B2Gold Corp. (BTG) Q3 2021 Earnings Report, Transcript and Summary

Good morning and afternoon. My name is Sylvia, and I will be your conference operator today. At this time, I'd like to welcome everyone to the B2Gold Third Quarter 2021 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Mr. Johnson, you may begin your conference.

Thank you, operator. We welcome everyone to our third quarter and interim results call. I'm just going to say a few opening remarks and then pass it over to Mike Cinnamond to walk you through the financials and then we're going to open it up to any questions. As you can see from the release, we had another strong quarter in the third quarter and despite once again, the challenges of COVID and some inflationary pressures on the cost side, so we're pretty pleased with the results of what we're seeing in the third quarter. Leave us in, as you'll hear from Mike, very strong financial position now and going forward, being strong in cash and debt free, and looking to generate some $650 million over the year from cash flow operations. Mike will go through the details on that. The books for the company going forward with continuing to optimize responsible profitable goal production and Mike will talk more about our new guidance, [indiscernible]. And other things, we're going to continue to advance our development projects, so obviously Gramalote, we're looking out a feasibility study by the second half of next year and we've had some positive results from some of our engineering review so far and looking at the capability to reduce capital costs. And also we're drilling away looking to turn some more inferred into indicated, so we can divide the capital potentially over time by anyone [ph] else . So, we think that's heading in a positive direction, program at Gramalote. I think the other thing that has got us pretty excited is the potential we are seeing from the Menankoto in the Anaconda area 20 kilometers north of Fekola. And the excitement there is the ability initially to start hauling saprolite weathered material the 20 kilometers from the tackle down to the Fekola mill. The Fekola mill has been running extremely well and it can definitely have saprolite material because it's softer material on top of the hard rock. So we see the potential there about the second half of next year to start tracking more. And also, of course, the other biggest excitement has been the Cardinal discovery 500 meters from Fekola on the same licenses for Fekola. So we received a permit from the government to start mining there and are mining there and that can add to production as well, so the positive developments there in the short term. In the longer term, the Menankoto license, we continue to have very productive, successful conversations with the Government of Mali to resolve that situation where we will see, we hope in the next few months, we will see that our license extended or renewed for Menankoto. And that will be an important part when mentioned - we mentioned several times that Menankoto has a separate license so we can start tracking from there but obviously, we'd like to be drilling both of them. So extensive drilling continuing on Menankoto and there are some very, very good results. And the ultimate target there is to see if we have in the sulfites below the saprolite is the potential for Fekola types sulfites mineralization. We're starting to see that now in some of the recent joint. In addition to that we have a very substantial, hot, aggressive, but high-quality exploration budget, some $65 million and that is obviously continuing a lot of that, about 65% to do what we've done well for a long time, which is practice doing existing mines and you've seen some good results come basically from everywhere there from the three mines in terms of additional success from the drill bit. But we have a significant $25 million budget for grassroots this year. We've been - we've always been driven by - tried to be driven by geology more than geography, so we ended up now with some targets we've been chasing for years in some cases and there are some exciting opportunities in places like Uzbekistan, we've recently seen our partner Orion [ph] release some good exciting results from Finland and I think there's great potential there for another discovery. We are looking at M&A opportunities. We always are looking but I would say that we're looking at a few different opportunities that might increase our production through an accretive deal or could add another development project to what we're doing but we feel pretty good about the pipeline to include the Anaconda potential and of course if you look at Gramalote, those are two projects we like in the pipeline. We did announce recently a sale to West African mining of the Kiaka Project in Burkina Faso. And we felt that was a good thing to do. Corporately, we've got other things we're focusing on plus they are established in Burkina Faso. We're happy to be a shareholder of the company and wish them well way forward on a sizeable deposit in Burkina Faso. We are we are happy to be at the shores of West Africa, and it's not the same, but it's - there are similarities to the deal we deal with Cardinal and Gramalote in the sense that we take these assets and want to focus on other things we're doing, but we like them, so we want to be involved. And in the same case, the Cardinal has done a very good job in Nicaragua with the Nicaraguan assets, so we're happy showed results as well. So there's sort of a pattern here the way we deal with these situations where we want to focus on what we're doing, but we want to get value back for the projects that we have and continue to get value as they're developed going forward. So once again, just as in the case of Nicaragua, all of our employees for Burkina Faso will now be the employee of West Africa managed, so that's a really nice way to do these deals. We have continuity of people, their jobs is secure, and the project gets advanced, and the government of Burkina Faso, I am not blaming them, like every government, there's a project that can be economic develop, they expect it to be developed and built and so that West Africa has got a good program going forward on that. One thing to mention is we did get - just recently got a three year extension of the Bantako license, which is really quite significant in the sense that it shows our relationship with the Government of Mali is very good. So that's the license relating to the north of Menankoto, as many of you know, but we received that very, very rapidly and quickly working with the government, the three year extension that we had the right to apply for. So that's a good sign also, of course, we got the Cardinal mining permit from the government, as well. So government relations continue to be very positive and, of course, the government is 20% partner in everything that we do, so as I said, we look forward to core resolution in the very near term. I think that's all I have to say for now. I'll pass it over to Mike and he can run into the financials, and then we'll open it up for any questions.

