Barrick Gold Corporation
Q1 2016 Earnings Call Transcript

Published: 4 May 2016

[Operator:]

Ladies and gentlemen, welcome to Randgold First Quarter Financial Conference Call. I will now hand over to your Chairman, Christopher Coleman. Sir, please go ahead.

[Christopher Coleman:]

Thank you. Before I start I'd just like to explain that Mark Bristow sent his apologies for this afternoons call. He is actually on a plane to the U.S. to attend his son's graduation. So we accept his apologies for today. I am joined by Graham Shuttleworth, our CFO; who is going to take you through the results presentation. But before he does that I'd like to say a few words of introduction. Firstly, we had our annual general meeting yesterday and I'm pleased to report that all the resolutions that were put forward were approved with very high levels of votes in favor by the shareholders including the 10% dividend increase recommended by the Board. We believe that these votes reflect a good relationship between the company and its investors. We never forget that our shareholders are in the business. And I think I speak for the whole board, as well as the management when I express appreciation for their continued support. As Mark pointed out at the results presentation earlier today, this last quarter the company delivered good financial results, ahead of market consensus. And the fact is that was achieved despite some operational issues at two of our mines and this is a tribute to Randgold's unwavering focus on cost control and efficiency improvements. As you will know, this is still testing time for the gold mining industry and while there has been a boost from the recent uptick in the gold price, many companies have a long way to go to restore their value per share which was impacted during the downturn. Randgold Resources on the other hand is continuing to build up a high base and we are confident that it will sustain this momentum. Before we go on, I'd like to draw your attention to the sustainability report which was recently published where our Annual Report for 2015. You will see in that report, a very full description of all of our activities in that area. Sustainability in all its forms is an integral part of our business and Randgold's strong emphasis on sharing the value that it creates with all its stakeholders and nurturing mutually beneficial partnerships in and with its host countries, and also developing. Economic legacy project for its communities continues to fortify Randgold's social license. This is of course particularly important at the time when Africa's complex economic, social and political dynamics are being affected by the decline of commodity markets. We believe that the credentials which Randgold has earned over many years as a responsible generator of benefits and opportunities, it will secure its place as Africa's most welcome gold miner. With that, I'd like to hand you over to Graham who is going to take you through the results presentation. Graham?

[Graham Shuttleworth:]

