Good morning, ladies and gentlemen. Welcome to B2Gold Corp's second quarter and first half 2019 financial results conference call. I'd now like to turn the call over to Mr. Clive Johnson, President and CEO. You may proceed, Mr. Johnson.
Thank you, operator. Thanks to all of you on the phone for joining us. As you saw, it came out last night, our results from the financial results, operating and financial results for the second quarter of 2019, and we had some very strong results with record quarterly gold production of 246,000 ounces, which is 8% above budget. We had some good beats in terms of our costs, et cetera. Another very strong quarter. I'm going to have it handed over shortly to Mike Cinnamond, our CFO, to give you some detail on that, and then as part of that, we'll be updating you based on what was individually some of the things we're working on. I guess I'll talk just a little bit on the front end about the strategy.
It's very nice to see the gold price up substantially and nice to see our share price reflecting that, and of course, the quarterly results as well. I think really for us, the strategy going forward doesn't change a whole lot in the sense of with gold being higher and if gold does stay higher. We try not to get too carried away when gold goes up, we don't get too suicidal when gold's down. At the end of the day, we like to try to keep an even keel. This company was never built on the assumption that gold has to go higher to make money or to see our shareholders benefit, that's been the discipline of Mina and B2Gold, we will continue with that discipline.
I think it's really one of the things we're pleased about, of course, is how well the strategy has worked over many years. That is a disciplined acquisition of projects, accretive acquisitions, and then responsible quality construction and operating of the mines, in addition, of course, tremendous exploration success around our mines and exploration successes in their own right. Now we're still focused on our pipeline and we have a lot in the pipeline, and as we said before, we don't see ourselves chasing M&A, and I would suggest that with this move in the gold price, if it lasts, we're going to see other companies that need growth that didn't do the heavy lifting while we were doing it with Fekola and other things. We think it's going to get more expensive to go and buy ounces. We don't need to buy ounces.
We have a lot and potential in the pipeline to realize more. The pipeline very much is, of course, Fekola expansion, which is underway and on schedule, which have a dramatic impact on Fekola production starting next year. I think that looks like a very good strategic decision now, not only, of course, to acquire Fekola with no competition some four years ago for half a billion dollars, but the work we've done, the construction, the exploration, the great job we've done at operating the mine, it's shown to be what we had thought, a real world-class gold mine, the envy of many companies out there.
Also another really important decision was a bit outside the box was over a year and a half ago to start a study to see what would it cost to expand Fekola and doing the necessary drilling to facilitate or to see if that expansion was appropriate while we were in our first year actually still in construction and in our first year of Fekola. That leaves us and gives us this amazing opportunity to benefit from Fekola and seeing it based on our current projections producing around 600,000 ounces starting next year and averaging 500 plus for the first five years from now. The other thing is, of course, at Fekola in the pipeline is all of this exploration work we're doing there. Tom's going to talk about that, looking to extend the size of the existing Fekola deposit.
Also other targets, including the Anaconda area to the north, 20 km to the north. We see huge exploration upside potential in Fekola and the area around Fekola. Another important thing, I guess, that's coming up in the pipeline that obviously becomes pretty intriguing if gold prices stay higher. That, of course, is Gramalote. We're meeting next week with AngloGold Ashanti and partners to discuss the next way forward at Gramalote. For those of you not familiar with it's a large potentially open-pittable deposit in Colombia that we've been working on for many years. In the last little while, AngloGold came out with an updated model. They came up with an updated model late last year, which certainly showed potentially much better economics for Gramalote. There's a ton of work been done. It's ready to go to feasibility.
We need to do some infill drilling because about 45% of it, as it now turns out, is in the inferred category. The next step forward will be to go and drill for about $29 total cost. I think the intention is to go and drill Gramalote and then move to feasibility quite rapidly. We think it looks interesting. I think you know gold. Clearly, if gold is higher than that, it looks more interesting. We need the feasibility study, and it's subject to infill drilling, but we're looking forward to getting on with that. That's another project that we own somewhere around 49% of, and it becomes potentially quite an asset if this infill drilling proves up. I think by the end of the year or so, more or less, we'll have a view of how that infill drilling is done.
Other things in the pipeline, Kiaka, which is a formerly announced low-grade deposit with Burkina Faso, which we acquired some years ago. When we acquired it was a cheap acquisition because it did need a higher gold price, in our view, to be economic or exploration success. We had that exploration success some 50, 60 kilometers away at Toega, which doesn't perhaps directly impact Kiaka. We have been doing some exploration around Kiaka as well. Obviously, the big factors in Kiaka being gold price and power. We're looking at things like solar power and other things in terms of power generation. Of course, this higher gold price will make it interesting to look at Kiaka as another potential asset in the pipeline that might, in fact, have a shot to become a mine, and a significant size mine.
