B2Gold Corp. (BTG) Q2 2019 Earnings Call Transcript

BTG earnings call for the period ending June 30, 2019.

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Motley Fool Transcription
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B2Gold Corp (NYSEMKT:BTG)
Q2 2019 Earnings Call
Aug. 7, 2019, 1:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen. Welcome to B2Gold Corp's Second Quarter and First Half 2019 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.

Clive Johnson -- President and Chief Executive Officer

Thank you, operator. Thanks as well, all of you on the phone, for joining us. As you saw, it came up last night, our 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 was 8% above budget, and we had some good beats in terms of our costs, etc., so another very strong quarter.

I'm gonna hand it 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 upon what was in the news, at least some of the things we're working on. I guess I'll talk just a little bit from the front end, a little bit about strategy.

Obviously, it's very nice to see the gold price up substantially, and it's 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 than if gold does stay higher. We try not to get too carried away when gold goes up, and we don't get too suicidal when the gold's down. So, at the end of the day, we like to try and keep it 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, and that's been a discipline of [inaudible] [00:03:39] and B2Gold, and we will continue with that discipline.

But I think one of the things we're pleased about, of course, is how well the strategy has worked for many years, and that is the disciplined acquisition of projects and creative acquisitions, and then responsible, quality construction and operating of the mines. In addition, of course, a tremendous exploration success around our mines and our exploration successes in our own right. So, now, we're still focused on our pipeline, and we're [inaudible] [00:04:12] pipeline, and as we said before, we don't see ourselves chasing M&A. I would suggest that with this move in the gold price, if it lasts, we're gonna see other companies that need growth that didn't do the heavy lifting while we were doing it, with building Otjikoto and Fekola and other things. But we think it's gonna get more expensive to go and buy assets. We don't need to buy assets. We have a lot of potential in the pipeline to realize more.

So, the pipeline very much is, of course, Fekola expansion, which is under way and on schedule, which has 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 in operating the mine, it's shown to be what we had thought, a real world-class gold mine. It's the envy of many companies out there.

But also, [inaudible] [00:05:12] really important decision a little 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 then our first year of Fekola. So, that gives us this amazing opportunity to benefit from Fekola seeing it based on the current projects producing somewhere around 600,000 ounces starting next year and averaging 500,000-plus for the first five years from now.

And the other thing is, of course, with Fekola in the pipeline, there's all of this exploration we're doing there. Tom's gonna talk about that. Looking to extend the size of the existing Fekola deposit, also other targets including the Anaconda area to the north, 20 kilometers 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's obviously -- it becomes pretty intriguing if gold prices are, say, higher. That, of course, is Gramalote. We're meeting next week with AngloGold Ashanti and partners to discuss the next way forward at Gramalote. So, those of you not familiar with it, it's a large potentially open pittable deposit in Colombia that we've been working on for many, many years. [Inaudible] [00:06:40] came up with an updated model. We always have disagreements about the model, but they came up with an updated model late last year which certainly showed potentially much better economics for Gramalote, but there's a ton of work to get done before it's ready to go to feasibility.

We need to do some infill drilling because 45% of it is [inaudible] [00:07:00] category, so the next step for it would be to go and drill for about $20 million total cost [inaudible] drill Gramalote, and then move to feasibility quite rapidly. We think it looks interesting [inaudible]. If the community of gold is higher than that, it looks more interesting, but we need a feasibility study, and that's subject to infill drilling, but we're looking forward to getting on with that. So, that's another project that we own somewhere around 49% of, and it becomes potentially quite an asset if this infill drilling proves up. So, I think within a year or so or less, we'll have a view of how that infill drilling is doing.

Other things in the pipeline, Kiaka, which is a formerly announce low-grade deposit in Burkina Faso, which we acquired some years ago. When we acquired it, it was a cheap acquisition because it didn't need a higher gold price in our view to be economical in exploration success. We have an exploration success of some 50-60 kilometers we have in Toega, which doesn't perhaps directly impact Kiaka, but we have been doing some exploration around Kiaka as well. And obviously, the big factors are Kiaka [inaudible] [00:08:06] gold price, so we're looking at things like solar power and other things in terms of power generation, and of course, of this higher gold price, it will make it interesting to look at Kiaka as another potential asset in the pipeline. It might in fact have a shot to become a mine and a significant sized mine.

So, 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 marketing value for assets, but now, of course, the argument now is what's in the pipeline. I've said it many, many times the cheapest ounces are the ones you find. We have a great track record of finding them, and we've got these great projects in the pipeline, and [inaudible] [00:08:49] coming up.

