarter end, we paid back another $25,000,000. So as it stands right now, we paid back $100,000,000 in the revolver this year.
The revolver is sitting at $250,000,000 drawn and we have 2 an available facility at our disposal. It should also come in the financing that we also accelerated the use of of coal and they've had equipment leases. A little facility, we thought we might drill those much later in the year, but we were actually able to utilize them early. So see the benefit of that flow into financing.
On the inventory side,
we spent $71,000,000, which $21,000,000 that was Fekola. We were about $15,000,000 under budget in total, for the quarter. Which has made up about $4,000,000 from various items of Fekola and $11,000,000 at La Libertad mainly for the delay in Jabali Antenna. Capital cost, but we think we'll reverse later in the year. So that lasted for the period.
We had we generated $20,000,000 net cash flow for the period and we had $168,000,000 available cash at the end of the period. Old covenant fully met. And I think that, the only other item I gave quite good address as it relates to, the convertible notes. So they did mature on October 1st this year. And if you look at the cash on that we currently have and the available facilities that we have in the cash flow we expect to generate as we move forward for the year.
We're well positioned to be able to make that payment on October 1st. I think that wraps up what I wanted to talk about on the results side unless anyone has any questions.
Our call by the number one on your telephone keypad. Your first question.
Oh, sorry. Operator, I think you answered that we should probably just leave questions in the end. So maybe we can leave it and we'll go through the rest of the materials. So, Clive, I guess, we'd turn it back to you now. And is there anything else you wanted, anyone else you want to comment on anything that we'd hear?
No. I I mean, I I we can go on and talk about the some different things, but I I think at this point, time. I think the initial issue is quite detailed, and I'm we've laid out some of the strategy things going forward. I guess the only other things that we're freeing to mind are are what's happening. For example, in Nicaragua, we seem to have lots of things that things in the world chain the political change or potential change, the Nicaragua scenario for us is we still have the the the port of the government and the go and the local communities and local governments and what we're doing in the minds and the benefit that we have and all sorts of different ways in Nicaragua.
And jobs and taxes and and and community programs and education and CSR And Health and all the other things that we do. We're seeing a a transition perhaps to, of, some push for more, democracy and and and other changes within Nicaragua, but this is a wide based movement for many different groups in society, working together, wanting to get a peace related government. So we we see the, we do not see the prospects of of that being negative from our perspective or or from a I guess, from a more global perspective in terms of a country moving in a a country that says some good success moving in a in a good direction. So I think that's most of it. I think we should turn it over to the program.
We should we should turn it over to questions. You know, Mike, unless there's anything else or anything else you guys think that I've forgotten that's compelling to to to, say now or whether we should let let the questions go.
At this
time, I would like to Your first question comes from the line of Raul with Canaccord Genuity. Your line is
I'm wondering if you could go into a bit more detail on the HFO solar hybrid plant at Ojikoto you mentioned that you expect to lower power generation fuel cost by 10% in 2018. Now is there an opportunity to lower HFO consumption even further by maybe moving to a greater reliance on solar or are there some constraints or technical limitations at this point?
It sounds like a bill or John answered to me over to you guys.
Yeah, no, thanks, Ronald. Good question. It's certainly something we're very proud of. So the solar plant, was committed in, in the, at the beginning of the, at the end of March beginning of second quarter. We're ramping up now and, we're seeing great solar penetration at 6.8 6.18 Megawatt DC power, fully online.
Basically, if if you figure in all all the all the various iterations of how we can how we think we're going to be able to max the solar tube to our existing operation. It basically cuts $0.02 per kilowatt hour off of our power cost about 10%. So, the answer is yes, we certainly think that we can increase that. They're actually currently working into maybe on several other strategies. Without going into too much details, one of them is potentially, hooking up with the overhead power line, that Namibia has and then buying some off peak power as well.
So the answer is yes, we do believe there are potential for significant savings going forward on power.
Thanks. Thanks, Bill. And then a little bit further on that at at what point do you think you could adopt this, the technology on a bigger scale at maybe Fekola, perhaps even look at this as an attractive power solution for Tourega, or is it just too early to say at this point?