Between that and all the other things we're doing in exploration, you can see once again why we're just as committed not to do M&A today as we have been for four years, because of not getting value for assets. Now, of course, the argument now is what's in the pipeline. I've said it many times, the cheapest ounces are the ones you find. We have a good track record of finding them, and we've got these great projects in the pipeline, and a lot of exploration coming up. Our focus as well as that is going to be debt reduction, and obviously, with this kind of gold price, we can dramatically accelerate our debt reduction. We have a very low debt-to-EBITDA ratio, one of the lowest in the sector already.
Obviously, these kind of gold prices will help us pay down debt rapidly, and Mike will talk a little bit more to that. That's the focus. Stay very focused on responsible mining and running our operations very well and look at the pipeline. Mike's going to talk a little bit about Nicaragua. We did the deal with Calibre, and we'll touch on that as well. We think it's a win-win deal. It's good for everyone. We think they've got a good management team and that they can, working with our people in Nicaragua and with our assistance during the initial period of time, they are turning the corner and make those projects more successful, and also perhaps consolidate other opportunities in Nicaragua that we're happy to be involved in there. That's our overall approach and strategy.
I'm going to pass it over to Mike now to give a rundown of the financial results, and then Tom will give us a little talk on exploration. We have the entire executive team here, so we'll jump in and invite you to ask questions after that and answer your questions. Over to you, Mike.
Thanks, Clive. Just before I start running through the results, just a comment on the presentation that we have in the financials on the MD&A. Because we announced the proposed sale of Nicaragua operations to Calibre Mining, we presented in the financial statements the Nicaragua results as discontinued operations. It's shown as a one-liner in the P&L and various one-line items in the balance sheet. The discussion of the results will focus on the continuing operations, which is our remaining three core mines, Fekola, Masbate, Otjikoto, and also in Nicaragua, the operations that we're proposing to sell. With that, I'll move to the results. Firstly, on the revenue side. From continued operations, revenues were $267 million, and overall, including Nicaragua, $310 million. The increase there was $25 million, was based on an 8% increase in ounces sold, plus a 2% increase in the realized gold price.
I'm also pleased to say it was quite a pleasurable experience to tell someone gold was $1,500 this morning, and it's long may it continue. On the operating side, I think as Clive mentioned, the total production, including continuing and discontinued ounces, 246,000 ounces. That's a quarterly record for B2Gold. Very pleased to see it. It's really driven similar consideration to previous quarters as out-performance by Fekola, which is 10,000 ounces ahead of budget, Masbate, which is 4,000 ounces ahead, and Otjikoto, which was 1,000 ounces ahead. On the Nicaragua side, overall, they were 2,000 ounces ahead of budget. Just to discuss that in a little more detail, Fekola had 114,000 ounces in the production in the quarter, 10,000 over budget. That's really driven, again, by the higher throughput, 34% higher than budget. We actually put 1.8 million tons through the mill in this single quarter.
Because of that, as we discussed in Q1, we made a deliberate decision to feed more of the low-grade stockpile through the mill because the mill could consume it, and we've shown that we can do that without reducing recoveries. The mill feed also included more saprolite and finer than expected ore feed from the primary crusher. Overall, because we put some of that low-grade stockpile material through it, grade was lower than budget, but we had much higher production. Masbate was 58,000 ounces, 4,000 ounces higher than budget, and a slightly higher throughput, 3% over budget and higher grade. Production in the quarter focused on Main Vein and also on budget backfill areas there that we didn't have in the mine plan, but we found that they'd have decent grade and we put it through the mill.
Otjikoto, 37,000 ounces, just 1,000 ounces above budget, basically in line. Marginally higher throughput and recoveries there and a slight beat on budget. To remind you as well, as we've said before, Otjikoto production this year is still significantly weighted to the second half of 2019 as we get higher grade material coming into the mine plan now from Otjikoto phase 3 in the third quarter and then from Wolfshag phase 2 in the fourth quarter. In Nicaragua, Limón, 11,000 ounces, just 1,000 ounces below budget, approximately in line. Santa Pancha underground and Frijol Negro underground development continued, plus we had rapid advancement of the Central open pit, which produced ore early in June in the second quarter. La Libertad, 26,000 ounces. That's 3,000 ounces higher than budget due to higher grade.
I should say as well that we did some work in the first half of the quarter where we caught up on some of the deferred stuff at San Juan and Limón, stuff that we hadn't been able to complete at the end of last year. Significantly positive for Libertad.
Javier Lima ]
Javier Lima open pit permit. First production is expected in October, so early in the fourth quarter. Overall, I think production-wise in Nicaragua, we've turned a corner there. As Clive said, both ops are performing well. Just comment on the cost side now. On the cash cost side, I'm going to talk about cost base ounces produced, whereas on the all-in side, we're mandated to talk about it base ounces sold, but I feel like it's easier to understand if we talk about cash cost on the ounces produced base. Overall, consolidated cash costs, including all operations-
Are you still there?
