Categories Earnings Call Transcripts, Energy

B2Gold Corp (BTG) Q4 2020 Earnings Call Transcript

BTG Earnings Call - Final Transcript

B2Gold Corp (TSX:BTG) Q4 2020 earnings call dated Feb. 24, 2021.

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, Operations

John Rajala — Vice President, Metallurgy

Tom Garagan — Senior Vice President, Exploration

Analysts:

Tyler Langton — J.P. Morgan — Analyst

Ovais Habib — Scotiabank — Analyst

Josh Wolfson — RBC Capital Markets — Analyst

Don DeMarco — National Bank Financial — Analyst

Carey MacRury — Canaccord Genuity — Analyst

Anita Soni — CIBC World Markets — Analyst

Presentation:

Operator

Good afternoon, my name is Jason and I will be your conference operator today. At this time, I would like to welcome everyone to the B2Gold Fourth Quarter and Full Year 2020 Financial Results Conference Call. [Operator Instructions]. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions]. I would now like to turn the call over to Clive Johnson, President and Chief Executive Officer and Director. Thank you, Mr. Johnson, you may begin your conference.

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

Thanks, Jason. Thanks for joining us everyone. Welcome to our conference call to discuss our Q4 and year end financial results for 2020. We had a nano session after we put out our production numbers this year, which I think was very useful for everyone and this is essential where we’re welcoming shareholders as well and other interested parties. So I’d just ask the analysts if you have detailed modeling questions when we open up for Q&A, I would ask you to not do that in this forum. We’re happy to discuss the strip ratio and those value in 2030 or whatever in a separate call.

We will continue to be transparent and hope you get your models. But now we don’t want to have those kind of detailed questions in this call and you can follow up with Ian, and he will put in charge to the right person to ask those detailed modeling questions. In terms of overview, obviously, we had a remarkable year in 2020 by any measure in terms of operating and financial results as you’re going to hear from Mike. And I do think as we’ve talked about it before, but I think we’re very proud of what we’ve been able to accomplish, particularly at the time of COVID.

We did a lot of things well this year and I think the having [Phonetic] of COVID with our employees, all of our stakeholders is I’d like to think, it was very successful all these countries have very different challenges in all these projects during COVID. But I’d like to think it’s a testament to our culture and our trust relationship we have with all of our stakeholders.

So the governments in these countries that we’re in and our employees and the local people in the countries we have and Company all have one thing in common, which was we wanted to keep mining, keep employment up, pay our taxes and do all the other great things we do during COVID if we could do it safely. So it’s been a great result and I just want to shout out to all of our tremendous executive team, management teams at the mines and all of our employees for really routing together as well as part of the B2Gold family to do an excellent job during this pretty challenging time.

So we’ll hear about the results of the year that leaves us in a tremendous position to continue to optimize production in our existing mines, continuing to lead a very strong financial position going forward and also of course continuing our dividend paying the dividend — our strong dividend and also our ability to utilize cash from operations for growing the Company.

In terms of looking a little bit forward now, there’s a lot of things going to happen this year that were laid out in the news release, but we have the Gramalote Feasibility Study results to be out in April. And if this — as we’re hoping to positive study, then we would be following that up with the development plan very shortly thereafter.

AGA had an Investor Day yesterday apparently and they were very optimistic as we are about the project and I think it’s an important part, apparently [Phonetic] what they’ve said for their future in Colombia, wanting very much to be a good strong partner. And we have worked very well together and things are going very well on site in terms of relocation and some of the other requirements we had to try and get boots on the ground in September if we have a positive feasibility study and a positive development decision. So the partnership at this time and for some time has been very much on the same page.

Additionally, coming up to fields strip ratio [Phonetic], so Kiaka, we’re cautiously optimistic at this point, I guess, about Kiaka. We will see by the middle of the year we’ll have the results of an updated feasibility study. But the reasons we’re encouraged are not just gold price, it’s really some of the things have happened — we haven’t — we did some more drilling and have a better resource model for it, is one, but the other things are having potential for — potential significant changes in terms of power, fuel and power cost, etc., looking at liquid natural gas, hybrid power plant combined with solar and dual fuel haul trucks etc.

So it’s — that gives us reasons to hope our internal ones suggested the economics of Kiaka could be quite attractive. So we’ll know a lot more about that by June. So those are the two key development projects. The other thing I think kind of talk a little bit about and we can answer your questions in the question-and-answer period, but just to touch on exploration, obviously a very important part of our history and our success both in terms of brownfields and greenfields over a long period of time.

We do have a budget of $66 million for exploration this year and we’ve had some questions about that, but I would just say that if we look back historically we should probably run the numbers one day, but if you look at the money spent on exploration in the resulting ounces we discovered brownfields and greenfield. We’ve always had a track record of — and very successful in utilizing this large exploration budget to have — to payback tremendously in terms of the ounces generated from it.

So this year a lot of it’s — a lot of it for brownfields is up to $25 million of exploration budget, could be allocated for greenfields, but there is a number of things we’re excited about. And I just want to point out that this is a marathon for us and we’re going to go through a long term and exploration over time, this has been a very important part of our ability to grow the Company and continue to extend our mine life. So we will continue to be driven by geology, not geography as we have been around the world in [Indecipherable] B2Gold. So some of the things we’re now getting to look at, we’ve been pursuing for a while, Uzbekistan, we actually started pursuing that in 2007 on repeated [Phonetic] days has a great opportunity for low cost deposits. So we have a joint venture there and very excited about the targets we’re seeing there. In addition, of course, we have Finland, which we’re about to be drilling on a very exciting zone there, which has significant potential obviously.