Our focus as well as that is gonna be a debt reduction, and obviously, with this kind of gold price, we can dramatically accelerate our debt reduction. We have very low debt to EBITDA ratio. We're the lowest in the sector already, and obviously, these kind of gold prices will help us pay our debt rapidly, and Mike will talk a little bit more to that. So, that's the focus. Stay very focused on responsible mining and running operations very well and look at the pipeline. Mike's gonna talk a little bit about Nicaragua. We did the deal with Calibre. We'll touch on that as well. We think it's a win-win deal. It's good for everyone, and we think they've got a good management team and that they can, working with our people in Nicaragua and with our assistance in [inaudible] [00:09:31] initial period of time, they are turning the corner and making those projects more successful, and also perhaps consolidate other opportunities in Nicaragua, so we're happy to be involved in that.

So, that's our overall approach and strategy. I'm gonna pass it over to Mike now to give a rundown of the financial results, and then Tom's gonna give us a little talk on exploration, and we have the entire executive team here, so we'll jump in and invite you to ask questions after that and answer your questions. So, over to you, Mike.

Mike Cinnamond -- Senior Vice President of Finance and Chief Financial Officer

Thanks, Clive. Just before I start running through the results, just to comment on the presentation that we have in the financials and the MD&A, because we've announced a proposed sale of Nicaraguan operations to Calibre, we presented in the financial statements the Nicaraguan results as discontinued operations. It's shown as a one-liner in the P&L and various line items in the balance sheet. So, the discussion of the results will focus on the continuing operations, which is our remaining three core mines: Fekola, Masbate, and Otjikoto, and then also in Nicaragua is the operations that we're proposing to sell. So, with that, I'll move to the results.

First thing on the revenue side, from continuing operations, revenues returned $67 million, and overall, including Nicaragua, $310 million. And the increase there, $25 million, was based on an 8% increase in ounces sold, plus a 2% increase in the realized gold price. And [inaudible] [00:11:04] pleased to say it was quite the pleasurable experience to sell some gold at $1,500 this morning [inaudible] continue.

On the operating side, as Clive mentioned, the total production, including continuing and discontinued ops is 246,000 ounces. That's a quarterly record for B2Gold, very pleased to see it. And it's really driven similar considerations to previous quarters is outperformance by Fekola, with is 10,000 ounces ahead of budget; Masbate, which was 4,000 ounces ahead; and Otjikoto, which was 1,000 ounces ahead. On the Nicaraguan 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, and that's really driven, again, by the higher throughput, 34% higher than budget. We actually put it around 1.89 tons [inaudible] [00:12:03] in this single quarter. And 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 [inaudible] [00:12:23] expected ore feed from the primary crusher. So, overall, because we fed some of that low-grade stockpile material through it, the grade was lower than budget, but we had much higher production.

Masbate was 58,000 ounces, 4,000 ounces higher than budget, slightly higher throughput, 3% over budget at higher grade. Production in the quarter focused on main vein and also on budgeted backfillers that we didn't have in the mine plan, but we found that they had 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 slight beat on budget. And 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 in [inaudible] [00:13:17] from Otjikoto [inaudible] in the third quarter, and then from Wolfshag Phase 2 in the fourth quarter.

In Nicaragua, Limon, 11,000 ounces, just 1,000 ounces below budget, approximately in line. Santa Pancha underground, Veta Nueva underground development continue, plus we had rapid advancement of the Central open pit, which produced ore early by June in the second quarter.

And the Libertad site, 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 and second quarter where we caught up on some of the deferred strip at San Juan and Mojon, something that we hadn't been able to complete at the end of last year. Also, significant positive for Libertad, we now have the Jabali Antenna open pit permit. We started development there, and the first production's expected in October, so early in the fourth quarter. And so, overall, I think production-wise at Nicaragua, we've turned a corner. There's, like I said, both ops are performing well.

So, to comment on the cost side now, on the cash costs side, I'm gonna talk about costs based on ounces produced, whereas in [inaudible] [00:14:31] were mandated to talk about it based on ounces sold, but I feel like it's easier to understand if we talk about cash costs on the ounces-produced basis. So, overall, consolidated cash costs, including all operations, [inaudible] [00:14:45]. So, 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 sort of lower to on-budget total operating costs. They were a bit higher in the prior year quarter, which was $474 an ounce, and that's due, A.) To the deliberate decision to process a low-grade stockpile of material at Fekola in this quarter. We did have budgeted and expected labor and fuel increases, and then also, we shouldn't forget that Fekola had an excellent start at the quarter in our start-up and 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 was 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, so the backfill areas, which didn't require blasting, and we also had blast pattern spacing, which was increased, resulted in savings in drill meters and blast stages. And also, because we focused and 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, this is due to the slightly higher production, also a lower strip ratio than modeled at Wolfshag. And just 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 was $456, which beat budget by just over $40.