Okay, thanks, Clive. So I'll start - I will walk us through the three - the results for the quarter, some commentary on year to date, and then just how we see the year panning out. So firstly, on the quarter, revenues of 511 million, so that was based on the sale of 287,000 ounces, at an average released price in the quarter of $1,782. So year-to-date, our average released price for sales is $1,794 per ounce, so very close to that $1,800 price that we've been - that we used just to put out our cash flow guidance so really reinforces that we're still on track there. On the production side, good production quarter, we were on a consolidated basis, including our share of calendar results, total production was 310,000 ounces, which is 21,000 ounces, ahead of budget where we thought it would be and the reasons for that are really the same as we talked about in the earlier quarters in the year. Fekola is still a production machine, there's higher melt throughput going through there, closer to 8.4 million tons annually, so far this year versus the 7.7 5 million tons that we assumed in the budget. And now that Fekola is using - are pulling some low grade material from the stock falls into fill that additional production mill feed, so we can see slightly lower grade overall going through the mill but production is up. So for the quarter Fekola, 166,000 ounces beat budget by 10,000 ounces. Masbate, 61,000 ounces in the Q3, 1000 pounds is better than budget. Aain Masbate just continues to outperform the model with better grades and better recoveries than the model shows, so that's a good positive difference. Now there was - but the highlight and we did mention it in the MD&A and the news release, we didn't mind slightly out of sequencing as Masbate for this quarter. Some of the higher grade main vein material that was originally scheduled for Q4 was mined and produced in the third quarter, so you will see some of that clawed back in the fourth quarter as we go forward. But we did - because we had that additional production and better output from the mill in the quarter, we did take the opportunity just to accelerate some mil maintenance in the queue. In Otjikoto, 69,000 ounces, 2000 ounces ahead of budget and it's just everything is slightly better than budget, so just very solid production all around from Otjikoto. And if you translate that and look at how we did on the cost site, very positive, so consolidate including estimated attributable results for Calibre $445 an ounce was exactly on budget and so good results there. And if you look at that high level big picture, what we're seeing is that there is cost inflation across the sites, just because of the environment we are in. Fuel costs are up, some shipping costs are up, some reagent costs are up but at the same time, we had stronger production, better production, and that really helped to offset those additional, higher costs. So we really came up pretty neutral and right on budget. Through your models, if you want to know on the fuel side, it's probably up about $25 an ounce year to date, I would say, on fuel. But remember, we also have a fuel hedging program in place, so the derivative gains have offset at least half of that we think as we go through the year. So we're pretty solid on fuel, I think. And then the other thing that did impact Otjikoto results in the quarter was stronger Namibian dollar. We budgeted at 16.5 to the US dollar, it's coming in somewhere around 14.5, so probably had an impact of like 45 bucks an ounce year to date on those costs. But like they say the benefit of higher production really has managed to offset most of the cost increases. So when we look at all-in sustaining costs, year-to-date consolidated again, including our share of Calibre, $795 an ounce which is just $14 over budget, so really right on budget in the scheme of things. And the story there is sort of the same, so we have cash costs that are on budget. We do have higher royalties in the quarter and year-to-date, because we originally budgeted $700 gold and we've come in, as I mentioned, very close to $1,800 goal so far, so royalties are higher. But that is offset by higher production and it's also offset by the fact that some of our CapEx has been pushed forward into the fourth quarter. So we did have lower sustaining capital in the quarter and year to date. And those expenditures are really mostly as a result of timing. And we do expect them to be caught up in the fourth quarter. We're forecasting that will happen. Turning to the nine months, very brief commentary on the nine months results, so production year-to-date, 699, including our share of Caliber 743,000 ounces, so 49,000 ounces ahead of budget. So and I'll tell them where we were going to be for the year in a second, but very solid, and for the same reasons I described for the quarter. And then on the on the cost side for that production, so cash cost produced $556 an ounce consolidated, includes share of caliber, which is $14 less than budgets around budget for the same reasons as the quarter. And then all in sustaining costs $900 consolidated per ounce sold, including our share of Caliber, and that's $45 lower than budget. And the reason for that $45 lower than budget really is mainly just the timing of CapEx. So where are we for the year, we did put up some revised production guidance for the year based on where we are today. So our original consolidated guidance, including share of caliber was 970,000 to 1,030,000 ounces. We've bumped that up now to 1,015,000 ounces - between 1,015,000 ounces, and 1,055,000 ounces and the bounce came in from Fekola. The whole range of the guidance was previously 530,000, we'd never counted up to between 560,000 and 570,000 ounces just because Fekola has performed so well. And then Masbate also because we had - we've outperformed in the year, originally 200,000 to 210,000 ounces, we bumped that up to 215,000 to 225,000. Now remember though, that part of that big up performing Q3 was the last minute out of sequence, so we will see a little bit of that caught back in the fourth quarter and so that's why we ended up with a guidance range for Masbate of 215 to 225. Then we look at the cost side of things, we looked at all our guidance and what we see based on what I mentioned about some cost inflation but offset by higher production and the benefit of some derivative gains is that we think for cash costs, we are going to come in within our overall guidance range from the year of $500 to $540 per ounce. If you looked at the individual sites in there, Fekola probably come in at the upper end of that just because it's putting more high grade or lower grade material through higher volumes of low grade material. But the other two sites we think will be certainly just right in the middle of the ranges. And then on the all in sustaining cost side, again, our original guidance was $830 to $910 per ounce and these are including our share of Caliber. We still think we'll be in that range, but we think we'll be on a consolidated basis at the upper end of the guidance, and that has some offsetting factors in it. For Fekola, we've got it - we think it will be at the upper end of the all-in guidance range that we gave, again, because of the nature of the low-grade material going through. At Masbate, we think we may be at or below the low end of the range just because of the production we have to date. And at Otjikoto, just depending on the timing of sales, as we go through the end of the year, we