B2Gold Corp. (BTG) Q1 2022 Earnings Call Transcript

B2Gold Corp.  (NYSE: BTG) Q1 2022 earnings call dated May. 04, 2022

Corporate 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 and Chief Operating Officer

Analysts:

Habib Ovais — Scotiabank — Analyst

Geordie Mark — Haywood Securities — Analyst

Anita Soni — CIBC — Analyst

Presentation:

Operator

Good afternoon. My name is Dennis, and I will be your conference operator today. At this time, I would like to welcome everyone to the B2Gold First Quarter 2022 Financial Results Conference Call. [Operator Instructions]

Mr. Johnson, you may begin your conference.

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

Thanks, operator. Welcome, everyone, to the conference call today. Obviously, operator said we’re here to talk about the first quarter results for 2022. The news which we put out is quite inclusive, we better — we’ll give you a little summary of some of the highlights about it, update you on a few things, and then we’ll open it up quite quickly for your questions.

We’re pleased with the quarter. We had a significant leap versus our budget on operating cost, all-in sustaining cost and earnings, cash flow and earnings. So a very good quarter. And we can talk a little bit more about what that means in the context of going forward, but we’re very pleased with that. And once again, I think some — many of you realize the challenges that the industry is facing in terms of sort of all the inflationary pressures, etc. So we’ll continue to remain committed to doing our thing and then focusing on where we can — avoiding the full impact of higher costs where we can, and we can talk about that a little bit more.

In terms of the focus, obviously, continue to be a profitable, responsible gold miners as we go forward. We’re externally in a strong financial position, as you know, with a tremendous cash balance, virtually no debt and being the highest dividend. See, Barrick’s just came out today with — even with their bonus dividend, they’re still behind us. I think we’re at 3.8% yield today, which is the highest of the gold producers. But we’re also very committed to continue to grow the company. So we want to find a balance between dividend and rewarding our shareholders for our great performance and their support, but also being able to continue to grow the company.

We have great access to cash through $600 million in revolving credit facility from our banks that has the ability to go to $800 million completely well at this time. Just quickly, looking forward some of our priorities, and then I’ll pass it on to Mike. The priorities in terms of growth are we’re closing in on the feasibility study atGramalote, and we’ve talked about that quite detailed in the news release. And Anaconda is becoming a real focus for us, as you’ve seen, we’re now able to talk about the new resource.

In Anaconda not only in the from get some reviews since promote in the sulfide, just 20-kilometer away for the Fekola mill. So we’re going to start talking more when we update you on that. And then we have for potential for what we think depending on exploration results, as they continue to be what we’ve seen, and it gets larger the potential to build a second mill up in Anaconda. So it could become Fekolacomplex, which we could have significant gold production from two mills and not just — Bill will touch on that and give you a little more color on that.

Exploration has always been a big part of our world and a part of our success since we started this company 15 years ago, and we have some very exciting opportunities, not only around the existing mines, but we’ve had great success in turning inferred into indicated, finding new reserves but also new targets in addition to existing terms, extending about them on our properties. We’ve got a great success, track record and success of exploration at existing properties.

It was all — we’re still very global in our view on our beliefs that the cheapest ounces will always be the ones you find. So we have some exciting exploration projects in our budget, and [Technical Issues] this year, about 60% of that would be on brownfields exploration and the rest is to look at some grassroots targets.

So exciting results came out today from Orion, our partner in Finland,we’re the operator, we’ve been doing the drilling, and I think the guys who — will ask some questions on that. It sounds like the leadership group is pretty excited about early days, but excited about the potential, given the discovery that they’ve made and given our — not only our proximity being right on the boundary but the kind of results we’re starting to see, so much more else to come there. And we’re drilling in interesting places like Uzbekistan and others, always looking for new discoveries. The M&A front, we will continue to look. We’ve looked at a couple of things quite seriously in the recent time but haven’t been able to reach an agreement. So we continue to look.

I think time is on our side in the sense of looking at getting the Gramalote’s study out of the scene at [Indecipherable], also getting at [Technical Issues] focus over the next number of months. So — and maybe seeing our stock, which has been underperforming, seeing the share price starts to come up as we continue to improve the value of the projects we have, our ability to operate them and also to unlock the value of our growth projects and potential exploration.

Okay. Operator, we get into — to help everybody get online. Yes. That was Siri just — Okay, so I’ll pass it over to Mike now, and Mike can give you a run through the financial results.