And then there’s a number of other things we’re working on. Of course, the Anaconda area for potential major additions to our reserves or another potential discovery, and we’d be detailing that in the earnings release as well and the Cardinal zone which could add potentially in the near term some additional throughput for the Fekola mill.

So there is other exploration opportunities we’re working on, but that’s part of the potential [Indecipherable] budget would be for other opportunities elsewhere in the world, which we’ll [Phonetic] detail more as as we go on to the year. So I just wanted to point out and talk a little bit about that and the importance of — ongoing importance of exploration in our world.

So, with that, I think I would just pass it over to Mike Cinnamond, our CFO, who is going to walk you through the financial numbers and then as I said, we can open it up to questions after that.

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

Thanks, Clive. So I’ll talk about the quarter fairly briefly and then just comment in the year-to-date the overall results, given that it’s our year-end reporting and I’ll also discuss a few things on the cash flow as well.

So, firstly, on the quarter, we had revenues of $480 million. So that was based on the sale of 257,000 ounces at an average price of $18.68 per ounce, so good gold prices that we saw in Q4. They’re actually the highest Q that we saw given what went on with gold during the year with Q3, the gold prices and that $18.68 for Q4 is a little bit higher than we’re seeing now in Q1 as we move into the new year.

We pretty much sold what we produced in the period. So no significant timing changes there. On the production side, good production quarter, right on budget basically, so the total production including our share of Calibre, its attributable ounces was 270,000 ounces, so pretty much right on budget. And the total from our three operating mines was 256,000 ounces, again pretty much right on budget.

So really nothing to comment on the individual site production other than they basically had budget. Fekola, 159,000 ounces; Masbate, 58,000 ounces; and Otjikoto, 40,000 ounces. So when you take a look at that budget production and look at how it flowed into cash costs, this is kind of how we guided I think in Q3. So on the cash cost — on a total from all ops including Calibre, cash costs were $473 per ounce produced, and that’s about $50 higher than budget, and those higher than budget cash costs really mainly come from Fekola, where — which — because of some mining sequence changes during the year and also some higher costs there, especially on the HFO side and on the labor side related to like dealing with the COVID. We’II take sort of personnel costs there.

Total cost per ounce at Fekola were $397 an ounce, which was $90 — just over $90 higher than budget. Masbate was $585, which is actually $47 under budget and Masbate continued to benefit I think from lower fuel prices at site and lower haulage and stripping costs.

Just to remind you as well, the reason for Fekola fuel costs were actually over budget on HFO side, they are about 11% over budget. It was because the fuel costs in West Africa, they don’t flow just with the general market. The government’s, so that’s a fuel price there. It includes bunch of cost to take it cross-border from the ports right into the country and some taxes. So the government sets the price and we haven’t seen them follow the underlying market price in doing so during the year.

Finally Otjikoto, $520 an ounce. That was just slightly over budget $14 an ounce, mainly just due to mining sequence changes because overall, Otjikoto did also see lower fuel costs and they also benefited from a weaker Namibian dollar during the year. And then if you move into the all-in sustaining costs for the quarter, total including our share of Calibre $926 an ounce, which is $190 per ounce higher than budget and it gains pretty much as we guided, we thought was going to happen in — at the end of Q3.

So that’s a combination of the higher cash cost of about $50 an ounce. And then also higher than budgeted sustaining capital in the period and most of that was timing and a lot of it was weak costs. So in the period, we had about $19 million overall higher sustaining capex than we’d originally budgeted, a lot of that just rolled in from earlier quarters and most of it relates to our — a significant portion of that related to fleet cost either fleet purchases or maintenance that had been deferred or delayed from earlier quarters in the year.

And then I’m just going to comment now on the year’s results. So, firstly, on the revenue side, just under $1.8 billion in sales, our annual record for B2Gold sales of just over 1 million ounces and average price for the year of $1,777 per ounce, so excellent year in the sales side. On the production side, total including our share of Calibre are 1,041,000 ounces produced, from our three mines 995,000 ounces, and so if you look at our consolidated production, 1,041,000 ounces, that’s right at the upper end of our guidance range of 1 million to 1.55 million for the year and you got to look at that context as well. We dealt with COVID through the year at all sites. We dealt with it very effectively based on the production results you’re seeing and also Calibre for a period of time had shut down their operations as they dealt with COVID at Nicaragua, but we never changed our guidance and in the end we still came in at the upper end of that consolidated production range.

The individual components of that up from our site at Fekola 623,000 ounces, that’s above the high end of its guidance range of 590,000 to 620,000. Masbate was 205,000 ounces right in the middle of its range of 200,000 to 210,000. And Otjikoto was 168,000 ounces right in the range of 165,000 to 175,000.

To comment as well on Masbate, not only did they deal with the COVID, and some of the transportation challenges that were experienced earlier in the year when COVID first hit the Philippines, but they also had an earthquake and a super typhoon and they still had their range right in the middle. So very impressive performance in all sites. Commenting on now on cash costs and all-in sustaining costs for the year, so on a consolidated basis including our share of Calibre $423 an ounce, now overall that’s $11 an ounce under budget. So we did see some higher input costs at Fekola, but then that was offset by cost savings in both Masbate and Otjikoto.

So individually, at Fekola it was $320 per ounce produced, which is just — that was pretty much at the upper end of its guidance range of $285 per ounce to $325 per ounce. Masbate $629 per ounce, well below budget by $57 an ounce and like we said, they benefited from significantly lower fuel costs and also haulage and stripping costs were lower than we anticipated. And then Otjikoto $453 an ounce, that’s $46 an ounce under budget. Like I said, they benefited from lower input costs and a weakened maybe in dollar.

