Good afternoon, ladies and gentlemen. Welcome to B2Gold Corp's first quarter 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.
What's up, everyone? Welcome, everyone, to the conference call to discuss the 2019 first quarter financial results for B2Gold. We had another strong quarter. I'm going to hand it over to Mike in a minute, Mike Cinnamond, our CFO, to give us a run through the highlights. I think the initial release was quite thorough and self-explanatory, it's backed up by the MD&A that we have as well. There's lots of information there. I'm going to keep it short and sweet. Mike will give us a run through of the financial results. We're going to quickly turn it over to questions after that, and see if we can answer any of your questions. For the quarter and going forward, we continue to remain focused on maximizing our operations around the world. We are very focused on continuing to generate free cash flow.
We're looking at another very good year this year, as Mike will outline as well, in terms of our guidance for the year. We're also very focused on debt repayment. That is an important part of what we continue. After last year, repaying $220 million of debt last year to reduce our debt significantly. We'll continue on that path as well. When we look to the future, we're very focused on our pipeline. I think we talked about it a little bit before. In the pipeline, some of it's pretty immediate. One's, of course, the expansion of Fekola, which is underway. We expect to kick in next year.
Given our view of the preliminary economic assessment that we've done, we think it's going to make a significant increase in production. We've been talking about 1,750,000 ounces a year from the time we get started next year. We haven't done detailed mine plans. Those will come later in the year. The results of the PEA on the expansion of Fekola were extremely robust. It's bit of a no-brainer. That's a real focus going forward. We're also very excited and focused on exploration. The additions to the north of Fekola, those zones that we've discovered around Fekola, and then furthest to the north, the Anaconda zones. There's a lot more drilling, not some info coming in as a big part of this part of the year. I'm looking forward to the rest of the year. A lot of exploration drilling.
We're pretty excited about the potential of Fekola and something beyond the mine resources we've drilled so far. That's a real focus. Other things, we have our joint venture in Gramalote in Colombia with AngloGold Ashanti. Where we're at with that right now is we're in discussions with AGA about a budget going forward. We have a new model, which is a lot better model than we had in the past. That model does, however, indicate that there's a lot more drilling required. The next step is to do more drilling. We're in discussions with AngloGold Ashanti, whether it's to spend more money on Gramalote, and if so, who's going to spend it and what's it going to look like.
We'll probably have something to talk about there over the next couple of months, whether we go forward and spend more money in Gramalote or not. Just a comment on another thing Mike will talk about, which we did increase our revolving corporate facility with our great group of bankers who've been extremely supportive of us. The reasons why you look to increase that facility, we don't need cash, that's pretty clear. We're generating positive cash flow. The bank offered to renegotiate the terms more attractively to us just based on our performance, stellar performance. They're very happy with us, and we're very happy with them. We increased it by just $100 million. That's the facility. The scale mode is a very low standby fee for anyone we're not using it. The key feature is that we got better terms from the banks.
Increasing our line by $100 million shouldn't suggest anything other than we got really good terms from the banks. That's why we increased the size of our facility. That's the reason we did it. Comment on M&A. For four and a half years, I've been saying we're not seriously looking at M&A. Let's say it one more time. We're not seriously looking at M&A. We have a pipeline of projects. We're very excited about the potential to build them. I said four and a half years ago, we're not likely to do any serious M&A until we get credit for Fekola. That was four and a half years ago. We're still not getting credit for Fekola, and we're definitely not getting credit for the Fekola expansion and what else might be in the pipeline. We're not close to doing any M&A. I hope that's clear.
We don't see anything else that we like, and we don't want to use our shares anywhere near the level to do anything. We got a great pipeline of projects. If and when we do another acquisition, I don't think we're going to do something really stupid after three years of doing some pretty good deals. No, we're not doing it. B, if we ever do, I think we're probably going to do another good deal. Fekola turned out pretty good, and some of the other ones did as well. I hope that's clear on that point. Just heard the word M&A come up. The only thing we're looking at acquiring are great exploration opportunities. We've acquired some of them. We're going to acquire more of them, but we're not going to pay for ounces. That's our stance there. We never have.
With that, I'll pass it over to Mike to give you the financial headlines, and then we'll open up for questions. Mike, was that clear?