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

Thanks, Clive, and good morning, everyone. So just running briefly through the operating results and some of the sort of key financial results that we’ve reported for the quarter.

Firstly, on the revenue side, revenue of $366 million, and that reflects the sale of 195,000 ounces at an average realized price of $1,874 per ounce. So high gold price during the quarter, and sales were about 7,000 ounces higher than budget, which really mirrors the higher production that we saw in the quarter than budget.

Speaking of production, the total consolidated production, including our share of Calibre’s results, was 209,000 ounces, and we saw a higher-than-budgeted production at each of our three mines. Fekola is 102,000 ounces, so just 1,000 slightly above budget on slightly above budget. That was mainly due to higher than budgeted processed grade and offset by lower-than-budgeted process tonnes. And the process tonnes were lower as a result of a reduction in the saprolite processed. And that causes us a precautionary against some of the potential supply chain problems that we saw rising in Mali from sanctions earlier in the quarter. We prioritized the processing a higher fresh ore — higher-grade fresh ore in the period to reduce reagent consumption. And that was a temporary measure. I would say the sanctions continue there, but our supply chain was normalized, and we’ve built up regular levels of reagent and fuel at site now. So as a result of that, saprolite was reintroduced back into the circuit at the end of February and processing is ongoing as budgeted.

Remind you as well, Fekola’s gold production is expected to be significantly weighted to the second half of the year as we had guided when we put out our budgeted numbers. And that’s because the second half is really when we reach the higher-grade portion of Phase six in the Fekola pit, and we have the new Cardinal production stream fully online. That started Cardinal in — drilling from Cardinal started later last year, but we got it fully online through the course of this year.

At Masbate, 60,000 ounces in the period, that was 6,000 ounces ahead of budget, so quite a beat there, mainly due to higher process grade. In the period with — grade which was above budget because we mined additional unbudgeted higher-grade areas within the plant mine areas. And in addition, as part — as a function of shorter haulage periods and haulage optimizations related to the expansion of the tailings facility, we did — we were able to see increased mining rates, which contributed to the mining of higher than budgeted, higher-grade ore in the period, but that’s a temporary issue, I think, as we were working on the tailings of the TSF. But that’s all for the 6,000 ounce beat in the period.

Otjikoto, 35,000 ounces, 2,000 ounces over budget. That’s really — it’s kind of the same story for Otjikoto. It’s usually slightly ahead of all factors, grade recoveries and mined ore. And again, Otjikoto is scheduled to be weighted to the second half of the year like Fekola, and that’s because that’s when we get to the higher-grade portion of Phase three of the Otjikoto pit and also in the second half of the year is when the Wolfshag underground mine really ramps up.

Just talking a bit about costs related to that production. So this — I’m talking here at cash costs, these are all on a produced basis. So consolidated cash costs for the Q were $699. So that was almost $100, $94 less than budget. And that’s primarily a function of lower than stripping in some areas, lower than budgeted fuel at Fekola. And then higher than — that was partially offset by higher than budgeted fuel costs at Masbate and Otjikoto. So I’ll touch on each of those now individually.

So Fekola, $624 per ounce produced, that’s $157 lower than budget. And that’s primarily a function of slightly higher-than-budgeted production, as I mentioned before, and then lower-than-budgeted mining processing and site general costs. And those costs were lower than budget, largely due to lower-than-budgeted fuel prices realized in the period. And just to remind everyone, I think as we’ve talked about it in previous calls, in Mali, the fuel prices are set in advance by the state. And therefore, you’re always going to have some timing delay between costs that you might see in the broader fuel market and at the pump and then what we’re realizing at site.

We also had lower-than-budgeted volumes of fuel and consumables that we utilized in the period because we mined and processed lower overall tonnes than budgeted. And mine tonnes were lower than budgeted due to, again, a temporary change in mine sequencing to accommodate that temporary change of saprolite processing.

Reminder to everyone as well on the power side. The solar plant of Fekola, which we got up and running last year, is running very nicely. And actually over 20% of the power that we generated in the first quarter of 2022 was solar. So that’s been a great investment, I think, for current operations and as we look forward.

Masbate cash cost per ounce reduced $710 per ounce. That was $50 per ounce lower than budget. And that was really, again, a result of higher-than-budgeted production, partially offset by higher-than-budgeted mining and processing costs, which, again, were driven by a little bit higher-than-budgeted diesel and HFO costs at Masbate for the period.

