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B2Gold Corp (NYSEMKT:BTG)
Q4 2019 Earnings Call
Feb 28, 2020, 1:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. Afternoon, ladies and gentlemen, welcome to B2Gold's Fourth Quarter and Year End 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 T. Johnson -- President, Chief Executive Officer and Director

Thank you, operator. Welcome everyone. We're here to talk about the, as the operator said, the results for the fourth quarter last year and the full year. Obviously just a great year for B2Gold. And Mike is going to come and -- Mike is going to be shortly here and talk about the financial results of both the fourth quarter and year-end with a solid fourth quarter ending a tremendous year as indicated in our news release and financial results etc.

I guess I'll just start and maybe give a little overview where we see ourselves going here in 2020. We give quite a lot of detail in the news release and even more in the MD&A talking about where we are and where we see ourselves going. But the strategy going forward for this year obviously is to focus on some of the major things we're doing, such as the Fekola expansion, which is going very well. I'll ask Bill to say a few words on that. That's on budget and on schedule and of course had some pretty dramatic expansion as it increases production from last year's 462,000 ounces to where we're estimating somewhere around 600,000 ounces for Fekola for this year, bringing us in and about 1 million ounces to the Company, including our 34% ownership of our Calibre, reflecting a portion of their production. Mike will take us through some of the details of what we are projecting in terms of cost a low-cost year for operating cost for ounces and the cost of goods as well. And we're also generating lot of cash. We are projecting $15,00 gold based on our current assumptions that we could see $700 million from cash from operations. Clearly, $100 gold is higher than that. [Indecipherable] $90 million per year in our cash from operations. So significant year this year for cash flow. Free cash flow will continue to increase into next year as we see the expenditures and things one-off expansions like the Fekola expansion will be behind us into next year. So very positive looking forward in that regard. In terms of growth we're going to focus on the pipeline. As we've said for many years now, we still have an excellent pipeline of projects. And with the two of the key ones, while there is lots going on, two of the key ones would be Gramalote. We gave you some detail in the MD&A and also the news release, and we'll be talking about Gramalote quite a bit more as we go through the year. A major drill program that we have of other rigs turning to turn the inferred resources at Gramalote as indicated. We put out what we thought was pretty positive numbers on the economic assessment, which is a dramatic change from the previous economic analysis which was based on a model that needed some improvement, some drilling help and also the interpretation of much more to come. So we're keen to see if Gramalote has potential to be our next mine. We are the operator now of the joint venture and have an excellent relationship with AngloGold Ashanti. We're looking at the full feasibility study by the end of the year to have potential decision whether a go or a no-go early next year. We have a permanent [Indecipherable] where we are in Colombia and why we feel positive about Ethiopia as a place to build versus a significant gold mine in Colombia. [Indecipherable].

Another key factor is a key focus for this year will be further exploration. We've got branches over $50 million worldwide. A lot of that is brownfields around Fekola and the other mines where we've had very good success of course. But we also have a major program with [Indecipherable] turning up in the Anaconda or the snakes area as we call it 20 kilometers north of Fekola. We've had some very good results there. We have a large, fairly large weathered zone of separately down 50 meters. That continues to extend to the north, but perhaps of greater excitement is the potential for what's beneath [Indecipherable] and we have some very good subsidiary released [Indecipherable]. So it's early days, but similar type structures [Indecipherable] and Fekola. And so we've been seeing some good projects and good wins. So we're kind of excited about the potential of the vast area [Indecipherable]. And we've also other exploration news coming out where we're definitely looking at still continuing to grow through the drill bit, especially in this pilot where I think acquisitions are going to be even more expensive and we're looking out a number of -- we're pursuing a number of grassroots exploration programs worldwide, which we'll be talking more about as they come. And then also looking for joint venture with junior exploration companies. So obviously a bit of a strange date to come out with results and the sense of the overall market and the gold price. But we're in a wonderful position, we couldn't be happy where we are and we're looking at based on $1,500 gold [Indecipherable] ( 0:15:04 ) debt free in the third quarter of this year which puts us on a great position looking forward too.

That's a bit of a summary from me on the strategy and pass it over to Mike now to give you the detailed financial results of the year 2019 on the fourth quarter.

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

Thanks, Clive. Just wanted to start, just to remind everyone we restructured our interest in the Nicaraguan operations in October, so in Q4. So for financial statement reporting purposes results for Nicaragua test data reported as a one liner in the financials as discontinued operations and thereafter we pick up our 34% attributable interest and equity accounted for Nicaragua from October 15 to December 31st. So when I went through results also going to talk about results from continuing and then I'm going to talk about what they also where -- when you take into account Nicaragua.So, revenues for the quarter from continuing operations, $314 million, a significant increase over the prior year mainly driven by the increase in gold price and more ounces sold. If you take in adjusted revenues to including $10 million discounted -- revenues from kind discontinued operations, it was $324 million for the Q, quite a significant increase over the prior-year quarter.

