Afternoon, ladies and gentlemen. Welcome to B2Gold Corp'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 B2Gold conference call to discuss the results from the first quarter of 2018, the company's financial results. I'm speaking to you from London, I'm over here, I'm seeing some shareholders, et cetera. A little jet lagged, a little tired, so maybe it'll be to all of your benefit, I may be a little less long-winded than sometimes in the past. Great quarter. We're going to get into that very shortly here and the details of the quarter, and talk about, answer any questions, et cetera. There's a couple of things perhaps I want to touch on first of all. I just want to 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.
At the end of the day, I think the news release makes quite clear, strategy in the near-term strategy here, definitely is we're not in the M&A mode. We did our heavy lifting when very few were doing it, and we know Jabali and Fekola, et cetera, 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 2018, of somewhere around averaging half a billion cash from operations this year and over the next couple of years. After 2018, with approaching 1 million ounces this year at $800 on all-in sustaining costs. We're looking at that increase of around half a billion from $155 million of cash from operations from last year. Pretty dramatic impact.
The focus now is not M&A, I think it's going to get more competitive. We can not have to compete, and for a number of different reasons. One is, as I said, we've done it. Secondly, clearly, our shares have not been re-rated reflecting the cash flow and what some observers feel we should be moving towards getting a re-rating. That's not a major reason behind our lack of interest in M&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.
Clearly we talked a lot about, and we'll continue to talk about and are continuing to drill with five rigs on Fekola North Extension, and have had some great results recently and are 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 geological resource to look at Fekola and the potential ultimate size of the Fekola pit. Things like that and things like further drilling at Aureus, things like the upgrade we're looking at with the studies we're doing at El Limon with the exciting new discovery of the Central Zone. What does that mean to El Limon? We've seen Nicaragua turning around, as we said, we're starting to see the turnaround that we had talked about. We can talk about that.
Obviously, the quarter was not just about Fekola or the other two mines, two core assets, Jabali and Masbate had very good quarters as well, and we expect that performance to continue. Strategically, what's in the pipeline? Let's go and spend some of the $53 million we budgeted on exploration, most of it brownfields. Let's spend 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, et cetera. Other priority going forward, and as of now, as we've already seen, we're significantly paying down the revolving corporate facility that we used to build Fekola in conjunction with our cash from operations.
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 do have a convertible venture that as everyone's aware that comes up in October of this year with a $3.93 conversion price on $258 million. Pretty safe to assume, given the state of the market today, or at least we should assume that that is not going to be converted into shares at $3.93.
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 of low-cost debt financing to repay it, and then we would get back to reducing debt again on the line very rapidly as we've paid back the convert in October. 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'll be looking to introduce a dividend policy.
The timing of that, 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. We don't want to do anything in this company that impedes us from doing what we do very well, in addition to running mines extremely well and exploration, et cetera, is building them and growing. We want to maintain the ability to grow the company. That's really one of the points and 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, but just happen to specializes in gold, at the end of the day.
A dividend, we think that a reasonable dividend can be started and grow, while you have some debt, modest on the balance sheet, and while you are still growing the company. That's why we're going to be looking at a policy for that going forward. Final thought from me, I'll just get it out up front because we saw yesterday in Kinross and Mauritania, and we've had lots of things and lots of talk about what's happening in Africa, et cetera. 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 Mali for a moment.
What we see in other countries in Africa is different from what we see in Mali, and it's always disturbing to see rumblings or discussions about increases in taxes, et cetera. I really think that the state of the industry today, it's all about a fair share for governments and countries involved in the deals we're in. The Fekola mine under the 2012 Mining Code is the most expensive mining code in the history of Mali. We're okay with that because clearly we have shown that with the royalties we're paying there, 6% plus in a royalty, with the 10% the government gets as a free carried interest, and the other 10% that the government is purchasing, 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 for the company.
We need to get out there more to explain to people that we think the $500 million that we've lent, invested down into Mali from B2Gold to high risk of building the mine, we think we should get that paid back at a reasonable interest rate while the government's getting their royalties and while the government's getting their 10% free carry. If you look at the first 10 years of the mine, the mine life, as we talk about it for Fekola, it's important to realize that we think it's fair that once we've got our loans paid back with a reasonable interest rate, if you look at the economic benefit for the first 10 years of the mine life, based on our current projections, including $1,300 gold, the government will realize about somewhere around $1 billion through royalties, dividends from their interest, taxes, et cetera.