And then Otjikoto, cash cost per ounce reduced $770, that was $35 less than budget, slightly lower than budget, and again, a result of higher-than-budgeted production and budgeted — our operating costs were pretty much in line with budget. And those operating costs, they saw some increase in fuel prices, but that was offset by a weaker Namibian dollar.

You might recall last year, we actually — we saw maybe dollar strengthen. So it actually — it increased our cost slightly this period so far. We’ve seen the dollar weaken. We budgeted at 14.5 and then maybe a dollar to U.S. dollar for the period, and we saw it come in somewhere over 15. So it’s probably a benefit in the period of a couple of million bucks in foreign exchange gains.

Touch briefly in all-ins. It’s really same store of cash costs. So consolidated all-in sustaining costs, including our share of Calibrewas $1,036 per ounce sold, and that was $318 overall, lower than budget. And so it’s a function of those almost $100 less on the cash operating cost side. And then also, higher-than-budgeted gold ounces sold as I mentioned earlier and lower sustaining capex. During the period, we were at $33 million lower than budget on the capex side. And that — part of that came from the temporary change in sequencing at Fekola, so we had lower stripping in the period. We also had some lower stripping costs at what Otjikoto in the period. And then just the timing of some fleet purchases and rebuilds.

If you put all those together, we were $33 million lower than budget for the period. But we think these are timing issues, and we expect to see those reverse later in the year.

Just a couple of comments on guidance. So firstly, just to remind everyone I had mentioned earlier on this call. We are weighted pretty substantially 40% in the first half, 60% second half for production. We’re maintaining our production guidance. We were 8,000 ounces ahead for the quarter. We’re saying we’re still on our overall guidance for the year. So our consolidated guidance is 990,000 to 150,000 ounces for the year.

We haven’t changed our reguide on the cost side. We reiterate our annual cost guidance. And we have seen, as I run through here, a very good first quarter where we beat budget on the cost and all-in sustaining cost side. And I think we can expect that that could benefit the first half of the year as well. However, on the other side, we are seeing some cost inflation, particularly some fuel increases I’ve mentioned already. And there’s also the capex timing issues that I mentioned as well, so that we’re going to see those reversed. So I think we’re seeing some cost volatility in the market. We’re going to continue to watch it, and we’ll look at it again for the — in the second quarter. So — in the meantime, we’ve just maintained our annual cost guidance and also our annual production guidance.

A couple of general comments maybe just on the operations as we just run through them. So we’re still a big focus in Mali. In early February, we put out an updated mineral resource estimate for the Cardinal zone. So — and now we had indicated resources of 430,000 ounces, and then we did an updated inferred resource of 740,000 ounces. Also, subsequent to the end of March, we completed the acquisition of the Bakolobi permit, and that allowed us to consolidate that whole land package from Fekola all the way up to Bantako, for an area of 20 square kilometers.

And Anaconda remains a big focus. We got 17 million as Clive mentioned on the exploration side, 17 million budgeted on exploration for Anaconda for this year. We got a lot of — five drill rigs on and active there. And then we — in late March, we put out an updated resource for Anaconda. Reminder to the Anaconda includes MenankotoPermit and the BantakoNorth Permit. And that resource had initial indicated mineral resources of 1.1 million ounces and inferred resources of 2.3 million ounces. So a lot of upside in Mali.

We budgeted $33 million to start developing the Anaconda area and has a potential, I think, with a view of Phase one saprolite mining that could start as early as late this year, could add 80,000 to 100,000 ounces per year to our production profile, which isn’t in our budget right now. Cardinal was in our budget, but Anaconda is not. I think, Bill, maybe want to talk a bit more about this after my comments. And there’s also a Phase two scoping study that we’re starting to look at — we actually are going to look at what beyond just saprolite trucking to thiscoal mill and what we might do in terms of stand-aloneat Anaconda.

Then at Otjikoto, we continue to develop theWolfshag underground mine. First development ore production is expected by the end of the first half 2022. And then as I said, we kind of move into full tilt production there at Wolfshag in the second half of the year.

Couple of comments on the income statement on the other operating results. Just gains on derivative instruments. We reported $19 million in gains for the period, that $13 million — that all relates to fuel. $13 million was unrealized and $6 million was realized. But just so that you got it in your mind, our fuel book — our hedge book at the end of the quarter was $29 million in the money. So about 2/3 of that will be benefit 2022. And we flow those benefits through the all-in sustaining cost number as realized. And then about 1/3 will come into 2023.

