B2Gold Corp

TSX:BTO

Earnings Call Transcript 2018-Q3

[Operator]

Good afternoon, ladies and gentlemen. Welcome to the B2Gold Corp.'s Third Quarter and Year-to-Date 2018 Financial Results Conference Call. I would now like to turn the call over to Mr. Clive Johnson, President and CEO. You may proceed, Mr. Johnson.

[Clive Thomas Johnson, President, CEO & Director]

Thank you, operator. Welcome, everyone, to our conference call to discuss the third quarter 2018 results and for the first 9 months of the year. We had a very strong quarter of production, good cash flow and all sorts of positive developments. I'm going to pass it over to Mike shortly to walk you through the highlights of the financials. We put out a pretty detailed news release, and we put out, of course, the financials, including pretty detailed MD&A with lots of information in it. And we do have our investor call -- Investor Day coming up, November 29 in Toronto, so we'll keep quite a bit of our detail powder dry and answer your questions in detail there. There will be a Q&A at the end of the session here. But some other things in addition to the financials over the last -- this last year, which obviously was a pretty transformative year, dramatic, transformative year for B2Gold with Fekola coming on, but also the great performance from Masbate and continued strong performance at Otjikoto. Obviously, a major increase in gold production, major increase in cash from operations, as we'll hear, from $155 million last year to around $450 million in the current estimates for this year. One of the big developments, of course, was the announcement, a good -- an excellent job done, again, by Tom and the exploration team, dramatically increasing the size of the Fekola resource. And being as proactive as we are, we started some studies early this year, looking at grinding studies and metallurgy and other things to say what -- if, in fact, it's a lot bigger at Fekola, what would we do to expand it? And how quickly could we do that? So we're way ahead of the game there. So as the year -- the rest of the year progresses here, we'll be wrapping up, by the end of the year, an internal study on Fekola expansion, looking at growing from 5.5 million tonnes a year to 7.5 million tonnes a year. And just an important highlight there, I think, from when we put out the last release, was the fact that we've given the studies that John Rajala's been doing, the work he's been doing, we are now pretty confident that we don't need to add a ball mill -- another ball mill to go from 5.5 million tonnes to 7.5 million tonnes a year. So that's very significant in the sense that we see a moderate amount of capital required, a little modest, perhaps, to actually see a significant -- another significant expansion of Fekola. So that's going to be a real focus for us. And looking forward, we're going to continue with our strategies, just going to continue as it's been, to optimize our gold production, but also to continue unlock the value of our existing assets. Obviously, Fekola being one. Fekola remains up to the north. Lots of targets up to the north, the Anaconda zones. Tom's been talking about some recent good hits to the west of Fekola. So lots of work to be done there. But also our other assets, we've got many things on the go. And perhaps we've been a little bit spoiled by Fekola, but if you look at the cost of acquisition by taking over Papillion and the cost of our exploration to date, if you look at our new total resources here, you look at our acquisition and exploration of cost per ounce for Fekola of resources running around $70 an ounce. So we are not likely to jump into the game of buying ounces over the next period of time. We've got lots that we need to get value for. And we'll be continuing to look at exploration initiatives ourselves and looking at joint ventures with juniors. It's highly unlikely that we will be playing any significant M&A game here. At the end of the day, we're always looking. But we did the heavy lifting with Otjikoto and Fekola acquisitions and construction and development when very few were doing it. So we feel we have a fantastic position with what we have and the assets we have, and it's -- we're going to continue to focus on that. So with that, as I mentioned, there'll be a Q&A at the end. We've got the whole executive team here. And I'll hand it over to Mike now to give you a summary of the results -- the highlights of the financial results for the quarter, and also -- third quarter, also for the year-to-date. Mike?