Now when you translate that all into consolidated all-in costs, $788 per ounce sold including our share of Calibre and against the budget of $794. So just under budget and it was at the low end of the Company’s guidance range of $780 per ounce to $820 per ounce. Fekola came in at $599, just under $600, so that was just slightly above its guidance range of $555 to $595 as a result of those slightly higher input costs. And also to remember, when we do the budgets we’re basing it on a certain gold price and the royalties that flow into this all-in sustaining cost Calibre based on a much lower gold price than we actually saw in the year.

And Masbate $985 an ounce, so pretty much on budget and at the low — and within its guidance range of $965 to $1,005 per ounce. And then Otjikoto $920 an ounce sold, which is well below the low end of its guidance range of $1,010 to $1,050 per ounce. So excellent year operations wise from all sites. And like I said, I think pretty much where we came out is how we guided in Q3 and when we put out production release earlier in January.

A couple of comments on some of the significant stuff going on at sites. So at Fekola, the expansion of the Fekola mill and the fleet completed by Q3 2020 came online in the quarter and operating very effectively and I am sure Bill is going to comment a little bit about how we see Fekola operating as we go forward. It did come in slightly over budget in the end by about $14 million, that was mainly due to COVID related delays and higher labor cost, but overall it ran smoothly.

And the solar plant — the new solar plant at Fekola, it was originally forecasted and budgeted to be completed in 2020, but we actually suspended that for a while to give us more room in the camp to complete our labor rotations for the regular operation. So it did recommence later in 2020 and is now scheduled to come online and in installments through 2021. The first part of it turned on in this first quarter of 2021 and then should be fully complete by the third quarter.

And we did have a fire at the site which destroyed some of the solar panels, so we’re just in the process of replacing those. So that pushed out the completion date slightly to above the third quarter of 2021. At Otjikoto, Wolfshag underground, development of that is underway, portal development started basically near the end of the third quarter. We are about $11 million under budget for the full year 2020.

Those talks will just be pushed into 2021 and we’re still on target to have the underground development completed and bringing it into the production schedule in early 2022 as originally forecast. And we are also under on the Namibia — though there is a powerline connection at Otjikoto, where we’re going to connect our solar plant to the national grid, again because COVID delays we’ve pushed out into this year. So that will get done this year. We are about $6 million under budget as a result of that.

At Masbate, Masbate is a busy machine, just ran smoothly with no significant delays or capex variances at Masbate as we went through the year. In fact what we did was, we’ve accelerated a little bit of capex there from 2021, some of the fleet that we were going to buy early 2021, we actually completed in late 2020.

Gramalote, we’re about $7 million under our share of the budget for the year, mainly due to COVID delays, but we still got our exploration program completed and we’re still on track to have feasibility study completed in early April, so a little under budget on the cost side. It didn’t delay the key activities that we’re pursuing there.

And then as Clive mentioned, we are still, we’re revisiting Kiaka and we looked at that through the course of 2020 and we’re still on track to have an updated study for that, by the end of the second quarter of 2021. A couple of comments maybe on fuel, a key component of our costs. We have still maintained our hedging program where we hedged up to 50% of the next year’s fuel needs and 25% of the subsequent year’s fuel needs and we did catch up with that through the course of 2020 and that’s the position we were in by the end of the year, and that is benefiting us now in terms of mark-to-markets as we go through the first quarter as we’ve seen fuel cost rise.

One of the things that came up, I think, when we did our production release as well for 2021 was there are some slightly higher customs and duties cost in Mali as we come out of our exoneration fees. We have three-year exoneration post start up of the mine activities there and we’ve now reached our face — at Fekola we have to face more customs and duties on imports. And there was a question about what impact per ounce that was for Fekola, so we quantified that within the MD&A, it’s approximately $15 an ounce for those of you that want to plug that into your models.

Few comments now on the income statement side. We talked about revenues and costs. On the G&A side, we’re about $10 million under where we were last year. A lot of that is to do with — there’s just a lot less travel and less consulting costs in the current year again as COVID certainly restricted a lot of what we would normally do.

Masbate impairment reversal, there is a significant item in the P&L, they are $174 million that we reported earlier in the year, but just to remind you that’s in there for the full year. And that’s the reversal money remaining impairment that we struck, we’ve taken at Masbate. We’ve got — we’re equity accounting our share of Calibre results, so we had a pickup during the year of approximately $22 million related to that and we do have a significant investment in Calibre shares. We took Calibre shares as part of the deal, so they have currently got a market value of somewhere around $140 million.

On the tax side, I know that quite a few of the analysts if you talked had questions on taxes, so the total income tax charge recorded in an accruals basis for the year was $310 million and we’re taxable at all sites. Now we don’t have accelerated write-offs of any costs at any sites anymore. We’re just paying taxes as we go. And to remind you that also, those — that tax charge also includes the priority dividend of Fekola.

And it was quite the whole tax situation at Mali and how it was reported and booked and paid, well, it is a little complicated. So we’ve tried to lay it out for you in a bit more detail. It’s on the news release in page seven just explaining the cash taxes and how we pay them. And we’ve also put some guidance in the MD&A for you on the taxes on page eight and then on Fekola dividends how that all works on page 13.

So hopefully that will help clarify for any of you that still are a little confused by that and we’re also happy to answer any questions in a separate call if you want to follow up. So just remind you on the tax side, $310 million charged for the year. That includes about $140 million that hasn’t been paid, it will be paid in 2021. And the main components of that $140 million are $75 million of remaining Fekola income tax liabilities and $50 million for payment of the 2020 Fekola priority dividend.

