Barrick Gold Corporation
Q1 2015 Earnings Call Transcript

Published: 7 May 2015

[Dennis Mark Bristow:]

Right. Good afternoon, ladies and gentlemen. Welcome again to our quarterly update and results presentation. I'll just point out that Chris Coleman, our Chairman, who usually comes and says a few words, is unfortunately not able to be with us today. So we're going to skip that part of the proceedings. He's also got a day job and that called suddenly during the morning. As you know, I've long maintained that the gold mining industry is less than efficient at managing the ups and downs of the gold price cycle. And I would suggest that given the last run of results this quarter, this is becoming increasingly evident as we see the stress grow in our industry. In this environment, and to put us in perspective, Randgold Resources has always tried to demonstrate its difference from its peers. This is because unlike most of our peers, we do not live from quarter-to-quarter, and we are clear about the importance of investing in our future, given that our business is a consumptive one. We have always been driven by a clear strategy with long-term objectives. And our decisions are made within the framework of strict investment criteria. And so once again, and despite some interruptions that affected production at Loulo, our results for the past quarter underline the effectiveness of this approach. As usual, I'll start with sustainability, because it's not just a box that we try and tick. It's essential to every aspect of our business. Our annual report for 2014 was published a month ago and with it, our sustainability report, which was prepared in accordance with the Global Reporting Initiatives' G4 guidances and verified independently. Key features of that report were that all 4 of our established mines retained their ISO and OHSAS certifications, that's for environment and safety. And Kibali, the last one to be certified, is busy with that process. We also decreased our Lost Time Injury Frequency Rate and improved on our mission intensity and water and energy efficiencies. As for this quarter, the reporting quarter, whilst Gounkoto and Morila again posted 0 loss time injuries and Kibali saw a pleasing decrease in its loss time injury frequency rates, Tongon broke a long run of no injuries, which impacted on the group's injury frequency rate, lifting it from 0.61 to 0.79. We also continued our involvement as a group in the fight against HIV/AIDS across Sub-Saharan Africa, and we remain the leader in the private initiative against Ebola. And it's really pleasing to see the successes that we are now making in the affected countries, certainly over the last 2 months. And we have continued our investment in agribusiness initiatives across our operations. And these are the salient features of our business for the quarter. While not without its challenges, a satisfactory overall performance. And as I said, you can't always have record results every quarter. But what really came up this quarter is that we really delivered across the spectrum of our business, and that's, for me, very rewarding. And I'll certainly spend time dwelling on each aspect of our business and its delivery. Production was down, for reasons I'll explain later. But despite this, total cash costs per ounce declined and profit from mining subsequently -- consequently rose. Net cash, and that's king, as you know, generated by the operations, increased substantially. And this strong cash flow, along with the declining capital spend, resulted in a 71% boost in our net cash. And that's the cash as of IFRS. So there's still another $17 million attributable dollars in our joint ventures that would also report into the cash if it was consolidated. And I would point out that we have no debt, so net cash position. Morila and Gounkoto both paid dividends this quarter, and Kibali made its first repayment of shareholders' loans. We continue to reinforce our exploration effort as ever, the core driver of our business, with an addition to the senior management team as well as some very significant results from our brownfields work as well and probably, more importantly, for first time for a very long time, our greenfields program, with the latter delivering an exciting new target, which we'll spend a bit of time on through the presentation. These are the numbers behind the highlights, and they reflect a settled overall operational performance, which gets us off to a reasonable start for the year. The uptick in exploration and corporate expenditure is normal for the first quarter and within our guidance for the year. Turning then to Loulo-Gounkoto complex. The complex had to deal with a number of challenges through the quarter, including a catastrophic failure of the primary mill gearbox, which resulted in 7 days of downtime. And I think that really -- if you look at that along with some planned downtime as we worked on the rehabilitation of the medium voltage switchgear and infrastructure, it really impacted about 100,000 tons on throughput. And that was the driver of about 7,000 ounces less in the quarter for Loulo-Gounkoto, which would have brought us back on a group basis in line with last quarter. Notwithstanding that, the total cash costs per ounce us was kept in line in the previous quarter, and that really driven by a continued focus on working capital efficiency and the benefit of the euro and, to a lesser extent, the lower oil price. The complex results shows already highlighted throughput steady. But without the interruptions, as I pointed out, should have been 100,000 tonnes higher. And the reason it looks flat is because we had some challenges with one of the other mills and its motor last quarter, quarter 4. So that's why it looks flat, but it should be a little higher. There's still some work to do on the recoveries, and in particular, the run rate. The whole planned maintenance as we go to owner miner, which I'll touch on earlier, and really that's our big focus as a group is how do we get that run rate consistent? We've certainly got it at Tongon. We got some work to do at Loulo, Gounkoto and Kibali still. Despite the low production and grade cost, we're well contained and profit from mining increased. Looking at Loulo on a stand-alone basis and given the issue I've already -- issues I've already outlined, its contribution to the complex plant feed [ph] was 55%. That's just in perspective with our planned ratio of 60-40. So slightly lower. The reason being, as you'll see when I talk about Gounkoto, is we had some softer ore in Gounkoto during the quarter. We fed that preferentially, just to try to ameliorate some of the throughput with the one mill down. Though we've got a couple more upgrades still in the pipeline and particularly around carbon management, the -- we're expanding the regeneration section of the processing plant. And really, that's part of our addressing the recovery and the ability to deal with these higher copper and arsenic contents in the Yalea high-grade ore from the Purple Patch. The standalone results illustrate the points I've already made. And so let's just turn to some of the specifics at Loulo and starting with the underground. As you already know, we have been gradually taking over more and more of the underground mining at Loulo and recently decided to take over the remaining operations, which really comprised the in-scope drilling and blasting and the tramming from the stope to the crusher tip. Apart from that, we will operate the rest of the underground