That represents 50% of the economic benefit of Fekola, roughly, once we are repaid our risk investment in construction and a reasonable interest rate. That seems like an eminently fair deal. It seems like an eminently fair deal to the government of Fekola. When people talk about a new mining code, it's very important that we realize that the history of Mali, they've never gone against the codes that they have had, 1991, 1999 codes. They've never gone back on those codes and tried to change fundamental issues. Those codes are protected as ours is with the stabilization agreement, as part of it agreed with the government. The government has never looked back and tried to arbitrarily change things.
Anyone, in my opinion, that's under the '91 code or the '99 code in Mali, if they believe they're going to get the benefits they had then in a different world at a different time of tax holidays and 3% 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 that would change the 2012 Mining 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? We're not afraid of a new mining code. 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.
We don't see any need to go and spend time negotiating with the government about the new code because we expect the new code is going to be the 2012 Mining Code with the amendments we made, if and when there is a new code. Otherwise, it's going to be the 2012. That set a new bar, and if some people don't like how 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. If you look at incidents and events like yesterday and those conversations, look at the royalty rate that those companies are paying on their existing deals with government and look at the benefit to the government and the people of these countries from those deals.
I think it's very important that we don't start looking at this and saying everyone in Africa feels that they've got a crap deal from the government point of view and the people point of view, and they're going to want to change existing mines and future mines, and they're going to want to kill the goose that lays the golden egg. Not happening. Not happening in Mali, for sure. I think it's really important that we try to get people, as hard as it is not to generalize, look at company by company, mine by mine, and country by country in Africa. We understand why taxes in Africa in the same breath right now are setting off alarm bells. We get that. We need people to dig a little deeper to understand the realities. We have our deal with the government going for the final ratification.
It is all agreed with the government on the purchase of their second 10% at fair market value. All of that is agreed with the government, in the final step of that is the approval, the formality of approval in Parliament. The only reason it has not happened so far, which they did change the Prime Minister, therefore they delayed the session of Parliament for a period of time. It would have been approved, in our view, before this. It is now on the docket in June to be approved. That is the final step. This is them purchasing another 10%. We are not asking them for anything. That number has been negotiated and agreed in a fair market value, that will be released as the government does the final ratification out of respect for the government. That is where we stand.
We are looking to crystallize with the ratification of the government's extra 10%, the company, they will own 20% of the company. We will give you more detail on that as it is ratified, but that is not a problem area as far as we are concerned at all. It has been well negotiated with the government from both sides, it is a good deal for both. We are not concerned about that. Just wanted to touch on that point because I know it is a hot button topic, we understand people's concerns or frustrations when they hear this noise about taxes in Africa. We wanted to talk about that from our perspective. Otherwise, Nicaragua, as we have said before, we were not in a rush to go and sell the assets because our job is to get value one way or the other for the assets.
Nicaragua is starting to turn it around, as we expected, with the permits we have been waiting to get for La Libertad 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 is turning it around, we believe that the new discovery of Central with its high grade, open pit nature, and size and proximity to the mill, 150 meters away, will be a game changer. We are looking at expansion, two expansion, one of 25% and one of 100% expansion at El Limon. The first idea of that will come out at around the middle of the year on the smaller expansion, we will have a study on the larger expansion.
Either way, as we leave it as it is, if we expand it by 25%, if we double the size of throughput at El Limon, this is a very positive thing at the end of the day for the Nicaraguan assets. Once we get them up to the value we think that they hold, we will make a decision, but if we are going to produce 200,000 ounces a year plus in Nicaragua, a profitable production in a country we have been in successfully for 11 years, why would you sell that when it represents 20% of your production if it is profitable production? That is the strategy we have had for some time on that, the strategy seems to be the right strategy as well. That is just a couple of things I wanted to touch on about strategy and where we see ourselves growing.
Hugely transformative time for the company, as we're in 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 us in accomplishing. 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. I guess the only other comment, I've seen some of the analyst stuff and 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 of $0.06.
We have no idea how you got $0.06, that's something you might want to have some more detailed conversations with us in the future, because how can we have beaten in so many areas in cost and have you guys reflecting that kind of earnings projection, which puzzles us, frankly, and is not really based on reality. At the end of the day, though, great support and we do appreciate it. I'm not being critical of any of that. We were just surprised to see that met expectations. The real question is what were the expectations and how were they arrived at? What model would give someone the kind of projections when we feel we beat projections, including earnings from what we had expected to see?