On the Nicaraguan side, 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 at Central slightly faster than we anticipated, and that, as I said, was also a little bit [inaudible] [00:17:28] development in Santa Pancha underground, which is now being done.

Libertad was $936 an ounce, slightly over budget. The higher cost per ounce mainly resulted from processing higher costs [inaudible] [00:17:45] balances, and they were also higher due to some higher mining costs related to budgeted waste [inaudible] San Diego and San Juan as part of that development catch-up. But overall, [inaudible] as well, the cost for Nicaragua -- and we'll get to [inaudible] side -- definitely more weighted to the first half of the year as we did some of that catch-up activity, and now that we're getting into some of the better ore sources, and we have Jabali coming online and Limon Central coming online, we see the second half cost for overall for Nicaragua, that would be lower than the first half. And overall, we're maintaining guidance for both operations.

And finally, just to comment on all ends 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 as discussed earlier, and also, there was some capex planning differences there. We have seen lower pre-strip at both Fekola and Otjikoto, lower than we had 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 that we'll see as a savings 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 based on higher mobile fleet costs that had been budgeted from an earlier quarter was caught up in this quarter. Masbate, $749 an ounce, over $100 an ounce lower than budget, again, reflect that lower cash operating cost and timing of some land purchasing. Otjikoto was $1,174 an ounce, which is still under budget and, again, reflects the fact that we had budgeted higher costs for Otjikoto in the first half of the year. Otjikoto's another one of those operations that definitely has production weighted to the second half, and that will impact those costs in the second half too.

So, the totals from continuing operations, so those three mines, was just $807, which was nearly $90 under budget. [Inaudible] [00:20:08] Limon and Libertad sites, overall, Nicaraguan operations were $1,589, all in, for the period, which was higher than budget, and that was mainly due to the timing of the capex and some of that catch-up capex timing. And 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 in production guidance for the year, Fekola, we guided between 420,000 and 430,000 ounces. We see ourselves, based on the excellent production profile to date, we see ourselves coming in at the high end of that guidance overall for the year, and also, we no longer see the significant waiting at Fekola between Half 1 and Half 2 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 and 210,000. So, [inaudible] [00:21:08] primarily production from main vein. Otjikoto, the range is 165,000 to 175,000, and like I say, that is weighted to the second half of the year and in terms of production profile. And then, Limon, still maintaining guidance at 55,000 to 60,000 ounces weighted to the second half based on the timing of Central ore processing. And Libertad, 95,000 to 100,000 ounces guidance for the year, again weighted to the second half based on the timing of processing at Jabali Antenna open pit underground ore sources.

Overall, our guidance range to maintain is 935,000 to 975,000. 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're now seeing that 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. And then also to comment, if the Nicaraguan sale does go through as we think early in Q4, we'll only be taking up 31% of those operations thereafter, but we still think if that happens, say at the end of October, for example, that will still meet the lower end of our overall budgeted guidance range. So, in total, no change to that overall range and no change to the overall forecast, cash costs, and all-in sustaining costs guidance ranges.

Couple of comments on the income statement just for your information, mainly on the taxes. I know sometimes there's confusion as to what the tax breakdown is, particularly in Mali, so $24 million tax expense for the quarter, and that's made up of Fekola income tax of $13 million, Fekola government dividend, which is counted toward the tax, $4 million, and withholding taxes of $2 million. And then, we also have another $5 million in there for Masbate, and that's because Masbate is now fully taxable. No tax [inaudible] [00:23:18] there anymore. Remember, we did guide $120 million cash tax payments for the year, including selling 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, so basic earnings per share of $0.04, adjusted earnings per share, $0.05. And year-to-date, basic earnings, $68 million, or $0.07 a share. Adjusted income, $89 million, or $0.09 a share.

Now I'm gonna comment also on a few items in the cash flow statement. First thing on the operating cash flow side, we generated just under $93 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 the gold price of $1,300 per ounce, we generate somewhere around $400 million in operating cash flow. Obviously, cash flows are significantly higher now with a higher gold price, and we now see ourselves coming in maybe around the $480 million or closer to that $500 million operating cash flow for the year. And 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.

Clive Johnson -- President and Chief Executive Officer

That $480 million was assuming $1,400?

Mike Cinnamond -- Senior Vice President of Finance and Chief Financial Officer

$1,400, yeah. Looking just in the financing section, we did repay $25 million on the revolver in the quarter, and we expect that as we go through the year, those higher cash flows to repay more debt as we go through the year.

On the investing activities section, business as usual at all the sites. Like I said, we've probably got about $11 million in deferred strip that we expected to incur over the year-to-date if we don't expect [inaudible] [00:25:20] for the balance of the year.