So again we laid that out in the MD&A, so hopefully it’s clear for you now. For the total year — well, for the quarter actually, net income was $174 million or $0.16 per share, attributable to our shareholders and adjusted net income was $146 million or $0.14 per share adjusted. Year-to-date, net income was $672 million or $0.60 per share and year-to-date adjusted after we take out significant non-cash items, the main ones being the Masbate impairment reversal and for tax adjustments, year-to-date the adjusted EPS was $0.49 per share.

Now just a couple of comments on the cash flow statement. So first one is on operating cash flow, $197 million for the quarter or $0.19 cash flow per share and for the year $950 million, that’s a record for B2, big number. And to remind you guys, that’s after we prepaid $50 million of our Mali in taxes, we ended up at $950 million for the year, which is approximately $0.90 per — $0.91 per share.

The only other couple of comments from the cash flow statement, like, I kind of alluded to some of the capex. So in total, our capex, we were about $40 million less than budget for the full year, which is a bit — it’s, we’re slightly further under budget than we thought at the end of Q3. The main components of that under reach are, we were — we had less deferred stripping in both Fekola and Otjikoto in total about $28 million.

Wolfshag underground, as we mentioned, the $11 million under and Wolfshag power line $7 million under and that was offset by some of the overruns in the expansion as I discussed and some lower exploration costs. We were approximately $7 million undrawn in exploration and a lot of that was greenfield that we didn’t get to this year, because of some of the restrictions that we faced, but we’re hoping to get to it next year as Clive alluded to in his opening remarks.

So for the year, we ended the year with $480 million cash and a full — we have the full amount of our $600 million revolving credit facility available at our disposal. And that is — I think that’s the summary and the highlights of the financial highlights that I wanted to touch on. Thank you.

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

Thanks, Mike. Just something I neglected to mention in my opening remarks was just on strategy. I think it’s pretty clear from the news release and from the recent calls that we’ve had, but our strategy remains really the same, which is obviously to maintain our strong financial position, as we said and the ability to paid the dividend and advance our growth projects.

But between the growth projects the potential we have at Gramalote, the Kiaka, the Anaconda area, etc., and all the exploration funding we’re doing for brownfields and greenfields, we’re pretty confident on our ability to grow shareholder value in this Company over the year, without having to aggressively pursue M&A.

So obviously we’ll look at M&A and we’ve all had a big haircut from the highs than we were at, so other companies have as well, but for us to do M&A at this point with everything we’ve got going on that we think potentially could add a lot of shorter value, we would have presumably an extremely compelling — even though we [Indecipherable] and we will see expectations of certain companies that have tried to come down because we’re seeing opportunities because of the gold price.

But we will see, we’re always looking, but at the end of the day we are quite ambivalent to this point about M&A, which is a good place to be and given what we have on our plate. If something comes along that make sense, that we think adds value for the shareholders, of course you know us by background we’ll definitely have a hard look at it. So I think with that we’ll move to open up to questions.

Questions and Answers:

Operator

Certainly. [Operator Instructions]. Your first question comes from the line of Tyler Langton from J.P. Morgan. Your line is open.

Tyler Langton — J.P. Morgan — Analyst

Yeah. Good afternoon, and thanks for taking my questions.

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

Good afternoon. Hi, Tyler.

Tyler Langton — J.P. Morgan — Analyst

Just — Yeah. On Cardinal, I guess, in terms of — I know you mentioned sending some material to get process that to the mill in Q2. Can you give us a sense, is it — after you come out with the resources, sort of when you know — what Cardinal could contribute this year to production at Fekola?

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

Will?

William Lytle — Senior Vice President, Operations

Yeah. Sure. Good question. And maybe we should talk about it a little bit. Just to remind everybody, why we’re discussing Cardinal at all at this space, because there is a chance really to create quite a significant resource there, but it was basically discovered when we were doing condemnation drilling. So there is a surface — a very close to surface exposure of the ore body or of the vein.

And I think everyone’s aware that the expansion which we completed in September of 2020 has gone off probably even better than we had hoped and we’ve done some throughput trials and showed that while our budgeted at 7.75 million tonnes per annum, we have the ability at a minimum run at 8 million tonnes per annum in 2021 based on the ore composition that we’re seeing. So we have this extra capacity.

And so as opposed to running low grade material, campaigning low grade material through the mill in 2021 on top of that 7.75 million tonnes per annum, we looked at alternative sources and of course the closest source is the Cardinal resource. The Cardinal resource, they’re going to continue to drill on it and the resource which is coming out isn’t really focused on near surface exposure.

So what we’ve done is, we’ve taken what the inferred resource that the geologists have created and we’ve now put a great control pattern across that and created our own kind of mini resource for kind of near-term open pit success in 2021. As part of that, we’ve approached the government and asked for the ability to bulk sample it and that obviously there’s a couple of things for us, obviously it increases the great — the ounce profile from the mill. And so the question you asked was, how much? We think with the kind of like low grade, if we were just putting low grade through that additional 250,000 tonnes, we’re probably like at 10,000 ounces.

But with the Cardinal resource near surface exposure, we think that we’re going to be somewhere in that 20,000, 25,000 ounce range minimum that will be add on — it will be add on to that. And remember that’s just adding 250,000 tonnes. Certainly, we think that’s the bottom case now, because there is more — we’re know, we’re going to run at 8 million plus as it looks like, and so now the question is, what do you do with the rest of that? So we’ve got additional capacity there, which could come from Cardinal.