Yeah, it's real early. I think if you talk to the operations guys, there are, you know, people like John, you know, that are doing the design, of course, you know, it's attractive for sure. But it is it it's a technology that we're still getting comfortable with. So certainly we wanna see some more, your reliability before we start talking about putting something like Fekola on solar. So it I think that, you know, we kicked it around, because maybe in the future, but as of right now, we just want to feed it in that case.
Perfect. Thanks, Bill. That's all that I have for now.
Your next question comes from the line of Michael Gray with Macquarie.
Yeah, good morning. Thank you very much for taking the call. At Sikola unit costs are tracking better than feasibility study. Can you provide a breakdown of unit costs for mining, processing and G And A in Q1? And maybe a little bit of color on the reasons and opportunities for the improvement versus the feasibility.
Hello. I don't know if you're gonna tackle all that in right now, or do I give some of that? And then you know, invite a separate conversation or information to come from that, go ahead.
Yeah. Let let me for some reason, I actually wrote that down. Let me just find it here.
That's supposed to
be at the top of your head. No?
Yes, Rich. Michael, on the processing, the
reagent consumption of the rating consumption is in dining media, particularly in, volatile have been less than, feasibility. Projections. So that's how to reduce the processing costs.
I think overall, basically, So for Coca Cola, in Q1, we saw lower mining costs, as Mike mentioned, significantly or 1.34 versus 1.94. That's a cost per ton. And the primary reason was that we've had lower cost on the front end as far as the material, the harness of material and the actual amount of glass than we had. So we think, and of course, the maintenance is below. So we think those, those are probably going to track back towards our original numbers.
And then, of course, the site G and A tracked very
nicely with the budget estimates. So the main thing was on the mining side.
Okay. So lower costs in Q1, maybe not sustainable, tracking back to the feasibility eventually
that's what we're saying. Of course, once again, you have to remember, we're still early on in the cycle with software as we say that, but what we can say is that we have been pleasantly surprised or by the budget.
Yes. Okay. Fair enough. And then just a second question with oil prices rising. Noted in the MD and A of $11,400,000 in fuel oil, $8,000,000 in gas oil hedged as of March 31st, just want
to know what percentage of
the energy consumption that is?
The hedges right now represent just under 50% for 2018 and approximately 20 or 30% for 20 9 that's roughly where we're hedged right now, Mike.
Your next question comes from the line of Chris Thompson with PI Financial.
Two quick questions, one on Masbate. Obviously, you know, continued surprise by way of processing more oxide ore than anticipated. I'm cognizant that you have the expansion obviously that you're working on, my understanding that's going to come online first quarter of next year. Do we see a possibility of sort of stretching out the favorable, I guess, ratio, oxide to fresh to marry with that expansion for the remainder of this year?
Initial plans with Colorado Pet and we're going to finish up in the final quarter of this year. And, we took a recent look at that and really, we don't see any change there. We know that, vinyl cups in Colorado will be narrow. And we want to make sure that we optimize our mining, our mining efficiency in that pit ahead of dealing with wet weather. So no change currently in Colorado Mining.
Certainly, with the capacity of the pleased that we have. We can look at some alternatives in terms of development, which provides, some carryover. We're still looking at those now but we're well positioned to do so.
Thanks for that, Dale. Thanks. Just quickly on Fekola, obviously a great result head on grade tons and recoveries as far as budget. I mean, are we do we expect, I guess, these grade and griff rate grades tons and budget to normalize 22 budget for the remainder of this year, or are we seeing surprises that you weren't anticipating?
Okay. So we are we are seeing some surprise, like, even on the recovery. But once again, we're so early on in the process. It's really too it's too early to say anything about what's happening there other than it's a great quarter.
Yeah. Okay. Great. Okay, guys. Congrats.
Thanks.
Your next question comes from the line of Don DeMarco with National Bank Financial. Your line is open.
Hey, guys. Thanks for taking my call. This question maybe is more of a strategic nature. So you mentioned that the focus is not on M and A. And, so I'm just wondering, is that because you just don't see good value in the M and A space?