Production, very solid in the Q. So total from continuing operations was 228,000 ounces, driven mainly outperformance by Fekola and Otjikoto. Fekola was 11,000 ounces ahead of some of its original plan and that's driven by the same stories we had through the year. There was more throughput going through the mill and because of that we were able to process more tonnage than we thought, some of which is lower grade stockpile tonnage. Now that did lower the grade a bit, but the throughput outbeat or beat the impact of the reduction in grade. So overall, we outperformed and Fekola had 119,000 ounces in the Q.

Otjikoto is 58,000 ounces, again ahead of budget by about 4,000 ounces and that continues to be driven by just more ore and better grade come out of Wolfshag than was originally planned. Slightly offsetting that was Masbate. Masbate is 51,000 ounces, just 3,000 ounces below plan. And that was as expected and as discussed in Q3. We did plan to have production from Montana in Q4 of 2019. But that, as we indicated previously, that was pushed out into the first quarter of 2020 but work at Montana commenced sort of mid-February of this year. The result -- the impact of that was that we had ore was slightly lower recoveries in Q4 than we anticipated and therefore we were about 3,000 ounces under budget. But overall production from continuing operations was 12,000 ounces ahead of where we had planned. When you take our share of Nicaragua discontinued operations and our attributable share from October 15 onwards, total production was 245,000 ounces. Just to comment a little bit on the cost for the Q. So, cash costs and this is on a ounce produced basis from continuing operations $442 and from all operations $467 per ounce for the quarter. We've beat plan overall. And that's again a function of the strong performance at both Fekola and Otjikoto with the higher production coming from those operations.

Masbate was a little higher than originally planned. Masbate is $694 cash cost per ounce. And again it's a direct impact of not having that ore come Montana in Q4. But overall we beat budget by close to $30 an ounce on a cash cost side.

On the all-in cost side from continuing operations all-in cost per ounce sustaining cost per ounce were $869 an ounce. And the total from all operations including Nicaragua was $882 an ounce. And what we saw in the Q was mainly catch-up capex. Although we had beat overall on the cash cost per ounce, we were ahead of plan. We did have capex that has been postponed from the first three quarters of the year and was incurred in the fourth quarter. And that's -- so we had some higher capital at Fekola and Otjikoto as we had capex caught up in that period. Also impacting all-in sustaining cost is that we need to remember that we actually budgeted on the basis of $200 per ounce last year and the royalties were based on that price. In fact, through the year, we realized gold price for the whole year of close to $14,00 an ounce. So there's a bump in the total royalties that were included in the all-in sustaining costs, So total on a consolidated basis from all operations and gain was $882 per ounce.

Just to comment on some of the results now for the year, revenues from all operations including our share of discontinued operations was a record $1.3 billion and reflects the fact that all the mines have run very well through the period. On a production basis from continuing operations, we had 851,000 ounces, well ahead of budget of 800,000 [Phonetic] and including our share of Nicaragua, overall, we had 980,000 ounces against -- which beat the upper-end of our guidance range of 975,000 ounces. So very much -- we've already pre-released those numbers. If you break it down and look it each up, Fekola had 456,000 ounces, 33,000 ahead of budget and it's for the same reasons as discussed on the cash cost side, just more throughput, slightly lower grade, but more throughput through the mill. Overall, it gave us more ounces than we planned and that beat the upper-end -- the 456,000 ounces beat the upper-end of its already increased guidance range of between 445,000 ounces and 455,000 ounces. Masbate had 217,000 ounces, 9,000 ounces ahead of where we overall budgeted. It's an annual record from Masbate and it beat the upper-end of its guidance range of 200,000 ounces to 210,000 ounces. And then, Otjikoto 178,000 ounces and that again beat the upper-end of its range of 165,000 to 175,000 and the production stories at each of those sites is basically the same as I just described for the quarter, just outperformance at all sites.

Just also to comment that our 2020 guidance, So we -- on a fully kind of basis including Nicaragua, 980,000 ounces for the year. Next year with the impact of the Fekola expansion coming online throughout the year I guess, partly from the expanded fleet and then when the full mill expansion comes online in Q3, we're guiding a 1 million ounces to 1.055 million ounces including our 34% attributable share of Nicaragua and the other -- the other I am maybe just comment at this stage as well as Fekola in Q4 '19, Fekola produced its 1 million [Phonetic] ounce since it started production, which is quite an achievement when you consider it's only been going just over two years. Just a comment on the overall cost and all-in sustaining cost for the full year. So, on the cash cost side per ounce produced from continuing operations, $449 an ounce and including our share Nicaragua $512 an ounce. And overall, that consolidated number of $512 per ounce produced. That beat the low-end of our guidance range of $520 an ounce to $560 an ounce.