And our comments as well that historically, we’ve said for fuel, we hedge up to 50% of one year’s needs and 25% of the next year’s. We’re not quite at those levels at the minute, we’re about 35% of 2022’sneeds and about 17% of 2023, and that’s because we are realizing a ban for those hedges, but with some of the fuel pricing that we’ve seen, it’s higher, not as keen to jump into the market with new hedges on. So we’re — but we’re constantly watching it, and we’ll jump in if we see like a different prices or something that looks like a good opportunity.

On a net income basis, $90 million net income for the period, that was EPS of $0.08 per share for attributable to shareholder’s company. And then on an adjusted net income basis, $65 million or $0.06 per share.

Just talk a little bit about the cash flow. Again, solid cash flow generating period. I’ll remind us all, because we’re saying we’re weighted so much in the second half of the year, we definitely see the majority of our cash flow, — the greater part of our cash flows come in the second half of 2022. But even with that said, cash from operating activities in the first quarter was $107 million or $0.10 per share and I know a bunch of analysts look at it on operating cash before changes in working capital. So if you look at that number, it’s $152 million for the period or $0.14 per share.

We’ve maintained our guidance on operating cash flow for the year. This is net operating cash flow, $625 million. And we have seen some higher prices that we realized in Q1, as I talked about in terms of selling price for gold. But we’re also seeing some slowdown in recoveries at several sites should expect as governments fight their way through the post-COVID period. So I think overall, we’ve maintained our operating cash flow guidance of $625 million for the year.

On the financing side, $42 million went out in dividends as we’ve maintained our dividend at USD0.04 per share. And as Clive said, that’s providing one of the highest yields up there in the gold sector.

Cash taxes for those that are interested in such things, we haven’t changed it. Clive will probably talk in detail about those — talk about cash taxes, but it’s going to be — we’ve maintained the $290 million same as we guided at the start of the year.

Then on the investing side, $77 million or $78 million cash outflow from investing, that’s quite a bit lower. That’s about almost $70 million under budget for the period. We had sustaining capex of $40 million, which was $33 million lower than budget for the reasons I mentioned earlier.

Then on the nonsustaining side, we’re about $35 million lower than budget. That related to the timing of fleet rebuild purchases underground development at Wolfshag, just the timing of some of the payments related to that and then some of the timing of exploration activities. But we do expect those to be timing issues, and we do expect to see them reverse later in the year.

And Gramalote, we continue work towards getting the feasibility study done, with — we should know the results of that by the end of the second or the first half of the year with the feasibility study to come in Q3.

And that left us, as Clive said, very healthy cash position, $648 million at the end of the quarter with $600 million undrawn on the revolver.

And I think that concludes the comments I was going to make on the financial segment.

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

Over to Bill, who will talk about a few more operational updates actually predict particularly on the Anaconda.

William Lytle — Senior Vice President and Chief Operating Officer

Yes. I definitely wanted to spend just a little bit of time talking about regional Mali development and what it all means. I think there’s a lot of questions and maybe misunderstanding on what we’ve got going on there. So I’m going to kind of work my way through it, hopefully, in a logical fashion, remembering that we have increased the mill to produce 9 million tonnes per annum, which really is kind of the basis of all the beginning stuff. So at 9 million tonnes per annum, we’ve always talked about our ability to process an additional 15% saprolite material. Currently, what is included in the Fekola life of mine plan is only the Fekola open pit and the Cardinal deposit, the early Cardinal deposit reserve.

We have, since then, as you know, freed up the Menankoto license, the Bentako license and consolidated by getting the Bakolobi license. So basically, we have the entire belt from Fekola all the way north to Bentako North. What that allows us to do is to have some optionality in where we’re going with this. We have previously announced and we’re discussing with the government right now, the potential to truck from Anaconda, which consists of Menocoto and Bentako or maybe potentially separating those and doing individually.

Both of those studies are complete. Both of those studies have environmental and social impact assessments ready to go. It’s just a question now of which way we want to go. So we’ve also talked about the need to optimize the entire belt. So we additionally have a study going with little consultants where we’re going to take a look at what is the best way to process or what is the most economic way to process ore from all of the various sources. That study has been kicked off. That study will be done by the end of this year. So that also will play into our sequencing going forward.

So what we’re really talking about is currently is the potential to have a Phase one where we truck. I will tell you that, as Mike indicated, we have a budget, $33 million to get that going. We have started ordering equipment that’s come through the profile right now. We’re in the process of ordering equipment. I will tell you that we’re in the process of designing the road from that area. We certainly believe that can be done by the end of this year. It’s just a question of which is the best way to optimize it.