may be at or slightly above the upper end of the guidance range. But overall, for all in sustaining costs, we think we'll be at the upper end of the range. We think that's pretty good testament, I think, to pretty good and a very good testament reflects of how all the sites have performed because we are in inflationary cost environment. And I think just seeing that across the reporting that's going out across the industry right now. But even despite of that, and because of the production that we've managed to pull forward and be against budget, we think we're going to meet those ranges. Let me give a few other thoughts just on where we are, so just general comments on some of the operations as well just as we go through. So Fekola, just to remind you that that the mill really is performing so well now and we've said that we expect it to be somewhere in the 8.3 million, maybe 8.4 billion tons range annualized for 2021 and as we go over a life of mine long term, including feeding some saprolite, material through the mill, we might think we may be able to manage 9 million tons per annum for Fekola. Reminder to that we now started pulling Cardinal into the mine plan, we started developing that in Q3 and we've got some production that coming from Cardinal. We did get permit to do that as part of the overall - well, it's really as part of the overall Fekola permit but we got we got our environmental assessment done and approved by the authority. So we think Cardinals over the longer term can benefit the overall production at Fekola somewhere around the 60,000 ounces a year for the next six to eight years, based on the results that we drilled there and the inferred resources that we've drilled there already. [indiscernible] just remind you to that is now complete up and running and really the overall benefit of that is it allows us to hold back some of the spinning reserves that we have whether gensets there, and the net impact on costs overall is probably matched and reduced Fekola's total cash - overall cash costs by about 3% because it reduces the amount of the cost of our milling - power costs for milling. Otjikoto, on Wolfshag the underground continues and still scheduled to get in and get some more from that underground development by the end of Q1 next year. Work in Gramalote continues. Work continues on the feasibility, both to drill out some of the remaining efforts at the site and also to update the engineering and look at the revised permitting required to move that project forward. We're still expecting to have an update on new feasibility study sometime around the middle of next year. And then Burkina Faso, Clive alluded to that, in the period, we sold 81% interest in the Kiaka project, so we signed the deal and that deal is expected to close right about the end of November. And in conjunction with that, we also updated the previous deal that we had to sell West Africa our interest in the [indiscernible] project. So for Kiaka, the consideration for that deal is that we expected 45 million in half cash, half shares in West Africa on closing, which is, as I said, expected by the end of November. Then another 45 million cash and shares with our option sometime next year, certainly no later than a year from when we close the deal. And then we retain our interest as well as any shares that we might take by retaining a royalty in the project. So, two points of our shares, two points of milling [ph], 2.7% royalty on the first 2.5 million ounces produced from Kiaka and then 0.45% royalty for the next 1.5 million ounces produced. And then just to remind you to that in conjunction with revising [indiscernible] deal with the closing of that deal, deal enters another $9 million tranche, original option payment that will be due now with closing the deal at the end of November when the deal closes as well. So we can expect to see that in Q3. And let me just on the earning side, the GAAP our share - GAAP earnings $0.12 per share, our share adjusted for the quarter $0.12 per share as well. Then year-to-date, our share of GAAP earning $0.27 per share and our share adjusted EPS $0.26 per share. And a couple of comments on the on the cash flow statement, so we have an excellent quarter for generating operating cash flow in the period. 320 million, which certainly be our expectations and that was - that translated to $0.30 per share, operating cash flow. And you know that be is in part due to the fact that we produced and sold more ounces than we'd originally forecast, which is great. Oil price behaved itself first during the quarter and we also had the benefit of some working capital movement changes that went through there that actually benefited cash flow. So, in the end, 320 million for the quarter. Now, we had guided before for the half year, for 2021 second half, we do somewhere around 500 million. We bumped that slightly in our guidance that we put out there. At the end of this quarter, we're now seeing somewhere around 510 million for the half year, so you can expect somewhere between 190 million, 200 million operating cash flow therefore for Q4, as we claw back some of those working capital changes that we benefited from in Q3 and we make some year-end tax payments that are required. Our total tax - cash tax guidance 380 million for the full year remains unchanged, so just remind you that. On the investing side, for the quarter, we were only probably about 6 million under budget with some pluses and minuses across the site. I will say that for the year-to-date on the investing side, just over 200 million, we're probably about 35 million under budget. As I mentioned when discussing the all-in cost, we are behind them some of the sustaining CapEx through the piece. And we're also - we haven't spent as much as originally budgeted yet on some areas like exploration but we do expect that we're going to catch up those CapEx cost by the end of the year. So what we've guided overall for CapEx, if you look in the MD&A would give you some guidance there. For sustaining CapEx, we're probably going to be about 10 million over all-in for the year, which is fractional based on the total sustaining CapEx that we have. And then for non-sustaining, probably also about 10 million over budget, overall for the year, but the main component of that being just some cost for Cardinal, some development and fleet cost for Cardinal, which weren't originally budgeted because we didn't have Cardinal in the original budget. We ended the quarter - we paid dividend in the quarter of $0.04 per shares US and annualized $0.16 per share, which still puts us up somewhere 3.7% to 4% over the [indiscernible] dividend yield, which still one of the highest in the industry. And, we still are maintaining the line there and our intent is to keep paying at that level. And end of quarter - we ended the quarter with $546 million in the bank, so very solid, and we've still got 600 million available on the revolver and that's strong right now. So I think those are the highlights, just what I wanted to emphasis. So just as a reminder to the operating cash flow for the year, we think we're going to come in around 650 million. We had originally guidance 630 but with the better beat that we have so far on the production and revenues offset by some higher costs that we see inflation pass through the year, we think overall, we're going to come in somewhere in 650 million for operating cash with approximately 190 million to 200 million of that in Q4. And that's my update.