Thank you, Chris. And good afternoon and good morning, ladies and gentlemen. Once again, it's been a very busy quarter with successes and challenges on all fronts. Operations, expirations and new business. And the end of it we increased our preferred profit, grew out cash, and maintain a tight focus on our future. As usual we start with our people and the environment where all the trends remain positive and as you can see here, it's particularly gratifying that a lost times injury frequency rates reaches its low point in seven quarters. With three of our operations achieving no lost time injuries. We achieved the international safety and environment certifications with earnings to - preparing for a I45,001 [ph] safety accreditation expected later this year. It would now report to the environmental incidence and we continue to improve our water usage efficiency. We also continued our drive eliminate malaria around our operations in conjunction with the health departments of our host countries and the incidence of the disease is strictly being reduced. These are some of the highlights of the quarter. Besides some significant obstacles which impacted on production, profits were up quarter-on-quarter, as well as on the year and costs came down. Our flagship Loulo-Gounkoto complex delivered a very solid performance, as usual was steady. At Tongon, the commissioning of the full-stage crushing circuit took longer than expected and its impact on production was exacerbated by recurring issues with the good power supply. Kibali also experienced throughput in recovery problems associated with its first extended campaign on a 100% sole product feed. On the exploration front, we continue to expand our footprints in our target areas where our teams continue to generate some very promising results. And last but not least, we maintained our progressive dividend policy with shareholders giving the green light to a 10% increase at our AGM yesterday. These are the consolidated group numbers for the quarter which show a healthy increase in profit and earnings per share, as well as another steep increase in net cash. So for a company whose key focus has all been on profits rather than any other measure the industry likes to use, this was another successful quarter. Spotted now at the operational review at Loulo-Gounkoto. This complex - this was star performer, I'm sorry, this quarter the CapEx was after our performance. It comparing it's to the previous quarter you should bear in mind that the three months in December was their record production quarter benefiting from the carryover of higher grades that we'll not mind in quarter three. Gold production, well in line with our plan was therefore lower quarter-on-quarter but significantly up on the corresponding quarter of 2015. More importantly, profit was up and total cash cost down, thanks to lower mining cost driven by our own mining benefits in the underground mine and processing cost reduced with improved efficiency and cheap diesel. Slightly higher gold price also helped the complex results which are good by any measure. So notwithstanding the planned lower grades and drop in production. Cash cost per ounce were significantly down. Looking at Loulo in isolation, it was the first time in many quarters that it led the two operations performance as the new line with the planned 60-40 Loulo-Gounkoto production ratio. While flex [ph] is the higher head grade contributed these results are largely the product of good management. They also reflect the benefits of Vienna meaning, it was Loulo's first full quarter under the new regime which had a positive impact not only on costs but also on the production and development rights as you can see here. There are still a few wrinkles on us, the back fuel prices can still be improved. But clearly, the transition is meeting our expectations. Meanwhile, the commissioning of the refrigeration units Gara was throughout this quarter was scheduled for the next one. Staying underground ongoing exploration at Gara is generating new opportunities for reserve and resource expansion. A green box on this graphic shows the potential for approximately 500,000 ounces resourced to reserve conversion through inter-drilling while the blue box indicates the down plants potential for extending the existing one [ph]. As you can see in the red circle above, the prospect of an open fit was 200,000 reserve potential, that's very good grade, has also been identified. At your left, the exploration team is also investigating deeper extension of the high grade purple patch. The red dots indicate the sites which should return significant results; and indicate the black starts indicate the next four holes. At Gara, we believe there is a big resource and reserve replacement to upside. The standalone performance of Gbongogo was in with the new line would believe to be 60 to 40 Loulo-Gounkoto production ratio, I referred to you earlier. But you could study, continue to make good progress. And with resource drilling completed, the focus now is on a slope designs. These could well be the deciding factor in choosing between the super-pit option and the original pit-plus-underground concept. In line with the planned ratio, Gounkoto's throughput was lower, the grades were as planned, and costs were well contained notwithstanding. Still at Gounkoto, we're looking at the extensions to the pit and the P64 target, and we've identified some significant intersections just below the $1,500 per ounce pit shown here by the red dots. The black stars indicate where we are currently drilling to test several steeply-plunging chutes of high-grade mineralization. With the new information from P64, we're also taking a closer look at the controls and morphology of the structure between the Gounkoto pit and the permit's southern boundary, where conceptual targets have been identified. To the east, the Faraba structure has multiple targets and is under review for the first time since the Gounkoto discovery. Leaving Loulo-Gounkoto but staying in the region, we continue to expand our footprint along the Senegal-Mali border, most recently through the Alecto earning joint venture that we announced, where field work will begin this quarter. The permit covers a strike length of 6 kilometers where trench and drill results have shown significant anomalies. At our Massawa project, work continues on the feasibility study, which is scheduled for completion by the end of this year. The evaluation of the Sofia target, 10 kilometers west of Massawa, is an integral part of the study because, as you know, with its free-milling ore, Sofia could have a very big impact on Massawa's economics. The confirmation of a 600-meter strike of high-grade mineralization at depth is driving the resource towards 900,000 ounces at around 2.2 grams per ton, with further upside expected by year-end. However, the initial drilling above and below the flat, high-grade zones has not demonstrated vertical continuity, so we still have to get to grips with its geometry. We are seeing significant variability in the geology, and as a result are reviewing the models, which we plan to further test this quarter. Over now to Morila, which has delivered another in a long line of creditable quarters, with the permitting of the proposed Domba pit still being negotiated with the government and the community, we've decided to push ahead with a pit campaign of the TSF project over the rainy period starting in mid-June. In the meantime, Morila continues to make progress in establishing the agri-business, which is planned to be its legacy to its host community when the operation closes down in 2019. Morila runs on a very tight margins, and it's a tribute to its very efficient team that it can still produce results like these. In Cote d'Ivoire - Tongon - we had a tough quarter again. The commissioning of the four-stage crusher, which completed flotation upgrade and crushing expansion project, ran into some troubleshooting issues which impacted on the process's ability to achieve steady state, and consequently on production and costs. The situation was aggravated by persistent power supply problems from the national grid. For several quarters, Tongon has had to cope with unscheduled power interruptions, and on top of that the power utility increased its mining industry tariffs, cutting off Tongon's supply for a week to demonstrate its result to force through these increases. The industry, including Tongon, is negotiating with the government and the utility, and you would have seen some press on this recently. And we are pleased that the government has now intervened, and I am confident that we will have a positive result on this issue. In the meantime, Tongon has ordered six additional generators so that it can supply all of its own power if and when necessary, which takes into account the additional power demands of the fourth-stage crushing circuit. On the positive side, the Tongon mining team and its contractors have done a good job of filling the stockpile in preparation for full production ramp-up when these issues have been settled. The impact of the crusher commissioning and power issues on Tongon's performance last quarter is evident in these numbers; unit costs were up, throughput down, and recovery impacted by the instability of the circuit as a result of the inconsistent power supply and the commissioning process. The quarter setback