I think so. It's really clear.
Okay.
I'll walk you through the revenue and the operating results then some comments, I guess, on some elements of the cash flow statement. First on the revenue side. For the quarter, we reported $302 million in revenues on sales of 232,000 oz. That was $42 million less than the prior year quarter. The main reason for that is we sold 28,000 fewer ounces. We have to just kind of remind you that in the prior year quarter, Q1 2018, that's the quarter when we sold down more than 20,000 ounces of low cost before inventory that we built up in the Fekola ramp-up stage. That was in opening inventory at the end of 2017, and it was a sort of one-off as we brought Fekola online.
It's still a very strong sales quarter for us this year, and there was a sort of one-off explanation for last year's being a higher quarter.
On the production side, consolidated production is 231,000 ounces, with key pledges of 218,000 ounces, like 13,000 ounces. This continues to reflect the outperformance of Fekola and Masbate. Then in Nicaragua, El Limon was basically on budget and La Libertad touched label of 3,000 ounces. Looking at it individually, Fekola had production of 110,000 ounces, beat budget by 7,000. That was due to higher throughput. During the period, we processed a fair amount of weathered stockpiles that required less grinding. Because the mill throughput was doing so well, we also made a decision in the quarter to process more of our low-grade stockpiles than we originally budgeted. Because the low-grade stockpiles were lower grade overall, our grade was slightly down.
The average grade for the quarter was 2.1 grams versus 2.5 as budgeted. That did result in slightly a moderate increase in Fekola costs, which we already pre-released. Masbate production was 57,000 ounces, 87,000 up on budget. Masbate continues to outperform at all levels, higher grades, higher recoveries. In particular, a lot more oxide content than was budgeted. We're now mining in Main vein. The oxide content there was 31% for processed tonnage versus 8% budgeted. I'd also comment that Masbate's expansion came up online early in the quarter and is now running full tilt now with a processing capacity of 8 million tons for the year. Otjikoto, 33,000 ounces, 4,000 ounces above budget, basically online. El Limon was 12,000 on budget. La Libertad 18,000 ounces or 3,000 ounces less than budget.
Libertad was mainly due to lower grade in the plan from San Diego, which partly offset higher production at Pinal. Overall, it resulted in 3,000 ounces under budget. On a cash cost base, consolidated cash costs for the quarter were $545 an ounce. That was $27 an ounce less than budget, driven mainly by Masbate and Otjikoto, offset by slightly higher costs at Fekola and some higher costs at El Limon and La Libertad. Individually, Fekola was still our lowest cost producer at $397 an ounce, which was $28 higher than budget. That was for the reason I just elaborated on earlier. We made a decision to process a lot more low-grade material than originally budgeted, which increased the costs marginally. Masbate had a cracking quarter, $526 an ounce, which is $123 less than budget.
That's driven by a number of factors, above-budget gold production and gross mine tons, which were actually well below budget. We're cost savings in a number of areas. Drilling and blasting was lower in part because some of the material we were mining came from backfill areas that didn't need blasting. We're also able to increase the spacing from some of our other blasting in this period. Load and haul costs were lower because we focused a lot more activity around the Main vein pit rather than running up to the bottom pit wall. Otjikoto cost $519 an ounce. That was $136 less than budget. Key reason for that is that we just got more ore tons than we thought. We had budgeted from pits in the Otjikoto pit to get to a bulk check.
That results in lower strip ratio. We actually stockpiled a bunch of material that we mined in the period, and that had a positive impact on the cost for the quarter. In Nicaragua, El Limon, $991 an ounce, which is 115 higher than budget, and La Libertad, $1,295 an ounce, which is $249 higher than budget due to the lower production we've been actually drilling. On the all-in sustaining cost side, it's $1,048 an ounce consolidated, which is $133 less than budget, and that's a combination of two main factors. The first one is the $27 per ounce lower cash operating costs this period, and the balance is mainly related to the capital expenditure planning. We were $24 million lower in the quarter on the CapEx side than we originally budgeted. Almost all of that will reverse.