Sorry? No. Cash costs overall consolidated, $529 an ounce, $37 lower than budget, which is basically based on the higher production at most of the sites and then sort of lower than on-budget total operating costs. They were a bit higher in the prior year quarter, which was $474 an ounce, and that's due to the La Libertad decision to process the low-grade stockpile material at Fekola in this quarter. We did have budgeted and expected labor and chilling increases. Also, we shouldn't forget that Fekola had an excellent startup quarter in our initial run in 2018 when they were processing higher-grade stockpile materials, and that wasn't repeated this year as we get into steady state operations at Fekola. Overall, in detail, Fekola is $367 an ounce, $33 less than budget, and that was due to the higher production, as discussed earlier.
Total cost of production were on budget and basically, things are running very nicely there. Masbate, $570 an ounce, $64 lower than budget. Cash operating costs were below budget, mainly due to the higher gold production and also lower than budgeted mining costs. We experienced cost savings in a number of areas, including drilling and blasting, and the backfill areas which didn't require blasting. We also had blast pattern spacing, which was increased, resulting in savings in drill meters and blast agents. Also because we focused on concentrated on production in the Main Vein area, we also had lower trucking costs and lower strip ratio. Otjikoto was $554 an ounce, $25 lower than budget. Again, just due to slightly higher production, also a lower strip ratio than modeled at.
Just comment on the total from continuing operations, it was $529 per ounce consolidated, all operations, but from the three continuing operations, the cash costs for the quarter were $456, which was beat budget by just over $40. On the Nicaragua side, El Limon, $953, $44 lower than budget. It was mainly lower budget due to greater activity in the Central Pit and sort of advancing production there in Central slightly faster than we'd anticipated. That, as I said, was offset a little bit by catch-up development at Santa Pancha underground, which is now being done. La Libertad was $936 an ounce, slightly over budget. The higher cost per ounce mainly resulted from processing higher cost open pit ounces, and they're also higher due to some higher mining costs related to budgeted waste tons moved at San Diego and San Juan as part of that development catch-up.
Overall, to comment as well, the costs for Nicaragua, I'll mostly get to the effect on the all-in sustaining cost, definitely more weighted to the first half of the year as we did some of that catch-up activity. Now that we're getting into some of the better ore sources, and we have Javier Lima coming online and Limon Central coming online, we see the second half cost profile for Nicaragua will definitely be lower than the first half. Overall, we're maintaining guidance for both operations. Finally, just to comment on all-ins for the quarter, As I said, these are based on ounces sold, $914 consolidated, $37 under budget, and mainly mirroring the reduction in cash costs I discussed earlier. Also there were some CapEx timing differences there.
We have seen lower pre-strip at both Fekola and Otjikoto, lower than we'd anticipated, and some of those pre-strip costs will be timing differences of reversal. We think there's about $11 million of budgeted pre-strip year to date that won't reverse, but we'll see as a saving against budget. Individually, Fekola, $625 an ounce, $80 lower than budget. Lower cash costs and also some of that pre-strip cost, which was partially offset by some higher mobile fleet costs that had been budgeted for earlier quarter was caught up in this quarter. Masbate, $749 an ounce, over $100 an ounce lower than budget, again, reflects that lower cash operating cost and timing of some land purchasing. Otjikoto was $1,174 an ounce, which is still under budget, and that again reflects the fact that we had budgeted higher costs for Otjikoto in the first half of the year.
Otjikoto is another one of those operations that definitely has production weighted to the second half, and that will impact its cost in the second half too. The totals from continuing operations, so those three mines was just $807, which was nearly $90 under budget. On El Limón and La Libertad site, overall Nicaraguan operations were $1,589 all in for the period, which was higher than budget. That was mainly due to the timing of CapEx and some of that catch-up CapEx timing. Like I said, as we move forward, we expect to see a reduction in those all-in sustaining costs in the second half of the year. Maybe just a reminder, overall on production guidance for the year. For Fekola, we guided between 420,000-430,000 ounces.
Based on the excellent production profile to date, we see ourselves coming in at the high end of that guidance overall for the year. We no longer see the significant weighting for Fekola between half one and half two, just based on the fact that we're already so far ahead of the game in the first half. Masbate, still guiding between 200,000-210,000 ounces a year, primarily production from Main Vein. Otjikoto, the range is 165-175, and like I say, that is weighted to the second half of the year in terms of production profile. El Limón, still maintaining guidance 55,000-60,000 ounces weighted to the second half based on the timing of Central Ore processing.