Next year, as we go through the year with A) the impact again of Fekola expansion coming online through the year and a smaller percentage share of the higher cost Nicaraguan operations, we're guiding cash cost of between $415 per ounce and $445 per ounce. On the all-in sustaining cost side, consolidated including all operations, Nicaragua $862 an ounce and from continuing operations was $794 an ounce and that's right in the range that we gave. We originally gave a guidance range of $835 an ounce to $875 an ounce. So $862 an ounce came just past the midpoint of that range and as I said, it was partly impacted by higher royalties in the period and also the fact for the year, we produced 980,000 ounces and we sold 944,000. So, the sales were slightly lower and therefore increased the cost per ounce slightly because all-in sustaining costs are presented on an ounce sold basis. Next year for 2020 sort of mirroring the lower costs you see on the cash cost per ounce side, we're getting between $780 per ounce and $820 per ounce overall.

Just going to comment on the income statement for first the quarter and then the year. So a couple of items to highlight I think in the three-month period to December, sort of unusual items. So impacting earnings firstly were a couple of one significant non-cash item, which was a reversal of an impairment for $100 million. So a few years ago, we booked an impairment of our interest -- our carrying value of the Masbate mine. We originally had purchased that line when gold was $1,500 plus, higher than $1,500 and impairment test this gold was subsequently running $1,215 and we booked an impairment. With the increase in the gold price that we've seen, today's plummet excluded of course, we changed our long-term gold price assumptions to $1,350. And with that we realized the reversal of $100 million on impairment that we previously recorded at Masbate. Then also impacting the income statement for the period was a gain on sale of the Nicaraguan assets of $40 million. So as you may recall from our disclosure previously we -- that restructuring of our interest in Nicaragua was for proceeds of $100 million plus working capital adjustments and included in that -- and so that resulted of because we had that in -- that was finalized in October, we booked that gain of $40 million in Q4. Should also comment that as part of the consideration made up in that $100 million, we took $40 million in US worth of equity in Calibre and there was also a $10 million convertible debenture that with the subsequent increase in Caliber share price was converted and today we hold an effective interest in Calibre of 34%. Net income for the quarter of $182 million and that includes -- that is the impact of those two items I just discussed and that's EPS of $0.17 per share. On an adjusted net income basis, adjusted net income as reconciled in our MD&A is $69 million or adjusted EPS of $0.07 per share.

Comment now on the 12 month financial results as mentioned before, $1.3 billion in revenues if you include Nicaragua, $1.2 billion rounded if discontinued operations aren't [Phonetic] included. We had operating income for the 12 months of over $0.5 billion. A couple of items mentioned in the P&L, interest and financing expense is $26 million -- or $26.5 million for the year versus closer to $31 million last year and that's due to the lower debt levels that we've had through the period. In 2019, we repaid approximately $220 million of our debt including $200 million on the revolver and as we currently look forward, we're expecting that by the end of Q3 of 2020, we will have repaid the remaining $200 million on the outstanding revolver balance leaving us with $600 million, undrawn and available, but you should also expect to see a significant decrease in interest expense through next year as we pay that debt down.

Also another item to highlight, current income tax expense for the year was $114 [Phonetic] million and we'll see higher tax expense as we go forward compared to some prior years for B2 as Fekola is very profitable and there is no accelerated deductions in Mali. So you pay your share of income taxes straight out of the gate and you hit your deductions, your original investment over time and also any previously unutilized losses -- loss carry-forwards at both Masbate and Otjikoto have been utilized by the time we got to 2019. So we're starting to see a higher income tax expense there. On a cash basis, total cash income taxes paid during the year were $119 million and just a reminder that that also includes payment of the Fekola priority dividend. On a comparable basis for 2020, I think you can expect -- we're currently estimating total income taxes -- cash income tax payments, including Fekola's dividend of approximately $115 million. Bottom line earnings for the year attributable to shareholders, $316 million -- sorry, attributable to shareholders was -- sorry $293 million and that added up to $0.29 per share EPS, if you adjust out the non-cash items for the period, adjusted earnings were $237 [Phonetic] million or $0.23 a share.

So, comment on a couple of line items in the cash flow. Firstly, for the quarter, cash provided by operating activities $145 million, approximately $0.14 per share. Just to highlight in Q4, we did make a voluntary $12.5 million installment -- cash tax installment payment for Fekola. We pay installments for the year, but the final balance is due to be settled up in full in Q2 2020, but we actually prepaid $12.5 million in Q4. Also in Q4, we repaid -- as we indicated at the end of Q2, we repaid another $100 million in the revolver, leaving us with $200 million at the period end. And in Q4 we paid, we declared and paid our first dividend for B2Gold, so $0.01 per share expense of $10 million overall for the queue. [Phonetic] And looking forward, we've also highlighted in our news release that we declared our dividend for Q1 in the same amount, $0.01 per share.

In the quarter, cash from investing activities was -- net was $58 million, but that was inclusive of our net of $51 million proceeds of cash from the Calibre Transaction, so gross of $108 million. And, like I mentioned, as I talked about the all-in cost per share that included approximately $11 million catch-up for Fekola's [Phonetic] pre-stripping costs, at both Fekola and Otjikoto. It also included in the queue $54 million for the Fekola expansion.