Maybe about $4 million of strip at Otjikoto that we won't see reverse. Other than that, we'll see the majority of that CapEx reverse later in the year. We don't expect that underperform or that drop under $130 to pull through the rest of the year. A couple of general comments on the operation. The Fekola PEA, that'll be out shortly, in a couple of days' time. I think I've already mentioned our plans for Gramalote. To say that Gramalote, we originally budgeted $5 million. This is our share of full cost for the year, and we're still waiting to determine what drill program we might see in the second half of 2019 and into 2020, potentially.
At some point in the next little while, I think we'll probably land on an adjusted budget for Gramalote, and we'll be able to report that in the next quarter. I wanted to mention a few things on the statement of operations and then the cash flow. Just running down the statement of operations, a few comments. On the G&A side, we were about $3 million higher than the prior year quarter. That's mainly for two reasons. One, salary increases across the sort of consolidated group. Also a couple of million dollars for annual pool bonuses at the end of 2018, which flowed into Q1 2019. On the derivative side, we had $6.2 million in derivative gains. That's almost all fuel. $7 million came from our fuel hedging program, and stock up had about $1 million on yield loss on our interest rate hedges.
On the tax side, we're going to start paying higher taxes on a consistent basis now. If you go through the fiscal rules for taxed in Masbate that came out of tax holiday about a year ago. We're going to start seeing the taxes reported on a consistent basis now. Of the $27 million current income taxes, 14 of that were Fekola current income taxes, and $4 million of that was Fekola priority dividends. Just to remind you that that's where the free-carry 10% is reported. Masbate made up $4 million of the tax number, and we also had some alternative minimum taxes in Nicaragua on some other withholding taxes. All that translated into a net income for the period of $26 million or $0.02 a share. On an adjusted earnings basis, we reported $0.04 a share adjusted earnings.
Like I said, a few comments on the cash flow, then I'll turn it back to Clive and Bill. On the operating cash flow side, we generated $86 million in the quarter, which was a very solid number but it's $60 million less than we reported in 2018. Again, a couple of comments on that compared. The main one is the lower sales number that I discussed earlier when we mentioned revenue. We were about $40 million lower in sales, mainly because of the one-off Fekola inventory drawdown in 2018. Then we also paid $7 million in tax installments, and we also funded some of our working capital movements, mainly in inventory build-up. Overall, $86 million translates to a cash flow per share of $0.09. Post quarter-end, we paid another $30 million in Fekola tax installments.
That was to clear off the 2018 Fekola tax liability. We're also going to pay in the second quarter $17 million for the Fekola priority dividend that built up in 2018. Just for your models to be aware of that. For the full year, we're forecasting critical prices somewhere around $400 million in operating cash flows. On the financing side, you'll see no drawdowns or repayments of the revolver, but as Clive mentioned, we are still focused on repaying the debt. We did have $140 million of cash at the end of Q1, and normally we would pay down some of the revolver, but because we knew we were going to make those Fekola tax installments and priority dividend payments, we didn't pay anything in Q1.
As we move later in the year, and especially with the weighting of production results and cash flow to the second half of the year versus the first half, that's when we expect to start seeing some more down on the revolver. On the investing step, I said $58 million for the quarter. As I said, we were $24 million under. We got caught up with pace for various reasons, but we expect most of that to reverse in the period. What you'll also see now as we go forward, that wasn't in the original budget, is approximately $25 million will be added to CapEx for Fekola expansion. I think we disclosed that a couple weeks ago. That's the 2019 share of the mill expansion cost.
We're also evaluating what fleet needs we might have as well, we expect to have some more information about that as we determine that a bit later in the year. We do think that we'll cover that need. It'll either be finance from using our existing cash flows and revolver. We may also look to some sort of debt facility for that. In total, we ended the period with $140 million in cash. Like I say, it appreciates the zero liabilities, but also as we go forward to start paying down some more debt. That's basically all the main points that I wanted to highlight there, but I just hope to hear back to Clive.
Thanks. We'll open up the questions now.
Thank you. At this time, if you would like to ask a question, just press star, then the number 1 on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, just press the pound key. Thank you. We'll pause for just a moment to prepare the Q&A roster.
We have any questions on this?
Your first question comes from Carey MacRury from Canaccord Genuity. Carey, your line's open.