[Michael Andrew Cinnamond, Senior VP of Finance & CFO]

Thanks, Clive. Just perhaps opening comments just to say overall that the story in the quarter is record quarterly production with the inclusion of Fekola for the full quarter, Fekola firing on all cylinders. And on our costs, on a consolidated basis, they are right on budget, our cash costs and all-in sustaining. And when you take all that into account, where we -- the results we've already had for the first 2 quarters of the year, we're tracking well to come in at sort of the upper end of our production guidance for the year and at the low end of our cash costs and all-in sustaining costs guidance. So that's kind of the overall picture that we get from the quarter. Just running through some of the detailed line items in our financial results. Revenues, $324 million, more than double from the prior year quarter. We sold 269,000 ounces of gold, which was 27,000 ounces more than we produced. We produced 242,000. And that was really from a very deliberate campaign to sell down some of the gold, the bullion that we have in inventory. So we wanted to control that level of bullion we were carrying in inventory and also maximize cash flow for the quarter, with the view that we were -- we knew that on October 1, the day after the end of the quarter, we were going to repay the converts. So we basically picked up 27,000 ounces from opening inventory that we were able to sell in the period.Production side, consolidated production, 242,000 ounces, just 2,000 ounces below budget and a record for the company. Of those components of that, Fekola was 107,000 ounces, 2,000 ounces more than budget. And Fekola is now is consistently -- throughput at the mill is consistently running at 5.5 million tonnes or greater. I think probably Bill and John Rajala can comment on that later. So we budgeted 5 million -- at a 5 million tonne rate. And so therefore during the quarter, we made a decision to feed that additional throughput at the mill. We fed it with the medium and low grade -- some of the medium- and low-grade stockpile material that we have on site. And we did that for a couple of reasons. One was it allowed us to preserve the higher-grade stockpile material so that we can bring that into production in 2019 as we originally planned. And secondly, it allowed us to do a limited sort of campaign of lower-grade and different ore types through the mills just to see how the mill performed with those different lower-grade ore types. I'm pretty pleased that it's tracking right -- the recoveries are tracking right where we thought they would, at or better than modeled. So very encouraging, especially when we look forward and start planning for the Fekola North material, that potential expansion of the mill at Fekola. Otjikoto came in 42,000 ounces, so right on budget. Masbate continued to outperform, 58,000 ounces against the budget of 45,000. And Masbate is just continuing to see the benefit of the higher-oxide material from Colorado, higher grades, higher recoveries, higher throughput. Now Colorado was mined out. We accelerated mining there in the quarter. It was mined out by the end of August. But there is still some material from Colorado in the stockpile there, so we expect to see the ongoing benefit of that as we go through the fourth quarter. In Libertad and Limon, they were both under budget. They struggled a little bit just, again, because of that continuing social unrest in the country. At Libertad, because of the unrest there and some of the issues getting supplies there, we had to suspend development of Jabali underground temporarily. That was subsequently recommenced, and we finished dewatering it in August. So we now expect to see Jabali and kind of underground material come into the production plan by later in the fourth quarter. And then at Limon, we incurred some ongoing delays in getting permits for explosives and other shipments. However, by the end of the quarter, we were back on track there. And we expect that Limon will return to sort of normal budgeted steady state in this quarter. Overall, 242,000 ounces production, great result. And like I said, a quarterly record for the company.On the cash costs and all-in sustaining cost side. Firstly, cash costs, $504 an ounce on a consolidated basis, exactly on budget. And they had some offsetting items in there. So firstly, Fekola. Fekola was $383 an ounce, $34 an ounce higher than budget. But that's for a couple of reasons, and the first one is what I explained earlier. We had made that decision to run more material through the mill. And because it was lower grade, it increased the cost per ounce by approximately $10. Also, we experienced higher-than-budgeted fuel cost. Diesel and fuel oil were both between 13% and 18% higher than we thought when we budgeted. But it should be noted that, that had an impact of about $15 an ounce in the quarter, but we also have fuel hedges in place. And those fuel hedges, the gains on those, realized gains, were kind of -- were about $9 an ounce in the period. So $15 higher cost, but we offset about $9 of that higher costs with the [ Banff ] and with the fuel hedges. So when you take those together, the overall impact from fuel was fairly negligible.Otjikoto, $470 an ounce, $14 under budget. So Otjikoto is basically ticking along as budgeted and as planned. Masbate, $528 an ounce. That's almost $180 an ounce less than budget, so it -- Masbate continues to outperform through the year. And it had great year last year, it's had a great year this year. And it's really, it's -- most of that is driven by the higher production, the higher ounces that we're seeing there. But they also managed to -- actually, the way they were -- they're running the fleet there, the management reduced some of the lower -- some of mining costs on site. And all of that's flowing in and benefited the cash cost in the period. Libertad and Limon were both higher on the cash costs side for the -- as a result of the lower production that I explained earlier. And then when you look at all-in sustaining cost, $749 an ounce, just $5 less than budget, so pretty much tracking right on budget. And again, there are some