You mentioned the dividend, Mike?

I did.

I was looking at [indiscernible]. Okay, thanks, Mike. We're going to open up to questions soon. Just to comment, I guess, we were very pleased with the third quarter results, as I think many of our shareholders will be as well. And, for the analyst, we know you guys have a tough job and lots of companies to cover and lot to do. And I think for the most part, you get to write and do the job. The one thing that's disappointing is to see when you have a $0.01 miss on earnings per share to see headlines that say Q3 missed, I think you might want to consider a better way. I think you're doing a disservice to our shareholders, your clients and companies when you do that with a glaring headline, how about the cash flow, how about other positive things. So just a suggestion that can trigger the algorithms, it can cause selling, it can cause the investor that reads only headlines to sell shares etc, I just think it's a - there is a better way to do it, so just that's just my comment for the day, bit of advice. So that I think we'll open it up for questions. We have the entire executive team available here so we can pretty much answer any questions. If you are an analyst and you want to go into great detail about the strip ratio three years from now for Fekola or other such things I would ask you to reach out to me and or you can actually contact Bill Lytle directly at blytle@b2gold.com. There you go though, with any detailed questions. We do respect the fact that you've got models and you want detail, but this is not the time to ask too many I think questions of that nature with a lot of people on the line. So with that, let's open up for questions.

[Operator Instructions] And your first question will be from Tyler Langton at JPMorgan, please go ahead.

Good afternoon and thanks for taking my question. I guess maybe just starting with cost, you mentioned that sort of costs were are a little bit higher than budget levels in Q3 but offset by the strong production. Can you just give a little color about sort of how you see cost sort of trending in Q4 and heading into 2022 to kind of just sort of general prices to remain at current levels?

I can give you a very high level thoughts on it. And Bill - maybe pass over to Bill afterwards, because some of the detail but production wise, we are seeing fuel price inflation. Some are of year-to-date, it is probably close to 10%, I would say. But like I say we have fuel derivatives in place that offset probably half of that cost right now. Are seeing some other input costs that are higher, certainly in transportation, some of the input cost. I mean, overall, if I had to guesstimate cost inflation, you're probably looking at 5% or 6% for the year, that's probably in the ballpark. And then you're looking at production increase against budget somewhere in that 4% range, right. So you can see that that manage to eat up quite a bit of that cost overrun to offset.

Yeah, and maybe just to add to that, certainly, shipping costs are a big one, right. The cost of shipping has gone up significantly this year and we'll see those carry into 2022. And then of course, labor - as various economies are seeing inflation, inflationary pressure, of course, the employees are also seeing that so they're asking for a pay raise. We did a really nice thing actually, this year, we locked in, at Fekola, our key asset, we locked in increases for the employees basically about 5% per year over the next three years, basically guaranteeing that can be stabilized and of course, we typically at Otjikoto do the same thing where we have a two or three year agreement, which is - will be up for discussion this year, so that's already started for 2022 but we would see that also in that kind of 5% to 7% range is probably where we'll end up. And so I would say shipping, fuel, spare parts, they are also up. We had a good discussion with Caterpillar here in September. Caterpillar has awarded B2Gold Global pricing. So basically, we get the same price for everything but they have announced that because of production costs and shipping costs that they will be passing along some increases as well in that regard, so those are the main things.

That's helpful. And just with Fekola and production, I know you've been sort of given sort of formal guidance in the next several years, but could you just talk about I guess, directionally how you kind of view production with Cardinal sort of coming in maybe the talk north, a little bit later to sort of the moving parts that could affect production there over the next several years..

We're still obviously working on that. So Cardinal, what I think basically we've talked about, it's an inferred resource of north of 600,000 ounces, we would see that over the next kind of four to six years putting that into production. One of the things we are doing to make sure that we come in line with guidance, is we are drilling off the 2022 production into reserves. So that'll be out by the end of the year, then we'll do the same thing in 2022, at least for 2023. So we're going to try and be a year ahead. I think what we've been saying is we're kind of in that 60,000 ounce plus minus range for Cardinal coming in but then of course you've also got what could be Anaconda at Bantako, we have a mine plan on that right now depending on what happens with Menankoto is how we'll decide to go forward but certainly, we could see a couple of 100,000 ounces over the next couple of years if we so chose coming instead being trucked in from Bantako. So those - all those things are in play right now. What I'll say is that if you remember there was a dip actually in 2022 in production when we did our original life of mine, but we've pulled that dip out of there through some of the work we've done at Cardinal and potentially an Anaconda. We see 2022 not finalized yet, but it's going to be a really good year. As far as the production, I think I'm not going to say it's got a six in front of it, but I'm saying we're going to get up near that number for sure.