Hi, good morning or good afternoon. Just had a question on Fekola. Just doing your head throughput of about 6.9 million tons annualized. I know your guidance here is 5.75. Just wondering how we should think about throughput this year. I mean, obviously, that plant can do well above name plates. Any color you can provide on that?
Yeah. Well, we've always said that if we have some of the softer material, then we can run more for sure. What we are saying is that our base case is 6 million tons per annum based on grinding choice on the harder ore that we found at Fekola. I would say if we continue to find the softer ore which we're in, then you can expect that we'll be up higher than 6.
If you should be set to do some harder ore.
Yeah. What's the mix roughly of soft to hard currently?
Well, we've talked a little bit about that for sure. I mean, in Q1, we were running, what was it, 9% saprolite, 12% saprolite light, and some of the other stuff was higher up in the zone. We didn't see much hard stuff in Q1.
Okay. Thank you.
Yeah.
Your next question comes from Chris Thompson of PI Financial. Chris, your line's open.
Right. Thanks a lot. Good morning, guys. Congratulations on a great quarter. Just by the way, thanks for all the detail on the MD&A, really appreciate that. Two quick questions. First one on Masbate, second one on Otjikoto. Obviously, great results from Masbate. Obviously, you've done great on oxide tonnage. Can we expect any more juice in the tank by way of oxide ore before the mine reverts back to, let's call it a normal transition, fresh oxide, mill mix?
Bill, you want to take that one?
Sure.
Yep. As we continue, we proceed in this quarter continuing on a similar mix. This quarter, I think we'll see continued positive results, reverting to as planned by Q3 of this year.
Okay, thanks for that. Finally, Otjikoto. Obviously expecting back half weighted, obviously, more production, I guess, in the back half, higher grade, it looks like from Wolfshag two pits, phase two there. What are you guys thinking about the underground potential? Is that something you're still evaluating there?
The answer is absolutely yes. As a matter of fact, if you remember the long kind of drawn out saga that we had last year, it was a push on the economics, open pit versus underground, and a lot of that really depended on the geotech that we had thought was going to be there and the geohydrology. Those studies have now come in much more positive than we had anticipated. We are now thinking that we will go underground there for sure, and we may go underground sooner than later. The current plan is to fill our study by the end of Q3 so we can present it to the board in Q4 of this year. Obviously, when we report our type of mines next year, it will come out.
Great. Thanks, Bill. Thanks, guys.
Great. Thanks, Chris. Appreciate it.
Again, if anybody does want to ask a question, just press star then the number one on your telephone keypad. Your next question comes from [Robin Nehzwam] of Haywood Securities. [Robin], your line's open.
Hi, good afternoon, guys. Congrats on a good quarter. Just two questions on Fekola, if I may. Given the higher run rate at Fekola, are you guys noticing any benefits on any particular fixed cost items?
John, you want to start?
Yeah, I think we're seeing lower costs for tons processed with the softer ore because of the higher divisor that goes along with the higher throughput. Less reagent consumption because of the nature of the ore, the oxide nature of the ore as well. Yeah, we're seeing cost reductions from it.
Okay. Last one, if I may. How sensitive are you guys to fuel cost variations at Fekola?
Well-
Fuel overall at Fekola is about 30% of our production cost, That's kind of split half and half between the mill really. That gives you an idea of the quantum.
Got it
of fuel in an overall production mix.
Great. Thanks, guys.
Yeah, one of the things we are looking at in conjunction with that, similar to Otjikoto, we are undertaking right now a solar study to put in a solar plant. Those results are coming out. They're imminent, we anticipate probably in the next month to announce whether or not we would switch over to at least some of the power plant being on solar. We're feeling quite positive about that so far.
Your next question comes from Lawson Winder of BofA Merrill Lynch. Lawson, your line's open.
Hi, guys. Thanks for taking my call. I just wanted to ask about Jabali Antenna . Obviously, you have made progress there, very positive progress. You still need a resettlement and then ultimately you still need the final permit. My thinking is, and correct me if I'm wrong, but the permit's probably going to be easier than the resettlement. Does one depend on the other? What gives you confidence that the resettlement will ultimately happen in time for H2, and where is that right now? Thanks.