And then on top of that, everyone is aware, I think, that we’re looking at the potential to create a stand-alone complex up to the north to be kind of a regional mill. So in that particular case, we would be looking at, can we consolidate some of our ore based on our existing resources and exploration success to create a second mill, maybe have something like a Fekola complex in that area. So that also is being looked at.

And I guess maybe the last thing that I think people forget about is that we do have the very real potential for underground at Fekola. We have started studies — preliminary studies looking at what happens down plunge or the Fekola deposit to the north. Well, it’s still open to the north, — there is a resource there that we’re starting to put a mine plan on. And there’s no doubt that the economics at least preliminarylook very good. So that study is also ongoing in 2022.

So in short order, what do we have going on? We’ve got the Phase one study, which will be delivered to the government shortly. A Phase two study kind of at the scoping level to determine how big does the mill have to be. We’re optimizing the entire district. That’s not due out by the end of the year. And at a scoping level, we’re looking at underground. So those are all the things that are happening within the regional Mali development.

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

Bill, maybe I think it’s worth updating people a little bit, a lot have topped at this stage. We’ve discussed some of the inflationary pressures that the industry is seeing. But maybe can you just talk a little bit and give us an update for the — show us and the analysts around the logistics on how we’ve been able to see our way through this? Obviously a challenging time for the industry and how we see that going forward between sanctions in Mali and between other things between the supply issues. Just maybe walk us a little bit about that.

William Lytle — Senior Vice President and Chief Operating Officer

Yes. So it’s actually a pretty interesting history if you think about it. So let’s actually step back because these are questions we were having in ’21. We had the COVID-19 pandemic. And at that point, that really allowed us or really required us to take a look at all of our supply chain and figure out what was the best way forward. And so during that time, we looked at Plan A, Plan B, Plan C, Plan D and really optimized our supply chains. Then if you remember, there was a coup in Mali. That really didn’t even impact us because we’d already kind of optimized.

Then there came the sanctions in Mali, which kind of Ecowas shut off some of our supply routes. But because we’ve had a good look at, could we bring stuff in through Guinea or through Mauritania, while it certainly made us pay attention to where things are coming from, it didn’t really impact us. And then that might briefly hit upon it when the sanctions came in, it was one of the things we had to have a good hard look at.

And so we did assume the worst case that potentially we couldn’t get something in a timely fashion.And so we did change our mining sequence in Q1 and the material we were milling — but we’ve quickly realized that our success was that we were going to be able to bring everything in, so we went back to normal operations.

And then the last one, which people talk about sometimes is, how is the war in Ukraine? Was Russia really impacting us. We used to get our explosives out of Russia. We’re now getting those out of South Africa. So we’re seeing that we’ve been able to adjust right down the line to all the various components that make up the supply chain. Well, I won’t say that it is flawless and seamless on the outside, it all looks great, but it is something that every day that we have to pay attention to.

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

Okay. Thanks, Bill. Before we go for questions, there may be a question on this, but I just wanted to cover a couple of things off the Mali situation. We continue to have acceleration with the government and locally and federally — every government we’ve seen in Mali for decades and current government that we expect going forward understands the critical importance of gold mining in Mali and foreign investment to accomplish that working with Malian partners, whether it be private or government.

Obviously, we’re excited about the potential of Anaconda in the very short term, trucking ore down to saprolite ore to increase production thourghthe mill that ultimately is the potential for just more exploration, give us the results needed to look at building the second mill, build cost of the Fekola complex. Has the potential to produce wafer a bit, approaching year from there, subject to further drilling and subject to building. It does a pretty exciting opportunity. We’re clearly happy in mining in Mali. And I think there’s a lot of misunderstanding about what that means.

There’s reasons why ramp gold back in the day are now back, and many other companies have had great relationships in Mali, financing and gold mines to be responsible. We do some great community stuff, which is all detailed on our website. But it’s a good place to be. Mali is a good country to be in gold mining and that has not changed, and we do not anticipate that changing.

So as the government reaches agreement about new elections within hopefully in the next couple of years, get back to democratically elected government, we believe that Mali is going to be a good adders to be. Still is the capability, as we’ve demonstrated to show significant additional major gold deposits, world-class deposits. So we think we may go to another one here with Anaconda.