La Libertad Mine site, 100,000 ounces guidance for the year, again, weighted to the second half based on the timing of processing at Havilah and Toega open pit underground ore sources. Overall, our guidance range maintained is 935 to 975. We had originally guided that it would be fairly significantly weighted to the second half of the year versus the first half due to the stripping activity in the first half. We don't see such a significant weighting in the second half now, just based on the outperformance in the first half of the year. Also to comment, if the Nicaraguan sale does go through, as we think, early in Q4, we will only be picking up 31% of those operations thereafter.
We still think if that happens, say at the end of October, for example, that we'll still meet the lower end of our overall budgeted guidance range. In total, no change to that overall range. No change to the overall forecast cash cost and all-in sustaining cost guidance ranges. Couple of comments on the income statement, just for your information. Mainly on the taxes, because I know sometimes there's confusion as to what the tax breakdown is, particularly in Mali. $24 million tax expense for the quarter, and that's made up of Fekola income taxes, $13 million. Fekola government dividend, which is counted towards the tax, $4 million, and withholding taxes of $2 million. We also have another $5 million in there from Masbate, and that's because Masbate is now fully taxable, no tax holiday there anymore.
Remember, we did guide $120 million in cash tax payments for the year, including settling 2018 liabilities and also making 2019 cash tax installments, and we've got just under $60 million of that to go for the balance of the year. On the income for the period, $41 million. Adjusted income was $52 million. Basic earnings per share, $0.04. Adjusted earnings per share, $0.05. Year to date, basic earnings, $68 million or $0.07 a share. Adjusted income, $89 million or $0.09 a share. Now I'm going to comment also on a few items on the cash flow statement. Firstly, on the operating cash flow side, we generated just under $92 million for the quarter or $0.09 a share operating cash flow, $180 million year to date.
We had guided at the start of the year that based on a gold price of $1,300 per ounce, we generate somewhere around $400 million in operating cash flows. Obviously, cash flow is significantly higher now with a higher gold price, we now see ourselves coming in maybe around the $480 million or closer to about $500 million operating cash flow for the year. Just to give you an idea, every $100 change in the gold price after royalties and taxes translates to about $70 million in additional operating cash flows.
That's for you versus total $1,400.
1,400. Yeah. Just in the financing section, we did repay $25 million on the revolver in the quarter. We expect as we go through the year, those higher cash flows to repay more debt as we go through the year. On the investing activity section, business as usual at all the sites. Like I say, we probably got about $11 million in deferred strips that we expected to incur over the year to date. We don't expect to incur now for the balance of the year. Perhaps a reminder, there have been various additions to CapEx that have gone through since the original budget results were put out. We've discussed them on prior calls and news releases. Just to give you a reminder, those are mainly related to Fekola.
Fekola expansion, which subsequently approved, is expected to be $50 million in total for the mill expansion, $25 million this year, $25 million next year. Fekola fleet, in total now we think that the larger size trucks, total anticipated fleet cost will be $86 million, of which $26 million is expected to be incurred this year, including pulling some other fleet forward from 2020 into 2019. Fekola solar plant, also approved. We think it's going to be the largest off-grid hybrid solar HFO plant in the world. We think that'll reduce processing costs by about 7%, and be able to take up to three gens out of operations at any point in the day. The CapEx for that is $38 million, of which $20 million is budgeted for this year, with a balance of $18 million in 2020.
We also increased Fekola's exploration budget by $3 million earlier in the year just to fast-track some more drilling at some of the targets that we've got there, I'm sure Tom can talk to you in a bit. Overall, all that's been built into the budget, or into the reforecast cash flows for this year. I'm pleased to say that with the increased operating cash flows that we have and the better-than-budgeted production at the sites, we're able to absorb all those and more, and still forecast that we'll be able to pay off more debt as we go through the balance of the year. If the Calibre sale goes through as expected early in Q4, there should be another $40 million in cash proceeds as the first tranche of cash proceeds will come in the fourth quarter.
Again, that'll add to the available cash and our ability to pay down debt. Final comment is that based on how we see 2020 unfolding right now on our current mine plan, we'll update the mine plans later in the year. Based on current mine plans, particularly including the expanded Fekola operation, both expanded fleet and later in the year, the expanded mill, we expect significant cash flow generation next year. If we chose to be debt-free and pay the revolver down, we think we could by year-end, by 2020, at $1,300 or $1,400 gold. The way we see it right now, we have $375 million on the revolver at $1,400 gold, I think we can pay that off over the balance of this year and the end of next year.
I think those are the main items I wanted to talk about on the results.
Okay. Thanks, Mike. Just one clarification or one to add to that, the $85 million for the large expanded fleet for the Fekola expansion would be asset financing that with equipment loans.
Yeah
the dimension. Okay. Yeah, I guess I'm going to pass on to Tom now to give us an overview of, obviously, the major exploration budgets in a number of locations, the biggest chunk, of course, being Fekola and the area around Fekola. If you can talk.
