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B2Gold Corp
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Good morning and afternoon. My name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to B2Gold Third Quarter 2021 Financial Results Conference Call. [Operator Instructions] Thank you. Mr. Johnson, you may begin the conference.
Thank you, operator. Welcome everyone to our third quarter financial results call. I'm just going to see a few opening remarks, and then pass it over to Mike Cinnamond to walk you through the financials, and then we're going to open it up to any questions.As you can see from the release, we had another strong quarter in the third quarter and despite, once again, the challenges of COVID and some inflationary pressures on the cost side. So we're pretty -- we're pleased with the results of what we're seeing in the third quarter. We've seen, as will hear from Mike, a very strong financial position now and going forward, being strong in cash and debt-free and looking to generate some $650 million over the year from cash from operations, Mike, will give all the details on that.The focus for the company going forward would be to continue to optimize responsible, profitable gold production. And Mike will talk more about our new guidance for couple of the mines for Fekola and Masbate. And other things, we're going to continue to advance our development projects. Obviously, Gramalote, we're looking now out a feasibility study in the second half of next year. We've had some positive results from some of our engineering reviews so far and looking at the capability to reduce capital costs. And also, we're drilling away, looking to turn some more inferred into indicated, so we can divide the capital potentially over time by more ounces. So we're -- we think that's getting in a positive direction for Gramalote.I think the other thing that's got us pretty excited is the potential what we're seeing from the Bantako in the Anaconda area, 20 kilometers North of Fekola. And the excitement there is the ability initially to start hauling the satellite weathered material, 20 kilometers from Bantako down to the Fekola mill, the Fekola mill has been running extremely well, and it can definitely handle satellite weathered because it's softer material on top of the new hard rock. So we see the potential there about the second half of next year to start tracking ore. But also, of course, the other biggest segment has been the Cardinal discovery, 500 meters from Fekola on the same mine licenses to Fekola. So we received the permit from the government to start mining there and and that can add to production as well. So positive developments there in the short-term.In the longer term, the Menankoto license, we continue to have a very productive successful conversations with the government of Mali to resolve that situation where we'll see, we hope in the next few months, we will see that our license extended or renewed for Menankoto. And that will be an important part. We mentioned several times that Bantako is a separate license, so we can start tracking from there, but obviously, we'd like to be drilling both of them. So extensive drilling continuing on Bantako with some very, very good results. And the ultimate target there is to see do we have the sulfides below the satellite is the potential for Fekola type of sulphide mineralization. We're starting to see that now in some of the recent drilling.In addition to that, we have a very substantial aggressive but high-quality exploration budget, some $65 million, and that is obviously continuing. A lot of that, about 65% to do what we've done well for a long time, which is driving this drilling around existing mines, and we've seen some good results come. Basically from everywhere there from the 3 mines in terms of additional success from the drill bit. But we have a significant $25 million budget for grassroots this year. We always been driven by -- try to be driven by geology more than geography. So we've ended up knowledge of targets we've been chasing for years in some cases and some exciting opportunities in places like Uzbekistan. We've recently seen our partner Aurion did some pretty exciting results from Finland. And I think there's great potential there for another discovery.We are looking at M&A opportunities, we always are looking. But I would say that we're looking at a few different opportunities that might introduce our production through an accretive deal or to add another development project to what we're doing. But we feel pretty good about the pipeline. If you include the Anaconda potential. And of course, you look at Gramalote those are 2 project we like in the pipeline. We did announce recently a sale to West African Mining of the Kiaka Project Burkina Faso. And we felt that was a good thing to do. Corporately, we've got other things we're focusing on, plus they are established in Burkina Faso. We're happy to be a shareholder of the company, and we're still all the way forward on a sizable deposit in Burkina Faso.We are happy to be shareholders of West Africa. It's not the same, but there are similarities to the deal we did with Calibre I think a lot of the sense of the we take these assets and we're focus on other things we're doing, but we like them. So we want to be involved. And in the same case as Calibre has done a very good job in Nicaragua with the Nicaragua assets, and we're happy shareholders there as well. So there's sort of a pattern here of the way we deal with these situations where we want to focus on what we're doing, but we want to get value back for the projects that we have and continue to get value as they're develop going forward.So once again, just isn't the case of Nicaragua, all of our employees at Burkina Faso will now be under the employee of West African Mining. So that's a really nice way to do these deals. We get continuity of people, the jobs are secured and the project gets advanced. And the government of Burkina Faso, I don't blame them, but every government if there's a project that can get under developed, they expect it to be develop and build. And so that my staff has got a good program going forward on that.Now one thing to mention is we did get, just recently, we had a 3-year extension on the Bentako license, which is really quite significant in the sense that it shows our relationship with the government of Mali is very good. So that's the license needing to the North of Menankoto as many of you know. We received that very, very rapidly have been working with the government, the 3-year extension that we had the right to apply for. So that's a good sign also. Of course, we've got a Cardinal mining permit from the government as well. So government relations continue to be very positive. And of course, the government is a 20% partner in everything that we do. So as I said, we look forward to the Menankoto solution in the very near-term.I think that's all I have to say, but I'll pass it over to Mike, and he can run you through the financials, and then we'll open it up for any questions.