process. And we've reached agreement with our contract miners to hand over on the 1st of November. And as part of that, we've decided to standardized our underground mining equipment with Sandvik, AUMS use Caterpillar. We placed the orders. And that would standardize with our Kibali assets, which we own as well, and be able to really allow us to focus on developing those skills. And our big focus is to go to remote mining. And we've had a very successful run at Kibali, introducing it from scratch. And we believe that's the way to go. Unlike many mining companies that think labor-intensive mining in Africa is the appropriate way, we have a contrarian view. We've invested in the skills, and we believe that that's the way to go to really drive efficiencies. The move is expected to reduce Loulo's total cash costs by about 6%, and the mining cost down around 15%. And that's really what you're seeing there at the moment is the margin that we pay AUMS. We have built in some insurance. As you know, handovers like this always end up in tears because of inefficiencies in the handover. We've incentivized AUMS to add an additional 2.2 kilometers of development before they leave and they get paid for that and so it's very -- and it's kept them. And you can see that, unlike what you'd expect, our production rate is up and our cost controls are in good shape. And that will give us some flexibility as we take over the mining. We'll -- the equipment will arrive in September, and we've got a full 6 weeks of training, and then we'll be ready to take over on the 1st of November. The update of the past quarter's brownfields exploration results at Loulo or within the Loulo permit are somewhat a mixed bag. But at Yalea in particular, a recent borehole intersection at the southern end graded 12 grams per tonne over 11 meters. And more importantly, it looks just like the Purple Patch. And if you look at this, it's a considerable way away from the Purple Patch, but within a plunging high-grade shoot that our geologists had modeled some time back. And just to focus in on that modeling. This is the model. You can see that, that higher grade zone is now being intersected by a number of boreholes, and we're quite excited about that. That's really -- we set ourselves the task of replacing the -- ounces. We're mining at the same quality. And whilst we had some mixed results in the deeper drilling, it's exciting to see this train coming out. Likewise at Gara. The -- again, the recent drilling, has highlighted the opportunity to prove up the Southern plunging extension to the orebody, as again indicated there. And we've done a number of holes there now, they're all stacking up. More importantly in Gara, it's about what the orebody looks like. It's got quite a variable grade. And we've -- high-intensity tourmalization, lots of quartz veining, and we're certainly seeing the main orebody in the intersections. And this is an area where we, again, are modeling about 400,000 ounces of potential conversion. And so that bodes well for the replacement plans for this year. Loulo exploration permit. On the greenfield side, really in a process stage at the moment as we focus in on the evaluation of 5 regional structures that we've now pulled out and then reprocessing the layers, the intention of being able to assess and prioritize targets for the next phase of testing. Moving now to Gounkoto. The operation delivered increased gold production, as I indicated when talking about Loulo underground, on the back of a 50% increase in tonnes processed and a reduction in total cash costs per ounce. Ore production increased in line with plan to build up the stock pile. You'll see, we didn't process as much ore from either Loulo underground or Gounkoto, and we built about a 60,000 ton high-grade stock pile ahead of the rainy season in Mali. On the numbers profit, as you would expect from mining, it was up in line with increase production and a higher gold price. And the mine paid 2 dividends through the quarter, $27.5 million in February and another $8 million was approved last week. Brownfields exploration at Gounkoto this past quarter produced some weak results in our drilling below the main pit, as you can see there. But the drilling also continued on the Main Zone 2 and 3 underground extensions as part of the progress in design -- in the design stage of the underground project that's converting a feasibility study into reality. And we've now started with all the geotech work on the porthole places in the neck between the 2 main pits, as you see here. So we'll be coming out of the neck, and we've got some vent shafts that we want to put down. So we are doing that work. We are on track for the start of the decline development in 2018. Also on the Gounkoto pit, very much like at Loulo. We're really at that review stage. The big focus being the looking under the transported cover along the sort of Gounkoto zone, which has got no or very little outdrop. So it's all about remote modeling and then testing. Work on our 3 joint ventures in Western Mali continued in the form of mapping, pitting and trenching. And we continue to develop early-stage anomalies across the Legend joint venture. At Bena, we are defining what we believe is a 3-kilometer long Gounkoto-type target. And in Bakolobi, we have identified 3 targets where our work has exposed a number of mineralized structures beneath extensive transported alluvial material. Staying in Mali, but moving across to Morila. The mine completed mining the Pit 4S. And once the last of that ore has been processed through the skirt [ph] of the mine, we'll then process the mineralized waste before starting on the tailing storage facility material, which is currently planned for the end of quarter 3. We're also looking at a very small satellite that we've been evaluating nearby the mine that could yield an additional month or 2 of full grade ore processing. The team's focus, however, is very much on rightsizing the operational -- continuing to rightsize the operation to ensure that it remains profitable as we prepare for the tailing's retreatment operations. And of course, our focus after closure is to leave a agribusiness -- a viable integrated agribusiness behind, making use of the mine's infrastructure. The results for the quarter were in line with plan. And as you would imagine, much improved on the previous quarter because of the high-grade out of Pit 4S. And what is really highlighted in these numbers is how efficient Morila's got with its focus on costs. And a 1-gram move in the grade really has materialized in almost half the cash costs at a significant increase in profit for mining. And that manifests itself in a much stronger cash flow. And that's allowed Morila to actually pay out a $25 million dividend this quarter to its shareholders. Over now to Côte d’Ivoire, where the commissioning of Tongon's new floatation circuit has been completed, and we're still progressing our crushing circuit upgrade. But notwithstanding the continuation of the crushing circuit upgrade, we're certainly seeing the steady lifting of the operations' performance towards its designed levels. Automation and optimization of the floatation circuit is now underway, and we're certainly seeing a steady increase in the gravity -- in the mass pull of the floatation and also the recoveries. And we've got all that experience now of having done the same thing in Kibali. And we're confident that we've eventually got our heads around that challenge. Outstanding still is to lift the crushing capacity