Overall in 2019, we incurred $76 million, cost related to Fekola expansion and remember that includes both fleet expenses, mine expansion costs and work that we've done in the solar plant. So $76 million overall in 2019 and we budgeted remaining $97 million for 2020. And also just a reminder that we do expect it for the fleet costs, which total approximately $85 million overall, we expect to finance of approximately $40 million of that with Caterpillar loans and the latter part of next year -- in 2020, sorry.

Then finally, just to comment on the cash flow for the full year, cash from operating activities overall was $492 million or $0.49 per share. Like, I said, we did pay off in Q4 $12.5 million prepayment on our final Fekola tax expenses. And also right at the end of 2019, we did of about 25,000 ounces that because of the late shipments and delays in shipments from the sites. We had sitting at refineries, but it wasn't as held for sale and so just -- and to the start of 2020. So we sold those 25,000 ounces for proceeds of approximately $39 million at a significantly higher gold price, actually, then we would realize that we sold in December.

Overall, for the year on the financing side, we repaid $200 million in debt as discussed. We had proceeds from option exercise of $73 million and 10 million for that first dividend payment. Investing activities for the full year, $263 million our gross in the Nicaragua proceeds $360 million. And that was a bit higher than the original budget, because remember -- included in there $76 million of Fekola expansion expenses which weren't in. The original budget, we approved and announced those midway through 2019.

And then, we had other sort of main differences with Masbate were probably $12 million over -- under budget, sorry. Overall, mainly due to Montana time and the timing of final end acquisition and development comes from Montana, which we're now incurring in the first quarter of 2020. And Nicaragua, we were about $6 million [Phonetic] because the timing of the sale there were [Indecipherable] incurred before we sold it.

Overall, ended the year with cash and cash equivalents of $140 million, $400 million undrawn on the revolver and in good shape to go forward, as we worked to complete firstly the Fekola expansion for the year. And then, also to fund our increased share now of the Gramalote. Budget where we're planning to drill Gramalote in 2022 feasibility stage and have a feasibility study completed by year end. And to earn -- our plan there is to earn back to 50-50 interest and also therefore -- thereafter fund their share of 50-50 JV expenses going forward. So in total, in 2020, we got $25 million in the budget for that, but overall we're well placed to fund all of current activities that we've got.

And I think that probably summarizes what I was going to talk about.

Clive T. Johnson -- President, Chief Executive Officer and Director

Okay. Great, Mike. Thanks. Let me pass it over to Bill Lytle, Senior VP of Operations, to give us a run-through on the progress to-date of the expansion from the Fekola mill and the new fleets.

William Lytle -- Senior Vice President, Operations

Thanks, Clive. Maybe just by way of introduction to the projects, I think everyone remembers last year, we were challenged to look at -- should we expand the mill at Fekola and so we did a study, which really showed the optimized -- optimizing the mill and increasing throughput was positive, but as part of that, we looked at optimizing the entire facility. And one of the interesting things that came out of it was that, that the optimization actually indicated that we should also expand the mining fleet and bring some of the higher grade ounces forward. So we -- that was approved in June of last year and we immediately started ordering our mining fleet.

And it's important to realize that because for 2020, the key for getting the 600,000 ounce is really related to the mining fleet and pulling of hybrid ounces forward. I'm happy to say that on the mining side, the mining fleet actually is arriving ahead of schedule, on budget and ahead of schedule. We already have received our first excavator to 6040 excavator that has been commissioned and will shortly move into mining in Phase 6. We also have received the first-five of our 200-ton trucks. Those have been put together and will almost momentarily be put into operations and put some tires on them. So that remains ahead of schedule.

On the milling side, remember we're expanding from 6 million tonnes per annum to a throughput of 7.5 million tons per annum at a budget of $50 million that would have, which is going to spent last year and half this year. That again remains on schedule for a Q3 commissioning, there -- obviously, we're currently watching all the issues related to the coronavirus, but we are still forecasting at this time that we will be on budget for Q3 delivery of the mill. In addition to that, we looked at expanding because of the throughput at the mill and some of the past outperformance of the mill. We want to make sure that the tailings facility had sufficient capacity and so we actually called for a double lift.

Last year, which would take us up in the 2023 before it had to be lifted again. That remains on schedule and will be completed prior to the rainy season this year. We also looked at the success at Otjikoto the solar plant and the economics of implementing a solar plant at Fekola and we approved last year, a $38 million budget to expand the power plant by 30 megawatts AC solar that remains on schedule and on budget. We're currently looking at some of the equipment, which is coming out of China related to the batteries, which may be delayed slightly, but overall the solar plant will be started up at the end of Q3 and that solar plant is not needed to support the expansion. That's just better economics over the long term. Thank you.

Clive T. Johnson -- President, Chief Executive Officer and Director

Yeah. Thanks, Bill. I think with that we'll turn it over to questions. We have the entire executive team here in Vancouver. So if there's any questions we can answer. Go ahead.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of Lawson Winder with Bank of America. Your line is open.