Perhaps a reminder, there's been various additions to capex that we've gone through since the original budget results we predominantly discussed among prior calls and news releases, but just to give you a reminder, those are mainly related to Fekola. So, Fekola expansion was subsequently approved, expect to be $50 million in total for the [inaudible] [00:25:43] expansion -- $25 million in this year, $25 million next year. For full fleet, in total now, we think with the larger-sized trucks, total anticipated fleet costs would be $86 million, of which $26 million is expected to be incurred this year, including pulling some other fleets forward from '20 into '19.

At Fekola solar plant, also approved, we think it's gonna be the largest operated 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 generators out of operation 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. In addition, 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, which I'm sure Tom can talk to in a bit.

So, 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 [inaudible] [00:26:55] budgeted production [inaudible], 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. And in addition, if the Calibre sale goes through as expected early in Q4, there should be another $40 million in cash proceeds, that the [inaudible] [00:27:14] cash proceeds will come in in the fourth quarter, so again, that'll add to the available cash and our ability to pay down debt.

And final comment, based on how we see 2020 unfolding right now on our current mine plan, we'll update the mine plans later in the year. But based on the 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, so if we chose to be debt free and pay the revolver down, we think we could by year end of 2020 at $1,300 or $1,400 gold. So, the way we see it right now, we have $375 million on the revolver, $1,400 gold. We certainly think we could pay that off over the balance of this year and into next year.

So, I think those were the main items I wanted to talk about on the results.

Clive Johnson -- President and Chief Executive Officer

Thanks, Mike. Just one clarification or to add to that, the $85 million for the large expanded fleet for the Fekola expansion, we anticipate financing that with equivalent loans, so just [inaudible] [00:28:28].

I guess let me pass it on to Tom now to give us an overview of, obviously, major exploration budgets in a number of locations, the biggest chunk of course being Fekola and the area around Fekola. So, Tom?

Tom Garagan -- Senior Vice President of Exploration

Thank you, Clive. As Clive said, we've had a pretty major exploration budget for this year for all of [inaudible] [00:28:55]. Up to this point, we've drilled over 100,000 meters in all our exploration projects. And in Fekola, up to this point, we've drilled 30,000 meters of diamond drilling in over 100 holes and 22,000 meters of RC drilling in over 200 holes. And the focus of that has been in several areas. Initially, it was to do the infills really on the PEA pit, and then to do exploration without plunge Fekola and to the south of Fekola, and also up in the snakes areas to the north, and then to a new license we acquired to the north of that.

So, we completed the infill drilling on the PEA pit, but changing gold prices has forced us to look at going further down plunge because everybody has known or talked about several times our $1,400 resource pit that we came out with was really -- although it was $1,400, it was at the edge of our data, which really says we don't know where the $1,400 pit really goes. And so, we started doing some infill drilling within that $1,400 pit, and now [inaudible] [00:30:00] of that $1,400 pit, and the mineralization still continues. For example, we just hit a hole -- Hole 413, we had almost 4 grams over 59 meters at the bottom of the $1,400 pit, so at the edge of our current resource.

And at the edge of the PEA pit, we had some holes. We had 6 grams over 20 meters, 4.5 grams over 24 meters, we had almost 4 grams over 56 meters at the edge of the PEA pit. So, that would suggest that the ore body is still continuing strong at that edge and continues strong within the $1,400 pit. So, we'll continue exploration further down plunge. We're talking internally about what our new goal price will be for reserves, but it would certainly suggest that Fekola, although it's become one hell of a large ore body, it still continues to the north and has potential to go larger again.

In addition to that, we've started saprolite drilling, extending the saprolite mineralization in the Anaconda to the north of the [inaudible] [00:31:09] licenses we recently acquired. We've hit saprolite 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 the saprolite RC drilling, but we're now starting diamond drilling in the sulfide mineralization down plunge of these zones of saprolite mineralization we found at Mamba.

So, in summary, although we've expanded Fekola and it sort of looks like a really bit pit, it remains significantly open to the north, and now with the Saprolite mineralization, we're seeing large extensions of that mineralization beyond our current resource, and 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.

Clive Johnson -- President and Chief Executive Officer

Thanks, Tom. Before we open for questions, must maybe a couple of comments. I do wanna just shout out to our Nicaragua employees where we had a tremendous group down there led by Dale Craig, who was with it from the beginning. And just a tremendous team of people that have done an excellent job over many years. We really put Nicaragua on the map for gold mining in a big way and it attracted lots of other people to go to Nicaragua, including Calibre, some years ago. They have experience in the country from an exploration perspective as well. But I just wanted to thank our employees, and those of you that know our culture, you know how much we care about our people, so the Nicaragua deal was a really good fit for us because when you're looking at the value of 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 want our people, our legacy to continue there by combining it with Calibre, and they put a very good, strong executive team for our management team and our employees to stay in place, so their legacy continues, and 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, etc. So, the deal was I think a real win-win for us, but we were happy to be 31% shareholders in Calibre. Our decision to combine with Calibre, to 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. It's people, wonderful people. It's a 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.