And I'm also wondering if maybe you feel that you've reached the optimal sustain sustainable size for a gold producer.
Yeah. Good question. I we don't think we've reached the ultimate sustainable size for a gold producer. I mean, we don't set kinda numbers and and then decide when we should do acquisitions to try and meet them in terms of numbers of massive production and timing of all of that. We we're all we've always been opportunity driven.
If you look back at our successful 10 years, it looks very systematic in terms of the growth with accretive acquisitions and good mind building or good improvement in production and things like Masbate and exploration success and all of those things, but at the end of the day, the the M and A attraction at Black River right now is for a number of different reasons. We think we have a a great pipeline, including Fekola immediately north as we discussed, and the snake zones and a condenset. We've touched 4 Elephant Country, looking for additional Fekola's, Tuega, etcetera, upsize in, Mascati, Nicaragua turning around ode your code to doing well. So we we feel that the best way for us to look at growing the company for the next while is look at organic growth let's see what we have for free. Let's see what we already have on our pipeline of projects that we didn't pay for when we did acquisitions because we don't pay for accounts that might be there.
That's a lot of the driving force. We're obviously not in a situation where we would feel that, we we would be able to find an accretive deal on an acquisition given our lack of performance or lack of value based on the new cash flows. And it's all new.
We get that. But the if
you look at the target is of the 17 mining analysts. They, you know, there there's some good analysts out there these days, and we don't think they're wrong. So, therefore, that's another driving force, but that's secondary. We don't see a lot of great opportunity out there. There's a great difference between something being cheap and something being of value.
So if someone looks at a company that used to have you know, a market cap of 8,000,000,000 and now they're less than 1. If people say, woah, they're so cheap, you guys must be jumping at the bit because Clive's saying no m and a and There must be so many things that are attracted today, and it must be killing you not to do M and A. If it's not the case, the company, this offered $8,000,000,000 to 1 or less, maybe it's because it was terribly managed and it was a bit of a disaster. Maybe it was never worth it or maybe it was briefly, and certain bad decisions and bad actions turned it into something less than a 1,000,000,000 So at the end of the day, be careful for things that are look cheap, but not I don't necessarily have value. We don't see a lot of good development projects out there.
We did it when no one else was doing it. We acquired Fekola with no competition for half a $1,000,000,000 worth of our shares. Many Alice, and I think they're right, and I agree with them. Think that if it was up today, Nicole, as it was 3 years ago, the bidding would start closer to a billion, but we got it with no bidding because growth was still out of favor. So we don't see a lot of opportunity We wanna digest what we have.
We wanna be make sure we're the best 1,000,000 ounce of your producer out there. And, we wanna see what's in the pipeline stay financially strong repaid debt, and look at a dividend policy. So going forward, we can be that unusual gold company that can sell it sell reasonably well to, generalist funds. So we're looking for a company that is very do and produces cash flow and and is a growth company, dividend paying growth company, that's on the cutting edge of everything that we do in the business. But definitely, we will go back into m and a at some point, not in the near term, but we'll do it on our terms and our timing.
Why go and do anything involving m and a when you're looking to buy ounces if you don't know how many ounces you already have, and things like Fekola can be dramatic impact in terms of ounces just in a noise extension, not just in adding mine life, but in looking at potential expansion of Fekola, in the relative near term, if we continue to get great results and we'll have a new resource out by the end of the third quarter is our current projection on the Fekola pit and how big can it get. So So that's the strategy. So we're we're not anti M and A at the right time. We did it at the right time. There weren't a lot of others doing it at the right time.
You have to be prepared to be contrarian if you have a long term view as we've had for many, many years. So M and A, we'll look at it again, in time. But right now, it doesn't make any sense to us, and we just don't see other foreclosures out there today. Very few quality projects. Growth is back in favor.
So little concerned that do we get back into the silly season soon where people are overpaying for things, which is never a good idea to buy something that needs a higher gold price or expiration success to justify the purchase price, which we've always stayed away from that. So that's the strategy. I think it sound, and I've had some great conversations over here in London with some of our large shareholders or or, hopefully soon to be. That are really intrigued by the strategy as as one of the few gold companies that's performing well. There's a few others, but very few, and also that can look at growth and can be a company that doesn't need gold to go higher to make our shares of interest or our shareholders and our market cap perhaps go higher That's what we want to be.