Lawson Winder -- Bank of America -- Analyst

Hi. Hello, gentlemen. How are you doing today? Thanks for taking the questions. Just on Gramalote maybe just looking at that project, becoming more and more attractive to you. And then I compare it to the other three sort of core assets in your portfolio, where you are not only 100% in drilled operations, but a majority owner. In the event that your partner were to be interested in tendering their half of that project. That's something that you guys would be interested in considering?

Clive T. Johnson -- President, Chief Executive Officer and Director

Well, I think we both AGA and ourselves are very focused on getting to the final feasibility by the end of the year. There is a provision agreement, I think both AGA and ourselves believe that on 50-50 joint venture that we probably should be able to stay to block development of mine if it's economic. So there is a provision agreement where we provide a feasibility study, if we move to a development plan to present that's AGA. They neglect not to participate to 50%. Then there is a mechanism on each of us would have point independent financial advisor and based on the economics of the feasibility/development plan, they were really wanted to sell our some interest as a mechanism to come up with that. So there is also a provision where, I think drop potentially too, 30% interest. And so we feel we're very confident that it's got a lot of [Indecipherable] and I think the economics are good. I would expect it's good chance AGA with a lot of participated 50%, especially since we're going to do work.

And secondly though there is a mechanism whereby we can move on. And this is a big nut to crack in terms of the financing, that we were looking economics a lot, but we have lots alternatives if that happens, as we could be able to partner in for 30% or whatever percent, if we did a lot of take on take on [Indecipherable] I think, it's worthing noting, though, and I mean it is still early, the work to do you to get to feasibility decision, but if you look at the cash generation from us based on current projections over the next, this year and the next few years of somewhere around $1.6 billion to $2 billion. So given the fact -- we rather than third quarter of this year, we've been in extraordinary position to be able to finance projects going forward from a cash flow.

Lawson Winder -- Bank of America -- Analyst

Thanks very much of that, Clive, it's very helpful answer. And then, in -- just looking at your portfolio. There is one asset that you guys are projects rather -- that you guys haven't spoken a lot about lately. And that is Kiaka in Burkina Faso. And I was wondering if maybe you could just quickly update us on what your thinking is around that asset. But then also in doing so, maybe comment on sort of geopolitical risk exposure with that asset. And where I'm coming from is assuming the project economics were far superior than they are today with Kiaka. I mean, we're building it be an obvious choice for you or is there an element of geopolitical risk in Burkina Faso now that would perhaps make you think twice about that decision. Thanks.

Clive T. Johnson -- President, Chief Executive Officer and Director

Well, obviously all countries have some sort of risk and unfortunately Burkina Faso has had a lot of significant issues at a concern, all of us, over the last well whether it'd be the mining industry or in general safety of our people is paramount. But I think we term, we continue to evaluate the economics of Kiaka and see what kind of gold prices might make some sense. But I think we're also looking to see the government continue to work hard and they are going to continue to improve security in the country. If we had a Fekola, the Burkina Faso I mean, I think we've been working very hard with the government to build it and then the safety of our people. So we'll continue to [Indecipherable] Kiaka as we go forward.

To be honest, if there was someone interested in the partnership or something like that, we probably consider that. Otherwise, we'll continue though that as we will monitor the situation in Burkina Faso and then it hopefully continues to improve. Unfortunately Burkina Faso faces some additional challenges in the neighboring country Mali whose -- we have a major commitment to improving safety with 10,000 jobs being trained as we speak and then further ongoing support for France and the United Nations etc. And So it's a possible Burkina Faso is a great -- good country [Indecipherable] good people and we hope that they have a safer future then we can progress by [Indecipherable] you can our investors. So there are other operations that are looking to move forward. I'm sure safety is their first priority as well.

Lawson Winder -- Bank of America -- Analyst

Okay. That's great. Thanks for your comments. Clive, I appreciate it. That's all from me.

Clive T. Johnson -- President, Chief Executive Officer and Director

Okay. Thanks.

Operator

[Operator Instructions] Your next question comes from the line of Chris Thompson with PI Financial. Your line is open.

Chris Thompson -- PI Financial -- Analyst

Good morning, guys. Congratulations on a great year, last year and thanks for taking my questions. It's a quick point of clarification are we anticipating, I guess revised mine plans for Otjikoto and Fekola in the AIF?

Clive T. Johnson -- President, Chief Executive Officer and Director

Yeah. We should mentioned that, who wishes to take that?

Unidentified Speaker

The short answer is yes.

Clive T. Johnson -- President, Chief Executive Officer and Director

Yeah. The short answer is yes.

Unidentified Speaker

Yeah. We will be updating those mine plans will be underground addition. I'm sorry, we will be updating the mine plans both at the call based on the latest resource, which came out in December I think of 2019. And then that the approved by the Board to go underground at Otjikoto or AIF [Phonetic].