An interesting point to try and get on the same page going forward, great support, good write-ups and very much appreciate the support of all of you from the analyst side and obviously from the shareholder side. I've given up on predicting a re-rating in terms of timing for B2Gold. Let's just say that I do believe that if you build it, they will come eventually, we're pretty much long-term players and on the same page as our shareholders, being founders and significant shareholders of the company ourselves. With that, over to you, Mike.
Thanks, Clive. I think Clive used a good word there for the quarter as transformative. Compared to the prior year quarter, it's very transformative, the results mirrored and reflect the first full commercial production quarter from Fekola being included in the company's results. I'll run briefly down the income statement and the cash flow statement, give some thoughts. Firstly, on the revenue side, revenue $344 million for the quarter. Increase in the revenue of 135%, which is based on 117% increase in ounces sold, a lot of that from Fekola, most of that from Fekola, also a 9% increase in the gold price.
If you look at the difference between production and sales, we sold approximately 20,000 ounces more than we produced. Mainly that represents us drawing down and selling 27,000 ounces of that Fekola inventory that we built up in the last quarter of last year. It was on the balance sheet. We drew it down and sold it this quarter. We saw the benefit of it in this quarter. Production side, very good quarter. Consolidated basis, 239,000 ounces, which was 16,000 ounces higher than budget. 11,000 of those came from Fekola. Another 6,000 of that feed came from Masbate. Fekola was 114,000 ounces. It was 11,000 ounces higher than budget, really through a trifecta of issues, higher throughput, higher grade, and higher recoveries. Those are all the things that you want.
Fekola came out of the gate very well in the last quarter of last year and continued to do so as we move forward this year. Otjikoto, 39,000 ounces, 2,000 ounces over budget, slightly higher grade and higher throughput in the period. Masbate, 53,000 ounces against a budget of 47,000. Masbate had higher recoveries and higher throughput. It continues to be Masbate outperformed for the last two years against budget and continues to do so this year. We're still getting higher Colorado pit material, more oxide ore from Colorado than was budgeted. We expected in the budget that we'd have 50% mill feed from Colorado, oxide feed. We actually had 78% this period, continued to outperform. We should remember that Colorado is forecast currently to be mined out by the fourth quarter of this year.
On the Nicaragua side, Libertad, 19,000 ounces production against a budget of 21. 2,000 ounces less than we budgeted. That really reflects a delay in getting in and starting up activities in the San Diego pit. There have been some delays in permits, as you know, over the last year in Nicaragua for La Libertad. We now have all but one in hand. We did forecast that we'd be in and start work on San Diego and have production right from the start of the year. It took us a little longer to get in. We're now in fully operational, up and running San Diego. The one remaining permit for La Libertad, in order for us to execute a full mine plan, is the Jabali Antenna open pit.
The plan is currently forecast that this Jabali Antenna open pit will come online in the third quarter of this year. We're still anticipating that. We have put in place a contingency plan whereby if that gets pushed out, we actually start production from the Antenna open pit at the start of next year. We have a contingency plan from our existing operations, including fast tracking and the sort of advanced stage that we're at on the Jabali underground to actually optimize production from the existing areas that we have and still meet guidance this year. Push Jabali Antenna open pit production at the start of next year. Limon, 14,000 ounces against budget of 15,000, almost right on budget. There was a slight delay in advancing Mercedes at Limon. Clive mentioned Mercedes a bit earlier.
We had planned to be in there and developing Mercedes right at the end of 2017. Due to timing, it actually came in just at the start of 2018, but Mercedes is up and running now and we think El Limon's headed back to steady state. Reminder as well that the budgets that are out there for El Limon, they don't include anything from Central yet. We're still working on Central to come up with an initial mine plan and how we think we might process ore there sometime by the middle of this year, get an idea of what we want to do with Central to move forward. On the cash cost side, consolidated cash cost $481 an ounce, which is $60 less than budget. That overall beat against budget was driven by Fekola.
Fekola is a much greater part of the mix of our production now and our cash cost, and also a continued outperformance of Masbate and Otjikoto. Fekola for the period was $268 an ounce, $70 an ounce less than budget. Part of that was, as I said, they had the trifecta of better grades, better throughput, better recovery. Mining is producing above planned production rates at Fekola, but unit cost is still below budget. We may see some mining costs increase slightly as we move forward due to maintenance requirements increase, but we think it should remain out of below budget for the rest of the year. Otjikoto, $769 an ounce, which is $57 an ounce less than budget. Otjikoto, the lower than budget operating costs were related to savings in processing and site general costs, along with stronger production.