To that end, it's been [inaudible] [00:33:58] to see what's transpired over the last year. We believe in the country, its people, and in 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 under very difficult circumstances in keeping the mines running. And one thing that almost everyone in Nicaragua seems to have in common is they want these mines to continue, so 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 have huge social programs that have a great benefit. Nicaragua's been good for us, we've been very good for Nicaragua, and that continues. If that's expected and 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 up for any questions that you might have.


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Questions and Answers:

Operator

Certainly. At this time, if you'd like to ask a question, please press *1 on your telephone keypad. In order to withdraw your question, press #. We'll pause for a moment to compile the Q&A roster. Again, that is *1 to ask a question by phone.

Geordie Mark with Haywood Securities, your line is open.

Geordie Mark -- Haywood Securities -- Head of Mining Research

Yay. Good morning/afternoon, guys. Great quarter, and thanks for hosting the call today. Just one question in several parts, I guess. On, I guess, the main [inaudible] [00:35:28] is Fekola, so let's start there. Obviously, doing very well through [inaudible] plant at 7.3 million ton run rate for the quarter. Can you give us an idea given that you're sort of going above the original name plate, using the capacity where available to put in stockpiles, how you foresee the balance of mine tons in H-2 versus stockpile, or put another way, how many tons are coming from being mined in H-2 in the current plan?

Clive Johnson -- President and Chief Executive Officer

Bill or Randy?

Tom Garagan -- Senior Vice President of Exploration

Randy's probably closer to it. I can answer it if you want but go ahead and let Randy.

Clive Johnson -- President and Chief Executive Officer

Randy? You there, Randy?

Randy Reichert -- Vice President of Operations

Yeah, I'm here.

Tom Garagan -- Senior Vice President of Exploration

Maybe I'll take a shot at it. So, Geordie, it's not just the second half of 2019 we gotta consider. As we build up our stockpiles, we gotta look at what we're doing in 2020 as well. We put out PEA with some pretty aggressive numbers. We wanna make sure that we don't move too many ounces out of high-grade and medium-grade stockpiles that we would have in 2020, so I think the short answer is we're managing it to be kind of what the first half looked like.

Geordie Mark -- Haywood Securities -- Head of Mining Research

Great. And I guess, ultimately, I guess the performance well above, I guess, a normal name plate could be expected concurrent with the operator's 7.5 million? You'd expect 7.5 million could be 8.5-9 million in the right conditions?

Clive Johnson -- President and Chief Executive Officer

Do you guys wanna talk about softer rock? The rock's gonna get harder. Let's talk about that. John?

John Rajala -- Vice President of Metallurgy

The higher throughput now is a result of the saprolite that's in the mill feed as well as softer rock that's from the low grade that we're processing through the mill. So, with all fresh rock coming in the future of higher grade, we would have as high a throughput as now if we had the higher grade of fresh rock, and that's what the expansion is designed to process is the high-grade harder rock.

Tom Garagan -- Senior Vice President of Exploration

And maybe just to add to that, Geordie, one of the things that we're looking at right now, don't forget with this expansion, we've got to tie in, and tie in obviously means shut down time. So, when you're talking about 7.5 million, or 8 million, or 9 million over the course of 2020, you've gotta factor in certainly we're gonna have quarters where we're not gonna be able to run that because we'll be shut down for our tie-in.

Geordie Mark -- Haywood Securities -- Head of Mining Research

Great. Thanks for that. And maybe just some housekeeping on the Libertad. I see, obviously, [inaudible] [00:38:19] activity just started there and expecting ore, I guess, from September onwards. Can you give us an idea of kinda grade distribution Q3 and Q4 and perhaps expectations on capex there in the current plan?

Mike Cinnamond -- Senior Vice President of Finance and Chief Financial Officer

I can respond to that. Hi, Geordie. Capex, really the major item to capex has been taken care of in the front end of the year. That includes the land acquisition and dam construction. So, we're expecting capex to take a loss for the back half of the year. And in terms of grade projections coming out of Jabali, we're expecting it to run just under 4 grams per ton and the contribution to the mill feed be in the 10-15% range, so [inaudible] [00:39:11] and our advanced production will really depend how effective we are in operating the pit. That's our starting point, and that's our plan.