offsetting items in there, but it basically mirrors what we saw in the cash cost side, with Masbate being the standout, the outperformer of the operating mines. So very positive on the production side and on the costs side for the period. And what -- we've actually re-guided on a couple of metrics. Firstly, on the production side, we re-guided Fekola up. It was 400,000 to 410,000 ounces. We've now guided to between 420,000 and 430,000. And also Masbate, because it's outperforming, we guided that up another 20,000 ounces, so now it's between 200,000 ounces and 210,000 ounces. On the downside, we guided Libertad downwards to between 90,000 and 95,000 ounces. So overall, our overall consolidated guidance range has been upped by 10,000 ounces. It's now 920,000 to 960,000. And as I mentioned at the start, we expect to track towards the upper end of that production guidance based on where we are now.And to mirror some of the production and the cost performance that we've seen through the end of Q3, we also re-guided on the cash cost and all-in sustaining cost side. So Masbate, we've re-guided downwards for Masbate because it's outperformed so well during the period. And for the Nicaraguan operations, we've guided those up on both cash costs and all-in sustaining costs because of the lower production that we've seen. Overall though, we did not change the overall consolidated guidance range. That's still $505 to $550 an ounce for cash costs and $780 to $830 all-in sustaining cost. Again, as I mentioned, we expect that we're going to come in at the lower end of those cost guidance ranges for the year.A couple of other items we need to mention in the results. On the earnings side, I -- to -- really, the main thing I wanted to highlight is on the taxes. So if you look at the income before taxes and then you look at the current tax charge, it's a relatively high percentage. And just wanted to remind everyone of a couple of things, that the reason it looks relatively high is because there are -- we're taxable all across the group now that the tax holiday in Masbate is finished. Fekola doesn't have any significant accelerated losses that you can claim in -- upfront. It basically becomes taxable right out of the gate. And there's also a bunch of corporate cost and unrecognized cost in there. So purchase price adjustments, stock-based comp-type adjustments that don't flow into the overall tax charge. If you look down through the tax number and look at what the actual taxable income is at each of the sites, their effective tax rate is approximately 16%, which is on the low end. So I just wanted to flag that up. If people -- if analysts want more detail on that, we did lay out some more detail in the MD&A explaining how to get to those effective tax rates. The other thing I'd highlight for the folks on the phone just for their models is that in the first year of operation of Fekola, it's taxable all the way through and we're accruing those taxes through the quarter. But because there was no taxable income last year, the installment -- or very low taxable income last year for Fekola, the installments we're paying in cash in '18 are relatively low. And you'll see a big catch-up payment when we settle this year's taxes in Q1 and Q2 next year. So just to analysts, just remember that in your model. And again, we put some detail on the MD&A for you. Overall earnings, $16 million or $0.01 per share. But if you look at adjusted net income, it was $0.05 per share and it's $0.15 per share overall year-to-date.Just flag up a couple of things on the cash flow side. So cash from -- flow from operating activities, $143 million and $376 million year-to-date. So we've indicated in the MD&A, we think that if we assume a $1,200 gold price for the -- for Q4, we think we're going to come out somewhere around $450 million for operating cash flows for the year. On the financing side, you'll see in the period, we drew down an extra $200 million on the revolving credit facility. We'd already repaid a significant amount of the revolver earlier in the year. So we drew down some more with the view that we were going to use it, and we did use it to help us repay the convertible notes, which we repaid on October 1, $258 million. Big picture for debt, if you looked at total debt at the start of the year, it was approximately $700 million. And we expect to finish the year with somewhere around $500 million total debt. So a repayment overall in the period, significant repayment of $200 million.On the investing side, $62 million across all operations, including exploration. Pretty much on budget. The only place where we're under budget on the CapEx side is at Libertad, and that's mainly because of the delay in getting into Jabali Antenna.With that at La Libertad, Jabali Antenna open pit was expected to come into the mine plan originally this year, and then a little later, next year. So we have been successful in getting mining permits in Nicaragua. We've got San Juan and San Diego already. We're operating from those pits. And we're making progress in Jabali Antenna open pit for that permit. And we now expect that we'll see that come into the mine plan in second half -- or basically after the first half, start of second half of 2019.Stepping back overall through the period. We finished the period with $355 million in cash. But the next day, October 1, we repaid the convert, as planned and as part of our original strategy to fund Fekola without using equity. So we used debt, operating cash flow and prepaid sales to do it. So October 1, we used $258 million of the $355 million to repay the convert. And now as we move forward, we'll continue to focus on the excess cash flow to just pay down the line on the revolver. The revolver, we've currently drawn $400 million. It's a $500 million total facility, so there's $100 million capacity there. Plus, there's another $100 million accordion. We don't see the need for it right now, but there is $100 million accordion feature available if we choose to use it. I think that's the sort of high-level financial results that I was going to get into. I don't know if you -- do you want to open it up for questions now, Clive?