Well, thank you, Clive. As Clive says, we've had a pretty major exploration budget for this year for all our projects. Up to this point, we drilled over 100,000 meters in all our exploration projects. In Fekola, up to this point, we drilled 30,000 meters of diamond drilling in over 100 holes and 22,000 meters of RC drilling in over 200 holes. The focus of that has been in several areas. Initially, it was to do the infill drilling on the PEA pit, then to do exploration down plunge on Fekola and to the south of Fekola, also up in the Snakes areas to the north, then to a new license we acquired to the north of that. We've completed the infill drilling on the PEA pit. With the change in gold prices, it's forced us to look at going further down plunge.
As everybody has known, or I've talked about several times, our $1400 resource pit that we came up with was really, although it was $1400, it was at the edge of our data. Which really says, we don't know where the $1400 pit really goes. We started doing some infill drilling within that $1400 pit, and now down plunge of that $1400 pit, and the mineralization still continues. For example, we just hit a hole 413. We had almost four grams over 59 meters at the bottom of our $1400 pit, so at the edge of our current resource. At the edge of the PEA pit, we hit some holes. We had six grams over 20 meters, four and a half grams over 24 meters. We had almost four grams over 56 meters at the edge of the PEA pit.
That suggests that the ore body is still continually strong at that edge and continues strong within the $1,400 pit. We'll continue exploration further down plunge. We are studying, we're talking internally about what our new gold price will be for reserve, but it certainly suggests that Fekola, although it has become one hell of a large ore body, still continues to the north and has potential to get larger again. In addition to that, we've started satellite drilling, extending the satellite mineralization in Anaconda to the north into the Bantako license, a license we've recently acquired. We've hit satellite mineralization over a kilometer north of the current resource, with some very significant mineralization within 500 meters of the current Mamba zone.
With that mineralization, we're now doing not only the satellite RC drilling, but we're also doing diamond drilling in the sulfide mineralization down-plunge of these zones of satellite mineralization we found at Mamba. In summary, although we've expanded Fekola and it certainly looks like a really big pit, it remains significantly open to the north. Now with the satellite mineralization, we're seeing large expansions of that mineralization beyond our current resource. We'll continue with exploration throughout the year aggressively in those two areas, and we'll have results to release in probably a month or two time.
Thanks, Tom. Before we open for questions, just maybe a couple comments. I do want to shout out to our Nicaragua employees. We had a tremendous group down there led by Dale Craig, who was with it from the beginning. Just a tremendous team of people that done an excellent job over many years. We really put Nicaragua on the map for gold mining in a big way, it attracted lots of other people to go Nicaragua, including Calibre some years ago, obviously they have experience in the country from exploration perspective as well. I just wanted to thank our employees. Those who know our culture know how much we care about our people.
The Nicaragua deal was a really good fit for us because when you look at it, evaluate what we got or didn't get for it, don't forget, we didn't sell it outright. We didn't decide to get out of Nicaragua and sell the assets. We structured a deal. We wanted our people, our legacy to continue there by combining it with Calibre. They've got a very good, strong executive team. Our management team, our employees stay in place, so their legacy continues. You'll now have, with the closing of the deal, Calibre very focused on growing within Nicaragua and I'm sure other things potentially in Central America, et cetera. The deal was a great, I think a real win-win for us. We were happy to be 31% shareholders of Calibre.
Our decision to combine with Calibre and see them go forward with the assets in Nicaragua was not based on politics. This was not a decision based on political activity. We really are great believers in Nicaragua, its people, wonderful people. It's had great success, people forget that sometimes with what's happened recently with some of the rhetoric coming from people who don't really know what they're talking about. At the end of the day, Nicaragua's been a great success story, and its unfortunate silos has transpired over the last year. We believe in the country, its people and the future, and we believe that they will be successful. Part of the reason to recognize our people down there is just the remarkable job they did over the last year, very difficult circumstances in keeping the mines running.
One thing that almost everyone in Nicaragua seems to have in common is they want these mines to continue. They want these jobs to continue. These are some of the best paying jobs in the country. We're very safe miners, responsible environmentally, and done huge social programs that have a great benefit. Nicaragua's been good for us, and we've been very good for Nicaragua, and that continues. If as expected, the deal closes, it continues the legacy with Calibre and our people and also we'll help them along the way in any way that we can. I think now we'll open it up for any questions that you might have.
Certainly. At this time, if you'd like to ask a question, please press star one on your telephone keypad. In order to withdraw your question, press the pound key. We'll pause for a moment to compile the Q&A roster. Again, that is star one to ask a question by phone. Jordy Mark with Haywood Securities, your line is open.