Okay. Thanks, Clive. So I'll start -- I'll walk us through the 3 -- the results for the quarter, some commentary on year-to-date and then just how we see the year panning out. So firstly, on the quarter, revenues of $511 million. So that was based on the sale of 287,000 ounces at an average realized price in the quarter of $1,782. So year-to-date, our average realized price for our sales of $1,794 per ounce. So very close to that $1,800 price that we've been -- that we use just to put out our cash flow guidance. So that really reinforces that we're still on track there.On the production side, good production quarter. We were on a consolidated basis, including our share of Calibre results. Total production was 310,000 ounces, which is 21,000 ounces ahead of budget. Where we thought we'd be. And the reasons for that are really the same as we've talked about in the earlier quarters in the year. Fekola is still a production machine. There's higher mill throughput going through there, closer to the 8.4 million tonnes annualized. So far this year versus the 7.75 million tonnes that we assumed in the budget. And now that Fekola is using -- or pulling some low-grade material from the stockpiles in to fill that additional production mill feed. So we did see slightly lower grade overall going through the mill, but production is up.So for the quarter, Fekola 166,000 ounces would be budget by 10,000 ounces. This value, 61,000 ounces in the Q 8,000 ounces better than budget. Again, this value just continues to outperform the model with better grades and better recoveries than the model shows. So that's a good positive difference. Now there was -- but the highlight, and we did mention it in the MD&A and the news release, we did mine slightly out of sequence at this [patty] for this quarter, some of the higher grade mainframe material that was originally scheduled for Q4 was mined and produced in the third quarter.So you will see some of that clawed back in the fourth quarter as we go forward. But we did -- because we had additional production and better output from the mill in the quarter, we did take the opportunity just to accelerate some mill maintenance in the Q. In Otjikoto 69,000 ounces, 2,000 ounces ahead of budget, it's just everything is slightly better than budget. So just a very solid production all around from Otjikoto.And if you translate that and look at how we've done in the past site, very positive. So consolidated, including next year, Calibre $445 an ounce, almost exactly on budget. And so good results there. And if you look at that high level, big picture, what we're seeing is that there is cost inflation across the sites just because of the environment they're in. Fuel costs are up. Some shipping costs are up. Some reagent puts are up. But at the same time, we had stronger production, better production, and that really helped to offset those additional higher cost. So we really came up pretty neutral and right on budget.For your models, if you want to know on the fuel side, it's probably up about $25 an ounce year-to-date, I would say, on fuel. But remember, we also have a fuel hedging program in place. So derivative gains have offset at least half of that, we think, as we go through the year. So we're pretty solid in fuel, I think. And then the other thing that did impact Otjikoto results in the quarter was stronger Canadian dollar. We budgeted at $16.5 to the U.S. dollar. It's come in somewhere around 14.5%, so probably had an impact of like $45 an ounce year-to-date on those costs.But like I say, the benefit of higher production really has managed to offset most of the cost increases. So when we look at all-in sustaining costs year-to-date consolidated again, including share at Calibre $795 an ounce, which is just $14 over budget, so really right on budget in the scheme of things. And the story there is sort of the same. So we have cash costs that are on budget. We do have higher royalties in the quarter and year-to-date because we originally budgeted $1,700 gold, and we've come in, as I mentioned, very close to $1,800 gold so far. So royalties are higher. But that is offset by higher production, and it's also offset by the fact that some of our CapEx has been pushed forward into the fourth quarter. So we did have lower sustaining capital in the quarter and year-to-date. And those expenditures are really mostly as a result of timing, and we do expect them to be caught up in the fourth quarter. We're forecasting that will happen.And for the 9 months, just very brief commentary on the 9 months results. So the production year-to-date, 699,000, including our share of Calibre 743,000 ounces, so 49,000 ounces ahead of budget. So -- and I'll comment where we're going to be for the year in a second, but very solid and for the same reasons I described for the quarter. And then on the cost side for that production, so cash cost per ounce produced $556 an ounce consolidated, including share of Calibre, which is $14 less than budget. So around budget for the same reasons as I reported.And then all-in sustaining costs, $900 consolidated per ounce sold, including our share of Calibre, and that's $45 lower than budget. And the reason for that $45 lower than budget really is mainly just the timing of CapEx. So where are we for the year? We did put out some revised production guidance for the year based on where we are today. So our original consolidated guidance, including share of Calibre, was 970,000 to 1,030,000 ounces. We bumped that up now to 1,015,000 ounces -- between 1,015,000 ounces and 1,055,000 ounces. And the bump came Fekola. The lower end of the guidance was previously 530,000. We've now pumped up to between 560,000 and 570,000 ounces just because of Fekola's performed overall.And then Masbate also because we had -- we've outperformed in the year, originally 200,000 to 210,000 ounces, we bumped that up to 215,000 to 225,000. Now remember, though, that part of that big outperform in Q3 was some that mining out of sequence. So we will see a little bit of that clawed back in the year in the fourth quarter. And so that's why we end up with a guidance range for Masbate 215,000 and 225,000.Then when we look at the cost side of things. We looked at our overall guidance ranges. And what we see