[Clive Thomas Johnson, President, CEO & Director]

No, I think just a couple of comments first, a few things to add to my opening remarks. I talked about Fekola, to finish off the plan there going forward. I mentioned the internal study by the end of the year, looking at expansion. Of course, first quarter next year, we'll be doing optimization studies on the mine plan over the first quarter to find out the most efficient, effective and advantageous, from an economic point of view, way to mine the Fekola with the expansion as well. That will involve some infill drilling. There was a larger percentage of the resource -- the new resource was larger than I had anticipated in the indicated category, and that would be -- that will continue to grow. We expect, with the successful program in infill drilling starting in January, that should turn -- continue to turn these resources into reserves, as we expect. That will be part of the plan for 2019. So by the end of the quarter, we'll be ready to come out -- first quarter 2019, we'll be ready to come out with a 43-101 report. And we'll be able to talk in detail about the expansion. But we're pretty excited about that. Fekola is showing to be the beast that we always thought it could be. Once again though, we stuck with our discipline in acquisitions, where we don't pay -- we will not pay for anything that needs significant exploration success and/or a higher gold price to justify the purchase price. And clearly, at that $70 an ounce number, the acquisition of Fekola looks like a great deal. It was accretive with the initial reserves of 3.4 million ounces that we saw. And obviously, with this great exploration success, it's a great project. So we're looking at the kind of project that I think, according to Barrick and others, that everyone's looking for. Just a couple of comments perhaps on -- we've seen some M&A activity, of course, the big one being Barrick and Randgold. I do think there's positive -- there's some positive fallout from that for us in a couple of ways. Obviously, the Randgold shares are going to disappear with the expected vote today from the Randgold shareholders. So all of a sudden, there may be some institutions who are little overweight on the Barrick side. There's an opportunity there. Randgold has been a very successful company over the last 10 years or so. And interestingly enough, it's had a very similar discipline to what we had about acquisitions and not chasing things and not overpaying for things. So it would be interesting to see if there are other -- there are talk of potential opportunities in West Africa. We're obviously looking at everything. Given the fact that there's so many companies out there that need growth much more than we do, because of our focus on continued growth during the last number of years, it's frankly unlikely we're going to go out there and outbid people for ounces in the ground, because I think there's others that need growth more. We have all this exceptional opportunity with Fekola and other things looking forward. So I think there's a real opportunity there. Also it's interesting, the deal is very interesting in many ways, the Barrick-Randgold deal. One is the fact that it's a no-premium deal. So I think that sets a new standard, perhaps, for the big guys. And for those of us who move this company, our management and our directors and many of our shareholders who want to continue to see us do what we do, I don't think there's going to be any large gold companies looking to take a run at someone like a B2Gold. And I think at the end of the day, the big premiums, now that there's been a no-premium deal for Randgold, I don't see big companies stepping up with big premiums. In my opinion, you need to offer a big premium if you were interested in looking at B2Gold, because a lot of our shareholders really want to keep us doing what we do well, which is continue to grow this company as we have so well over the last 10 years or so. So when you look at the world of M&A, I'm sure there will be quite a bit more M&A, and maybe you'll see some of the -- some companies getting together. But I think the days of big premiums are probably over because those deals are not great, a lot of them in the last 10 years, and a lot of them were heavily justified, but criticized for people who perhaps were overpaying for things, were not getting it right. So with that, I think we will open it up for questions.