Now, this was partially offset by some increase in fuel prices and a strengthening Namibian dollar. For Masbate, $542 an ounce, so $152 less than budget. Masbate, like I say, has just continued to outperform, mainly blessed by that higher oxide content from saprolite. Mine costs in Masbate for the quarter were roughly 10% below budget, but mine tonnage higher than budget, which is planned to support future increases in mill throughput due to the expansion of the Masbate mill from 6.8 million tons to eight million tons. That operation and that expansion is underway now, and we forecast that that will come online sometime in early first quarter of 2019. La Libertad was $89 higher than budget due to the lower production we discussed earlier, and El Limon was $1,000 an ounce, which is $200 higher than budget.
That was higher due to slightly lower production. It was only 1,000 ounces less, but also higher processing costs due to the pre-stripping that we did in Mercedes in the first quarter that we originally had thought we would do in the last quarter of last year. Just to point out, that pre-strip isn't deferred or capitalized anyway because Mercedes is planned to commence mining and be mined out in 2018. Therefore, it's all expenses incurred. If we move on to the all-in sustaining costs, we basically see that benefit of the lower operating costs flowing in there too. All-in sustaining costs for the quarter on a consolidated basis were $750 an ounce, which was $147 less than budget. So part of that is the $60 per ounce feat on the cash cost side and also some timing delays in CapEx.
We think most of those CapEx delays, the main lower CapEx really happened at La Libertad, where costs that we were going to incur in developing [Haverly] in the first quarter have been pushed out to slightly later in the year. We think those will reverse in time. Overall, we have a beat on the quarter. We'll see some of that claw 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 million in the first quarter versus $6 million last year, and that reflects higher sales and also the fact that Fekola has higher royalty rates than the other operations.
As Clive mentioned, there's 6% government royalties there, and then there's another 0.6% stamp duty, which is also treated like a royalty. In total, the government royalty is 6.6%. With the higher sales from Fekola and those higher royalties, we saw a jump in the total royalty expense. G&A, it was $12 million for the period against $7 million in the comparable quarter last year. That looks like a big jump, but a couple of things to comment on there. Firstly, the comparable period in 2017 had an accrual reversal flowing through it, which is non-recurring. Like for like, we'd be comparing $12 million with approximately $10 million. The $12 million this year included $2 million for Fekola. Those G&A costs were capitalized during the construction phase, but now that Fekola is fully operational, we see those flowing through the income statement.
There is a charge, impairment along with assets for $18 million that relates to Mukula. Mukula is a property B2 basically had in its package of properties since inception. It was during the period that we were focused our exploration dollars in other areas where we see the much closer near-term benefit to the company, areas like exploration around the Fekola property in Mali. The decision was made to dispose of the Mukula property to a junior company. We've taken back some shares in a junior and a 2% NSR. In booking that transaction, it led to an $18 million non-cash impairment charge. We have a gain in the income statement of $11 million related to convertible notes. The notes continue to trade slightly above par. They're just over 101% as at the end of March.
They mature on October 1st when they'll be back to par value of $258 million. Interest costs for the period were $8 million, and just to highlight for everyone's benefit, if they look high or weren't anticipated. In prior years, they were only $2 million, but in the prior year, we were still capitalizing interest. We were capitalizing interest right up until Fekola came online in commercial production in Q4 last year. Now all those interest charges from our various facilities are being expensed in the income statement. That's why you're seeing an increase there. On the tax side, significant increase in taxes, $39 million current taxes against $5 million in the prior period. The reasons for that, well, Fekola is the biggest driver. $22 million of that increase came from Fekola income taxes.
Just to point out again for the fact of your models, et cetera, Fekola doesn't have any significant accelerated capital deductions at the start of mine life like we've seen in other operations. They don't have a lot of rules where you can accelerate a lot of your initial capital of deductions. Basically, what you see getting deducted for depletion is pretty close to what you get deducted for tax. The other thing I'd point out about Mali, and it's in the tax expense, the 10% pre-carry interest that the government holds, that dividend is treated like a tax for the purposes of booking it in the financial statements. The reason for that is that it's a right that's conferred by law, and it's based on a measure of net income.