Additionally, we’ve got the [Indecipherable] area or the Anaconda area, which has also got some saprolite surface exposure. And so we’re looking at some high-grade pockets there. And potentially in 2021 bulk processing some of that as well. So you could see some additional ounces from there as well in 2021. And so all of these things, we’re kind of working through, but the short answer to your question on Cardinal is, it looks like 20,000, 25,000 ounces, but with significant upside on top of that.

Tyler Langton — J.P. Morgan — Analyst

And so just to be clear, and that would largely come, I’m guessing, in the second half of the year?

William Lytle — Senior Vice President, Operations

Well, that’s the funny thing, right. So we don’t necessarily think it’s going to come in the second half of the year. We are pushing very hard actually. Randy Reichert, our VP of Operations, is at Fekola right now kind of laying out mine plans and what does that look like. I mean, certainly, when we did our optimization on the mining side, we optimized on basically hauling from the Fekola pit. So we’ve got the issue of, do — how do we truck this stuff, it’s only 500 meters, but how do we truck it to the mill. And so we’re in the process of trying to set up maybe a small contract miner service for 2021 until we get our head around it. So ideally we would actually see it in Q2.

Tyler Langton — J.P. Morgan — Analyst

Got it, okay. And then just — obviously we’ve seen a lot of inflation in sort of oil, diesel, steel, freight, I guess when you come out with the studies for Gramalote and Kiaka a little bit later, should we assume that they’ll kind of reflect this current level of cost? Just kind of wanted to, I guess, get a better understanding around that?

William Lytle — Senior Vice President, Operations

When you say reflect this current level of cost, what do you — I don’t understand what’s you are asking.

Tyler Langton — J.P. Morgan — Analyst

Oh, just kind of like current — I guess, current prices for oil, diesel, steel, will these studies kind of have — kind be based on more — are these current prices that we’re seeing now or would they be a little bit in the past, just trying to get a sense for that?

William Lytle — Senior Vice President, Operations

No, I mean, I think you’re aware. We updated the — AngloGold did a PEA or sorry a PFF in 2017, which we updated into a PEA and that’s because inferred [Phonetic] just as indicated question in 2020, right. So we certainly updated at least at a very high level in 2020. And as part of the feasibility, I mean these will have full feasibility costs and so we’ve gone out for close for sure.

Tyler Langton — J.P. Morgan — Analyst

Got you. Okay. Thanks so much.

William Lytle — Senior Vice President, Operations

Thanks Tyler.

Operator

Your next question comes from the line of Ovais Habib from Scotiabank. Your line is open.

Ovais Habib — Scotiabank — Analyst

Thanks, operator. Hi, Clive and B2 team. Congrats on a good quarter, and thanks for taking my questions.

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

Hi, Ovais. So my first question was on Cardinal, which kind of I think Bill kind of gave a good overview of. I mean, I’m guessing the near-term, the reason why it’s brought into the near-term where it was previously expected to come into around the Q4 time period was based on the fact that now you’re just doing that grade control drilling and that’s given you confidence to bring it into production earlier, is that how should be thinking about this?

William Lytle — Senior Vice President, Operations

It really, Ovais, you could say yes. But the real answer if I’m being completely honest is, we have this extra capacity where we know that we’re shelving low grade in right now. All right? So we’re just doing whatever we can to bring higher grade material into the mill. And so, yeah, it could be Q4 originally, we talk about potentially swapping Anaconda bulk sample and Cardinal bulk sample, but because the grade control drilling is being done and everything, we feel pretty good about bringing it in even sooner. And I know, conservatively, I should say this is going to happen in the second half of the year, but — and I’m being honest with you, we are out there grade controlling it right now.

Ovais Habib — Scotiabank — Analyst

Perfect. And just in terms of metallurgy and just having that kind of information in your hand, all that have been done previously already?

William Lytle — Senior Vice President, Operations

Well, I’ll let John answer that, but at the end the short answer is yes, we feel very confident about what we’ve got there. And then just remember, this also — we think there’s a much larger resource there and maybe Tom can comment on that, which will eventually come out. But certainly doing this bulk sample was just one of the key things for doing this bulk sample, will give us a real good handle on how this material interacts with what we’ve already got there and how it works its way through the mill.

Ovais Habib — Scotiabank — Analyst

All right. Thanks for that, Bill.

William Lytle — Senior Vice President, Operations

I don’t know, John, do you want to comment at all on the metallurgy for Cardinal?

John Rajala — Vice President, Metallurgy

Yeah. Sure, Bill. The metallurgy is very similar to Fekola. We’ve done testing on representative samples and it responds very similarly to the Fekola ore so. We’re confident that we’ll get similar recoveries as Fekola on Cardinal.

Ovais Habib — Scotiabank — Analyst

Got it. Thanks, John. And my next question is for Tom. In regards to the exploration budget, specifically for greenfield exploration, is there one specific project or region that you’re particularly excited about? Or how should we be looking at where you guys are going to be focusing on with this exploration budget?

Tom Garagan — Senior Vice President, Exploration

Yeah. I’ll just — first of all, I’ll just make a comment there and Clive has said this and I’ll say this or repeat it, it’s a pretty big budget, but it’s a culmination of many, many years of project generation and talking to juniors and talking to governments and going out and looking at things and slowly we’ve accumulated these early stage projects.

If I had to say there was one area we’re more excited than the other, it’s kind of a difficult question. But I’m very encouraged by what we’re doing with respect to Sun [Phonetic] right now. That’s been a project dear to my heart and dear to our hearts, because we’ve worked on it for so many years to generate this.

At most, if we look at what we’re doing in Finland, we’re drilling next to a new discovery by Rupert and we’re excited about what we see on our own property. On the other ones, right now I’d just rather keep close to myself for now, because we’re still generating things that are — that we plan on drilling later this year.