and, consequently, the throughput up to the sort of 4.6 million tonne a year design level, which we're working on with our crusher's suppliers. Right now, we've got to a stage where we are in line with this year's guidance. But our long-term and our original KPIs, based on the technology that failed, was a 4.6 million tonne run rate. And so we should have that done by the end of the year. We finalized a Côte d’Ivoirian [ph] additional 2 crushers, which we'll be working with Sandvik to put in place before the end of this year. And so we should be in good shape for next year. As you can see with the numbers, tons processed increased quarter-on-quarter, and production was slightly up on last quarter, which is pleasing. Costs, well-constrained in Tongon. That team's really got its head around -- we talked about the run rate earlier. It's really got its head on the run rate. It's been able to manage. And talking about that, if you just at look at this last quarter, the power utility, national power utility had some real challenges in the dry season with its power capacity and also some upgrades on some of its turbines -- the gas turbines. And so they did some power shedding and we were able -- and they worked with us. And the result of that was that we didn't have any power blackouts and we were able to manage it. Although we had to take a slight increase in cost, the fact that we kept the plant steady is quite an achievement for the team, a big step forward. Because as you know, mining is all about keeping things going all the time, every day, 24/7. And these -- this is just an update on the timeline against our projects we set ourselves last -- beginning of last year. And you can see, we've added the next step in the additional Hydrocone crushers, which we should have done by the end of the year. Having replaced what we mined last year, the exploration team continued with the in-fill grade control drilling as well as the drill program aimed at extending the $1,000 pit with some encouraging results, as you can see here. And so at this stage in the process, it's certainly, and as you can see from the numbers, we're pretty comfortable that we'll get close to or exceed replacing the ounces we've mined this year again. As I intimated in the introduction, the real excitement on the exploration front for this quarter has been the delineation of a very significant new target called Fonondara on our Boundiali permit in the Côte d’Ivoire, some 70 kilometers west of Tongon. It's very early days, of course, but at this stage, this target is really stacking up. And like all the targets that we've defined at this stage, you look back after 2 weeks of putting it all together and say, "Wow, why didn't we see this earlier, because it all stacks up." And I'll try and give you some sense of it in the next couple of slides. But certainly, it does compare with, at this stage of evaluation, the discoveries we have made in the past. Fonondara is located within anomalous trained -- trends over -- which trend over some 25 kilometers and a structure that stretches along nearly the whole of the 82-kilometer Boundiali permit and can be traced up into Southern Mali. And it is the same structure, we believe, that hosts the Syama deposits in -- and we know that these big gold deposits really are all located on these big penetrative structures, deep-seated structures, like the Senegal Malian Shear that hosts Yalea and Gara and Gounkoto and Sadiola, the same Sabodala structure in the Senegal greenstone belt, the shanty structure in Ghana and so on. And so the -- certainly, the regional setting and the main structural controls support this -- the recent results. Trenching and pitting results from its Main Zone has confirmed the realization over -- with more than 25 meters and a 50-meter strike with an average grade of 4.6 grams a tonne. And similar material and grades have been confirmed in pits and ongoing trenching over a 2-kilometer strike, just more than 2 kilometers strike. The next step is the drilling of 5 diamond boreholes, as indicated in the yellow stars on the map to confirm this structure and its host mineralization. And of course, subject to the results, these will provide the framework for the next phase of evaluation. We'll also be testing some of the other sites along the strike because suddenly there's -- we've got a target, siting [ph] target, you can see here. Now putting it perspective with the structure, those numbers look quite good. Whereas on their own, they were sort of average. So we're go to go back and have a look at some of the other targets that we've got along this structure over the -- and we've mobilized the rigs already. They're on site. So we should have these 5 holes drilled by middle of June. We'll be in a good position to give you a head's up when we speak next time. So across to the DRC, where Kibali had a really solid operational quarter, while also starting to mine the Mengu Hill satellite pit. The underground mine development remained ahead of schedule, and we completed the cold commissioning of the paste backfill. And we are now into the hot commissioning, and that paste backfill plant should be operational during this quarter. And the construction of the second hydropower plant is also on track to start delivering power to our grid by the end of quarter 3, early quarter 4 this year. I'd remind you that this is a mine that started contributing or covering, financing its own capital, in its first year of full production. And during the past quarter, as I pointed out in my first introductory slide, made the -- its first payment of -- a repayment of its shareholder loan. The quarter saw a decrease in grade, as you can see here. And that grade is going to be the run rate out until 2018 and until the underground higher-grade ore starts influencing the production profile. And as you know, we've guided a 600,000-ounce production profile for the next 3 years. We did guide you also that it's going to a tight '16 -- 2016, '17 because of inflexibility of the mining schedule. But certainly the progress that we've made to date suggests that we are getting on top of that inflexibility. The underground mine is well ahead of schedule. And if it continues like that, and once we have the paste backfill up and running, we're confident that we'll be able to build flexibility into our ability to deliver ore to the plant. And likewise, over the quarter, we upgraded the mineable resource within the Gorumbwa pit. We pointed that we're going back to drill some of these modeled deeper ore bodies, and we've made good progress on that. And so we're looking at just under 0.5 million ounces at 3 grams for Gorumbwa, which is free-milling ore. And the challenge with Gorumbwa is we have some relocation to do as far as villages go, so that restricts the size of the pit. But at Mengu Hill, that I pointed out, we've already started mining. That's just really been a very interesting project. We doubled the resource, the in-pit resource this quarter. We expect a get a -- well over 500,000 ounces within the $1,000 pit by the time we've drilled out those inferred -- 146,000 ounces of inferred resources. We've also worked at the recovery. We -- it's always been a lower recovery orebody in our schedule. And you can see the last line of deep drilling we've done on the down dip-side outside the pit has delivered some spectacular results. It's a lensoid-shaped orebody, 120 meters wide, 35 meters thick at its thickest part. And it's very similar to the KCD orebodies. So it carries a