For accounting purposes, when you pull all those characteristics in for the model, it gets treated like a tax. Within that tax charge, there's a $5 million expense, which is basically the Fekola's first 10% priority dividend that's being expensed through there, rather than see it be deducted as a dividend later. Then the other thing that impacted tax this period that's different from prior periods is Masbate. We had the benefit of an income tax holiday for the processing plant site of Masbate for the first five years that we owned and operated that mine. That tax holiday expired in the middle of 2017. We're now fully taxable there as we move forward. Approximately $8 million of that charge there relates to Masbate, which is higher than we've seen in prior periods.
Put all those elements together, great results, operating results, and some sort of slightly more unusual one-off items there or different non-recurring items. We had net income for the period of $57 million or $0.06 a share on basic and $0.04 a share diluted. On an adjusted EPS basis, it's still $0.06 a share with the write-down on Mukula when it's taken out, basically, you know, offset by stripping out the mark-to-market on convertible notes. Going to turn to the cash flow statement now, comment on a couple of things. I think Clive's already addressed some of this. First of all, on a cash flow from operating activities, with a $107 million increase in cash flow from operating activities in the period. We had $147 million this period versus $40 million in the prior period.
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 it, we repaid $75 million. We paid back $75 million on the revolver in the period. Subsequent to the quarter end, we paid back another $25 million. As it stands right now, we've paid back $100 million on the revolver this year. The revolver is sitting at $250 million drawn, and we have $250 million available facility at our disposal. Should also comment on the financing side, we also accelerated the use of the Fekola and Masbate equipment leases at both facilities. We thought we might draw those much later in the year, but we were actually able to utilize them early, so see the benefit of that flowing into financing.
On the investing side, we spent $71 million, which $21 million of that was Fekola. We were about $15 million under budget in total for the quarter, which is made up like $4 million from various items at Fekola and $11 million at La Libertad, mainly for the delay in Jabali Antenna capital cost that we think we'll reverse later in the year.
That left us for the period, we generated $20 million net cash flow for the period, and we had $168 million available cash at the end of the period, all covenants fully met. I think that the only other item, again, Clive did address it relates to the convertible notes. These do mature on October 1st of this year, if you look at the cash that's on hand that we currently have and the available facilities that we have and the cash flow we expect to generate as we move forward through 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 slide, unless anyone has any questions.
At this time, if you would like to ask a question, please press star followed by the number one on your telephone keypad.
Sorry. Operator, I think Gibbs just said we should probably just leave questions to the end, maybe we can leave them to the end, we'll go through the rest of the materials. Clive, I guess we turn it back to you now. Is there anything else you wanted, anyone else who wants to comment on anything, basically here?
No, we can go on and talk about some different things, I think at this point in time, I think the initial release is quite detailed. We've laid out some of the strategy things going forward. I guess the only other things that spring to mind are what's happening, for example, in Nicaragua. We seem to have lots of things in the world with political change or potential change. The Nicaragua scenario for us is we still have the support of the government and the local communities, the local governments, and what we're doing in the mines and the benefit that we have in all sorts of different ways in Nicaragua, in jobs, in taxes and community programs, in education, in CSR, in health, and all the other things that we do.
We're seeing a transition, perhaps to have some push for more democracy and other changes within Nicaragua. This is a wide-based movement from many different groups in society working together and wanting to work together peacefully with government. We do not see the prospects of that being a negative from our perspective or from a more global perspective in terms of a country that's had some good success moving in a good direction. I think that's most of it. I think we should turn it over to questions, Mike, unless there's anything else or anything else you guys think that I've forgotten that's compelling to say now or whether we should let the questions go.
At this time, I would like to remind everyone, in order to ask a question, please press star followed by the number 1 on your telephone keypad. Your first question comes from the line of Rahul Paul with Canaccord Genuity. Your line is open.
Hi, everyone. Congratulations on another great quarter. I'm wondering if you could go into a bit more detail on the HFO solar hybrid plant at Otjikoto. You mentioned that you expect to lower power generation fuel costs by 10% in 2018. Is there an opportunity to lower HFO consumption even further by maybe moving to a greater reliance on solar? Are there some constraints or technical limitations at this point?
It sounds like a Bill or Jon answer to me. Over to you guys.