Ovais Habib — Scotiabank — Analyst

Okay. Thanks, Tom. That’s it from me guys.

William Lytle — Senior Vice President, Operations

Thanks, Ovais.

Operator

Your next question comes from the line of Josh Wolfson from RBC Capital Markets. Your line is open.

Josh Wolfson — RBC Capital Markets — Analyst

Thanks. First a question on the tax side of things. Thank you for the additional disclosure. You know, I noticed the commentary in the call information that the priority dividend will be paid as a tax in the cash flow statement this quarter, there were still a distribution to non-controlling interest, I guess, of $9 million and what would that be related to and is that expected going forward?

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

Well, the priority interest that we have — we do have interest in Namibia, right, we have a 10% holding and like owner in Otjikoto. So there are some payments made to them.

Josh Wolfson — RBC Capital Markets — Analyst

Okay. Is it safe to assume that the — I guess, the full 20%, or whatever you want to call it the free carried and the equity interest for Fekola, that will be captured in the taxes line not the distribution non-controlling interest line?

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

No, it’s split. So the first 10% at Fekola. The priority dividend will always be reflected in operating activities. It’s recorded as a tax charge and paid within operating cash flows. And then the second 10% is just an ordinary dividend and it will be reflected as a payment.

Josh Wolfson — RBC Capital Markets — Analyst

Okay. Thanks for clarifying. And then on Gramalote, let’s say, I guess, two questions. So with some of the commentary from the Anglo earlier this week, is it safe to assume that the ownership is unlikely to change at this point? And then a follow-up on this sort of open ground claim that’s under review by the Ministry there, what does that mean for the outlook of the asset and timelines?

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

Yeah. I’ll answer the first part of that. You know, everything that AGA said to us and they reiterated again yesterday in their investor call is that they are keen on Gramalote. It’s a project deal something that’s very important for them. You know the Calibre project and other things are going to they want to do in Colombia, they are a bit behind Gramalote in timing. So they see it as very important to be involved in a successful joint venture with us as operator to show the Government of Colombia what the first — potentially first significant gold mine in their country looks like and how well we’re going to do it for the great part of the country Nubia, and Ethiopia. So I think I’d be entirely be — at this point in time, I would be quite surprised if there was any ownership change.

As you know, we’ve talked about it before based on our agreement if AGA decides after we submitted development plans, if they don’t want to fund, then we have the opportunity to purchase their producing interest on the fair market shares based on the feasibility study economics. They also have the option to go down to 30% within the agreement as well.

But also, of course, we would have the opportunity to bring a lot of hardware [Phonetic] and if we so desired. And I think there would be a long list of companies if the economics — we’re hoping to see and they would like to partner up with B2Gold in Colombia having our team build the mine. So I’d be surprised at this point in time things can change, but AGA is very committed for Colombia and from what they say they want to be part of this projects and feasibility in their development decision.

Second part of the question, who wants to handle that?

William Lytle — Senior Vice President, Operations

If you want, I can do it. But I assume you’re talking to the — you’re talking about the Zonte claim?

Josh Wolfson — RBC Capital Markets — Analyst

Yes.

William Lytle — Senior Vice President, Operations

Okay. Yeah. So I don’t know if you know the background of it, but basically the way it works in Colombia is when they did their Cadastro layout originally it was all done in paper copy and then they switched over to an electronic copy. And during that some of the claims didn’t line up when they put them in the computer.

Zonte kind of jumped in there and said that they would lay claim to a small portion of that. The government has rejected that outright. They said that that’s not the case and there’s really not an open area and even if there was an open area that small area, you could never develop it anyway, so they don’t think that it’s a real things. Zonte has filed a suit against the Government of Colombia saying that they don’t agree with that. The government themselves say it’s without merit, right. We’ve asked to join that, we’ve asked to join that case as Gramalote — as an interested party obviously and once again I think our internal view is that there is no merit to this case at all and well, this has got to play itself out.

Josh Wolfson — RBC Capital Markets — Analyst

In the absence of this being resolved, I guess you’re aware that this — you can sort of just continue with construction advancement or this have to be solved first?

William Lytle — Senior Vice President, Operations

Well, I’ll answer it from a non-legal perspective and then they can correct me. But my understanding is, the government wants this project to go forward expeditiously, right, they’re pushing us even harder than we’re trying to go, so I don’t see any way where the government tries to stop us from developing this project. Legally what that means, I guess that’s a question for Roger and/or Randall.

Josh Wolfson — RBC Capital Markets — Analyst

Great. Thank you very much.

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

Hey, Josh, just to follow-up on your first question, so I was trying to remember the timing of the course. So we did make a very — the very first ever dividend, ordinary dividend payment to the Malian government. We actually made it just before the end of the year. So part of that $9 million that you are referring to, there is about half of that is the very first government share under those ordinary dividends, some reason I had in my mind it was early January but we actually did just before the year-end.

Josh Wolfson — RBC Capital Markets — Analyst

Okay. Thanks for clarifying. That’s great.

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

Okay. Thanks.

Operator

Your next question comes from the line of Don DeMarco from National Bank Financial. Your line is open.

Don DeMarco — National Bank Financial — Analyst

Hi, Clive and the team. Thanks for taking my call. My first question is for Bill. So Bill, at the call you mentioned before you’re testing higher throughput rates in December, I was wondering if you could give us an update in how that’s going? I heard you say earlier it looks like maybe you can do 8 million tonnes per year, but what are you finding based on your testing you’ve done so far? Can it go higher or where you are at?