lot of gold in quite a small volume. And so we got -- we're excited about the potential. And of course, the question that -- the natural question, which is -- in KCD, we've got 4 of these, stacked 1 above the other. And the deepest hole only goes 10 meters through the footwall of this orebody. So the next hole we drill, which is part of this program, is to drill a 500-meter hole through the orebody and have a look at what's underneath. And we've really refined our -- for the geologists in this audience, we talked about sheet folds controlling these cigars [ph]. We're now convinced that's really recumbent folding that's folded again. And you get these solid runs, rather than calling on some high temperatures, sort of partial melting to create these sheets. And we're very excited about that. And so a lot of these -- and you can see this. We're now working on the KZ zone. These are the different satellites that we've got along this 35-kilometer zone that already hosts defined ounces of 22 million ounces. And we've got now -- we've agreed on 5 control holes -- geological holes, we're going to drill in large diamond holes, straight down vertically, to be able to give us a coat hanger, to reference the structures and put these various models in perspective. So that's a project that's going to keep us focused for the next 2 quarters. Just to catch up on Massawa. We've now completed the detailed very close-spaced evaluation drilling in the 3 parts of the orebody as part of our relook at the feasibility study. All those results are now back, and we're now processing them along with completing some additional test work with those samples we collected. And we remain on track to be able to update you on how we see this project, its value and its future the -- at the middle of the year. And so as I always point out, that it's important in mining to think about the fact that you should try and replace the ore that you mine. Otherwise, you end up having to mine lower and lower grades or run out of business. And so that's one of our core focuses. You've heard me consistently talk about organic growth, recently exploring the M&A opportunities that a stressed industry should ultimately deliver. So -- but our focus really is clear. When you do the trade-off, the best thing that we can do to lift our value and our shareholders' value is find another Morila or Kibali or Gounkoto. And so we've -- last year, reinvented our exploration team. We've again beefed it up this quarter. We've employed, as some of you might know, Mike Skead, who I've known for years. He's operating in Central, East and West Africa, mostly Central and East Africa. He's the sort of character you need to go out there and break down the barriers. So he's going to lead our generative team under Joel, our Head of Exploration. And give -- and we really have created that support. We've got a pullback on a contract basis, helping us focus and motivate our DNA and quite a stressed team now because we've shaken it up a bit. And I've got no doubt that the results you to see coming out of Boundiali are a product of this refocus, because we've had this permit for 10 years. And then we've also added Andrew Allibone, who's been contractor for us, consulting geologist out of Australia for some 9 years now. And we've convinced him. He's been at the forefront of some of our real fundamental research, and he's going to be joining us on an exclusive basis. So the greenfields or new team, that's there to support Joel and his exploration group. His brief is to look at new gold regions. And you'll see in the report, we talk about some of the new regions that we're looking at -- expand our perspective ground holding around our current footprints. And I'm convinced that we're going to give you some growing news on that over the next 2 or 3 quarters. We're far-advanced and continuing to mop up some of the stressed juniors in our space and certainly step up the number of quality -- number and quality of the targets for development in our resource triangle. Staying with the exploration and resources and replacement. At the end of March, as I referred to earlier, we published our reserve and resource declarations along with our annual report. And it's very -- we are very proud of the fact that last year, in our record year where we consumed, mined about 1.4 million ounces. We were able to replace all the ounces we mined and some and stick to our $1,000 an ounce long-term goal price in doing those calculations. And it's interesting that the industry is now starting to show a sudden and irreversible decline in its reserves as it's just no longer being supported by an ever rising gold price. As you see here, the red line, the sort of vertical line, is what the industry did to try and grow its ounces. And the product is that today's grade in the industry is half of what it was in 2002. And in contrast, we're set way up in the grade stakes, and we're still mining at or just below our reserve grade. And now to the medium-term outlook. Our 5-year plan remains unchanged. And without a doubt, the benefits of a coherent, long-term strategy with a focus on consistent execution is demonstrated in this graph. And certainly, the past investments in our future has enabled us to have an outlook on 10 years that is profitable at $1,000 an ounce. And we are acutely aware that what we're doing today will decide and prescribe what our profile looks like beyond this period. And then finally, ladies and gentlemen, as is customary, I'll end with a graph, which shows how the Randgold share price has been performing against the market. And I think we continue to differentiate ourself from the rest of the industry on many fronts. Not least of which is that I believe we're now, in the mid- and large-cap company space, the only company that has never impaired its balance sheet. And so our profitability and results need to be put in to that -- in that perspective. And while organic growth, as you see, remains our core strategy, we continue to be alert for acquisition or JV opportunities that may meet our investment criteria. And I would underline those last 2 words. And as an example, we use Moto, if you want to reference what we're looking for. So if you have another Moto in your portfolio, we'll accept the book [ph]. And this, finally in conclusion, brings me back to the state on the industry. Around the world, gold companies are mining a shrinking reserve, as I refer to in the previous slide. With the declining reserve grades and hence reduced revenue potential, the last time the industry was such dire straits was the time when we started building Randgold Resources at the back end of the '90s. And then, as you will know, in 2002, the gold price came to the industry's rescue. Perhaps, it will do so again. Although it's hard to see it moving -- for me, moving outside this current sort of trading range, certainly -- I believe it's going to stay there until the talk that we're now hearing in the industry about we need to do something to deal with the burgeoning debt is converted into some real action. And so we're very mindful of that. We are absolutely clear that we have one crack at any deal. And right now, to sort of preempt that question you'll probably ask, is we don't have everything clear and visible to us -- at this stage on an M&A front. And really, we're much more focused on chasing down some of these results that we were able to share with you today. So with that, thank you very much for your attention. We'll be delighted to take questions.