Yeah. No, thanks, Rahul. Good question. It's certainly something we're very proud of. The solar plant was commissioned at the end of March, beginning of second quarter. We're ramping up now, and we're seeing quick solar penetration at 6.8 MW DC power, fully online. Basically, if you figure in all the various iterations of how we think we're going to be able to match the solar to our existing operation, it basically cuts $0.02 per kWh off of our power costs, about 10%. The answer is yes, we certainly think that we can increase that. They're actually currently working in Namibia on several other strategies. Without going into too much detail, one of them is potentially hooking up to the overhead power line that Namibia has and then buying some off-peak power as well.
The answer is yes, we do believe there is potential for significant savings going forward on power.
Thanks, Bill. A little bit further on that, at what point do you think you could adapt this, the technology, on a bigger scale at maybe Fekola, perhaps even look at this as an attractive power solution for Toega? Is it just too early to say at this point?
It's real early. I think if you talk to the operations guys or people like Jon that are doing the design, of course, it's attractive for sure, but it's a technology that we're still getting comfortable with. Certainly, we want to see some more reliability before we start talking about putting something like Fekola on solar. I think we kick it around for something maybe in the future, but as of right now, we just want to see it in assessment.
Perfect. Thanks, Bill. That's all that I had for now.
Your next question comes from the line of Michael Gray with Macquarie. Your line is open.
Good morning. Thank you very much for taking the call. At Fekola, unit costs are tracking better than the feasibility study. Can you provide a breakdown of the unit cost for mining, processing, and G&A in Q1? Maybe a little bit of color on the reasons and opportunities for the improvement versus the feasibility.
Bill, I don't know if you want to tackle all that right now or do you want to give some of that and then invite a separate conversation or information to come from that? Go ahead.
Yeah. For some reason, I actually wrote that down. Let me just find it here.
That's supposed to be off the top of your head, no?
Yeah, I wish.
Michael, on the processing, some of the reagent consumption and grinding media, particularly in ball mill, have been less than feasibility projections. That's helped to reduce the processing cost.
I think overall, from core Fekola in Q1, we saw lower mining costs, as Mike mentioned, significantly lower, $1.34 versus $1.94. That's cost per ton. The primary reason was that we've had lower costs on the front end as far as the hardness of the material and the actual amount of blasting we had to do. We think.
Yeah
The maintenance is below. We think those are probably going to track back towards our original numbers. Then, of course, the site G&A tracks very nicely with the budget estimate. The main thing was on the mining side.
Okay, lower cost in Q1, maybe not sustainable, tracking back to the feasibility eventually. Is that a fair thing?
Yeah, that's what we're saying. Of course, once again, you have to remember, we're so early on in the cycle, it's tough for us-
Yeah
really to say that. What we can say is that we have been pleasantly surprised versus what the budget is.
Yeah. Okay, fair enough. Then just a second question with oil prices rising. Noted in the MD&A, the $11.4 million in fuel oil, $8 million 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 30% for 2019. That's roughly where we're hedged right now, Mike.
Okay. Thanks very much, guys.
Thanks.
Your next question comes from the line of Chris Thompson with PI Financial. Your line is open.
Hey, good morning, guys. Congratulations on a stunning quarter. two quick questions, one on Masbate. Obviously, 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 the remainder of this year?
Our initial plans with Colorado pit were to finish up in the final quarter of this year. We took a recent look at that, and really, we don't see any change there. We know that final cuts in Colorado will be narrow, and we want to make sure that we optimize our mining efficiency in that pit ahead of dealing with wet weather. No change currently in Colorado mining. Certainly with the capacity of the fleet 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 great results ahead on grade tons and recoveries as far as budget. Do we expect, I guess, these grades, tons, and budget to normalize to budget for the remainder of this year? Or are we seeing surprises that you weren't anticipating?
We are seeing some surprise, like even on recovery. Once again, we're so early on in the process.
Yeah.
It's really 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.
Oh, hey, guys. Thanks for taking my call. This question maybe is more of a strategic nature. You mentioned that the focus is not on M&A, I'm just wondering, is that because you just don't see good value in the M&A space? I'm also wondering if maybe you feel that you've reached the optimal, sustainable size for a gold producer.
Yeah. Good question. We don't think we've reached the ultimate sustainable size for a gold producer. We don't set kind of numbers and then decide when we should do acquisitions to try and meet them in terms of numbers of amounts of production and timing of all of that. 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 mine building or good improvement in production and things like Masbate and exploration success and all of those things. At the end of the day.