Yep. Yeah. Resettlement is down to the IDN. We've made some good advances there. That's the only impediment, as you indicated. The permit was gone through the public consultation processes, and we're in good order there. Given our advances on resettlement, we're pretty confident looking into H2 that we'll be there with Jabali done.
Just on Gramalote. In your most recent release prior to the Q1 results out last night, you basically mentioned that before making a decision that you complete an internal PEA on Gramalote. I'm just curious, was that completed? If you do ultimately decide or when you decide to increase the budget for Gramalote, will you be releasing those results of the PEA just sort of to outline sort of a justification for that investment? Anything on timeline around that investment decision would be helpful as well. Thanks.
Yeah. We don't really know the way forward right now at Gramalote. I would say we are in discussions with AGA, our partner.
We have a new model there now. It's a much better model than it was before, than the model that AGA used in their, what they call pre-feasibility study in 2017. We were always of the view that there was issues with the model and we need more drilling. Now there's a meeting of the minds that we need more drilling. The question now is, the new model has some much better economics, the key to that is that we need more drilling to make it indicated, ultimately the project becomes reserved, it's economic. That's the conversation that's going on now. The question is, who wants to spend more money in Gramalote? If so, how much? Who's going to spend it? The next step would be much drilling. Gramalote's had a lot of engineering.
When there's AGA interaction with operators, there's been huge amounts of money spent. Probably should have been a little more drilling. There's been huge amounts of money spent. The metallurgy is in great shape, the engineering is in great shape. We have a permit in hand. We've got to keep the permit going. That's part of the process. It's got a lot of things going for it. Low grade, yes. Low strip ratio. Very attractive metallurgy, et cetera. All of a sudden, there may be some new life in Gramalote based on a new model. The key will be who wants to do what going forward, ultimately, what does the new model mean? It needs more drilling, for sure.
Hopefully, I'm hoping within a month that we're going to have be able to reach an agreement one way or the other with our partner.
Okay. Okay, that's great. Just how do you think about the 49% interest at this point? I mean, do you have a preference one way or another whether you'd like to see your interest stay the same, increase, or decrease?
Well, the unusual thing about the joint venture agreement at Gramalote is the fact that 49% is basically effectively 50/50. All the parties would normally see in a 50/50 joint venture, but all the things you have to unanimously agree are in this joint venture, whether you own 49% or 35%. It's an unusual agreement in that regard. The 49 is very powerful in that sense. We're not really stuck on percentages a whole lot. We're keen to be the operator, and if that's something our partner wants us to do, we'll seriously consider.
Okay, great. Mike, sorry, I don't think I heard the numbers that you gave for the Fekola tax makeup. For both the tax installment and the priority dividend. Did you give the amount that was in Q1? I think you gave the amount that was expected for Q2. I apologize, I missed it.
Well, what's in the actual current income tax chart is $18 million for Fekola, $14 million for current income taxes, and $4 million for the priority dividends. That's on an accrual basis in the P&L. What was physically paid in cash during the quarter for Fekola was $6 million in Fekola tax installments. Subsequent to the quarter end, we paid another $30 million to settle out our final 2018 tax liability for Fekola. We're also expected to pay $17 million in Q2 to settle the 2018 priority dividend.
Got you. Okay, that's great. Thanks. That's just all for me, guys. Thank you.
Thanks.
Your next question comes from Craig Stanley of Eight Capital . Craig, your line is open.
Thank you. You mentioned that you increased your revolver because you get better terms. Can you give us an idea of just what the terms are or just maybe how much you might save per year?
It's always got the details in the MD&A, but Mike, do you want to add to that?
We haven't fully closed it yet, so we didn't disclose the details, but we will when we close it, which is expected very shortly. I can say the pricing is generally a little better than it was and less onerous on the covenant. The thing we probably focused on the most is just the baskets of what harvests that you can have. I think we'll disclose a bit more on that when we actually close it. We're almost there. Second quarter.
Okay. Thank you.
Thanks.
We have no further questions in the queue. I'll turn it over to Mr. Johnson for closing remarks.
Okay. Thanks, everyone. Have a good day.
This concludes today's conference call. You may now disconnect.