Oh, okay. Okay. Thanks for that. That's, that provides some good insight into the strategy and clarification. And maybe as a follow-up question, then you mentioned the dividend.
And, like, from a capital structure point of view, what's a debt level that you'd be happy with? You know, obviously, you have the capability of paying down all of your debt even within a couple of years, but, would do you have a long term sort of debt capital structure target?
Well, you know, to
be honest with, we don't right now. I mean, I think that, you know, this is for us, this is a a new stage after 10 years of aggressive and successful growth where we're taking cash from operations and putting it back into building the next mine with mostly debt financing, not equity to to to the rest of the money. So we're having we're really looking at that now. We're in the we're in discussions internally and getting some outside input from our shareholders, etcetera. About what level of what level of dividend would you start out if you started to do a policy?
What level of debt makes 10 to have some debt along with that. And also what percentage of your cash from operations or free cash flow should you be looking to dividend out versus what you're gonna keep aside combined with cheap debt financing facilities to grow additional things, whether it's organic growth or whether it's something down the road. That is an M and A scenario. So that, that,
I think you'll you'll hear
more from us from that kind of thing over the next, quarter, I would say.
Okay. Thanks for that. That's all for me.
Your next question comes from the line of Stephen Butler with GMP Securities. Your line is open.
Thank you, operator. Guys, Fekola, just back to that asset here for a second. You, obviously, you're you're Mike, you were in a lot of software in the first quarter. I'm just asking to hear about whether it was about in line with expectations, the level of software that you were mining and how that will trend throughout the balance of the year, are you gonna get in any hard rock anytime soon this year or is it wait for later years?
Sounds like we need to clarify that one. Bill, you wanna talk about the the hardness of the or or John, the hardness of the rock we're in now and and what we started up in, because I think there's a misunderstanding there, perhaps.
Yeah. So I'll talk a little bit from the, from
the mining side. And then, John, you can
certainly talk about how we started the mill on the hard, on the hard rock. But when I say when I say you know, saw the war. It it, it, the polar is very hard. We had anticipated on the mining side to go through a lot more of our where, where's, parts much quicker due to the hardness of the ore. But the reality is we just haven't seen that.
But we did start up on a we have one 3,300,000 tons stockpiled right now of Hard Rock. And so we have been finding Hard Rock from day 1, John.
Okay.
I'll just add that, the majority of the ore that we have in processing hasn't been hard or rock.
It's a
fresh, fresh hard for that, we have been blending in some saprolite, which has had some higher grade and that we need to get into the process. But, but the majority of the feed has been harder ore. So the mill's been performing well, on hard material.
Okay. I just saw the reference in the MD and A to, a proportion of soft or free your digging. That's that's that was a reference. I guess that was a waste waste tons mine. Consitive soft material might require drilling and blasting.
I guess that was a lot
of that being waste, I guess.
That's correct.
It was
waste. Yeah. Keypoint there is that was waste.
Okay. Thanks. Thanks Clive. Guys, and Clive, maybe just a comment. Because you guys give us very extensive disclosure on your pre financial reporting, you give us very good disclosure on production time grade recoveries, what we don't have are cost per ton.
So you did a great job in the first quarter for sure on cost per ton. At several of your assets, including Fekola, as we as you described earlier. So, you know, 6¢ comes about from a consensus, you know, with gold price being actually realized, etcetera, etcetera. 6¢ comes about from all the good work you guys give us in advance with respect to all these good production numbers. So That's why we're probably, somewhat accurate this quarter.
I'll leave it there.
Well, okay, but not really because at the end of the day. And once again, we can talk about this more, but because we do think it's worthwhile for the narrowing of or realistic expectations out there. If you look at what we did in the quarter and we obviously announced the production numbers before, but you add the what we just announced today in terms of the beat on costs, all in sustaining costs and all that, it's hard for us to under end in a way when we beat that much from what must have been your expectations in costs unless you had wildly optimistic expectations, which you guys don't tend to do, you tend to be at the lower end or in cost, you tend to be somewhere near the higher end of our guided projection. How we can beat that much and cost them have you guys come out and say in line on earnings. There's a mis there somewhere and there's no criticism here, but there's something happening there which I can't imagine you guys were all projecting the kind of operating costs that we've come in with and all in sustaining.