should, however, be seen in the encouraging context of the steady improvement in Tongon's operational efficiency, which has been trending upward since the upgrade and extension project started delivering results, as shown here. It's also important to take note that the fourth stage crusher ramp up was successfully completed early in the second quarter, so all-in-all we are sticking to our guidance for the year, albeit a tough ask. The recovery versus residue grade comparison shown here is another measure of Tongon's progress towards its target. We are comfortable that the process problems of the past will be effectively addressed. We now just need to settle the power issue, which as I've already said is receiving everyone's attention. And before we leave Tongon, here is an illustration of how that problem impacted the mine's cost structure last quarter. It's important to note that whilst the interruptions and lack of good power directly increase our power costs, it's the disruption to the circuit and consequential drop in efficiencies that really affect the costs at the mine as a whole. Aside from Tongon, we have extensive holdings in Cote d'Ivoire, and our exploration teams have been stepping out across the whole portfolio. The recent VTEM survey has significantly improved our understanding of the main structures in the Boundiali permit and identified multiple structures which all host identified targets. At Kassere, an existing target, trenching has extended the strike by 400 meters to 1.2 kilometers, and further trenching is in progress. In other permits, works continue to advance targets on the Nielle and Fapoha permits, as well as the Mankono permit, as shown here. At Mankono, work has continued on the Gbongogo target, where a 1,200 meter strike of wide mineralized quartz vein intrusive has been identified. During the past quarter, reconnaissance diamond drilling has confirmed this system at depth. The results of the first two boreholes showed the host rocks to be over 100 meters wide and present along the strike, the intrusive contacts dipping to the west, as you can see from this cross-section. Initial metallurgical test work points to a free-milling, high-recovery ore. We're waiting for the results of the three remaining holes, and then we'll refresh the target model. Now to the DRC, where after a series of stellar performances Kibali came back to earth last quarter. To understand what happened, you have to appreciate that while the Kibali plant is currently running both sulphide and oxide, it has been designed as a sulphide-only operation, because when it is in full underground production in two years' time, Kibali will be a hard rock mine. We obviously have to ensure that we are fully prepared for that day. So last quarter Kibali ran a campaign where it operated for an extended period on full sulphide. This campaign highlighted some technical issues, such as density control, which resulted in a drop in recoveries and consequential in production. We've learned a lot from this exercise, however, and we expect the next campaign in the third quarter to go a lot more smoothly. Then, to add to our challenges, no sooner had the process returned to normal after the sulphide campaign, we had a general failure which knocked out one of the mills for 8 days. Against this backdrop, Kibali did well to still deliver a profit from the mine and contain costs. The past quarter served as a reminder, however, that as I've often said to the market, the next two years will be demanding, with tough grade and feed margins, as the mine moves towards full underground operation. The underground mine and shaft project remains on-track, and as you can see here, there has been a step-up in both, development and ore production last quarter. We continue to forecast completion of the shaft in quarter 3, 2017, slightly ahead of schedule. This is a quick outline of the sulphide campaign, showing the lessons learned and the actions taken. You can also see the impact of the mill journal failure right at the end of the quarter. And this is an update on the hydropower project. As we reported earlier, work on the Ambarau station was disrupted when an earth beam failed last year, and this has taken some remedial work. Ambarau is now scheduled to deliver first power in the fourth quarter of the year. The impact of the delay has been softened by the lower fuel prices that we are currently experiencing. Work is already underway at Azambi, which will be the next power station to come online after Ambarau, as the underground mine comes into full production and starts to draw additional power. Staying with hydropower, this is a graphic illustration of the positive impact it has had on Kibali's unit costs. In November/December, it was contributing 70% of Kibali's total power requirement, and while this has come down a bit in the current dry season, the hydro power supply is still well above plan. To improve Kibali's flexibility during the two tight years ahead, as I noted earlier it will be coping with grade and feed restrictions, there is a strong focus on exploring for small, higher-grade satellites which can be brought into the mine plan. The team has also advanced its understanding of the KCD control significantly, which will enhance the mine's ability to plan as well as to manage dilution. Here you can see the various satellite projects around the mine, all with the potential of between 30,000 and 100,000 ounces. One of these satellites, Moku, contributed around 40,000 ounces last year and helped Kibali to beat its production guidance. We're confident that one or more of these new projects will come to the party this year. Sessenge, Kombokolo and Pamao are all already in the mining schedule that may be optimized and brought forward. As you would have seen from recent announcements coming out of the DRC, we are also expanding our DRC footprint beyond Kibali's borders. We recently announced a new earn-in JV at Moku, which is adjacent to Kibali, and where we are now preparing to start fieldwork this season. We're also in the final stages of preparing for a VTEM survey over our new groundholding in the Ngayu Belt, also shown here. Stepping back to the group level, we published our reserve and resource declaration for 2015, along with our Annual Report at the end of March. As you may have seen, it showed that despite last year's record production, we pretty much replaced what we depleted while sticking to our $1,000 per ounce base measure. As this bar chart shows, we've also maintained our reserve-ounce-per-share ratio, one of the key value indicators for gold mining company. And unusually for our industry, our reserve grade has remained level year-on-year instead of going down, underlining the fact that we haven't needed to high-grade to drink up our results. With definable resource-to-reserve opportunities and an expanding exploration portfolio of high-quality targets and projects, we are therefore still able to forecast annual production in excess of 1.2 million ounces for at least the next five years. There is, of course, also the strong possibility that our Greenfield exploration teams are about due for their next big discovery. One aspect of the group operation that we're particularly pleased with is the way our unit costs per ton, a key driver of the mining costs, have been coming down over the past three quarters. While the low diesel price has played its part, this downward trend is mainly attributable to the transition to own a mining at Loulo, and enhanced efficiency and strict cost control across the board. Given the experiences of the last quarter, we have no doubt that there is still room for further improvement, so I believe we can keep curbing these costs. Another area in which we continue to make progress is sustainability, and as the Chairman touched on at the beginning of this presentation, this is key to our business. Our extensive social responsibility program is based in our belief that our host communities should benefit tangibly from our activities, and its primary focus is on the development of sustainable economic ventures, which can help support those communities when the mines eventually close down. What you see here is a status report on some of those projects. We conclude as usual with a share price comparison, and as you can see over the past five years we have outperformed the industry, and despite significant rebasing of the industry share prices over the last 12 months basis, we're still up there with the leaders. We're conscious of the fact that it's going to make it more and more challenging to outperform the market. However, with a strategy founded on the understanding that ours is a cyclical industry, we remain well equipped and committed to ride out the troughs and cash in on the peaks, without rebasing our value, or giving our shares away, or impairing our balance sheet. So thank you for your attention, and with that, I'd be happy to hand over to the moderator, who will be able to give you instruction on how you can ask questions. Before I do that, I'd just like to say, obviously I have Lois Wark with me, our General Manager for Communications; and I also have Rodney Quick, who's our General Manager for Evaluation, with me. Rod is in effect in charge of all of our feasibility work, and he's also the executor of - the custodian of our reserves and resources. So, I'll hand you to the moderator.