Good morning, afternoon, guys. Great quarter. Thanks for hosting the call today. Just one question in several parts, I guess. I guess the main focus is Fekola. Let's start there. Obviously doing very well through plant, at 7.3 million tons run rate for the quarter. Can you give us an idea, given that you're sort of going above the original nameplate using that capacity, where available to put in stockpiles, how you foresee the sort of balance of mined tons in H2 versus stockpiles? Put another way, how many tons are coming from being mined in H2 in the current plan?
Bill or Randy?
Yeah, Randy's probably closer to it. I can answer if you want, but go ahead and let Randy.
Sure. Randy? You there, Randy?
Yeah, maybe I'll take a shot.
There you go.
, we see, certainly it's not just the second half of 2019 we've got to consider. As we build up our stockpiles, we've got to look at what we're doing in 2020 as well. We put out the PEA with some pretty aggressive numbers, we want to make sure that we don't move too many ounces out of our high grade and medium grade stockpiles than we would have in 2020. I think the short answer is we're managing it to be kind of what the first half looked like.
Okay, great. Ultimately the performance well above the normal nameplate could be expected concurrent with the up rate to 7.5. You'd expect 7.5, could be 8.5 to 9 in the right conditions?
You guys want to talk about the softer rock and how the rock's going to get harder? Let's talk about that.
Go ahead, Jordy .
Jordy ?
The higher throughput now is a result of the saprolite that's in the mill feed, as well as the softer rock that's from the low grade that we're processing through the mill. With all fresh rock coming in the future of higher grade, We wouldn't have as high a throughput, if not we had the higher grade fresh rock. That's what the expansion is designed to process, is the high grade part of rock.
Yeah, maybe just to add something to that, Jordy, one of the things that we're looking at right now, don't forget with this expansion, we've got a tie-in, and tie-in obviously means shutdown time. When you're talking about seven and a half or $8 million or $9 million over the course of 2020, you've got to factor in, certainly we're going to have quarters where we're not going to be able to run that because we'll be shut down for our tie-in. Yep, okay. Great. Thanks for that. Maybe just some housekeeping. I see you obviously have the
Yeah, I can respond to that, Jordy.
Perfect.
CapEx, really the major items in CapEx have been taken care of in the front end of the year. That includes the land acquisition and dam construction. We're expecting CapEx to tail off in the back half of the year. In terms of grade projections coming out of Havilly, we're expecting it to run just under four grams per tonne. Contribution to the mill feed will be in the 10%-15% range, so it punches above its weight on grade. Our advance and production will really depend how effective we are in operating it. Yes, that's our starting point, and that's our plan.
Fabulous. Thanks. Maybe one last one if I can for Tom, or anyone else, I guess. In terms of drilling at Fekola, it's been done very well. In terms of the hypogene at depth, obviously that's done well. It looks like you've doubled your budget there to have another $3 million. I guess that bodes well in terms of some success on grade. You're quoting Fekola-style mineralization there, but from memory, the other target, Cardinal, is something different again?
Yeah, Cardinal is something different again. We don't have a lot of drilling on it right now, just because we seem to be tied up everywhere else. Cardinal seems to be quite a bit tighter than Fekola. I don't expect a Fekola target at Cardinal. I'd expect that may be something small, but at one point in the future, they'll carve out. There is a cut, by the way. Cardinal's only less than 500 meters from the pit.
Great. Okay, great. Thank you for answering that question. Cheers.
Excellent.
Lawson Winder with BofA Securities, your line is open.
Great. Thanks for taking the questions, guys. I actually just wanted to look at Masbate. That's an asset that certainly seems hard to pin down, which is actually good because it's always surprising to the upside. Maybe just a couple of questions on what the second half looks like. In your original budget, or your guidance, you said 69.7% would be the average recovery for the year at Masbate. Based on that would imply that the budget for H2 would be something over 80%. Is that correct? If so, what's kind of driving that expectation? Thanks.
The original budget concept had a significant Montana component, which is high recovery. The blend will depend on the arrival of that component, and our recovery's projected through the back half of the year will run between 69%, 70% in Q3 up to 80%, climbing to 80% in the fourth quarter. Slightly below our original projections.
Okay, that's great. You also spoke about the Montana pit expansion. Are you able to give us an idea of how many ounces we're talking about there and at what grade? Are you looking to publish an updated technical report on that? Thanks.
No. I'll have to get back to you on that. I've got a quick chart to check here.
Oh, okay. No problem. I got some other questions on Masbate as well. Just on the oxide, it's always surprising to the upside in terms of the percent of oxide. I guess first off, your budget for the first half was 1%, in terms of oxide. What is the budget for the second half in terms of the oxide percentage? Then maybe you just speak to your understanding as to what's kind of driving that huge variation in the percent oxide versus the budget, and particularly if the previously mined out areas have anything to do with that. Thanks.