[Alain Gabriel:]

This is Alain Gabriel from Morgan Stanley. On Loulo, can you shed more light on the nature of the power disruptions that happened in Q1? And how should we think about the full year guidance, given that the Q1 results are implying a big step up in both grades and throughput at Loulo to achieve the full year guidance there?

[Dennis Mark Bristow:]

Yes, I think to give you some comfort. The power interruptions were scheduled because we were upgrading our medium -- remember, Loulo's grown from an 8-megawatt power station to a 50-megawatt power station. And we were -- you saw the last 2 quarters, we had interruptions, and we really need to get in and deal with the aging switchgear. And some of the switchgear that couldn't -- now we were running our power plant in sections rather than through a one busbar. And that's always cornered us when we had an issue. So we have now -- it's a 2-phased upgrade. The first phase is completed on the 10th of May. And that really takes away the critical nature of the switches, the busbars. And then we'll continued to upgrade it out till January. But really, the risk period will be behind us. We only -- we kept -- we delayed that conversion, that final switch over to the 10th of May because we were trying to catch up on the production at the end of last quarter. So I don't think that's -- I'm -- and what we've done in the meantime too, is that we've hired in about 7 megawatts of additional power, a mobile power. With the oil price where it is, it's actually an efficient way of doing it. And to just guarantee the power, as we progress, and we're using this opportunity with the lower oil price to do -- to catch up on some of the rebuilds on the big -- the 3.5-megawatt CM12 machines. And with Caterpillar's now bought out a new CM12 12-cylinder machine. And so we were scheduled to install 2 CM12 8-cylinders at the end of this year. We've swapped those for 2 12-cylinders, and that brings 9 megawatts, Graham? Instead of 7. The 2 machines will bring 9-extra-megawatts into power plant. So -- and it drops the cost because of the efficiency. So we have a plan, and we've bolted on some insurance as we do that transition.