Clive T. Johnson -- President, Chief Executive Officer and Director

Yeah. Thanks for the reminder, Chris. The other thing with the expansion of Fekola, of course, was based on the tremendous results of increasing Fekola, we came with weather indicated resource recently at 6 million ounces. We mined a 1 million ounces. So it's really [Indecipherable] ounces, when we started it and the resources we started before we remained open. So the expansion still having a must be continual midline with the expansion. So the expansion is showing to be the great decision. And I think that's one of the things that we're very proud of because it's the -- obviously we're the bricks and motors, but we maintain our entrepreneur approach of this business, having expanded Fekola twice already since we decided the first to mill of leaving that ultimate fashion and having a commitments to trying to find out that was bigger as we are building it. So it's a great example. I think the way we approach the business, is the success of the Fekola. I think produced a 1 million ounces already have related to this business and I just coming into the second expansion.

Chris Thompson -- PI Financial -- Analyst

Great. Thanks for that. Clive, and just another quick question, I guess, can you just sort of walk us through what's happening with the snakes, the snake deposits at Fekola?

Clive T. Johnson -- President, Chief Executive Officer and Director

Sure, I'll hand it over to Tom. He has already put up some pretty intriguing results while ago, but Tom will give you number detail what the focus is there?

Tom Garagan -- Senior Vice President , Exploration

Yeah. Chris, see exploration that the snakes right now is -- so say threefold. We're expanding the saprolite mineralization to the north with RC drilling. We are drilling Mamba to trying to understand and try to extend Mamba. The sulfide deposit Mamba and then we would be looking at a couple of other sulfide targets that are sitting underneath Anaconda and [Indecipherable] that will be the focus for this years exploration.

Chris Thompson -- PI Financial -- Analyst

Okay. Great. Thanks. And then just a final question guys. I hope you don't mind. But just Masbate, just a very, very quick comment on, I guess the grade and metallurgical characteristics of Montana compared with Main Vein?

Clive T. Johnson -- President, Chief Executive Officer and Director

John you want to talk.

John Rajala -- Vice President, Metallurgy

Great. I believe we're going to average about 1.8 to 2 grams per tonne, correct. We're expecting about 8% gold recovery Chris from Montana. As a result, there are so no issues with throughput.

Chris Thompson -- PI Financial -- Analyst

Okay. All right, guys. Congrats. Look forward to this year.

Clive T. Johnson -- President, Chief Executive Officer and Director

Thanks, Chris.

Operator

Your next question comes from the line of Geordie Mark with Haywood. Your line is open.

Geordie Mark -- Haywood -- Analyst

Yeah. Good morning, all. Yes, if I can maybe just to extend the question from Chris line of follow up, particularly on Anaconda in the context of, I guess, rounding out Fekola, however, many expansions are thrown out there, plus the context of probably moving with the decision to go through to Gramalote next. I'm moving your team there and the time commitment, so I guess in the cash flow, required for that. I'm just wondering, how does in holistic, we had is the Anaconda sort of potential snakes sit within that in terms of human resource capital through development timeframes, cash flow requirements to attribute to that in line with permitting. So it's more of a realistic sort of mid-term growth plan because you've already got -- obviously another take there was Gramalote likely to come through, I guess. So just getting some sort of more broader scale theme on the circle for me?

Clive T. Johnson -- President, Chief Executive Officer and Director

Sure. I mean, [Indecipherable] bit to say, if we come up with a positive [Indecipherable] province of what we say, Gramalote and we make a development decision to proceed them, we're looking at about the 30 months of construction as 11 million ton of that plant. So we might be sort of in the second half of next year. Once again, to wait arms a bit, but the team up we'll be ready to roll because they are going to be coming off finishing the Fekola expansion. So that timing works up well. In terms of that economy answer, it's such early days, but there's a number of alternatives there, we're seeing the saprolite now increased to 6 kilometers and before that 5 kilometers of strike we have 800,000 ounces that over ground.

So, but once it, it doesn't require any I think [Indecipherable] question of this -- because of the nature of the weathered rock in the [Indecipherable] down 50 meter. So we've always thought that -- as that's getting bigger now Fekola and resource during the year for the saprolite and then when I'm looking at that potentially a stand-alone situation or other higher grade parts of the supply, then there seem to be whether or so, that you might trucked out of the Fekola one day, let's say, Fekola's first-five years averaging 550,000 ounces of the year. That's one of the alternatives would be to do that.

Tom tells us that we might be wasting which are tied to analyze too much of the second lien because he's feeling cautiously optimistic on [Indecipherable] about the potential of the sulfide below this huge area. So then you could be looking at significant stand-alone mine and you can sort of look at that, what you are waiting that will obviously go that could be sort of it after [Indecipherable] but we don't build these things everyone on-site at the same time all the time. This one always reminds us, you know you have -- we have people come in first and then each of the thing that I think we will be ready to go somewhere else. We're not going to take on building two plants at the same time and don't expect a sustained change in our strategy, but we have lots of alternatives in order to get there. We've got obviously we've got the corners behind. They have a lot in the sense of where it is, I mean in terms of the process of feasibility and that permitting. So we, so right now, we are slotted behind that. But there is many alternatives, and especially having this huge mill, down the road, 24 weeks down the road when you start looking at that and then a comment. Bill, anything you would add to that?