It has a lot to do with our current mining phases. I'm anticipating through Q3, we will run about 20% oxide in our most recent forecast, but that declines to above 2% in the final quarter of the year. Really, the original blending strategy through Q3, Q4, as well we developed our budget, it included a nice blend of low-grade ore coming from stockpiles and high recovery materials coming from Vangay and Montana. That blend in our forecast is changing slightly, and that's why you see the difference heading towards more oxide and less pyrite ore in our blend component.
From a history of that, the whole oxide history, Tom, Brian, as somebody from geology, do you want to talk about why you think we're seeing so much oxide historically than we thought we would?
I'll give it a shot. We've been studying this a lot. A couple things. First of all, that sulfide material or the stockpiles, most of those stockpiles are getting oxidized. They've been sitting out there between 10 and 30 years with saltwater rain coming on them. They've had some oxidation themselves. There's a bit of a surprise, a positive surprise in the stockpiles. Second, I'm guessing a little bit, but we have looked at this a lot. The interpretation of sulfide within the rocks is largely based on RC drilling rather than some diamond drilling. What happens with RC drilling, the mineralization itself, which occurs in veins and fractures, is getting oxidized, but they're quite narrow, and they're hard to see when you drill RC drilling across the alteration halos around these veins have a lot of sulfide to them. They don't get oxidized.
I think there's a little bit of misclassification going on. I don't know how much, and we really can't, unless we redrill the whole thing with diamond drilling, we really can't change our interpretation or our models. I think we can expect some positive changes, but I wouldn't put too much on it. I think the bigger change is a lot of the stockpiles were classified as sulfide, and I think they're being oxidized.
Probably the previous owners, they didn't spend as much time differentiating. Is that right?
No. We've certainly studied it a lot more than they have, for sure.
That's part of why With further analysis, there is more oxide than they had thought.
Yeah.
Okay, that's great. That's a very helpful explanation. Just on the backfill prior workings in the Main Vein. Obviously you had expected to encounter those, have they ever been drilled out? To what extent can you expect that to continue, where you're actually getting grades worth processing out of those old workings?
The same thing applies that we talk about with the oxidation state. When you go drill a good chunk of your ore body with RC, as what has done here in Main Vein, it's very difficult to pick out all the workings. There's going to be some conservatism applied to the modeling of the workings. Certainly when you're drilling RC and you go through a pit that's opening that's been backfilled with rock and maybe a bit of paste, you don't really pick it out in an RC hole. I think what's happened is we've been conservative in our modeling of some of these workings, and it's turning out to our benefit. I'd say it's silly to do that and have the opposite happen.
I would agree.
Some conservative forecasting and recovery issue going through backfill, sort of hard to recover an asset.
Yeah.
I can speak to the Montana question as well. Montana's got about 225,000 ounces at about two gram.
Over what period of time, would that be, Mike?
Over two years, approximately. Yeah, we see it pulling in at about 12% of our mill feed. The grade in the coming six to eight months will range from 1.4 to just over two grams per tonne at the recovery, 80%. I would invite you to reach out to the guys for any more detailed technical questions. There may be other people in the queue that want to ask questions as well. Thanks for your good questions and your interest.
Yeah, no problem. Thank you all.
Again, if you'd like to ask a question, please press *1 on your telephone keypad. Your next question comes from Chris Tom with PI Financial. Your line is open.
Yeah. Good morning, guys. Congratulations on a great quarter again. Three quick questions. Just a point of clarification on the discussions from the previous call on Masbate. What I'm hearing here is that you're planning on pushing more oxide through the plant towards the back end of this year to increase the recovery. Is that right?
No, we will be sending more low-grade through the plant, non-oxide, in the back end of the year, final quarter.
Okay, I think you were mentioning close to 80% in the fourth quarter. Is that right?
No. Closer to 2% in the fourth quarter, approximately 20% oxide in the third quarter.
Sorry, recovery is 80%?
Say again?
Sorry. I'm just looking at the recovery is what we should be modeling, I guess, in the fourth quarter.
Yeah. Recovery third quarter sits around 70%, 80% in the final quarter of the year.
Thank you very much. Thank you. Just moving on to Otjikoto quickly. Obviously, you've been guiding for a stronger second half. I guess, grade driven, I would imagine, phase 2 Wolfshag. Can you give us a sense of the sort of the head grade profiles we should be putting in our model for this?
Yeah, I'll look it up. Yeah, maybe Chris, call me outside this call and I'll let you know?
Yep. Fine. Sorry for asking the details here. Final question, guys. Obviously for Fekola, fantastic performance from the asset here. I think you mentioned earlier on that you're going to be managing the second half tons, milled tons, very much like what we saw in the first half of this year. Would the same be for the head grade as well?
Yeah, I think you could assume that. Once again, we are managing the head grade as well. What we're really trying to do is target an ounce profile as opposed to a grade going down through.
Got it, guys. All right. Thanks. Good quarter. Thank you.