[Operator:]

[Operator Instructions] We have a question from Adrian Hammond from Standard Bank. Please go ahead.

[Adrian Hammond:]

Just a couple of questions from my side. Just - you touched on quite an important point for Randgold when you said something about the exploration front is nearing something quite soon in terms of discovery. Could you perhaps expand on that or perhaps give us a hotlist of key targets in your entire exploration scope of study? That's the first question. Secondly, at Tongon, the power situation doesn't seem to be getting much better, and is this something that we should make real adjustments, or is there some sort of solution here? And just on Kibali, the additional footprint you added of some 1,200 square kilometers - how does that compare to its existing footprint? Thanks.

[Graham Shuttleworth:]

Okay, Adrian. Thanks for those questions. On the exploration, I mean, I've got Rod here, so I'll ask him to add his bit. But on the exploration, obviously, we've gone through every section of the operations, as we always do. We've highlighted those key areas where we feel that there is a lot of potential. I think at Loulo-Gounkoto the focus has traditionally been on sort of the Brownfield extension, and we continue to make a lot of progress and have a lot of success on that; but we're also highlighting in this quarter some more of the sort of - let's call more Greenfield opportunities, areas like P64, which we're re-evaluating and where we feel like there is potentially new opportunities based on a new understanding of the geology. I think in Cote d'Ivoire, we have some very exciting opportunities there. And the one project that we've pulled out this time round, for a focus, is the Gbongogo target. And maybe I'll ask Rod just to talk a little bit more about that, just to give you a little more comfort on why we're excited about that target. But generally, I think the point we would always make is, the nature of our approach to exploration is that we have a number of targets at the base of our exploration triangle, and we turn them over to make sure that we don't get bogged down on targets that aren't going to make it. But it is a little bit of a numbers game and if you look back on the track record, we've generally had a new discovery around every five years. So, we kind of feel like we're due one now. So, I wouldn't - I can't say which one it's going to be, but there are plenty of good opportunities there. And as I say, I will ask Rod just to talk a little bit about Gbongogo in a minute. Let me just deal with your other questions. On the Tongon power, yes, I think this has been a perennial problem. I think there is definitely light at the end of the tunnel. As I mentioned in the speech, we have seen some press commentary come up literally over the last weekend, that the President himself has intervened in this situation. So the dispute we were having with them on the tariffs has now been formally withdrawn, so that's off the table. And in terms of the actual supply, I mean, that's the real key issue; it's the quality of the supply because - as we always say, if we have a blackout even for 30 seconds, it means that the mine stands for 3 hours because every - the whole process plant has to be restarted, we have to clean out all the crushers; you have to sequentially start the process plant. So it's the quality of the supply that we've been focusing on. And I think there has been investment in the infrastructure, which will hopefully improve that. And as I say, the recent announcements coming out of the country suggest that they really are going to take this very seriously, in terms of making sure that they deliver a quality product because they understand the importance of this, not just to us but to the economic development of the country as a whole. We have also taken measures ourselves as we have announced in the quarter, we're acquiring another six megawatts of installed capacity so that we'll be able to run the full mine on our own standby gen-sets, so that will also give us that ability and help us to deal with periods where the infrastructure is not available. And we continue to work with the CI to make sure that the communication between the mine and the distributor is enhanced. Because if we can anticipate when the downtime is going to be, we can manage it. It's the unplanned downtimes that are really the ones that are problematic. So we're working on that, and we have a lot of confidence in the Cote d'Ivoire's capacity and in the government's ability to really challenge - really deal with these issues. They really have shown a lot of leadership in this area. And particularly in the area where we had issues, they've stepped in and they have resolved them. So we see that as very positive.