Perfect, thanks so much.

Thank you. Next question will be from Joshua Wilson at RBC. Please go ahead.

Thanks. First question is on Cardinal. Earlier in the year, when the opportunity was discussed, there were some guidance about grade for the initial feed being about three grams. I know the resource when that was issued was lower but the initial stockpile that's been built up is also kind of more along that overall resource grade about one and a half grams. What was sort of the difference between the initial guidance and what the stockpile looks like now?

Sorry, I don't understand the question. You mean the grade or -

Yeah, for the grade. Yeah, so the grade, I think initially - I know the overall Cardinal speed was or the resource about 1.5 but I think there was some guidance earlier this year that it was it was going to be significantly higher initially, unless I'm mistaken. And the greatest is 1.5 today. Was there a variance versus expectations there or?

No, no, I think certainly, we've seen really what - everything that was in the inferred is kind of played itself out so far. What I will tell you is that like, in 2022, we're going to see the grade from Cardinal increase a little bit, I think it's going to be - it's above two grams per ton for sure in 2022. And as we bring that in reserve, of course, we'll report that.

Okay. And as a relates to looking at the overall split in terms of processing the guidance for 9 million tons of feed going forward is pretty similar to what the assets doing now. Should we assume a similar kind of split between the sulfides and the oxides that the assets processing today is kind of continuing going forward?

Yeah, well, that, once again, is kind of a - I think John is on the call, so he can correct me if I'm wrong here. But what we've always said is that we don't think that really that the mill can handle more than that 10% to 15% of saprolite material. And so it all depends on what the mind plan has for Fekola and the saprolite that's available at Cardinal and whether or not we bringing Bantako in. But what I'll tell you is that if we can get 15% saprolite, we feel pretty good at that 9 million ton per annum. And once again, that also assumes that the material doesn't get significantly harder as we go to depth at Fekola but that's kind of what we're projecting at this point. I know, John, if you want to add anything there?

Well, that's right, Bill. I think everything you said there is accurate.

Thank you.

Sure. Alright, and then maybe final question as it relates to Gramalote. With a bit of work that's sort of been done since the last update, is there any kind of additional insight into the I guess the extent of the changes and what the permitting, the modifications that would be required for that would be or is it still a work in progress?

Yeah, I just kind of update you on where we're at. So you remember, there's a bunch of things going on here. Number one, there's the engineering work, where we're basically trying to simplify the process and take out some of the confusion, which has happened over 10 years of design. That work is has been very successful and we've certainly seen some uplift in the IRR related to infrastructure, the resource and drilling is ongoing, they actually have a - they have a very significant program there, which I don't think is even going to be done drilling until I think, the end of November or December. And so then, of course, we have to wait for the resource to see where that ends up. And then of course, there's things like the social issues, which include the resettlement, which is really one of the key drivers trying to face resettlement. So the long answer to your question is, we have seen some improvements. What we've done is we've approached the government about a phased approach, as far as permitting. We would see kind of in Q2, maybe the end of even Q1, we're going to approach them with some modifications to our to our existing operational permit and EIA, we're assuming that those would be kind of minor changes, which will allow us in the second half of the year, if it's positive, to do some work on the ground. And once that is approved, we would then do some major changes, which would include adjusting, looking at the tunnel and turning it into a diversion ditch, which we think would take us into 2023 before that would be approved. So the short story long is, we believe in end of Q1 we'll approach the government with a modify - a request for a modified permit, and then kind of six to eight months later, submit a second half. Our second version of a modification will just take us into 2023.

Great, thank you very much.

Thank you. Your next question will be from Ovais Habib at Scotiabank. Please go ahead.

Thanks operator and B2 team. Couple of my questions have already been answered but just don't want to harp on too much on the Cardinal side, but can you just tell us exactly kind of - essentially how much the revised guidance on Fekola is due to Cardinal. And also, in terms of the guidance provided on Cardinal that the deposits has potentially about 60,000 ounces of gold per year, again, can you just give us a little bit more clarity on the constraints on that 60,000 ounces a year, especially the fact that that the mill is running at 9 million tons per annum?

So if I understand your question, you're asking for what is the ounce profile from Cardinal over the next couple years?

That and Bill just trying to understand is there any sort of constraint on that 60,000 ounces of gold per year that you've laid out in terms of, I guess, soft guidance?

Yeah. So the constraint really revolves around looking at what the Fekola permit or what the Fekola pit grade is, versus what Cardinal is, versus the mining sequence and so all that is being taken into account. Remember, Cardinal is a little bit further haul and so we're obviously taking the higher grade first and then, of course, that you got to include stockpiles. And that what I'll tell you is that in 2022, right now, we're estimating about 650,000 ton coming from the Cardinal deposit and that actually adds up to about 50,000 ounces for 2022. And then as you get deeper into some of the higher grade zones, you'll pick that up in some of the later years.

Got it. And just in terms of, obviously you've been drilling into the inferred ounces as well, have you been doing - also maybe this is a question for Tom, but have you been doing any sort of step out drilling as well? Is there any extent to this on in terms of strike potential?