Geordie Mark -- Haywood Securities -- Head of Mining Research

Fabulous. Thanks. And maybe one last one if I can for Tom -- or anyone else, I guess. In terms of drilling, Fekola's done very well. In terms of the [inaudible] [00:39:34], 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. And you're Fekola's style mineralization there, but from memory, the other target, Cardinal, is something different again?

Tom Garagan -- Senior Vice President of Exploration

Yeah, Cardinal's something different again. We don't have a lot of drilling on it right now just because we seem to be getting tied up everywhere else, but Cardinal seems to be quite a bit tighter than Fekola, so I don't expect a Fekola target at Cardinal. I'd expect that that may be something small, but at one point in the future, they'll carve out --

Clive Johnson -- President and Chief Executive Officer

Where is it? How far away is it?

Tom Garagan -- Senior Vice President of Exploration

Cardinal's only less than 500 meters from the pit.

Geordie Mark -- Haywood Securities -- Head of Mining Research

Great. Thank you for answering that question. Cheers.

Tom Garagan -- Senior Vice President of Exploration

Thanks, Geordie.

Operator

Lawson Winder with Merrill Lynch, your line is open.

Lawson Winder -- Bank of America Merrill Lynch -- Equity Research Analyst

Great. Thanks for taking the questions, guys. I actually just wanted to look at Masbate. I mean, that's an asset that certainly seems hard to sort of pin down, which I mean is actually good because it's always surprising to the upside. But maybe just a couple of questions on what the second half looks like. So, in the original budget, your guidance, you said 69.7% would be the average recovery for the year, Masbate, so based on that, that would imply that the budget for H-2 would be something over 80%. Is that correct? And if so, what's kind of driving that expectation? Thanks.

Mike Cinnamond -- Senior Vice President of Finance and Chief Financial Officer

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 recoveries project through the back half of the year will run between 69-70% in Q3, up to 80% in the fourth quarter, so slightly below our original projections.

Lawson Winder -- Bank of America Merrill Lynch -- Equity Research Analyst

That's great. And then, 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? And then, are you looking to publish an updated technical report on that? Thanks.

Mike Cinnamond -- Senior Vice President of Finance and Chief Financial Officer

Nope. I'll have to get back to in a minute. Got a quick chart to check here.

Lawson Winder -- Bank of America Merrill Lynch -- Equity Research Analyst

No problem. I got some other questions on Masbate as well. Just on the oxide -- I mean, it's always surprising to the upside in terms of the percent of oxide, so I mean, 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? And then, maybe if you could just speak to your understanding as to what's kinda 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.

John Rajala -- Vice President of Metallurgy

It has a lot to do with our current mining crisis [inaudible] [00:43:13] through Q3, we'll run about 20% oxide in our most recent forecast, and that declines to about 2% in the final quarter of the year. Really, the original blending strategy through Q3-Q4, well, we developed our budget, included a nice blend of low-grade ore coming from stockpiles and high recovery of material coming from main vein in Montana, so that blend in our forecast is changing slightly, and that's why you see the difference heading toward more oxide and less fresh ore in our mine component.

Clive Johnson -- President and Chief Executive Officer

From the history of that, the whole oxide history, Tom, Brian? Does somebody from geology wanna talk about why you think we're seeing so much more oxide historically than we thought we would?

Brian Scott -- Vice President of Geology and Technical Services

I'll give her a shot. We've been studying this a lot. I mean, a couple of 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 salt water rain coming on them, so they've had some oxidation themselves. So, it was a bit of a surprise -- a positive surprise -- in the stockpiles. Second, and 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 with some diamond drilling. And what happens with RC drilling, the mineralization itself, which occurs in veins in 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 in them, and they don't get oxidized.

So, I think there is 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 models. So, 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 there would be an oxidized [inaudible] [00:45:24].

Clive Johnson -- President and Chief Executive Officer

And the previous owner, they didn't spend as much time differentiating-is that right?-between the different ore beds?

Brian Scott -- Vice President of Geology and Technical Services

No, no. We certainly studied it a lot more than they have for sure.

Clive Johnson -- President and Chief Executive Officer

So, that's partly why there's more -- and with further analysis, there is more oxide than they have thought?

Brian Scott -- Vice President of Geology and Technical Services

Yes.

Lawson Winder -- Bank of America Merrill Lynch -- Equity Research Analyst

That's great. That's a very helpful explanation. And then, just on the backfield prior workings in the main vein, I mean, obviously, you had expected to encounter those, but have they ever been drilled out? And to what extent can you expect that to continue where you're actually getting grades worth processing out of those old workings?