The M&A attraction or lack thereof right now is for a number of different reasons. We think we have a great pipeline, including Fekola immediately north, as we discussed, and the Anaconda Zone, Anaconda, et cetera, we've talked about before, Elephant Country, looking for additional Fekolas, Toega, et cetera, upsize in Masbate, Nicaragua turning around, Otjikoto doing well. 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 in our pipeline of projects that we didn't pay for when we did acquisitions, because we don't pay for ounces 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 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. If you look at the target prices of the 17 mining analysts, there's some good analysts out there these days, and we don't think they're wrong. Therefore, that's another driving force. 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.
If someone looks at a company that used to have a market cap of $8 billion, and now they're less than $1 billion, and people say, "Whoa, they're so cheap, you guys must be chomping at the bit because Clive's saying no M&A, and there must be so many things that are attractive today, and it must be killing you not to do M&A." That's not the case. A company that's gone from $8 billion to $1 billion or less, maybe it's because it was terribly managed, and it was a bit of a disaster. Maybe it was never worth $8 billion, or maybe it was briefly, and certain bad decisions and bad actions turned it into something less than $1 billion. At the end of the day, be careful for things that look, quote, "cheap" but 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 billion dollars worth of our shares. Many analysts, and I think they're right, and I agree with them, think that if it was out there today, Fekola, as it was three years ago, the bidding would start closer to $1 billion. We got it with no bidding because growth was so out of favor. We don't see a lot of opportunity. We want to digest what we have. We want to make sure we're the best million-ounce a year producer out there.
We want to see what's in the pipeline, stay financially strong, repay debt, and look at a dividend policy so going forward, we can be that unusual gold company that can sell reasonably well to generalist funds who are looking for a company that is very good at what they do and produces cash flow and is a growth company, dividend-paying growth company, that's on the cutting edge of everything that we do in the business. Definitely, we will go back into M&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&A when you're looking to buy ounces if you don't know how many ounces you already have?
Things like Fekola can be dramatic impact in terms of ounces just in the north 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 these 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. That's the strategy. We're not anti-M&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 years.
M&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 Fekolas out there today. Very few quality projects. Growth is back in favor, so a 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 exploration success to justify the purchase price, which we've always stayed away from that. That's the strategy. I think it's sound, and I've had some great conversations over here in London with some of our large shareholders, or hopefully soon to be, that are really intrigued by this strategy 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 shares and our market cap perhaps go higher. That's what we want to be.
Thanks for that. That provides some good insight into the strategy and clarification. Maybe as a follow-up question then, you mentioned the dividend, and from a capital structure point of view, what's a debt level that you'd be happy with? Obviously, you have the capability of paying down all of your debt even within a couple of years, but do you have a long-term sort of debt capital structure target?
To be honest, we don't right now. I think that for us, this is 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 for the rest of the money. We're really looking at that now. We're in discussions internally and getting some outside input from our shareholders, et cetera, about what level of dividend would you start out if you started a dividend policy? What level of debt makes sense to have some debt along with that?
Also what percentage of your cash from operations or free cash flow should you be looking to dividend out versus what you're going to 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&A scenario. I think you'll hear more from us from that kind of thing over the next quarter, I would say.
Thanks for that. That's all for me.
Good questions. Thanks.
As a reminder, to ask a question, please press star followed by the number one on your telephone keypad. Your next question comes from the line of Steven Butler with GMP Securities. Your line is open.
Thank you, operator. Guys, Fekola, just back to that asset here for a second. Obviously, Mike, you're in a lot of soft ore in the first quarter. I'm just asking here about whether it was about in line with expectations, the level of soft ore that you were mining and how that will trend throughout the balance of the year. Are you going to 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 want to talk about the hardness, or John, the hardness of the rock we're in now and what we started up in? I think there's a misunderstanding there, perhaps.
I'll talk a little bit from the mining side, then John, you can certainly talk about how we started up the mill on the hard rock. When I say soft ore, the Fekola ore is very hard, we had anticipated on the mining side to go through a lot more of our wear parts much quicker due to the hardness of the ore. The reality is we just haven't seen that. We have more than 3.3 million tons stockpiled right now of hard rock, so we have been mining hard rock from day one. John?
Okay.
I'll just add that the majority of the ore that we have been processing has been harder rock. It's fresh ore from the pit. We have been blending in some saprolite, which has had some higher grades and that we need to get into the process. The majority of the feed has been harder ore, the mill's been performing well on hard material.