[Alain Gabriel:]

And on the second part of the question on the grade evolution just to meet your full year guidance at Loulo, because Q1 is implying a big step up going forward.

[Dennis Mark Bristow:]

Yes, so to 5 grams. That's in the schedule. So to take you back, I think I'm correct, and I'm doing this out of memory, Q3 last year, that's the run rate. We've done it before. And we need to get up to the 165,000 ounces. We'll probably do a little less than that this Q2 and then go up again. But we've got grade on our side. The big thing is we don't want to take it when we haven't dealt with some of the recovery points. So we are managing it. So I'm right?

[Alain Gabriel:]

Yes, 170 [indiscernible].

[Dennis Mark Bristow:]

Yes, yes, that's the run rate. Yes.

[Daniel Major:]

Dan Major from UBS. Two questions, if I could. One sort of on the operational side. There's a good performance at Tongon in the quarter, but recoveries were essentially flat. Could you give us a sort of profile on how that's progressing through the year and on the top line?

[Dennis Mark Bristow:]

Yes, we -- as you know, at January, we said our target is 84% by year-end. I'm pretty sure we'll beat that. We were looking at the numbers now. We should get to 84% average by year-end. So if we pull it up. So we -- if we do 84% this quarter or 83%, 84% the next quarter and 85%, 85.5%, we'll get up around 84% for the year. So -- but our actual guidance and our guidance answers is based on a straight line from 80% to 84%. And then we'll get the last 2 next year. That's how we guided.

[Daniel Major:]

The second question's perhaps a bit more general. You've obviously made quite a few changes in the sort of exploration side in terms of senior management. And I kind of ask this question because it's a question that I get asked, and has there been any changes in terms of succession planning? And your sort of thoughts at the top of the organization and whether there's been any sort of changes there in what the board and yourselves are thinking about that.

[Dennis Mark Bristow:]

The only sudden changes we do is when somebody doesn't step up to the plate. And we change all the time. I think that's -- we changed up 8 of the 11 managers in Kibali on the transition from construction to operation, because people couldn't make the transition. And we're very clear about that. So on the exploration front, remember, it's all organic. I mean, Mike Skead is an external guy, but it's a new job. And we need some punchy, arrogant, independent thinker in that team. And we felt, collectively as a team, to bring him -- and now we all know him. But the actual management of the exploration is all organic. It's just a rearrangement because some people just got tired of doing the heavy lifting and wanted to be more focused on the technical side of the business. As far as the group goes, I think, yes, our group has got a lot stronger today than it was even 6 months ago as individual managers go. And we haven't changed the plan of succession. I mean I think we've got a significant internal ability in our organization to -- so the first focus is we wanted to see succession on each HOD level down. And we're now on the third level. We can see visibility down -- 3 levels down. In the operations, we -- the way we run that because the rotation, the general manager has -- we have somebody in the general manager's shoes at least for a quarter of the year. And so everyone in Kibali, Morila, Loulo, Tongon, all have -- all HODs have a turn at general management. So by the time it comes for the decisions, we've got everyone. We have seen everyone operating at that level. And the way we run it is we run -- we have an ops manager, but it's not an appointment. So there's always an HOD in the operation position for periods, which gives his 2 RC chance [ph] to act in his position. And that's how we rotate our -- and so we lift the whole management up rather than having a very strict sort of "you are the general manager and you are the ops manager." We don't have that. So we cycle our on-site management all the time. In the executive team, we've got a now broad-based, we've got a couple of young people now that are in our executive team. We've had a -- I think we had -- last year, we had the fourth or fifth retirement in 20 years from that executive team. No, 2 retirements, actually, it was Bill and Paul. And well, Chris was last year as well, year before. So we had -- we are now at the age, this year we turn 20, where we're cycling that executive team. All the old guys are leaving. So -- and I don't -- and to answer your -- to get to the point of your question, we haven't changed that succession strategy.

[Jason Fairclough:]

Jason Fairclough from Bank of America Merrill Lynch. Two questions for me. Massawa, how wed are you to it? And can you actually envisage a situation where you sort of cut it off and say, "Enough, this isn't for us," and walk away.

[Dennis Mark Bristow:]

We're not wed to anything, Jason. Nothing. Not people, not assets, only profits. So Massawa, we had up for sale. We're in a database, and we've talked to few people. And it was a product of that discussion where we put it up and tested the market, that we felt that -- when you stack it up against what's out there, it's got value, significant value. And we came back to you, remember, and said, "We are convinced if we spend even up to $30 million taking this to the next level, it will be money well spent." First of all, it will really test whether it can meet our filters. We are so close to the 3 million ounces on our filters. It makes money at a 1,000, just not 20%. And if it doesn't, it's still one of the better assets on this planet and we'd want it properly packaged to be able to deal it. So that's what we've said we will do. And we will do that.