Just remind people when we acquired Fekolafirstly fromPapillon, we did an excellent job of taking it through the first stage and into a feasibility study. We had 4 million ounces in total resources. So clearly, we more than doubled that. And we think we’re really scratching the surface up literally almost with Anaconda. So Mali is a good place to be. And we’ll continue to champion Mali as other companies will try to help people understand why we’re there and then why it’s a great opportunity going forward in addition to continuing our geographical diversification with some of the things that we are doing now.

So Columbia. I just wantto touch on it, in case there may be a question on this. But I’ll give a little summary where we are, as we said and as you know, we’re completing a feasibility study and will be available in the third quarter. We’re working closely with our partner, AngloGold Ashanti, we’re the operator, a 50-50 joint venture. And I think we are, and I’m sure, ANG is actually waiting for the results of the study. We’ve done some significant work to see if we could drop the capital cost by doing some legitimate reengineering redesign. That seems to have had some success.

The question is, what will inflation do to cost us some of the gains we might have made by lowering the capital cost. We’ll have a better view of that over the next two months internally. And then both parties will look at it and decide if they want to participate and make a development decision to build Gramalote mine, which could produce 400,000 ounces of gold a year and has the economics to support the capital cost expenditure.

So we’re in the same position of waiting to see the results of the study as our partner, and then there’s different possibilities whether ANG decided they didn’t want to participate. Would we buy them out? Or would we bring another partner in if we wanted to go ahead? So — that will all come I think — and become clear in the — as we get into the third quarter, and we’ll…

There has been some negative press come out, I guess, around another project in Colombia at in the AGS. Okay. $1 and they have been pursuing a permit there and then had a few setbacks in terms of the government telling them to go back and do some more work, I guess, in terms of satisfying what the government pursued as they issue some of their requirements. I know 3G, but I’ll just say that we think that the Gramalote situation is very different in terms of the location, the sensitivity location. We are in the right part of the Antioquia that with the strong binding history, tremendous local support.

We get asked all the time when we’re down there by everyone when are you going to start building this mine? So we believe that support will continue. There’s an important election coming up here very shortly in Colombia, but we believe whichever government goes for Colombia, we believe they’re going to — they understand the importance of moving away from oil and gas and coal. And we thinkGramalote could be something that’s beneficial to Colombia. So we’ll see how that goes.

But at the end right now, our relationships are excellent. AGA just did some good work in social programs there, and we’ve done a lot of good work as well on looking at relocation plans and things like that. Tremendous support of the government also within the local population, which is critical for projects like this. It would be the first significant all-electric gold mine in the Colombia.

So I just want to get those points across, and now for questions.

Questions and Answers:

Operator

Thank you [Operator Instructions] Your first question comes from Habib Ovais with Scotiabank. Please go ahead.

Habib Ovais — Scotiabank — Analyst

Thanks, operator. Hi, Clive. Congrats on a good quarter, especially on the cash cost and all-in sustaining costs. So just starting off on that, regarding the guidance for first half, Q1, obviously, all-in sustaining costs came in at $1,036, guidance for the first half is around $1,250 to $1,290. Mike, you touched a bit on catching up on costs over the year. But are you being conservative on this guidance or — for H1? Or are you expecting cost to be significantly higher in Q2? Or these costs are going to be spread out throughout the year?

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

Well, overall, like I said, I think we can expect that we’ll see the benefit. It was a very strong Q1. So we will see some of that roll into the first half for sure. I think we can expect that. But is it conservative to not reguide the half? Probably. But like I said in my comments, the prices are quite volatile, and we are seeing quite a bit, especially in the all-in sustaining cost side, we’re seeing some timing differences.

We were quite a long ways under in Q1. So you’ve got to remember that when you look at that all-in cost for Q1. We expect to see that reverse. I don’t know the exact timing of that yet through the year. So we just felt because of some of the volatility you see in operating costs and particularly in fuel.

And then the timing of that capex that it was better just to maintain our guidance for the halves as we have them. and for the year overall. But yes, to answer your question, half one is probably still conservative by maintaining that guidance.

Habib Ovais — Scotiabank — Analyst

Sounds good. Just quickly switching gears to Anaconda. Bill, your team is looking to complete a PEA on Anaconda as a stand-alone. Several discussions have been in terms of Anaconda kind of becomes kind of within the Fekola complex. Now within that, are you able to share infrastructure withFekola in any way and possibly reduce capex to develop an Anaconda?