Thanks.
Carey MacRury with Canaccord Genuity, your line is open.
Hi. Good morning, guys. Just had a question on Anaconda. Looks like you've pushed out the scoping study as you're continuing to drill there. Just wondering from what you're seeing there, are you still contemplating a standalone operation, or is it still potentially going to be mixed in with the Fekola mill? I was wondering about the timeline in terms of coming up with or releasing details around the plan around Anaconda.
Tom, yes. I mean, Tom, do you want to talk to it? You just mentioned that it's open to the north and we're getting good results there. Getting bigger, of course, makes a standalone more interesting. Dennis, want to talk to that a bit?
Yeah. As it gets bigger and some of the things we're seeing in the saprolite right now, it's a bit higher grade, which is the real handle on this thing for making a standalone saprolite-like plant. We're just kind of waiting and seeing a bit right now. Tom's guys are just really getting into the drilling this thing out further to the north. We'd like to get a little more definition on what we really think we've got there for two things, saprolite, the saprolite itself, both tons and grade. I mean, how big can this thing get and then what is the grade really? As soon as we have a better understanding of that, we'll drop it into our models, and we'll take another look at how that plant looks. Is there a hard rock component of this thing up north that we need to consider also?
Would we build a different style of plant? With the success the exploration guys are having, comes a whole new list of questions for us.
Tom, do you just want to talk a little, if you mentioned about when you're going to be going below the saprolite?
Yeah. I think Dennis's point is a really good point in terms of timing of knowing things. The saprolite is getting bigger, so we're expanding the saprolite, and we have started, we actually have our first hole number 1 going into the Mamba sulfide target at the north end of it. We're still early stages on the sulfide targets, but initially we had several targets in the sulfides. We had one at Adder, the Anaconda, we had two in Mamba, and now we're drilling one of our best sulfide targets in Mamba below the saprolite. To talk about timing on when we would know what we have there, your guess is as good as mine. If hole number 1 turns out a monster intersection, we'll hit it really, really aggressively. If it's hole number 50, well, we'll be working at it for a while.
It won't be hole 50, that would be my bet. Yeah, it's still early stage exploration, so your guess is as good as mine as when we'll have a feasibility on it. I think in summary of it, I think what Dennis says and John said yesterday is, let's find out what we have there in the sulfide before we decide what plant we want to build there.
It could be potentially a standalone if the saprolite continues to get bigger and the grade looks like there are some areas that have got a grade. Again, it may be the saprolite gets mined in a bigger mill if it's on top of another large deposit into the sulfides. Yeah, you see?
Can I answer the question?
Yeah.
The other quarter question, second half of year, Q3 grade through the mill, 1.73 grams, Q4 is two grams per ton.
Just to follow up on Anaconda. Based on the drilling to date, do you think you'll be in a position to at least expand the resource at the end of the year?
I don't think so.
Okay.
Just because we haven't found the edges yet, so here it is August already. Unless we find edges, I don't know that we will have a new resource by the end of the year.
We might potentially do an updated resource at some point in the next year or so with Anaconda, if it's still open. We've done that before. Is that right?
Maybe sometime next year we'll be able to come up with a new resource.
Okay, great. Thank you very much.
There are no further questions at this time. I would now like to turn the call back over to Mr. Clive Johnson for final remarks.
Hey, thank you all for getting on the call and for your interest. I said again, further follow-up questions, reach out through Ian to get you in touch with the right person here. I think we're obviously very pleased with the results that we've seen for the quarter again. I think based on our successful growth strategy over 10 years, remember we had no gold production 10 years ago, but based on the successful growth strategy, which perhaps was somewhat contrary, and I really do believe we're almost if not uniquely positioned to continue to generate strong cash flow operations, but also to continue as a real growth engine by focusing on what we have in the pipeline. We're going to generate lots of cash flow.
We were looking at it on a cash flow point of view of $1,300 gold and then debt repayment, obviously with gold being higher, that looks even better. Our long-term goal, maybe not too long-term anymore, is to continue to be a responsible producer, but also obviously continue to grow. A lot of that from existing assets and through the drill bit. Ultimately, we'd like to be a company that takes a portion of our cash we generate and uses it to grow the company's production further. I want to look at a dividend strategy in the future. I can't tell you what the gold price would have to be for us to proceed with a dividend and when yet, but we're going to be looking at that, and that's part of our goal as a company.
We think that would be a very attractive company for lots of investors, generalists, and gold investors to look at a company that's low cost, profitable, low debt, can grow from existing assets and the drill bit based on our extraordinary track record of what we've accomplished so far, but also become a dividend paying company as well. Once again, thank you all for your interest, and we'll look forward to talking to you soon. Have a good day.
This concludes B2Gold Corp's second quarter and first half 2019 financial results conference call. Thank you for your participation. You may now disconnect.