[Jason Fairclough:]

Just a second question. As you start to talk about greenfield projects. How do you think about potential syndication? Are there any partners who actually bring anything to the table? Is it necessary, or are do you just do it alone?

[Dennis Mark Bristow:]

We're very clear we're a bit old-fashioned in that. We manage our business. So we don't mind joint ventures as long as we're on top. We've had our fair share of experiences when we're underneath. It's not pleasant.

[Jason Fairclough:]

Just to push you on that though, Mark. So you look at some of these new discoveries, they look kind of interesting. Does it make sense to somebody in or do you just do it all the time?

[Dennis Mark Bristow:]

No, we don't. If we get a -- we've always said depending on the profile, I've always -- I've been very outspoken, if I had a wish and you were the fairy godmother, heaven forbid, I would want to make my next discovery in the Côte d’Ivoire. So we'll have it all in the Côte d’Ivoire, because our view of the risk, the cost of infrastructure, the margin potential, the new mining code, there's a lot of good things. Another big asset in Kibali depends on the profiling. So that's why people ask me, "Will we buy the other half in Kibali?" And the answer is no, unless it's had a deep discount. Because our exposure in DRC is high. But will we spend on new business, exploration and discovery in DRC, we don't have a limit on the exploration dollars. We would spend 10, 20, 30 a year. Because finding another Kibali and building it out would bring it in when we're net of cash again. And I'm geared in that country. So that makes sense for us. So it's really at where you invest. If we had to put another $1.5 billion into DRC, we'll definitely bring in a partner today. But 4 year's time, we would be different in that view. So we manage our exposure. As you know, remember back in the early days in Morila and Mali, we sold half of it to Englar [ph], because we didn't want to carry the debt. We'd rather cleaned our -- cleared our balance sheet and take the ability to manage a risky regime.

[Anna Mulholland:]

Anna Mulholland from Deutsche Bank. I've got 3 questions please. The first is on Côte d’Ivoire, the power situation. What's happening? Is it getting better, is it resolved, what's the story there? And the second on the DRC. The mining code conversations that you're having, where are we at? And finally, just to check. When you talk about cost savings from switching to owner operator at Loulo, does that include the potential benefit from the remote mining push? Or is that an extra?

[Dennis Mark Bristow:]

That's an extra. And also, it doesn't include some of the synergies that we are going to get because we have duplicated. We're a bit shy about adding all the benefits, and yet we'd like to rather deliver on them. But the financial benefits we've -- that's what we've shown you. On Côte d’Ivoire power, yes, Côte d’Ivoire is just going from -- it's just on steroids at the moment. Yes, its GDP is growing at 9%. It's got such a energy. And that power grid is the only power grid -- well, it's the only power grid in Africa. I was going to say outside South Africa, but that doesn't work. That actually functions and is viable. And they've got -- and they've introduced private contracts now. You can supply power into the -- Africa's grid privately, at a price of course. So we've got some private big diesel, 300 megawatts coming online now in the next couple of months. There's a big palm oil scrap power plant that's being built at the moment with the Boyd Group [ph], which will last for about 32 years. It has a 35-kilometer radius, where they will process the depleted palm oil plants in the Southwest of the country. It's got this big gas turbine project being developed. And on our side too, there's -- by the end of the year, we'd have a new ring line in to minimize the interruption and the capacity of -- we're fed by 1 line at the moment. So as I said, no doubt that they are well into this, they export power. This is the sort of caught in the capital development stage. We are the second largest consumer of power in Côte d’Ivoire today. The largest is the refinery. On DRC mining code. Yes, we're really at a stage we were -- remember, when we engaged on the sort of wild ideas of the Ivorian's and their code before we got sanity to prevail. And DRC's been an engagement rather than a fight. And I'm sure all of you have seen the prime minister come out and say, "We're going to work on this because it doesn't make sense to shoot ourselves in the foot." And DRC's done -- what it's brought is a -- we brought a lot of positive things to the Congolese government because everyone bashes up on the Congolese. But when you -- what sort of awakened the whole debate was Zambia going down the toilet. And so with the -- with that, you can reference it. And Congo now has 300% bigger pipeline of projects -- undeveloped projects in the copper industry, then Zambia. It's a much bigger producer. It's more profitable. Last year, the mining industry, including the gold industry, contributed 50% of the treasury's revenue. And it's the -- it employs 24% of the formal sector employment. So it's significant. And no one had bothered to point that out. So why go and change a code and to -- certainly the fiscal parameters that will result, in an investor investing in a 3 million ounce or a band row [ph] style project, getting nothing after paying 100% of the capital. No one's going to do that. We pointed that out to the government. So we're back in that engagement. And I'm pretty -- I've always said this. It's a very pragmatic country, completely driven about doing commercially viable things, very commercial. And I'm pretty sure we'll get there. Look, the one thing I'm sure about is even if they promulgate this code, we will undo it, because it's not workable. That's a fact. So it's not a fact, it's just dealing with the reality of what you want to achieve.