I just saw the reference in the MD&A to a proportion of soft ore free or digging. That was a reference. I guess that was a waste tons mined, because it was soft material not requiring drilling and blasting. I guess that was a lot of that being waste, I guess.
That's correct.
That was waste. Yeah.
Okay.
Key point there is that was waste.
Okay. Thanks, Clive. Guys, 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 tonnes, grade recoveries. What we don't have are cost per tonne. You did a great job in the first quarter, for sure, on cost per tonne at several of your assets, including Fekola, as you described earlier. $0.06 comes about from a consensus with gold price being actually realized, et cetera. $0.06 comes about from all the good work you guys give us in advance with respect to all those good production numbers. That's why we're probably somewhat accurate this quarter. I'll leave it there.
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 having 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 what we just announced today in terms of the beat on costs, on sustaining costs and all that, it's hard for us to understand, in a way, when we beat that much from what must have been your expectations in cost, 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 in cost and have you guys come out and say you're in line on earnings, there's a miss there somewhere. There's no criticism here.
No.
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 sustaining. You've said yourselves that we beat on that. How can we be then within expectations on earnings? I'm not saying anyone's doing anything wrong, there has to be some way, and it's in all of our interests probably, to get, for the shareholders to get closer to the fact where. That's what puzzles us a bit.
Yeah. I hear you, Clive. The only thing that, for me personally, that happened was that the taxes ended up coming through a bit higher to offset all these EBITDA improvements or cost benefits. My taxes were a bit light, that's all. Therefore, earnings came through. I'll leave it there, I look forward to seeing the site here next few weeks.
Yeah, as I said, Steven, this isn't a take a shot at the analysts, far from it. The guys are doing a lot of really good work. 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. What can we disclose more that can get us more on the same page to where we don't come out with a dramatically better financial quarter than we expected and a bunch of you guys come out and say, "Met expectations on earnings." You know what I mean? That's just a bit incongruous.
Yeah. I hear you. Okay. Thanks a lot.
Your next question comes from the line of Geordie Mark with Haywood Securities. Your line is open.
Yeah, thank you. Hello, everyone. Just to perhaps to labor on Mali here and maybe move over to Burkina thereafter. Just looking at obviously the very, very good throughput rates coming out of the mill there at Fekola, well and truly above nameplate there, in the first full quarter there for commercial production. Just wondering, in your years projection, are you projecting to hold at that rate to meet your guidance, or is your sort of guidance sort of fettered to a sort of a five MTPA rate going forward?
Mike, you want to handle that?
Well, I think on the [offset, we were just hear about whether they want to do the, they think $2 million to five and a half million.]
The question was is our guidance at five million tons per annum? The answer is yes.
Yes. No.
Yeah. Geordie, our guidance for the rest of the year is still five million tons a year, is the guidance. We're obviously ahead of that. We're not prepared to say that, as it's the first quarter, we're not prepared to yet say that 10% higher throughput than we had guided. We don't have reason to necessarily doubt that it's going to happen for the full year. We're just not prepared to go out and re-guide that. That's partly being cautious because it's a brand new mine, and it's going very well, and it's good to make sure people realize we are in the hard rock. We're hopeful that that kind of thing continues, and as 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. Perhaps moving over to Toega, if I can, just try to get maybe some further detail in terms of the exploration that's been carried out thus far this year within that $9 million budget. The planned scope of that, of drilling within the defined volume, and then the targeting outside, looking for the new zone, I guess, of mineralization. Just trying to get a further update on that, given the auspices of your focus on organic value.
Sure. Tom, you want to talk about that?
Sure. The drilling right now at Toega is looking at the edges of Toega. It still remains open down plunge and at depth. We are looking at potentially down at depth, maybe there's an underground potential as the zone keeps on going. Then we are looking at other areas in and around the Toega area. We're not doing infill at this time. We still feel that Toega needs to get bigger before it's a project, but it's certainly going in a positive direction.
Okay, mate. Thanks. I'll leave it there. Cheers.
Cheers, Gordon. Thank you.
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 in the company, we're very pleased with the progress we've made in the quarter, not just Fekola, but the other operations running well. We're set up to have a great year. Look to reporting back on that to you and also more of our strategy opposite dividend policy and other things like that. Thank you very much for your attention. If you think of any other questions, feel free to reach out and email us and we will look to answer them with, hopefully, our ongoing transparency. Thanks all very much.
This concludes today's conference call. You may now disconnect.