[Adrian Hammond:]

Yes. Just on this matter, before we move on - the - if I can just intervene here quickly, the - how does this factor into your thinking regarding new Greenfields opportunities within and around Tongon? I mean, is it a situation where power stability has to be sourced, or a solution has to come from yourselves or is it - are you relying on the government in your future thinking here?

[Graham Shuttleworth:]

Our approach to project development has always been that we would like - we've always engineered to have standby power, even when we have had good power. Our honest belief is that Cote d'Ivoire is - it's very much a go-to country still, and we believe that they will address these issues. Everything that we've seen in their actions suggests that they are going to be addressing these issues, albeit that they can't be fixed overnight. But in terms of Greenfields opportunities, this doesn't effect on it at all. By the time we get around to developing a new mine, I'm absolutely sure that they will have addressed what I think are sort of temporary issues in terms of making sure that the infrastructure is upgraded and available. They've got new projects that are coming on - two new hydro projects that are coming on-stream to address the capacity issues as we speak. So longer term, it doesn't impact our decision at all. We still remain very positive about Cote d'Ivoire as an investment address. To your last point on the new joint venture, I'm just talking off the top of my head now, but I think that that groundholding - it is about sort of 70% of our Kibali permit, Rod; Kibali is just over 1,600 square kilometers and this is 1,200 square kilometers. So, it's a big piece of ground. By any measure, if you compare to some of our normal permits, this is a very significant piece of ground. And we see it as a huge opportunity. So I'm just going to ask Rod now if - just to talk about Gbongogo a little bit, and give you a little more color on that.

[Rodney Quick:]

Yes. Hi, Adrian. Yes. At Gbongogo, we've got a surface expression there of about 400-meter strike which we've trenched, and that's where the diamond holes have gone in and hit that intrusive, so it's a quartz-veined intrusive. The hole intrusives are anomalous to mineralize, so we clear around 0.5 grams and then wherever the veins occur it's high in mineralized. And we're now getting wide intersections, 60 to 100 meters, running at 1.8 grams up to 2.5 grams a ton. And our feeling is, it's probably going to come in at around 1.8 grams for that whole thing, and then the guys have moved 800 meters north. So we've got a river - well, a small stream that's cutting the target in half currently, and they've moved 800 meters off to the northeast and they've put another trench in there, and they've got - they've intersected the same intrusive that's veined. So our current feeling at the moment is, if we can join that northern portion of the target with the south - so, join and demonstrate the 1.2 kilometers of strike - you're looking at an average width of around 100 meters. You don't need too much depth extent, or dip extent, on that to notch up the ounces, even at 1.8 grams a ton. So that sort of 350-meter down dip extension - you would get 6.5 million ounces out of that. It's dipping pretty flat - 20, 30 degrees. As we've drilled deeper we've found that it is coming up and dipping quite flat, so one would expect a very large strip ratio on that. So I think from a Greenfields target, Mankono is definitely the area where we're focusing in on. We've also got - the initial met recovery results have come in, and averaging 88% from six samples. And most of those were up in the 90%s. So metallurgically it looks simple, it's a single lithology. No massive grade variation, low-grade but consistent grade. And the key there is going to be all about tonnage, and that's going to have to be big, and that's - the key is now to join those two portions of the ore body. So, I think that's the key one, obviously. Sofia, on the Massawa side, is a key target on the exploration side. We had some disappointments in that we went down dip there and we didn't hit the grade. So, it's not a slam dunk, that planar ore body. But the interesting thing there - Mark and I were there last week, and there is clear geological variation between the different sections and holes. So, where they have hit the high-grade mineralization, to where they have not. So there is a geological explanation for that grade variation; we just need to understand that, and then we'll pick that up. And then Sofia is obviously pretty critical, when you put it together with Massawa, that will be a key driver for that whole project. Then on the staying in Ivory Coast, with - just above Mankono and Gbongogo, we dug the whole Fonondara/Kassere trend. Fonondara - we would have - if you check the results over the last 12 months, we initially had some very good trench results there. We drilled under there. We reported a bit thin results. But just north of Fonondara is Kassere, where the - we're reporting some very good trench results. So, it's really that whole trend from Fonondara up to Kassere, that's the other big focus area for the exploration guys. And then the other stuff is really, as we've spoken, good results around Gara. Gara open pit extension to the south - very comfortable. We're probably going to get a 200,000-ounce to 250,000-ounce pit there at good grade. And then satellites also around Tongon, the Seydou satellite, which - mineralization looks very similar to the Southern Zone. So geologically, we're fairly stringy, but we just need sufficient drilling, we feel to move that project up, and then there'll be additional tones there, ready for Tongon. So, a real - a combination of Greenfields and brownfields coming through on the exploration side.