William Lytle -- Senior Vice President, Operations

Maybe just to add that part that's often forgotten is the engineering side, which we have a very good engineering team and it actually slots, I think very nicely. If you look at what's happening at Fekola now, we do have some murky engineers on-site. They would in kind of third quarter to be rotated over to Gramalote then work very well. Once again hand waving of the project, getting it into the detailed engineering and of course, that would also work very well to give time -- Tom the time to finish up actually drilling at Anaconda and handing it over to the engineers sometime maybe in the second half of next year to really start looking at what's happening there. So at the end, on engineering side it fits very well.

Clive T. Johnson -- President, Chief Executive Officer and Director

I guess just one final point that, when you talk of our losses, we didn't mention it's very, very advanced for allegedly a PEA which we put out. We only put it out as PEA because we were a bit surprised to find out that 45% of the ore body was inferred but that wasn't what has been advertising before. So we have -- we have a slack of drilling to do, the infill drilling. I guess, it's a very consistent ore body as Tom tells us so. So we tend to believe, it's always a measured risk, but we think that we're hopeful that we will be in success because of similar type of economics and a great facility that we're looking at them, but in so many ways it's so advanced kind of lot because hedging out for 10 years and there is still a lot of money and you know quite a bit of well.

They do a lot of good engineering work, permitting work, do the great and very good job of dealing with local miners in the community, we have a permit. So we obviously do a good job, and the nice thing about this is we're inheriting the Gramalote team, which is really which is there's a lot of very people there and rather than having to restart or let's say if AGA is sold out, and we have to takeover that's out there from scratch, we'd be a lot further behind than we are today. So in terms of Metallurgy there is always good work to do, but I think my team, they're feeling very comfortable with that. And of course is going to achieve power between $0.70 a kilowatt hour in Africa. This is projected to be around $0.07 to build out because of the nearby power. And then the grade, you know people criticize the grade.

We understand sometimes we have session with low grade, no surprise given the feelings of the [indecipherable] projects but here you have a very low superficial, I think the leverage was too long to them, for the project, and wanted to start. So that's a -- those are very attractive factors have actually could be to some extent the low grade. We can show you some 1.5 gram ore bodies with huge strip ratio, it's in the field of Metallurgy that we not have the economics and we're seeing the hit in that. So we always like to say, nothing matters, nothing matter with isolation, great strip ratio and logistics, all of that, and all of that -- so all of that comes together. So we will have a lot more granularity by the end of this year, a lot more, quite a lot more, as we think about the other criteria here.

Chris Thompson -- PI Financial -- Analyst

Great, that does answer. I mean just wanted to extend one more to Mike there. Just in terms of obviously free cash flow is growing nicely, reduction in the revolver balance, but obviously some future growth going forward with an elevated gold price. Second, dividend payments coming out soon what are you thinking in terms of you thinking in terms of opportunities going forward to put in a specific in payout ratio something to garner exposure to rising gold price or just thinking about, obviously you're putting a lot of cash on the balance sheet. And how you might look at using that going forward?

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

Yeah, I think, we're looking at what -- what we may do as we go forward. I think that maybe the way to look at it is we're going to get ourselves to more of a decision point later in the year on what we want to do. We'll have to ground a lot to feasibility study by Q4, we'll know a lot more about Anaconda and what we're seeing from the drilling in Mali and have ideas about what we might need in terms of project finance there. And so it's really right now, we're using the funds to pay the debt down in the absence of having a larger dividends.

So we'd like to do that to Q3 and then obviously we are going to evaluate what our dividend policy is. What our capital needs are for ground lodging and potentially a bit longer-term out there, what our capital needs are would be for Anaconda. All of those things can be considered really that the first key decision point come out there will be the end of the year when we see what the Gramalote [indecipherable]

Clive T. Johnson -- President, Chief Executive Officer and Director

Yeah, we, over time, we'd like to see the dividend increase, as we said we don't want to rush into that and we had some capital expenditure that's happening this year. Let's get to the debt reduction. Let's get to the fourth quarter and then we'll evaluate that situation. I mean the objective here is to, used to be a company that takes some of the hardest -- hard earned money by producing gold, uses it to find more ounces and develop some things that are in the pipeline, then we will go live. But also at the same time we reward our shareholders by giving something back. So that's the strategy that we've started that process and we'll evaluate it in the year, if it's appropriate to consider increasing the dividend. And of course that probably speaks to gold price as well.

Chris Thompson -- PI Financial -- Analyst

Yes. Great, thank you. Thanks, that's it from me. Cheers.

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

Cheers.

Operator

Your next question comes from the line of Carey MacRury with Canaccord Genuity, your line is open.

Carey MacRury -- Canaccord Genuity -- Analyst

Hi, good morning, guys. Just another question on Gramalote. You've mentioned that the project is pretty well advanced. I'm just wondering, beyond the infill drilling, are there other opportunities that you're looking at there to potentially tweak the economics?