[Operator]

[Operator Instructions] Your first question comes from Michael Gray with Macquarie.

[Michael J. Gray, Gold Analyst]

It's Michael Gray here. First off, the campaign of the limited medium to low grade at Fekola, any chance you could give us a breakdown of that feed, and whether you're going to maintain that blend going forward, and whether you think you can maintain the recoveries in that 94%, 95% range?

[Clive Thomas Johnson, President, CEO & Director]

John Rajala, do you want to answer that?

[John Rajala, Vice President of Metallurgy]

Yes. Mike, the campaign of lower-grade material during the third quarter, we were able to achieve recoveries similar to what we had been year-to-date prior to that, 94% to 95%. And then we ran another campaign early October, I think we mentioned it in the press release on the resource. That averaged 1.1 grams per tonne. And we were just about 93% recovery. That was over a 5-day period with that material. So -- and that was above model, so we were very pleased with that.

[Clive Thomas Johnson, President, CEO & Director]

I forgot to mention. The ore in the extensions to the north, you've done your initial pass on that...

[John Rajala, Vice President of Metallurgy]

Yes. We've completed all the metallurgical testing on Fekola North. Results are very similar to what we saw in the Fekola feasibility study. So we're expecting very similar metallurgical performance once that material begins to be processed through the mill in the future.

[Michael J. Gray, Gold Analyst]

Okay. And Tom, if you're there, it's been a little bit quiet on the Toega front for news, but it looks like you're going to be putting news out before the end of the year. Can you give us a bit of color on the scope of drill length that will be released for that before the year ends?

[Thomas Alan Garagan, Senior Vice President of Exploration]

Yes. I don't know if we'll have a lot of Toega material. We'll have some Toega drill hole results to look at, I guess, at the meeting in Toronto. But no, I can't add any color to it. It remains open down plunge. It narrows up-down plunge, and -- but the grade picks up.

[Michael J. Gray, Gold Analyst]

Okay. So we'll get more color at the Analyst Day. And then Mike Cinnamond, just on the reversing the impairments on the Nicaraguan assets, any reason why -- to do that now as opposed to the year-end?

[Michael Andrew Cinnamond, Senior VP of Finance & CFO]

No. Well, the main reason is we updated our mine plans in Q3, as we normally do. And GAAP requires that if you have a change, that you consider whether that change indicates either there is an impairment reversal or there is an impairment. And so we did that across all of our operations and sites because we did new mine plans for all of them. And the biggest factor there was that new Central deposit and that being built into -- potential impact of that, and the upside of that being built into a mine plan. That was the trigger and an indicator that we had to consider it. So it's a GAAP requirement to do it when that information's available.

[Operator]

Your next question comes from Lawson Winder with Bank of America Merrill Lynch.

[Lawson Winder, Associate]

Just on Fekola and the new M&A -- or sorry, management indicated estimate that you guys published last week or 2 weeks ago, I guess, it might have been. Just on the cost. So I noticed that both the processing cost and the mining cost per tonne mined came down quite a bit versus the year-end 2017 estimate. In particular, I'd be curious as to what's driving the lower mining cost per tonne. So I think it's $2 per tonne now, and I think it was quite a bit higher before, like $2.60 or $2.70 prior to that.

[Clive Thomas Johnson, President, CEO & Director]

Bill Lytle, you want to...

[William Lytle, Senior Vice President of Operations]

Yes, and I'll certainly -- on the mining side, certainly, if you remember, in the feasibility, we took the advice of a lot of the people working in the area as kind of what the best guess was going to be. And so we -- I think everybody felt that, that number was high. And of course operations today have borne that out, that it is high. As you know, we've been running at less than $1.50 a tonne. So we felt that $2 was a reasonable number and conservative. And then on the milling side, I think we're actually very close to where we were in the feasibility study, so we're confident with that number as well.