William Lytle — Senior Vice President and Chief Operating Officer

Yes, for sure. I mean that’s probably one of the things that I should have talked about. When you talk about capital cost for constructing an entire mill and infrastructure, you’ve really got to cut a lot of that out. I mean if you look at things like right now, we’re looking at how do we align our regional tailings facility because that’s a big capital cost. The caps are things you could expand. The workshops could be shared. All of that, the warehouses, so really everything outside of the mill, even the power, right?

Remember that, we’ve got that additional 30 — was it — 36 megawatts of solar power there. So we’ve got extra capacity, and we’re looking at it right now, which is one of the things we didn’t really — I didn’t emphasize, but we just picked up that Bakolobi property, which fits between the two, but that — not only is that a good exploration target, that’s an amazing opportunity for us to consolidate our infrastructure as I said, things like tailings facility, roads, solar plant, the — we needed that room to the east. So there’s a lot of good things really associated with that backlog and license.

Habib Ovais — Scotiabank — Analyst

And my last question is for Clive. I mean in regards to development of Gramalote or potential development of Gramalote, is that completely exclusive of building Anaconda? I mean if you go forward with Gramalote, does that impact Anaconda? And if you go forward with Anaconda, does that impact Gramalote?

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

Yes. Good question, Ovais. Bill can help me here. But we don’t think so. We’ve always said we’re not going to try and build with our tremendous construction team. We’re not going to try and build two significant mines or mills at the same time. But if you look at the potential sequencing we’re targeting at Gramalote to go, a lot of the infrastructure will start as soon as we can get. We have a permit — but get the permit, we reissued with some of the changes that we’ve made or updated, I suppose.

But if you look at the timing of all that, and we’ve looked at it quite closely, of course, we definitely wouldn’t see an issue where the earthworks crews that would be doing the initial work at something like Gramalote– and we would then potentially be able to move on. But this is also subject to, of course, the additional results that would justify potentially in Anaconda and the saprolite building another mill. We don’t know how far off we are to look at that, we may not get that far off in terms of the resource already and the kind of results we’re seeing.

But first of all, the priority there is to start trucking the saprolite down, but if things go to what we hope, while we’re trucking the saprolite down for a number of years, a couple of years, whatever it’s going to take to get to full productivity to build a rollout of Anaconda as appropriate. We would be producing 8,200,000 ounces a year from the saprolite but while we build the mill and then you just segue into the saprolite and everything else goes through the new Gramalote.

But if you look at the timing of that, atGramalote, we see Gramalotebeing not first ahead of the saprolite. That’s just the road building exercise, which we do — not going to say it’s no brainer for us, but pretty much is when you look at what we’ve done, not only in Mali, but around the world in terms of road construction, etc. So the first step is really pretty straightforward building a road,and we expect to get the permit by the end of the year. And as Bill said, there’s multiple sources for ore to feed the Fekola mill with saprolite material.

So the rest of that has truly unfold with a lot of drilling this year, I’m hoping by the end of this year, we’ll have a better idea of whether we think that another mill is likely to be the way forward, and then we’ll start working on that permitting now. So while we’re doing that, we could very well be building a mill at Columbia, if appropriate, at Gramalote. So we don’t see a big a sequencing issue or problem because when you’re talking about Phase two at Anaconda being a new mill, that would probably slot it after Gramalote of what we see today.

Habib Ovais — Scotiabank — Analyst

Perfect, that’s it for me. Guys, thanks for taking my questions.

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

Thanks Ovais the questions thank you.

Operator

Your next question comes from Geordie Mark with Haywood Securities. Please go ahead.

Geordie Mark — Haywood Securities — Analyst

Yeah, morning, all. And I’ll follow on from a nice and similar question there. Maybe with solar, if I can, because I think it’s a very interesting topic. 20% of your power is supplied from solar in Q1. Does it warrant expansion of that plant, given the obvious trade-offs or quick paybacks on the oil prices and the potential expansion of Anaconda going forward? Or would you keep it at 36 megawatts?

William Lytle — Senior Vice President and Chief Operating Officer

No. Well, maybe you could — we’re doing the studies right now, Geordie, for sure. We see absolutely the possibility to expand that as solar plant. Remember, not only are we bumping up against what do we do engineering-wise as far as production. But you also have these ESG components, which everyone is focusing on more and more. And the reality is that that is one that you can really get some bang for your buck because we know it makes sense. We know that there’s financial payback on it, and it’s a good story, right? It’s actually the right thing to do there.