Brian Scott -- Vice President of Geology and Technical Services

Again, the same thing applies that we talked about with the oxidation state. You go drill a good chuck of your ore body with RC as what has done here in main vein. It's very difficult to pick out all the workings. So, there's going to be some conservatism applied to modeling of the workings. Certainly, when you're drilling RC, and you go through an opening that's been backfilled with rock and maybe a bit of paste, you don't really pick it up in an RC hole. So, 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 better to do that than have the opposite happen.

John Rajala -- Vice President of Metallurgy

Combination of conservative forecasting and our recovery issue drilling through backfill material, hard to recover in that.

Mike Cinnamond -- Senior Vice President of Finance and Chief Financial Officer

[Inaudible] [00:47:01] Montana question is, well, Montana's got about 225,000 ounces at about 2 grams.

Clive Johnson -- President and Chief Executive Officer

Over what period of time would that be mined?

Mike Cinnamond -- Senior Vice President of Finance and Chief Financial Officer

Over two years, approximately.

Tom Garagan -- Senior Vice President of Exploration

We see it holding in at about 12% of our mill feed. The grade in the coming 6-8 months will range from 1.4 to just over 2 grams per ton. Active recovery, 80%.

Clive Johnson -- President and Chief Executive Officer

If I could get you to reach out to the guys for any more detailed technical questions. There may be other people in the queue that wanna ask questions as well, so thanks for your good questions and your interest.

Lawson Winder -- Bank of America Merrill Lynch -- Equity Research Analyst

No problem. Thank you all.

Operator

Again, if you'd like to ask a question, please press *1 on your telephone keypad.

Your next question comes from Chris Thompson with PI Financial. Your line is open.

Chris Thompson -- PI Financial -- Mining Analyst

Good morning, guys. Congratulations on a great quarter again. Three quick questions. Just a point of clarification on I guess the discussions from the previous caller on Masbate, so what I'm hearing here is that you're planning on pushing more oxide through the plant toward the back end of this year to increase the recovery, is that right?

Tom Garagan -- Senior Vice President of Exploration

Nope. We will be sending more low-grade through the plant, not oxide, in the back end of the year, final quarter.

Chris Thompson -- PI Financial -- Mining Analyst

And then, I think you were mentioning close to 80% in the fourth quarter, is that right?

Tom Garagan -- Senior Vice President of Exploration

No, closer to 2% in the fourth quarter, approximately 20% oxide in the third quarter.

Chris Thompson -- PI Financial -- Mining Analyst

Sorry, but recovery is 80%?

Tom Garagan -- Senior Vice President of Exploration

Say it again?

Brian Scott -- Vice President of Geology and Technical Services

Recovery's at 80%.

Chris Thompson -- PI Financial -- Mining Analyst

I'm just looking at the recovery is what we should be modeling I guess in the fourth quarter.

Tom Garagan -- Senior Vice President of Exploration

Yeah, recovery third quarter sits around 70%, 80% in the final quarter of the year.

Chris Thompson -- PI Financial -- Mining Analyst

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 sort of the head grade profiles we should putting in our model for this?

Mike Cinnamond -- Senior Vice President of Finance and Chief Financial Officer

I'll look it up. Hold on. Maybe, Chris, call me outside this call, and I'll let you know?

Chris Thompson -- PI Financial -- Mining Analyst

Fine. Sorry for asking the details here. Final question, guys. Obviously, Fekola, fantastic performance from the asset here. I think you mentioned earlier on that you're gonna be managing the second half mil tons very much like what we saw in the first half of this year. Would the same be for the head grade as well?

Clive Johnson -- President and Chief Executive Officer

Yeah, I think you could assume that. Once again, we are managing the head grade as well, and so what we're really to do is target an ounce profile as opposed to a grade for a ton throughput.

Chris Thompson -- PI Financial -- Mining Analyst

Got it, guys. All right. Thanks. Good quarter. Thank you.

Clive Johnson -- President and Chief Executive Officer

Thanks, Chris.

Operator

Carey MacRury with Canaccord Genuity, your line is open.

Carey MacRury -- Canaccord Genuity -- Director

Hi, good morning, guys. Just had a question on Anaconda. It looks like you 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 stand-alone operation, or is it still potentially gonna be mixed in with the Fekola metal? And then, finally, I was just wondering about the timeline in terms of coming up with or releasing details around the plan around Anaconda.

Clive Johnson -- President and Chief Executive Officer

Tom? Dennis and Tom, do you wanna talk to -- I mean, you just mentioned that it's open to the north, and we're getting some good results there, so getting bigger, of course, makes the stand-alone more interesting. Dennis, you wanna talk to that a little bit?