[Lawson Winder, Associate]

And then just in terms of over the entire mine life, where -- is there a distribution of where those lower costs are coming? So have you, for example, just lowered the costs expected in the earlier part of the mine plan and kept them the same in later part? Or is it just across the board, you expect it to be lower mining cost straight through for the entire life of mine?

[William Lytle, Senior Vice President of Operations]

Well -- I mean, certainly, we'll see the cost come up as we go deeper and get into harder ore. But we don't expect them to see -- to come up -- them to come up to that $2.70 range. So we just made our best guess that it was $2.

[Lawson Winder, Associate]

Okay, all right, that's helpful. And then just what was the mining cost per tonne in Q3?

[William Lytle, Senior Vice President of Operations]

In Q3, we were at -- it looks to me like we are at a -- let me just look it up here, Fekola. The current period for September, we were at -- actual was $1.35. And then for Q3, we're at $1.51.

[Lawson Winder, Associate]

Okay, all right, that's very helpful. And then just one more for me, sort of sticking with the costs theme here on Fekola. So just given your guidance, if you just kind of back out what the guidance and the 9-months result implies for Q4 of Fekola costs, I mean, especially if you adjust for the $34 per ounce above-budget Q3 result, I mean, it's looking like you're calling for a pretty material increase in Q4 '18 cost per ounce, kind of -- sorry, COC, cash operating cost per ounce. I'm just curious, like, is this driven by grade? Are there more studies? Do you plan to put more low grade through it? Or are you seeing something that's going to fundamentally drive, like, cost per tonne up?

[William Lytle, Senior Vice President of Operations]

The answer is no, I don't think so. Certainly, we're going to see -- the ounce profile in Q4, we expect to be higher. Remember, we kind of limited the ounces in Q3. That, coupled with a couple of things that was going on, we did a big reline -- or 2 relines in Q3, which we won't see in Q4. So we won't see those costs hit the books. We don't see our cost going up in Q4.

[Michael Andrew Cinnamond, Senior VP of Finance & CFO]

So just on that as well, we did indicate in the MD&A, we expect to see Fekola come in, for cash cost, right at the low end of the guidance range we've given for the year. And for all-in, that's right at the low end or even below the low end of that range. So that's -- we've laid that out in the MD&A.

[Clive Thomas Johnson, President, CEO & Director]

I think it's really important -- we tried to emphasize it. Obviously, not clearly enough. But that the fact of the matter is, in the third quarter, we put though more tonnes than we'd anticipated through the mill, which is very positive. We chose to use some lower -- middle-, lower-grade material to do that so we weren't going to rob next year's production. We were going to have those even as we [ kept ] production year to year. So this isn't a negative; it's a positive. The costs per ounce are slightly higher because we put through more tonnes than anticipated to produce more gold. So let's not -- let's keep this in perspective. Okay? And if you want more detail than that, we'll put you on a separate call with the guys here, and they can explain it to you even further.

[Operator]

Your next question comes from Chris Thompson with PI Financial.

[Chris Thompson]

Just a quick question, I guess, on Masbate, obviously, focus being on the plant expansion. What's sort of ramp-up should we be modeling for that?

[Clive Thomas Johnson, President, CEO & Director]

Dennis Stansbury?

[Dennis Robert Stansbury]

Yes, we're closing in on finishing up that project. We're looking at commissioning and ramping that thing up in January. So very short ramp-up. The original schedule was April. So we're actually getting it online ahead of schedule by about 3 months. So that's very favorable. It's the same crews, it's the same maintenance crews, the same operators and stuff. Since it is an expansion, it's not like a typical new ramp-up where you're doing a lot of extra training and things like that. So we expect it to come up very, very quickly. We think we can be pushing those rates near the end of January.

[William Lytle, Senior Vice President of Operations]

Just the site is budgeting 8 million tonnes per annum next year.