Yeah, so I'll say first, as far as - basically we've divided it up or the operational group is bringing the inferred to indicate it but the geologists are right next to us because it is open for sure and maybe either Tom or Brian can discuss that. But it is wide open, and we see this thing continue to grow so much so that we've actually included in 2022 budget, some more work on the social side to make sure that the communities are not kind of land restricted as we make this pit bigger.

Tom, you want to comment on the exploration climate?

Yeah, Ovais, just to answer your question, Cardinal is still open, it's open both at depth and on strike. And then we have an adjacent deposit called FMZ, which is on the sort of west, northwest side of Cardinal which almost abuts against us, or exploration is not only extending Cardinal, but it's extending FMZ and it remains open and we'll continue with that exploration again next year. That's within the budget for next year.

Okay, sounds good. Sorry, go ahead.

No, I just said, thanks, Tom.

Sorry about that, okay. So just Clive, just over to you now and just you mentioned at the beginning of the call that you've started or B2 started looking at some M&A opportunities as well. Any color you can provide on whether you're looking at kind of development projects, or this is operating mines, JV opportunities, any additional color you can provide?

Yeah, I think I said we continue to look, as we always have. As I mentioned, we like what we see in our pipeline and some of these great exploration projects that we have and Gramalote and the potential of Anaconda. But I would say that with our shares underperforming the sector and hopefully it's starting to catch up recently and we hope that continues along. Obviously, we wouldn't want to go and dilute our shareholders in a significant way, finding an a creative deal with our discipline around acquisitions, for the last 30 odd years about not paying promises that might be there and not overpaying for projects. It's going to be hard to go out and win a bidding war with other companies that didn't do what we did in the last 10 years and build mines when it was unpopular and don't have as good of pipeline as we have. So I think having settled that though, there's some sort of special opportunity where we can bring our strength of building mines, financing them or approving mines as we did not forget in most bodies some years ago. We're looking at those types of things, keeping an eye on a number of things. But I must say that I think one of the really positive aspects in that regard is the opportunity to do M&A using a combination potentially of cash in our shares to minimize dilution. We have a tremendous amount of cash and we also have access, as Mike said, to 600 million from the banks, including another 200 million, so 800 million is available for us for potentially part of an acquisition. So that changes it a little bit for me in the sense of, I can't imagine finding something accreted today that we would win a bid on. Also, I can't imagine doing something today using just our shares, unless it was a very special situation where something was grossly undervalued. So we're looking and we will continue to look in interesting places. Sometimes we're upstream to tread for opportunities so - but if we do a deal, I'm pretty confident that you guys and our shareholder and our Board of Directors would agree it is accretive, because otherwise we wouldn't be doing it.

That sounds good, Clive and thanks, everyone. That's it for me.

Thanks, Ovais.

Thank you. Next question will be from Anita Soni at CIBC World Market.

Hi. So my first question is with respect to the Bantako permit, so I think you mentioned in the MD&A that the - bringing it into production will be subject to the mine plan and also getting all necessary permits. Could you just elaborate on what remaining permits would be for that?

Yeah, so Bantako is in a separate license area, right. So it's not like - Cardinal was easy, where we just basically had to update the IAEA, and then show them how it fit into the mine plan and then it was approved for production, which that is now fully - we're now fully permitted on that side. Bantako is once you submit a feasibility study, then you have to go through the full situation of getting an EIA approved, then, of course, then there's the shareholders agreement, what percentage the government would want to take on it, we assume it'd be very similar to Fekola. And then you've got the convention, which basically lists out your fiscal stability and everything else. So there's a whole long process, which will be required for sure. And that's why the reality is we actually have already just for Bantako, we have a study ready to go that maybe tomorrow, if you want me to submit it. But the issue really relates to how then are all these legal steps which have to occur, how long does it take that? We put in, that's why you often hear Clive talk about the second half of 2022. We randomly put in six months, because we think that's how long it will take, but maybe it'll go faster than that.

Okay. All right. Yeah, I was wondering about how it would come in 2022 and we're still permits, but since you have a study ready to go, that's good. And then just getting an idea of the tailings, I think you said that, because of the Cardinal and the higher throughput levels that you're going through, currently now great that the mill is performing, but the tailings facility, can you just give an idea of like what kind of a lift would be required and how often you would have these additional lift conserved in the capital are associated around that?

Okay, well, I don't know that I have the capital numbers right at hand but certainly, from a lift perspective, remember, we were always kind of telegraphing that we had this kind of 6 million going to 7.5 million tons per annum. And so based on that, that's what our tailings expansion schedule was. Now, given the fact that we're operating at 9 million tons per annum, I mean, that has a knock on effect on a lot of things across the site but the one you mentioned was tailings facility. So the reality is we started already putting the next lift on it. And it's going to be a double lift, basically getting us up to the final elevation of what that facility could do. That's going to take us I think - I think that's going to take us into 2025, or 2026, it is somewhere around there, so basically, we're going to have to start doing the design work and the engineering on a new structure, which we've already identified a location for, and getting that permitted in 2022. So we can construct in 20 - late 2022, 2023, which puts us into production in 2025.

Okay, and then my final question - sorry, did you want to - we you continuing?

No, I just want to say I didn't have - I don't have the cost for that, obviously, in front of me, but it's - the operating costs or the construction costs typically, I think I remember seeing something is around $10 million, it somewhere in that range for the next lift.