[Adrian Hammond:]

That's very useful. Thanks, Rod.

[Operator:]

Our next question is from Dominic O'Kane from JPMorgan. Please begin.

[Dominic O'Kane:]

Just a quick question regarding the Q1 performance versus the guidance that you gave with the full-year results. So at Tongon, the total cash costs for Q1 were $10 to $20 an ounce below the full-year guidance. Do you think the Q1 cost performance can be sustained through the year, or should we thinking about maybe lower grades, lower recoveries, in subsequent quarters? And then, at Kibali, obviously a slightly disappointing quarter in terms of recoveries, given the change in the ore feed. Just want to get a sense for what recovery is baked into the guidance for this year, and I guess contingency planning around that recovery rate in the subsequent quarters.

[Graham Shuttleworth:]

Sure. So - sorry, Dom, just to clarify your question, you said at Tongon the costs were lower than - or did you mean Loulo? Sorry, I was…

[Dominic O'Kane:]

Sorry, yes. So, I did mean Loulo. Sorry. Slip of the tongue. Yes. Loulo - so, the Loulo-Gounkoto, you did about $550 total cash cost and the guidance for the full year is - it looks about $570.

[Graham Shuttleworth:]

Yes. So I think it's - I mean, the answer to your question is, it's swings and roundabouts. So, I mean, you're right. If you look at things at the moment, Loulo is slightly ahead of the game. And if you look at Tongon and Kibali, they are slightly behind the game, if you just look at it one quarter relative to the full-year guidance. I think the point that we've made is that we've reiterated our guidance for this year - in other words, the 1.25 million ounces to 1.3 million ounces, at Group cash costs of between $590 and $650. And we comfortable that, given the Group's performance on quarter-to-date, that that's where we're going to come up. So that's the nature of mining, isn't it? Sometimes one operation does a little bit better, another one does a little worse, and sometimes then they turn around and you can't - you can never predict mill journal failures. You might have predicted slightly low recoveries when you went and campaigned sulphides for the first time at Kibali, albeit I don't think we predicted them to be quite as low as what they were. But having said that, we learnt a lot of lessons through this process, we identified what were the actions that - this is the first time that we've done this at Kibali. We identified the key actions that the guys got wrong, and we've got specific plans in place to make sure that when we campaign again, we address those areas that caused us the problems. So I think the short answer is, we feel comfortable with the Group's production, and clearly Loulo is in a very strong position. Kibali, we're very comfortable with. Tongon is going to have to work hard to get to its target, but we're going to keep pushing to get there.

[Dominic O'Kane:]

Okay. Thanks.

[Operator:]

Our next question is from Josh Wolfson from Dundee Capital Market. Please begin.

[Josh Wolfson:]

A couple of quick questions. Graham, you mentioned earlier on the call about the Kibali transition - so, the next campaign being the third quarter. Just to understand, are you - is the mill currently set up to be half oxide and sulphide now, or is it full sulphide, and in the third quarter it's going to transition back to oxide?

[Graham Shuttleworth:]

No. So during the first quarter, we transitioned for just over a month with both streams on sulphide. And then, before the end of the quarter, we transitioned back one of the streams to oxide. So, as we sit today, we're on a one-oxide, one-sulphide stream. And what we will be doing around the middle of the year is again campaigning for a month or so with two - again, two sulphide streams. And the point I was just making to Dominic was, we made a few mistakes when we did that this first quarter. We think we've identified where we went wrong and what we need to make sure that, when we do it again, we don't suffer the same problems in terms of A, the drop in recovery, and B, it was a - sort of a double whammy. We dropped recoveries when we transitioned to full sulphides, and we dropped again when we transitioned back to the oxide. So we think we've learnt that we will have to be doing that at least once this year, and maybe twice, but certainly over the next 18 months as we - or 2 years, as we head towards full sulphides, because we ramp up the underground mine. These are issues we're going to deal with. But as I say, we believe that we now understand what the sort of operating plan needs to be, and that we don't anticipate the same problems going forward.

[Josh Wolfson:]

Okay. And for Tongon, in terms of resolving some of the power issues with the additional generators, what kind of capital requirements would you estimate that would be?

[Graham Shuttleworth:]

So it's about $4 million.

[Josh Wolfson:]

Okay. And for the costs at Gounkoto, which looked - on a unit cost basis, which looked very good despite the higher strip ratio, given where the oil price is and FX rates are, what are your mining costs at Gounkoto, and I guess also for Kibali?

[Graham Shuttleworth:]

So the Gounkoto - as you say, the strip ratio is really the big driver. This past quarter, the strip ratio was about 16, which was in line with our plan. And that, to be honest with you, is not far off what we expect to be for the year. That's about the sort of run rate for the year. There are some swings and roundabouts. I think it's slightly higher next quarter and the fourth quarter's a little bit - just the way the mining plan works. And similarly, the fourth quarter also has higher grade. Again, just the way the mining plan works. That's when we get into the sort of higher-grade sequence which is part of the reason why at the start of the year when we gave our guidance we said, this year is going to be second-half-weighted. And it's really a function of the grades, and in particular the Gounkoto grades is one of the key drivers in the - at the latter half of the year. So costs are going to stay broadly in line, in terms of unit cost. But as I say, the strip ratio next quarter goes up a little bit and in the fourth quarter it'll come down a little bit relative to the current rate, which is about the average for the year.