[Chris Thompson]

8 million, all right. I guess, just looking, I guess, a quarter of, obviously, exceptional performance for Masbate for the year so far. It looks like you're effectively tracking ahead of guidance and below costs. I mean -- and that would imply, I would imagine, a weak fourth quarter. I'm just trying to get a sense, I guess, of whether that's the case. Because you still have, I guess, some Colorado ore that you plan to put through that mill in the fourth quarter.

[Dale Alton Craig, Vice President of Operations]

Not the case at all. We know we're going to finish the year off strong. Through October, we did take one ball mill down for all of 15 days, replaced the men, replaced the ring gear and pinion, work as planned. Even with that, we continue on strike for budget. So we anticipate continuing through to a strong year-end. We have -- because of the acceleration in Colorado, we have a certain amount of oxide on the pad ready to go. We're mining directly out of the main vein in pit 3 and 4. All cylinders are running and we expect a strong finish for the year. For the quarter, fourth quarter in particular, pretty much on budget or better than budget.

[Chris Thompson]

All right. Great to hear, Dale. And just finally, just a quick comment on Otjikoto. We're still anticipating, I guess, Wolfshag to come in at towards the end of next year. Is that right?

[William Lytle, Senior Vice President of Operations]

We do have Wolfshag in next year, but we are currently looking at the mine plan. And perhaps we'll stay in Otjikoto. That's still under budgetary review right now.

[Operator]

Your next question comes from Richard Deutsch with National Security.

[Richard Deutsch]

[Audio Gap] And for doing a job of beating expectations, which is rare to find a lot around this reporting...

[Clive Thomas Johnson, President, CEO & Director]

Having a hard time hearing you, Richard.

[Richard Deutsch]

I have a question about your gold delivery obligations under one of your previous financings. I believe it expires sometime in 2019 or early 2020. Upon the delivery of the final obligation, how does that affect your reported numbers on sales, cash flow, if at all? I just wondered if there was any effect from closing out that debt.

[Clive Thomas Johnson, President, CEO & Director]

You got to get a new phone. I think we barely heard that. Mike, did you hear that?

[Michael Andrew Cinnamond, Senior VP of Finance & CFO]

Well, I think I heard some of it. Certainly, on the previous financings, we have some maybe in dollar-denominated gold forwards, approximately 8,000 or 9,000 ounces from on old revolving credit facility, financing we did a long time ago. Those final ounces will be delivered into in this quarter. So they will be gone, they will be extinguished. And then the other financing we had where we got obligations to deliver ounces were on the prepaid sales. And as at the end of September, we had $45 million worth of outstanding contracts on those sales, with delivery of just over 38,000 ounces. And we expect about 13,000 of those to be delivered in Q4, with the balance in the first half of 2019. So I'm not -- I couldn't hear your whole question, but hopefully, that answers it, at least in part.

[Richard Deutsch]

Yes. So the prepaid sales obligation will be completed by the middle of next year. Is that what you're saying?

[Michael Andrew Cinnamond, Senior VP of Finance & CFO]

That's right. That's correct.

[Richard Deutsch]

And then as opposed to extinguishing debt, it just adds to your cash flow at that particular point. So there's no real net effect beyond what we're already seeing.

[Michael Andrew Cinnamond, Senior VP of Finance & CFO]

That's correct. The funds from the prepaid sales were previously received on a cash flow basis. So now when we deliver into them, there's no new cash flows related to those ounces. So once we stop delivering into them, you'll see all the ounces that are produced and sold in the period, you'll see the cash flow benefit of those in that period.

[Operator]

Your next question comes from Geordie Mark with Haywood Securities.

[Geordie Mark, Co]

Bunch of questions have already been asked, just maybe slogging on with Fekola, a central theme, it seems. Did a nice resource update with that extension plan. Just wondering, I mean, not worried about the exactitude of final outcome of the plant and mine study. How long, once you have an idea in mind of what to do with a 7.5 million tonnes per annum plant, how long would it take to come into fruition, ultimately, do you think?