Clive T. Johnson -- President, Chief Executive Officer and Director

Sure, Tom do you want to --

Tom Garagan -- Senior Vice President , Exploration

First some of the drilling, look, bear in mind that the PEA gold prices really at $1100. So when you look at higher gold prices, the Gramalote has the potential to get significantly bigger, and certainly it remains open as you go deeper in the project and we'll find out some of that when we are drilling this year. As far as other opportunities, Trinidad -- there's other satellite deposits that we have not included in the PEA. We did not do that deliberately because we were to get to decision point with this thing with the feasibility study and we just work to get those drilled off to an indicated resource to be able to do that.

Clive T. Johnson -- President, Chief Executive Officer and Director

So that could add to it. Then the order of the PV resource before vastly improved was taking into account a turned out about as well. So it's then the grade, increasing grade a little bit because of [indecipherable] there's we saw other deposits, one deposit, one zone up with these two. So we're going to be doing a little bit of drilling at Trinidad this right?

Tom Garagan -- Senior Vice President , Exploration

We'll be doing some drilling on Trinidad and more muscles next year.

Clive T. Johnson -- President, Chief Executive Officer and Director

So one of the thought process we have is typical of our style of doing things like Fekola and Otjikoto as we may look to feasibility is positive and looks very good, and we go toward the decision build for cheap expansion again the mill. So there is in fact [indecipherable] come in that we want to create the tons or whatever and we have a potential to do it. That's kind one of our strategies and things that's over the parts of times and that's where we don't lose value by not exploring those now, but we like the way that -- like the way to move forward to get going get this thing built it's appropriate. And then we have room to have more margin within that.

Carey MacRury -- Canaccord Genuity -- Analyst

And maybe one more, just your thoughts on your relationships in Colombia. Obviously, you've been there for a while, has been there for a while just relative to the rest of your portfolio.

Clive T. Johnson -- President, Chief Executive Officer and Director

Well so far, it's the great relation, we have got some really good meetings coming up next week with Mr. Lines and other senior people from Colombia and that we, the guys went down. I'm planning a trip down assume to meet the government officials. But that's -- and Kelvin Dushnisky he has done a great job there and some of the people before him dealing with government, cover the social relationships in many countries including Colombia and moreover important everywhere these days. But sort of good start there were more than starting to doing for a long time, but the relationships, the government and the President and the cabinet.

Tom was telling me that he met with all of the cabinet six months before. They were very, very positive about the gold mining, responsible gold mining and then you've got Antioquia where the new governor of Antioquia recently elected. So mining and -- mining -- Mr. Anibal Gaviria, he has come up very providing and so as his Minister of Mines and others. So every -- all the indications are the questions we get asked of them as down there the questions are when you are going to start, when you are going to start building this thing. We also have, we have to hit the ground running as I said with having the Gramalote team. We've also -- Dale Craig is the VP of Operations here and was the country manager a long time ago in Nicaragua and then came out to Vancouver and assumed the senior position. Dale would stand up and volunteer to go down to be the country manager in Colombia, which is fantastic. So we've got one of our very experienced guys at the helm there, will be well supported by all of us this year. So the good team underneath there. So far that part of it is a very, very encouraging. It seems that there is a real push from the local -- the local people.

We've done a good job there because of miners there and works on board to move this thing forward and we'll continue to work with what we've done all of our carriers fairness respect to transparency and accountability in the way we deal with local government. I know that government is very happy to have a Canadian company for us here at the helm of this one and there's a great Canada, Colombia relationship, but don't forget we will get the opportunity before. So we have some history with them as well. So for that's seems to the -- the economics have to be there, but it seems like this will be best place in Colombia to build both the gold mine being by district and all these other positive factors were talking about. So that's what working very good.

Carey MacRury -- Canaccord Genuity -- Analyst

Okay. Thank you very much.

Clive T. Johnson -- President, Chief Executive Officer and Director

Thanks.

Operator

There are no further questions at this time. I will turn the call back over to the presenters.

Clive T. Johnson -- President, Chief Executive Officer and Director

Okay. Well thank you everyone for joining us. It's obviously a bit of a challenging day given the melt down of the gold price, and then the gold [Indecipherable], which is a -- perhaps a little bit surprising. But we see these liquidity prices. I guess, sometimes as we move through the business, but we're very happy with where were. We said that we didn't to build this company based on the gold that to be higher. This is all of the company at whatever gold price you want to pick in terms of historic prices for the last while. So we're excited about the future and we look forward to continue to deliver for our shareholders and all our stakeholders on the promises we make. Thank you.

Operator

[Operator Closing Remarks]

Duration: 52 minutes

Call participants:

Clive T. Johnson -- President, Chief Executive Officer and Director

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

William Lytle -- Senior Vice President, Operations

Unidentified Speaker

Tom Garagan -- Senior Vice President , Exploration

John Rajala -- Vice President, Metallurgy

Lawson Winder -- Bank of America -- Analyst

Chris Thompson -- PI Financial -- Analyst

Geordie Mark -- Haywood -- Analyst

Carey MacRury -- Canaccord Genuity -- Analyst

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