[Josh Wolfson:]

Okay. But just in terms of understanding what the actual mining costs are, do you happen to have that number handy?

[Graham Shuttleworth:]

You mean the ton mined or per ore ton milled, or what do you want?

[Josh Wolfson:]

Per ton of ore - or, per ton of rock mined.

[Graham Shuttleworth:]

So at the moment, we're running at around $2.50 a ton.

[Josh Wolfson:]

Okay. So that's a pretty significant savings from, I guess, historical - over $3.

[Graham Shuttleworth:]

Yes, you're right. We've been over $3. So, that's a combination of diesel down, Josh, and also we've pushed harder on efficiencies with the contractor. So, over the last 2 years we've really worked hard with our contractors to get efficiencies improved. And then diesel, obviously, is a big driver there.

[Josh Wolfson:]

And then lastly, for Loulo underground, with the costs now I guess all owner mining, are you expecting any further savings, or was the delta, I guess, in the first quarter now what you expect to be the going rate going forward?

[Graham Shuttleworth:]

I think we'd like to believe that we could still get a little bit better and smarter. I mean, it - the saving will become through the efficiencies. So, that's - if we can - the absolute number isn't going to change. We've got so many people and we've got so many machines, and that number doesn't really change. So, can we get a few more tones and advance a few more meters? I think that will still be our goal. I think the quantum shift is going to be smaller.

[Josh Wolfson:]

Okay. That's it for me. Thank you very much.

[Operator:]

Our next question is from David Haughton, CIBC. Please begin.

[David Haughton:]

Thank you for taking the call. Just on that unit cost question at Loulo, clearly the transition to owner mining has been a benefit to you. Can you quantify, what kind of savings are you seeing there? Are you talking $5 a ton mined or $10 a ton mined? What sort of quantum should we be thinking about?

[Graham Shuttleworth:]

Yes. So David, when we did the initial sort of feasibility, we estimated that we were saving about 10% real costs. Because remember, you've got - you mustn't get confused between cash costs and real costs. Because when you go owner mining, obviously - previously, when you're contract mining, all of the capital is effectively in your cash cost rate, because it's amortizing in the rates you pay in the contractor. Whereas, when you go owner mining, now suddenly you take all that out and it sits in your depreciation, and suddenly your cash costs look really good. So we estimated that we're saving about 10% on our underground sort of costs - owner miner costs, effectively which is about half of our total underground costs. So in net and real terms, if you look at it in terms of cash costs, it's more like 20% because as I say, you're not comparing apples with apples. So that's kind of the number. So, if you're looking at that, that is about $5 a ton, yes.

[David Haughton:]

Okay. So that's encouraging. And the mining cost split really between Yalea and Gara - are they very similar? Are they within a few dollars of each other?

[Graham Shuttleworth:]

They are similar. Gara's a little more expensive just because it's - I mean, Rod -

[Rodney Quick:]

Smaller.

[Graham Shuttleworth:]

Yes. But it's a smaller operation. The stopes are smaller. You don't quite get the same efficiencies that you do in the Yalea operation.

[Rodney Quick:]

Yes, smaller per ton. And that's another thing on the costs, too, when you look at the production method [indiscernible] the quarter were up from the previous quarter. So, when you're dividing by more tones, can bring that unit cost down. And that's really the difference between Yalea and Gara. Gara's a thin ore body doing 100,000 tons a year. Yalea's up at 100,000 tons a month. Yalea's up at 130,000 tons a month.

[David Haughton:]

Okay. So similar kind of fixed cost, but one's got more tones than other; therefore, you see a change in the unit cost per ton.

[Rodney Quick:]

Yes, in the same mining method.

[David Haughton:]

Okay.

[Rodney Quick:]

Yes, design.

[David Haughton:]

Just going over to Tongon, did you experience any power outages during April? So, have we experienced any during this current quarter?

[Graham Shuttleworth:]

So we have had some interruptions, not as bad as what we had in the first quarter. So, it has improved, but it's not fixed.

[David Haughton:]

Okay. So we'll see, then, something similar but maybe not quite as impactful in the second quarter compared to the first quarter. So, throughput should be down a touch as a consequence of some of that outage that you've had already in this quarter the first month. And will we also be seeing some of the recovery - weaker recoveries in the second quarter, as a consequence of that shutdown/startup kind of problems that you'd encountered?

[Graham Shuttleworth:]

Yes, I would say we would expect an improvement on the first quarter. But I would say it probably won't be at the sort of run rate that we want - the sort of steady-state run rate that we're looking at. And that's partly because we're still, we were still commissioning the fourth-stage crushing circuit in April. So, there were still quite a lot of interruptions from that process as well.