You've said yourselves that we beat on that. How can we be then in expectations on earnings. So I'm not saying anything wrong, but there has to be some units in all of our interest probably to get at the shoulder servers to get closer to the fact where because, you know, that that that's what puzzles us a bit.
Yeah. I hear you, Clive. I get I'll let the only thing that for me, personally, that happened was that the taxes ended up coming through, but hired to offset all the all DC EBITDA improvements or cost benefits. My taxes were a bit light. That's all.
So, therefore, earnings came through. So I'll I'll leave it there, but I look forward to seeing the the site next few weeks. Yes.
And as I said, and Steve, this isn't a take a shot at analysts, but far from it. You guys are doing a lot of really good work And at the end of the day, I think it's just we're curious because we'd like to try and be transparent as always with our disclosure. How can what can we disclose more that can get us more on the same page where we don't come up with a dramatically better financial quarter than we expected and a bunch of you guys come out and say met expectations on earnings. See you know what I mean? That's just a bit in Congress.
Your next question comes from the line of Gordie Mark with Haywood Securities. Your line is open.
Perhaps to the labor on Lyle here and maybe move over to, Burkina thereafter. Just just looking at, at, obviously, the very, very good throughput rates coming out of out of the mill there at Sikola. You know, well and truly above, above nameplate there, in the 1st full full quarter there through commercial production. Just wondering in your year's projection, are you projecting to hold at that rate to meet your guidance? Or is your sort of guidance sort of sort of fitted to a sort of a 5 MTPA rate going forward.
Well, I think,
I think on
the outside moves here about whether they want to do the $65,500,000? The question was, the question
was to our guidance at 5,000,000 tons per annum. The answer is yes. Yes, so
So, Doreen, our guidance is still for the rest of the year is still 5,000,000 tons a year. Is the guidance. So we're obviously ahead of that. We're not prepared to say we're that as we're in the first quarter, we're not prepared to yet say that that 10% higher throughput than we, had guided when we're we don't you don't have reason to initially doubt that it's going to happen for the full year. We're just not prepared to go ahead and re slide that.
That's probably being cautious because it's a brand new mine and and it's going very well. And it's good to make sure people realize we are in the hard rock. But so, we're hopeful that that kind of thing continues. We go through perhaps at the end of the second quarter, we'll probably look at that and see if it's time to perhaps re guide if appropriate.
Okay. Very good. Makes sense. And perhaps moving over to Wagyu, if I can, just try to get maybe some further detail in terms of the the expiration that's been carried out thus far this year within that $9,000,000 budget. And the planned scope of that, of drilling within the defined volume, and then, you know, the targeting out side looking for the new zone, I guess, mineralization.
Just trying to get a further update on on that, you know, given the auspices of your sort of focus on, you know, organic value.
Sure. Tom, you wanna talk about that?
Sure. The drilling arena at Tuegah is looking at the edges of Tuegah still remains open down plunge and at depth. We are looking at potentially, you know, down in-depth figures and underground potential as if it's all keeps ongoing. And then we are looking at other areas in and around the tuilega area. We're not doing it until at this time.
We still feel that the tuilega needs to get bigger before it's a project, but it's, certainly going in a positive direction.
As we have no further time for questions, I will now turn the conference back over to Clive Johnson.
Okay. Well, thank you very much for your time and attention and good questions. Obviously, from our point of view and the company, we're very pleased progress we've made, in the quarter, not just Fekola, but the other operations running well. And we're set up to have a great year. So, we're reporting back on you on that to you and also more of our strategy opposite dividend policy and other things like that.
So
thank you very much for your attention. If you think of any other questions, feel free to reach out and email us we will, we'll look to answer them with, hopefully, our our ongoing transparency. So thanks all very much.
This concludes today's conference call. You may now disconnect.