Alright, and for the double lift [indiscernible]. Okay. And then lastly, on Gramalote, so your decision to kind of defer Gramalote seems pretty wise in retrospect, given the inflationary environment that everyone's hitting. As you're obviously seeing costs escalating in your operations, you're doing things to mitigate that but as you think about Gramalote and further progressing that forward, could you give us some parameters around how you think about cost escalation in light of capital build? We've seen a lot of your competitors really facing some headwinds, and they're all bidding for the same one part to get something rolling. So can you give us some, I guess, color on your thought process on whether or not you could defer Gramalote further or would you go full steam ahead on that?

Well, from a corporate point of view, I mean, obviously, we're building in some inflationary factors in terms of this things we're looking at Gramalote now. How long those factors are going to be in places is obviously a great debate and how long the inflation trend will continue. But I would say that, if we have a strong economic case, and we had a 15% IRR before, but decided that project could get better and we've seen signs of that, that that is happening by significant changes, that can that are reducing the capital, potentially, quite significantly. So inflation may chew into that a little bit but we'll be looking at that closely. But I must say that I think that, as a company, historically, if you've got something that's got good economics, we're going to want to go and the Government of Colombia, like all governments these days, if there's an economic project, they're going to want to build, and we are very supportive government there, we're in the right place in Colombia, in Ethiopia, and the local people really want this to happen. So there's also an issue there where if it's economic, we're going to want to move forward. If we're satisfied we build this inflation and the government of Colombia, the local people really want us to move forward with this and HGa [ph] a signal that they're on the same page as us, obviously awaiting the results of the final feasibility study.

And maybe just to add just a couple things that. I mean, clearly, we just updated the costs for our study, which was done in 2021. We'll update those again, as we go into additional detail on the mill and stuff with those costs are obviously being very tightly refined. But then the other thing is remember that the Columbia, the exchange rate, the Colombian peso weakened a little bit, so what we're going to see there is that there is things like that you buy on shore actually be cheaper to us and so that'll be some offsetting for sure.

All right. Thank you. That's it for my question.

Thanks.

Thank you. Your next question will be from Don DeMarco at National Bank Financial.

Thank you, operator, and congratulations on a strong free cash flow quarter guys. Many of my questions have been answered, but maybe I'll ask one on ESG. I think I heard Mike say that the Fekola cash costs have been reduced by about 3% from the solar plant. And I'm hearing across the board that electricity and fuel are drivers in inflation. Is the cost to generate solar power at Fekola subject to less inflationary pressures than the cost of generate genset generate power. And secondly, company-wide, what are some of your next ESG initiatives?

Okay, well, certainly I let - actually the answer is yes, of course. I mean, it's much less subjected to inflationary pressures doing solar. But I'll let John maybe talk, John Rajala is kind of our king of power and I'll let him talk about what solar costs are and you know what that all means for our operations?

Yeah, okay. Thanks, Bill. Yeah, so as far as the cost of generating solar power, it's just a fractional cost and whereas generated power with HFO was much higher. And we are expecting good cost going - we had a very good quarter in Q3 for costs - power generation costs which was $0.152 per kilowatt hour versus the budget of $0.156. That resulted in an overall savings of about $0.60 per ton of ore cost. And then going forward, we're getting into the higher solar irradiance months now and we're expecting even better cost performance from the solar. So does that answer your question?

Yeah. And do you have any plans to maybe expand that solar facility at the Fekola or build other ones at other - at your other minds?

Well, possibly - go ahead. Go ahead, Bill.

No, John. You go first.

I was just going to say, yeah, we've been thinking about that but no immediate plans to expand. It may possibly happen in the future, there as well at other sites, if it is wanted.

Yeah, we actually had a very interesting discussion at our board meeting yesterday where we talked specifically about that. If you look at something like, let's say, Bantako right, or Menankoto, we get back and we want to wheel power out to that site and certainly you could do it there. But because now - remember this - we've got a 7.5 megawatt facility at Otjikoto and now this facility at Fekola. We consider ourselves to be kind of on the cutting edge and on the front - leading front of that, so now we're looking at - Dennis Stansbury is actually looking at things like is programmable, okay, does it make sense? Obviously, that's kind of land restricted but can we do it there? Can we do it in Masbate? There's some technologies out there and I know that both John and Dennis have been studying this that you could put it on the tailings facility or could you put it on the face of the dam. We're looking at all that stuff and we're pretty high on it, for sure. And then the second half of your question related to other ESG initiatives that you'll see and once again, I would argue that we're kind of on the cutting edge or the leading front of ESG and we've always been very successful at. I would say, in 2021, a couple of key things you're going to see is our climate change initiatives that we've got ongoing, we're looking at doing a full inventory of our missions and of course, our water conservation, we've work in some places that have desert environments and so we're really focused on how do we reduce water consumption, and once again, at the leading edge of ESG, and those topics.

And of course, as you remember, we put up just one of the very first solar plants in mining in the Otjikoto some years ago [indiscernible]. So it's a big commitment for us to look at increasing it and also to look at where else is built so that we can use it.

Okay, thanks for that color. And my final question and this is an extension of a question asked by a previous caller and it goes back to Clive. In your preamble, you mentioned you'd consider accretive M&A opportunities. Did you mean accretive in terms of production? I mean, that is would be to consider an operating asset, if justified, or is your focus on M&A still primarily on development projects?