[David Haughton:]

Okay. So that means that the potential for 300,000 ounces this year is really slipping away from you, unless you can pull something out as far as much better grade in the second half.

[Graham Shuttleworth:]

I think - I mean, our target is 290,000 ounces. So, you're right. To get to that level, you've got to sort of see 10,000 ounces more every quarter. That's our goal. We want to add to the 10,000 ounces more each quarter. And as you probably know, Tongon is a relatively homogeneous ore body. There isn't a lot of high-grade. So, there isn't a huge opportunity to increase your production through putting through a materially higher grade. So it really is all about throughput and recoveries. And that's our goal. Our goal is to get - ramp it up steadily over the next four quarters. And as I said, that's why I think, when you look at our operations across the Group, as we said today, Tongon's the - going to be the biggest challenge; whereas, other operations, we're ahead of the curve.

[David Haughton:]

Yes, just going to Kibali, I think at one stage there was a guidance for the year CapEx being about $180 million. The first quarter - quite light, if that was the goal. And just wondering if you are expecting to see a step-up in the CapEx for the balance of the year, or whether in fact you're seeing lower CapEx overall.

[Graham Shuttleworth:]

Yes, you're absolutely right. The target for the capital for the year is about $180 million. And you're right - for the quarter, we did $27 million, so proportionally lower than what we expect. Our guidance remains the same. It hasn't changed - $180 million. So, yes, there is going to be a step-up. And mostly, that's related to - obviously, the underground continues at a relatively steady rate. But the hydropower's - we're going to - we've been a little - we're busy doing this remedial work on that berm. And once that's in place, we can sort of step on the gas again on the hydropower. So, it's - that's really the key driver.

[David Haughton:]

Okay. For the underground mining that you've got at Kibali, what sort of grades are you seeing? Are you satisfied that they're in line with the reserves? Have you got better grades; lower grades? Can you just talk a little bit about what you're seeing?

[Graham Shuttleworth:]

Slightly lower than reserve, reserve's just under 6 grams a ton. We're currently mining around - just under the 5 gram. Getting slightly low, and that's mainly dilution issues that we've had in the first stopes. We just recently started stoping there. So - and got into the secondaries. So, we've mined out our first phase of primaries and we've gone into the secondaries. And you get a little bit of additional dilution that we had not planned for, but we understand why. Because - and this was to do with the accuracy of the production drilling on those first primary stopes. So they actually overbroke into the secondaries, so that when you took the secondaries out you had additional backfill dilution coming through. And we feel we've addressed that now - that we've got the accuracy up to the sufficient level that when we do our next primaries we'll be able to cut those stopes clean. Also, just on a learning curve, the guys had some pit wall waste dilution in one of the big stope areas. And I think, in hindsight there, if you had taken - they should have cable-bolted it instead of chasing the tones. So, yes, a little bit of a learning curve. And I think we can get that grade back to design. The ore body globally underground is hanging together well with the grades and the original reserve grade as we infill-drill. We are getting local variation. And you will see in the - I think the one slide there, you can see the remodeling that's happening as we're able to get the grade control drilling in and drill perpendicular crust and lodes as opposed to the surface drilling where everything was drilled from above - from surface down the lodes. So, overall, we're happy with what we've seen with the recons on grade control and reserve resource.

[David Haughton:]

And you spoke about swings and roundabouts previously. And I guess the swings and roundabouts here is that, although the grade might be lower from the underground, the open pit seems to be contributing better than reserve grade.

[Graham Shuttleworth:]

Yes, there is different ore bodies and different pushbacks in - at play. Mengu Hill is a high-grade ore body. However, it does come with one of our lowest met recoveries. So, as we progress into Mengu Hill fresh, which will really be predominantly next year, we do have recovery pressures on that material. But it is significantly higher grade. So, yes, there is - we've got multiple pits with - that feed into the mine plan, and multiple underground lodes which also have had variable grades. We have - with that slight drop in grade, though, we are picking up additional tones from the underground. So from an ounce basis, we're getting all the ounces out. It's just that we are taking a little bit more tonnage. So - but we understand why it's happening, and we feel it will be, it can be addressed.

[David Haughton:]

Excellent. Thank you, Graham.

[Operator:]

[Operator Instructions]

[Graham Shuttleworth:]

So I think that sounds like that's the end of the questions there.

[Operator:]

[Operator Instructions] We have no further questions. Graham Shuttleworth, back to you for the conclusion.

[Graham Shuttleworth:]

Thank you very much. Thank you everyone for listening. Hopefully we've been able to give you a better picture of the results of the Company. And as always, if you have any further questions or information that you'd like to discuss with us, please feel free to get hold of Lois or Kathy, or reach out to us directly, and we'll always make time for you. So, thank you once again, and I'm sure we'll be seeing - between Mark and myself, we'll be seeing many of you over the next few days.

[Operator:]

This concludes today's conference call. Thank you all for your participation. You may now disconnect.