William Lytle — Senior Vice President, Operations

Yeah. So now John is going to kick my butt for saying it, but yes we think that we can go higher, right. So we were — we’re at — we’re currently running even above 8 million tonnes per annum. But with that being said, we need to caution everybody, right, so it was designed for 7.75 million tonnes, we’ve already put out 8 million tonnes, we’re running above that right now, but we don’t have any experience, right. So I think everybody is telling me to just hold off and we’re happy to say 8 million tonnes without putting the upper end — upper number on there, but it has the potential to go higher, but that takes into things like maintenance and how do you layer your critical spares and your downtime and all these things that we really have to look at and we don’t have our head around yet, so I’m a bit low to give an upper bound.

Don DeMarco — National Bank Financial — Analyst

Okay. Fair enough. So the guidance for 2020 calls for 7.75 million tonnes per year run rate. And so when you mentioned Cardinal to add on additional 250,000 tonnes, to get 25,000 ounces I just ran some math here, it looks like you’d be grading about 3.3 grams per ton, which would be well above the guidance grade of 2.3, so is that right? You’re sort of thinking to get that 25,000 you’d be topping 3 grams per ton from Cardinal?

William Lytle — Senior Vice President, Operations

Yeah. I would say yes, but maybe Randy can correct me.

Don DeMarco — National Bank Financial — Analyst

Okay. And so it sounds as though you’re going to get to 8 million tonnes, 250,000 tonnes is probably going to be hitting capacity but are there — is there any other opportunities to bring on something else from Anaconda? I think you had mentioned — that was mentioned maybe in the previous call?

William Lytle — Senior Vice President, Operations

Yeah. So from Anaconda there absolutely is the potential, but remember that’s in a separate license area. So that has its own set of issues. What we’re doing there is, we’re doing an internal study right now to see what that looks like. Once again Randy Reichert is managing that study with the intent not only to take a bulk sample from Anaconda, because we don’t see this as like a short term issue. We believe there — once again there is a pretty significant resource at Anaconda, but they need time to drill it.

And so really in 2021 and 2022 which other people have noticed that we have a bit of a dip in 2022 as well, we have the potential to add some ounces from Anaconda. And so the plan is to take — is to permit a bulk sample, because remember a lot of that is saprolite. And so then you get into the issue on not only is it 8 million tonnes or is it higher than that, then is that — can you add saprolite on top of that, what’s the percentage, so we want to take a big bulk sample again from Anaconda. Then that — we think that will happen in the second half of the year as a test and then that will really tell us what’s going to happen in 2022.

So the answer is yes. Additional ounces potential from Anaconda, which I talked about previously and in 2022 we can once again see additional ounces in that regard.

Don DeMarco — National Bank Financial — Analyst

Okay. Okay thanks for that, Bill. And maybe just one final question on Gramalote. So you’ve got that assets that’s coming out in April, we look forward to that, but in terms of the go-forward decision, are you going to wait until, say, after the Kiaka FS in June or are you going to take your time? And how will they present? Well, Tom mentioned he is encouraged by what he is seeing in Uzbekistan. Is there anything else in your pipeline that could potentially delay a go-forward decision on Gramalote?

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

No, I would say not at all. In the Gramalote, it’s first in the queue for sure ahead of Kiaka and very much so. We get there, results from the study we’re looking forward and go [Indecipherable] will be, that’s our top priority and I think it’s really important to realize that the good news is that the local people, the local government and Antioquia local community and the federal government, everyone wants this mine to go ahead as fast as possible. They made it very clear to us.

So one — it’s in our pipeline, because for a reason because it’s ready to go and we’re looking forward to something in feasibility study getting going right away on it, but also it’s very important with your social license and expectation here. So there’s a lot of expectation there for many years from Gramalote where the people and the government saying okay, come on, when are you going to start construction. So we wouldn’t be driven only by that criteria, but you’ve got a willing government and willing population, really good joint venture, a lot of good work has been done and we’ve got our construction team jumping a bit to get on the ground. So — and more — and as importantly as all of that or more importantly than all of that, it’s what we expected to be. This is a significant addition of [Indecipherable] here to B2Gold and it could be funded over the next 2.5 years, our share capital which is estimated to be around $450 million and some of that would be a fleet. So might be less than that if you could [Indecipherable] over five years. So we can clearly from our current projections fund our share of capital of about 2.5 year period from cash from operation. So no, it’s ahead for sure.

Kiaka. Once again, Kiaka, you got a government of Burkina Faso. It’s very keen like all governments today to see — almost all governments in the world on the need for investment and gold mining is becoming improving in this culture and [Indecipherable] is going to be an excellent investor in this country. So I think in the case of Burkina Faso as well, we’re working closely with the government. We have guys down there next week meeting with them to talk about what the taxes are going to be like to try and really advance our feasibility study for a view of that in the middle of the year.

Now, we’ve always said we’re never going to split our construction team and build two mines at the same time. That’s one of our keys to our success and this remarkable team being focused. But we talked a bit about before, Bill and his guys are looking at it. So let’s say we get positive studies on both of them. Well, we could bring a partner in for Kiaka. We can sell the asset of course. But we’re also looking at the idea if it’s attractive to us, we think it might be based on internal results subject to taxation and etc, then Bill and his guys are talking about sequencing. So could you have the earthworks crew for example, which we start in Gramalote hopefully as early as September.

Would you have that crew ready to go from Gramalote to go to Kiaka potentially as the real construction team comes in to Gramalote and then subsequently they move on, so can you sequence them in? We’re looking at that. So I wouldn’t rule anything. I don’t want to — I know some people will freak out and go, oh my God, look at all those capital that the B2Gold is going to spend over the next three years. Well, let’s not make too many assumptions on that.