Dennis Stansbury -- Senior Vice President , Engineering, and Project Evaluations

Yeah. It gets bigger, and some of the things we're seeing in Fekola right now, it's a big higher grade, which is the real win on this thing for making a stand-alone saprolite plant. We're just kinda waiting and seeing a bit right now. Tom's guys are just really getting into drilling this thing up 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 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 and is there a hard rock component of this thing up north that we need to consider also, so would we build a different style of plant. So, with the success the exploration guys are having comes a whole new list of questions for us.

Clive Johnson -- President and Chief Executive Officer

Tom, do you wanna talk a little, you mentioned about when you're gonna be drilling below the saprolite?

Tom Garagan -- Senior Vice President of Exploration

So, I think Dennis' point is a really good point in terms of timing of knowing things. I mean, the saprolite's getting bigger, so we're expanding the saprolite, and we actually have our first Hole No. 1 going into the Mamba sulfide target at the north end of it. So, we're still early stages on the sulfide targets, but initially, we had several targets in the sulfides. We had one in Adder, Anaconda, we had two in Mamba, and now we're drilling one of our best sulfide targets in Mamba below the saprolite.

So, to talk about timing on when we would know what we have there, your guess is as good as mine. If Hole No. 1 turns out a monster intersection, then we'll hit it really, really aggressively. If it's Hole No. 50, we'll all be working at it for a while. So, it won't be Hole 50, but that would be my bet. But yeah, it's still early stage exploration, so your guess is as good as mine as when we'll have a feasibility on it. But 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 wanna build there.

Clive Johnson -- President and Chief Executive Officer

So, it could be potentially a stand-alone if the saprolite continues to get bigger and the grade looks like there's some areas that might be better grade. But then again, it may be the saprolite gets mined in a bigger mill if it's on top of another large deposit in the sulfides.

Mike Cinnamond -- Senior Vice President of Finance and Chief Financial Officer

So, the Otjikoto question, second half of the year, Q3 grade through the mill, 1.73 grams. Q4 is 2 grams per ton.

Carey MacRury -- Canaccord Genuity -- Director

So, just to pull up on Anaconda, based on the drilling today, do you think you'll be in a position to at least expand the resource at the end of the year?

Tom Garagan -- Senior Vice President of Exploration

I don't think so just because we haven't found the edges yet. So, here it's August already. Unless we find edges, I don't know that we'll have a new resources by the end of the year.

Dennis Stansbury -- Senior Vice President , Engineering, and Project Evaluations

We might potentially do an updated resource at some point in the next year or so, even if it's still open between [inaudible] [00:53:57].

Tom Garagan -- Senior Vice President of Exploration

Maybe sometimes next year, we'll be able to come up with a new resource.

Carey MacRury -- Canaccord Genuity -- Director

Great. Thank you very much.

Operator

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.

Clive Johnson -- President and Chief Executive Officer

Thank you all for sitting on the call and for your interest, and if you have follow-up questions, reach out through Ian. He'll get you in to talk to the right person here. I think we're obviously very pleased with the results that we've seen from the quarter again, and I think based on our successful growth strategy over 10 years, remember we had [inaudible] [00:54:32] production 10 years ago, but based on the success of the growth strategy [inaudible], I really do believe we're almost if not uniquely positioned to continue to generate strong cash flow from operations but also to continue as a real growth engine by focusing on what we have in the pipeline. We're gonna generate lots of cash flow. We were looking good on the cash flow point of view at $1,300 gold and debt repayment. Obviously, we're closing 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, and a lot of that from existing assets and through the drill bit, but also, ultimately, we'd like to be a company that takes a portion of our cash we generate and use it to grow the company's production further, but also, we'll look at the dividend strategy in the future. So, I can't tell you what gold prices would have to be for us to proceed with the dividend and when yet, but we're gonna be looking at that. So, that's part of our goal as a company. We think we're a very attractive company for lots of investors, generalists and gold investors to look at a company that's low cost, that's profitable, low debt, can grow from existing assets in 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 with you soon. Have a good day.

...

Operator

This concludes B2Gold Corp's Second Quarter and First Half 2019 Financial Results Conference Call. Thank you for your participation. You may now disconnect.

Duration: 55 minutes

Call participants:

Clive Johnson -- President and Chief Executive Officer

Mike Cinnamond -- Senior Vice President of Finance and Chief Financial Officer

Tom Garagan -- Senior Vice President of Exploration

Randy Reichert -- Vice President of Operations

John Rajala -- Vice President of Metallurgy

Brian Scott -- Vice President of Geology and Technical Services

Dennis Stansbury -- Senior Vice President , Engineering, and Project Evaluations

Geordie Mark -- Haywood Securities -- Head of Mining Research

Lawson Winder -- Bank of America Merrill Lynch -- Equity Research Analyst

Chris Thompson -- PI Financial -- Mining Analyst

Carey MacRury -- Canaccord Genuity -- Director

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