[Amos Fletcher:]

Amos Fletcher at Barclays here. Just one question really. So your cash costs were basically flat quarter-on-quarter despite the weaker euro and oil price. Can you remind us of the inventory cycles in the business, and whether we should expect any benefit from that going forward? And associated to that, what your euro and oil price are you assuming in your 5-year planned guidance?

[Dennis Mark Bristow:]

Yes, we use $100 oil and $1.30 euro in our plans. And we take -- we consider the current oil price and the lower euro exchange rate as lucky. And we harvest that luck. So as you rightfully point out, we harvested that benefit this quarter to ameliorate the lower production and some of the extra costs that we had. But we certainly benefited from it. So once we get our act together, we'll see more and more of that.

[Amos Fletcher:]

Can you spend a bit of time giving some more detail on your remote mining plans, exactly how that's going to the work?

[Dennis Mark Bristow:]

Yes, we've done it. It's operating very well in Kibali at the moment. And we've just learned so much about these -- the benefits of that. And the first step is you've got to be able to separate the drill and blast and extraction, either on a shift rotational basis or a -- and levels. In Loulo, it'll be rotational because otherwise the development charge to run extra development to be able to allow a top axis [ph] is just too expensive. Kibali, we've got to now is we run tele-remote on both, so remote bogging. And then we load and truck it. We've just gone now from tele-remote bogging to all the way to the tip. And the exciting thing about this is it's not really remote, it's all automated. The only remote work you do is for the operator to bog to lift those -- and pull the shovel. After that, he pushes a button and it goes to the tip and tips. And so you have -- and it's completely guided, memory in the computer with beams. And so no one bashes into the side wall, no one falls asleep behind the wheel. And the speed is 20% faster than any human can drive that big machine through those tunnels. So the benefits and efficiencies are enormous. And we're now -- so in Loulo, we are at the remote bogging stage. We've tried out the automation all the way to the tip. And it lends itself because we do tip to crushers in Loulo. So it's even more efficient. So we wouldn't have to load trucks even. And we're -- and the nice thing is the Sandvik equipment we've just ordered for Loulo comes automated ready, so remote-ready, which is a big step forward. That technology's moving so quickly. Does that answer your question?

[Amos Fletcher:]

Very much.

[Daniel Major:]

Dan Major again from UBS. Quick follow-up on tax. I see the VAT receivables in Mali came down a little bit and the DRC were pretty stable. But you're still highlighting only around sort of $27 million as classified as long-term. Can you give us any color on whether that negotiating process has changed at all, and kind of what the situation is there as we should look at it going through the year?

[Dennis Mark Bristow:]

DRL, we brought it down to $70 million now. I think, Graham, $70 odd?

[Graham P. Shuttleworth:]

Yes.

[Dennis Mark Bristow:]

There's $50 million of DRC goes back to the capital period, and that's sort of the big focus now in debate with the government. The thing is -- the key thing is there's no debate on whether that's owed. It's how to get it out. And we -- when we push lots of capital and then -- like we're doing at Loulo at the moment, it's hard to offset. As a soon as we make profits, we can -- we can chew away at that. So Kibali, we're in good shape. We're certainly not building it. We're focused now on their $50 million of -- it's actually $40 million. I think they're just given us another $10 million. So it's $40 million. So we are -- we're chewing away at it. The key, as you bring it up, is the reason that we're $0.05 short off guidance is that -- that which gets hurt when there's a weakened euro, because a lot -- all the Mali stuff sits in euros. So when you're weak in that, that hits the bottom line. So that's really the driver for us. And we need to get it out. And so Gounkoto's easy to offset. Loulo, we've got to get that into a cash positive position then we could -- we do offset all the time, we just need larger chunks to start chewing away at it.

[Daniel Major:]

So as the free cash flow improves, it's going to be easier to...

[Dennis Mark Bristow:]

Yes, as the profitably improves. And so you've got more tax to offset against the VAT. And that's really what we used to offset. All right, Graham?

[Graham P. Shuttleworth:]

That's true.

[Dennis Mark Bristow:]

Do you want the mic?

[Unknown Analyst:]

Are you going to increase your exploration budget to your successes in Ivory Coast?

[Dennis Mark Bristow:]

Yes. We have steady rate, $50 billion. When -- if we get to a discovery level, that becomes a project and then it attracts project finance. But we don't -- we've forced the geologists to improve the quality of their portfolio rather than giving them more money. Otherwise, they'll become a bit like a taxi. There's always a space for one more, especially an African taxi. Anybody else? All right. Thank you very much for your attention. And know you can -- the teams from Randgold is out here. And I see Joel and some of the exploration guys are at the back. And Martin, our Legal Counsel, Lois and Graham are on the front here. So if you want to pick on Joel and Charles' brains on the Ivory Coast, you're welcome to do that outside over a glass of wine.