Geordie Mark — Haywood Securities — Analyst

Okay. I mean — and maybe an extension on that one. How about — maybe it’s obviously facility at Otjikoto that — and you were, I believe, if I remember correctly, looking at potentially something at Masbate, but I’m not sure whether that’s still on the cards?

William Lytle — Senior Vice President and Chief Operating Officer

Yes. So let’s handle the Otjikoto one first. The Otjikoto one, what we’ve actually identified there because Southern Africa has been so aggressive in putting on renewable energy, Namibia has really returned from a net consumer of power to a net generator of power. So what we’re seeing now is that the power lines are delivering power at much, much cheaper cost than we had envisioned even when we designed the plant. So we have the ability now, and we’re in the process of connecting to the overhead power line, which will once again reduce our costs. And once again, we get the ESG credit because that power is generating from the hydro plant, kind of hydro plant up north and solar power. So we’re going to get some benefit from that.

We don’t know exactly how much. But what we see is on off-times — off-peak times will generate off the power grid and save money that way during the daylight hours, of course, we run off solar power and very little actually on each [Indecipherable] going forward after kind of starting in Q3.

And then the Philippines, of course, we’re looking at it. That’s one of those — if you’ve been there, you know that land is at a premium in the Philippines. So the question there is now where do you put it? Dennis is working with John Rajala really to identify areas even things like — do you — is there a potential floating them in the tailings facility, the old waste dump area. All those areas are being looked at, but certainly, we’re having a hard, hard look at that.

Geordie Mark — Haywood Securities — Analyst

Okay. Great. And maybe one more question there before turning things to others. Maybe on Anaconda, again, in terms of if you can remind us what potential scale you would be looking at we’re considering in the PEA through futures satellite facility or sell status facilities? And then I’ll leave it there.

William Lytle — Senior Vice President and Chief Operating Officer

Yes. I would say too preliminary to say right now, given the fact — I mean, we do know that we want to truck between 1 million and 1.5 million in Phase. What Phase two looks like, don’t know. What I will tell you is that we started out at 4 million tonnes per annum in Fekola. We’re now at 9%. And I remember the last time you asked me, can we go even more than that. So I would imagine it’s probably something at or less to start with, with the ability to expand.

Geordie Mark — Haywood Securities — Analyst

Okay, great. Thank you.

Operator

Thank you. Your next question comes from Anita Soni with CIBC. Please go ahead.

Anita Soni — CIBC — Analyst

Good afternoon. Thanks for taking my question. Similar question on Fekola, I guess, Geordie asked kind of what I was getting to in terms of the overall size of a stand-alone facility. I know you’re saying it’s too early, but I was hoping that I could get maybe just one more detail of where would you — when would you think that would start up if you’re looking at something around the 4 million tons per annum mark.

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

Yes. Can I give you a bunch — so I’m madly waving my hands and putting air quotes in the air right now, right, because we don’t have any of that data. I mean let’s just think about this. So if we could do a — let’s say, we could do a preliminary study this year, the optimization and kind of a trade-on study and say that it looks like it’s a go. And I know that there’ll probably be a resource out of next year that we could then probably put a study on. So let’s say it takes us six months to do the study, at the same time, we’re ordering equipment. The equipment comes in, 2.5 years to build it. My math shows that it’s kind of 2026.

Anita Soni — CIBC — Analyst

Okay. And then second question would be in terms of overall, I guess we’re always trying to figure this out or at least I am. But Fekola proper, without the Cardinal deposit and without the Anaconda deposit, what’s kind of a baseline scenario of what we should expect on that asset for the next five years?

William Lytle — Senior Vice President and Chief Operating Officer

I think that information was put out in the PA, if you’re talking about just Fekola proper — sorry, the updated feasibility study, which happened in 2020, then you have to overlay Anaconda on top of that and, of course, Cardinal and the underground and the increase in mill throughput.

Anita Soni — CIBC — Analyst

Okay. So if I go back to the 2020 PEA, that’s a good starting base.

William Lytle — Senior Vice President and Chief Operating Officer

Yes. It’s not the PA, it’s actually a feasibility study, but yes.

Anita Soni — CIBC — Analyst

Okay, all right, thank you.

Operator

Thank you. There are no further questions at this time. Mr. Johnson, back over to you.

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

Okay. Thanks, everyone, for your time. And if there’s other questions that occur to you, feel free to reach out to Randall Chatwin, and he will put you on to the member of the executive team that will be the appropriate one to find the answers to your additional questions. So thank you for your time, and have a good day. Thanks, operator.

Operator

[Operator Closing Remarks]