No, I think we know it could be special. It can be special situations where let's say a mine is set a problem through some poor management or other issues that we think we can make it better. Now, a lot of people send us you do deals and promise that and then sometimes it doesn't materialize, although I like the fact that the industry seems to be getting better technically, overall. If you think back to Masbate in 2013, I think it was when we acquired CGA Mining, as a single mine company. They did a pretty good job but we required them, their operating costs were $890 an ounce. And I remember some of the guys brought it forward and I was saying, well, why are we talking about this, if it's 890 an ounce and they said, well, here's out, there's a lot of things we would change. So last year, I think we had a couple of quarters under $500 an ounce for operating costs. So not only are we very good at building mines with our reconstruction team, and we'll continue with that but there is that opportunity. Also, sometimes these days, it's harder and harder for a single asset company to convince investors and banks etc sometimes that they can build it, do they have the team to build it? Do they have the owner's team if they're going to do some kind of a contract build, which I think so it's a bit dangerous, but do they have a strong owner's team? And can they finance it on reasonable terms? So I think there's some of those situations. There is competition, as I mentioned earlier, so we might be in a situation we're in a location where others fear to do, which we've done successfully before or we may find that the right fit, as I said, is something we can make better. Clearly we'd like to find - if we found a good development opportunity that was we could argue to our shareholders successfully that it was accretive opportunity, we are keen to do that as well. As of now we were pretty optimistic that Gramalote could very well be the next construction build for us. Then again we also have the potentials we talked about one day is or possibly another mill and Fekola is too early to say now but there's the possibility for that.

Okay, thanks for that. Good luck in Q4.

[Operator Instructions] And your next question will be from Geordie Mark at Haywood Securities. Please go ahead.

Just a couple of questions, extensions on a few and some new ones. Maybe on Fekola, given the multiple source origins you could have in the near to mid-term Bantako and Cardinal, [indiscernible] and the upgrade, I guess, to 9 million tons per annum in a blended source. Are you comfortable with non-earning ton per annum capacity or is the functional capacity to go beyond 9 or 10 per annum over the midterm [indiscernible] from the drill bit.

I can just hear John screaming, when is it enough. So, the long answer is Geordie, if you remember we did way back in the day when we kind of expanded, when we went from 4 million tons per annum to 5 million tons per annum. And then we looked at optimizing, and we actually had a step function, and we looked at plus 1.5, which was basically increasing the existing circuit. And then the second study that was looked at was a 10 million ton per annum, it was very quickly ignored, because the step function to 7.5, which is now 9, it was so much more cheaper, 50 million bucks. So there is the capacity to grow bigger, it's a big - that's a big step function and would require a lot of additional work. Is there ability to put it there? I think John would say yes, but then you'd have to start weighing this whole concept of, wouldn't it be cheaper potentially to put something up at Menankoto, right? Would you have a whole complex where you'd have maybe two mills running up there, so you wouldn't be trucking all that ore and distance and so, I think if you found enough ore that you would ultimately want to build something separate, but those studies would have to be done.

Okay. So 9 million for now, okay. Maybe over to Masbate, some nice positive recovery percentages there, given the history of positive percentage recovery versus that model, are you looking to revise the model or are you continuing to sort of more conservative stance on that or how should we look at that going forward?

Yeah, so for the 2022 budget, we actually did up the recovery system a little bit based on the ore type and how it fit in or where was coming from. Remember, it's all kind of anecdotally, right, it's all from results that we've already received, as opposed to doing additional drilling or additional testing of the metallurgy. So at this point, we're still - I think we're still - a little conservative, but we're moving towards just based on experience a higher recovery. And I don't know that there's any science behind it. It's just, this is what we see and this is what we are saying.

I'll just, I'll just add to that Bill that we've been doing some ore campaigns through the mill there at Masbate, with the major ore types to get a good estimate on recovery on a plant scale. So - and that's been built into the model as well for 2022.

Okay. Thank you. And in terms of maybe last one, for Otjikoto and Wolfshag underground, what are the steps to ultimately get to first of all, production underground now, it's not too far away from converse production, so what are you looking at there?

What's the question?

[indiscernible], yeah.

Yeah, I mean, Randy is literally at Otjikoto now, so maybe I'll let him answer but I will tell you is that we just continue the development of the [indiscernible] in the plan is to start producing ore in Q1, or at least getting some ore out of there in Q1. Randy, you want to talk about what are the final steps we have left to do?

Yeah, that's pretty - the development contractor is working on the main decline right now. As we speak, we've made a couple little tweaks there to the development plan and when we get into ore, we'll be starting to take out some development ore in the first quarter and then we've selected a production contractor that's going to be gearing up and coming in towards middle to end of Q1 and getting started there.

All right. [indiscernible] development ore and then coming into the great proportion of [indiscernible].

Yep, correct.

Thank you.

Any further questions, Geordie.

That's it. Thank you.

Thank you. [Operator Instructions] At this time, I would like to turn the call back over to Mr. Johnson.

Okay. Thanks, operator. Thanks, everyone. Good questions. And if there any other questions that come up, don't forget to reach out to us. And we look forward to reporting - planning and reporting another great quarter at the end of year. So thank you for your time.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.