We have many alternatives. Gramalote, we want to go forward with it based on this positive study. We expect with our partner, but in Kiaka there is a whole bunch of alternatives if it’s as good as we think it could be and why wouldn’t we want to continue to grow the company for our shareholders by considering that either with joint venture with someone else or doing that ourselves.

But we have a pretty remarkable track record over the last 13 years of growing through acquisition and exploration, etc. But here, these are two assets we own with very little value and our share price with them, which is understandable at this point in time. But I think we’re never going to be ruckus, but we will continue to be aggressively grow the Company and it’s hard to argue against a track record of success we kind of doing that. We’re not going to wake up stupid next week and then make a sort of decision about the development of this Company in my view.

So we’ll continue to be very disciplined about how we do it. But it’s great to have these assets. Some people looking at it go, oh my God, look at the capital expenditure they have, well, that’s way ahead of the game right now. And at the end of the day, we’re not saying just trust us, but we’ll come up with a plan for the assets that we think will please our shareholders and not take ups on too much risk.

Don DeMarco — National Bank Financial — Analyst

Okay, great. That’s very helpful. So that’s all for me, and congratulations on a strong 2020.

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

Okay. Thanks, Don. I appreciate it.

Operator

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

Carey MacRury — Canaccord Genuity — Analyst

Hi. Good morning, guys. Maybe just another question on Cardinal. You’ve talked about sort of the impact on — potential impact on 2021, just thinking beyond 2021, is the goal with Cardinal to sort of sustain that 500,000 ounces at Fekola longer or could you increase production over the next couple of years?

William Lytle — Senior Vice President, Operations

Well, that really gets into what the ultimate resource looks like, which I think — I don’t — I know, I think there is an initial resource coming out, but the ultimate resource I think is still always away from being developed and so I would probably turn that over to Tom. Tom?

Tom Garagan — Senior Vice President, Exploration

Yeah. Can you guys hear me?

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

Yeah.

Tom Garagan — Senior Vice President, Exploration

The resource that the guys are doing there grade control on right now is, there’s all when it’s — when we complete the resource, which would be a couple of weeks here, it’s going to be incurred and we’re probably going to leave the bulk of that resources for them for exploration drilling for this year. We’ve got some tight drilling in where the ore shoots are to try to follow those down plunge. We’ve got some drilling set aside for a deeper exploration and we’ve got a little bit of large sort of grade control style drilling within the exploration budget.

So for this year alone we’ve got close to 12,000 meters of diamond in about 6,000 meters of our drilling plan for Cardinal. We still see it as an exploration bet, but there’s a lot of — from my perspective, it’s still early on Cardinal, which is found last year basically and now we’re starting to mine it. I’m not complaining, I’m just saying that we’re very early on it. So the ultimate size is still yet to be determined there, but it’s part of our active exploration program. I hope that answers your question.

Carey MacRury — Canaccord Genuity — Analyst

Well, that’s helpful. So beyond the bulk sample, there’s no sort of imminent plan to keep it into the mine plan in the near term, is there going to be like a bulk sample in a bit of break or is it you can kind of just keep mining it as you carry on just funding on the exploration.

Tom Garagan — Senior Vice President, Exploration

No, I didn’t say that. The inferred model that we’re going to have is going to be incorporated into the planning by the mining department. We don’t plan to turn that into all indicators. They’re already doing great control of drilling all it and we’ll continue to follow that and we’ll continue to drill it deeper.

Carey MacRury — Canaccord Genuity — Analyst

Okay. Great. Thank you.

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

We’re hoping it’s in the mine plan going forward, right, we hope it continues on. Bill?

William Lytle — Senior Vice President, Operations

Yeah. For sure. I mean, once again, I hate saying that, because Clive just — as Tom just pointed out, we’re talking about an inferred resource that quite frankly we haven’t even seen the latest update on. So, absolutely — I mean it’s 500 meters from the edge of the existing pit, so it is in an ideal location and we will take that as soon as it becomes available.

Carey MacRury — Canaccord Genuity — Analyst

Great. Thank you.

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

Thanks.

Operator

Your next question comes from the line of Anita Soni from CIBC World Markets. Your line is open.

Anita Soni — CIBC World Markets — Analyst

Hi. Good morning, guys. Thanks for taking my question. Most have been asked and answered. But the only want I have remaining is about the Cardinal, just to be clear the 20,000 to 25,000 is that within your guidance incorporated already and in terms of the production? Or — and secondly, in terms of costs, would that higher-grade material have a beneficial impact on the cost or is that more just tied to the strip ratio?

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

Yeah. So the first part is, no, it’s not included in our existing guidance. Any guidance we put out, even our five-year guidance that I think we did at Investor Day last year does not include any of our inferred or upside sources. And so what we put out with 7.75 million tonnes per annum throughput at Fekola with no upside from Cardinal. And as far as cost, I think, once again, because we don’t even know what the contract rates or anything like that. I’m a bit low to say about that. But if you’re talking about just a small amount of — a small percentage versus the 500,000 ounces we’re already producing.

Anita Soni — CIBC World Markets — Analyst

Okay. All right. Thank you.

Operator

There are no further questions, I turn the call back to Clive for closing remarks.

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

Okay. Well, thanks, everyone. Good questions. And as I mentioned at the outset we have further detailed modeling questions, we’re here to share and be transparent help with the model, so don’t hesitate to reach out if there are other questions you would like to ask and we’re very excited about the year coming up and/or this year and we look forward to reporting back to you as we get exploration results in another development feasibility studies over the next period of time, we’ll have a lot of news for you. Thanks, everybody.

Operator

[Operator Closing Remarks].

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