[Clive Thomas Johnson, President, CEO & Director]

Well, we haven't gone into that level of detail yet. We got to figure out what we need to order. First of all, of course, you got to figure out -- we know we don't need another ball mill, but we need new -- to upgrade them -- the motors -- or to increase the capacity of the ball mill motors and things like that. So it's really -- we're not going to guess at a capital cost right now. It's similar to we're not going to guess at a schedule right now. So we'll have a much better idea of that by the end of the year in terms of that. Correct, John?

[John Rajala, Vice President of Metallurgy]

Yes. That's right, Clive.

[Clive Thomas Johnson, President, CEO & Director]

Internally.

[John Rajala, Vice President of Metallurgy]

Yes.

[Clive Thomas Johnson, President, CEO & Director]

Yes. Internally, we'll have a view on that in the first quarter next year. We'll do all the optimization and come up with a final study.

[Geordie Mark, Co]

Okay, no worries. And you were saying, ultimately in Q3, despite running around about 5.5 million to 7 million tonne per annum rate through the mill, you had a couple of re-linings there. I mean, where should we look, if we're looking in the future, in terms of an average run rate for the plant in absence of the expansion? Should we look at 5.5 million? Or is the language for between 5.5 million and 6 million?

[William Lytle, Senior Vice President of Operations]

Right now, we're budgeting 5.5 million for next year. Clearly, I think it's -- and everyone can obviously see that it can do more. But right now, we are budgeting at 5.5 million tonnes per annum until we get these studies and can all this information together.

[Geordie Mark, Co]

Okay, great. And perhaps moving a little bit to the north for exploration, you're stating sort of focusing on some of the -- I guess, some of the [ higher-averaging ] sort of Fekola [ star ] gold targets through the quarter with sort of an AC and an RC rig. Was that on one target or multiple targets? And then do you expect the rig count to increase in that area this quarter? Or what should we expect?

[Thomas Alan Garagan, Senior Vice President of Exploration]

Well, I think we're -- we pretty much -- I don't want to say blown our budget because it doesn't sound right. But we spent most of our budget on the infill. So with the remaining part of the year, we'll have air core running, but we'll have 1 to 2 rigs working on a little bit of the new discovery that Clive mentioned to the west of Fekola called [ Cardinal ]. And we'll get up in the Anaconda area also. And 1 or 2 holes maybe in the north of Fekola, testing some ideas. We won't start infill drilling and budgeting up infill drilling till next year. It's a little bit of chicken-and-egg. We want to see where the pit's going to go, the reserve pit's going to go, before we detail out the infill drill program.

[Clive Thomas Johnson, President, CEO & Director]

I think we're expecting a significant budget. Obviously, infill is what it is, and we've had great success with that, and we expect that to continue starting in January. But also, Tom, we're expecting -- we haven't done our budgets yet, but I'm fully expecting Tom to come up with a souped-up budget, justifiably, to go and drill Anaconda and that area to see what's underneath the saprolite. And I think it's worth mentioning that we are -- I think you said it's somewhere in the material we've given out. But we are looking at the Anaconda area and looking at the saprolite and saying, is that -- could that be a stand-alone on/off leach pad? Something like that. We view the potential to produce 80,000 to 100,000 ounces a year for 7 years as a stand-alone there. That obviously just adds to our overall production profile. So that's another thing we're -- that's in the works. And we're having a look at doing tests for it, to look at that as well. But you can expect a lot of drilling next year. As Tom said, the priority this year was the new resource, great success. But also, we could have some new, pretty exciting early-stage results to the west. And of course, it's open to the north. And we'll be doing a lot of drilling on the Anaconda area, looking for the next Fekola out there as well.

[Operator]

And there are no further questions queued up at this time. I turn the call back over to Clive Johnson.

[Clive Thomas Johnson, President, CEO & Director]

Okay. Well, thanks a lot for your questions. And as we mentioned, we're having an Investor Day. I'm starting to think it maybe should be 2 days, in late November, given some of the detail that we need -- that we're being pressed to give, which is fine. We appreciate the interest. So thank you all for getting on the call. And we look forward to hopefully seeing as many of you as possible in late November for -- it's been a really good update on everything we're doing. So thanks, everyone.

[Operator]

This concludes today's conference call. You may now disconnect.