based on what I mentioned about some cost inflation, but offset by higher production and the benefit of some derivative gains is that we think for cash costs, we're going to come in within our overall guidance range for the year of $500 to $540 per ounce. If you look at the individual sites, and there, Fekola probably come in at the upper end of that just because it's putting more high-grade or lower-grade material through higher volumes of low grade material. But the other 2 sites, we think will be certainly just right in the middle of the ranges.Nd then on the all-in sustaining cost side, again, our original guidance was $870 to $910 per ounce. These are including our share of Calibre. We still think we'll be in that range, but we think we'll be on a consolidated basis at the upper end of the guidance. And that has some offsetting factors in it. For Fekola we've guided, we think we'll be at the upper end of the all-in guidance range that we gave, again, because of the nature of the low-grade material going through. At Masbate, we think we may be at or below the low end of the range just because of the production we have to date. at Otjikoto, just depending on the timing of sales as we go through the end of the year, we may be at or slightly above the upper end of the guidance range. But overall, for all-in sustaining costs, we think we'll be at the upper end of the range.We think that's a pretty good testament, I think to pretty good -- very good testament reflection of how all the sites have performed because we are in inflationary cost environment. And I think you've seen that across the reporting that's going out across the industry right now. But even despite of that and because of the production that we've managed to pull forward and beat against budget, we think we're going to meet those ranges.Maybe have a few other thoughts just on where we are. Just general comments on some of the operations as well just as we go through. So Fekola, just remind you that the mill really is performing so well now. And we've said that we expect it to be somewhere in the 8.3 million, maybe 8.4 million tonnes range annualized for 2021. And as we go over life of mine long-term, including feeding saprolite materials through the mill, we might think may be able to manage 9 million tonnes per annum for Fekola.Reminder to you that we now started pulling Cardinal into the mine plan. We started developing that. Q3, and we've got some production now coming from Cardinal. We did get permit to do that as part of the overall -- well, it's really, it's part of the overall Fekola permit, but we got our environmental assessment done and apporved by the authority. So we think Cardinal over the longer-term can benefit the overall production at Fekola, somewhere around 60,000 ounces a year for the next 6 to 8 years based on the resource that we've built, the inferred resources that we've drilled there already.Fekola solar plant just remind you too that, that's now complete, up and running. And really, the overall benefit of that is that it allows us to hold back some of the spinning reserve that we have with our [gensets] there. And the net impact on costs overall is probably managed to reduce Fekola's total overall cash cost by about 3% because it reduces the cost of our milling -- part costs for milling. Otjikoto, will be Wolfshag underground continuing and still scheduled to get in and get some more from that underground development by the end of Q1 next year.Work at Gramalote continues. We're continuous on the feasibility, both to drill out some of the remaining inferreds at the site and also to update the engineering and look at the revised permitting required to move that project forward. We're still expecting to have an update on new feasibility studies sometime around the middle of next year. And then Burkina Faso as Clive alluded to that, in the period, we sold 81% interest in the Kiaka Project. So we've signed the deal, and that deal is expected to close on about the end of November. And in conjunction with that, we also updated the previous deal that we had to sell West Africa, our interest in the Toega project.So for Kiaka, the consideration for that deal is we expect $45 million in half cash half shares in West Africa on closing, which is, as I said, expected by the end of November. Then another $45 million cash or shares at our option sometime next year, certainly no later than a year from when we close the deal. And then we retain our interest as well as any shares that you might take by retaining our royalty in the project. So 2 point -- our share, $2.7 million, 2.7% royalty on the first 2.5 million ounces produced from Kiaka and then 0.45% royalty for the next 1.5 million ounces produced.And then just remind you, too, that in conjunction with revising that Toega deal, with the closing of that deal, then, there is another $9 million tranche original option payment that will be due now with closing the deal at the end of November when the deal closes as well. So we can expect to see that in Q3.And let me just on the earnings side. The GAAP our share GAAP earnings, $0.12 per share, our share adjusted for the quarter, $0.12 per share as well. And year-to-date, our share of GAAP earnings, $0.27 per share and our year adjusted EPS $0.26 per share. Then a couple of comments on the cash flow statement. So we had an excellent quarter for generating operating cash flow in the period, $320 million, which certainly beat our expectations. And that was -- that translated to $0.30 per share operating cash flow. And that is in part due to the fact that we produced and sold more houses than we'd originally forecast, which is great. Gold price behaved well for us during the quarter. And we also had the benefit of some working capital movement changes that went through there that actually benefited cash flow. So in the end $320 million for the quarter. Now we had guided before that for the half year. For 2021 in the second half, we do somewhere around $500 million. We bumped that slightly in our guidance that we put out there. At the end of this quarter, we're now saying somewhere around $510 million for the half year. So you could expect somewhere between $190 million, $200 million operating cash flow, therefore, for Q4.As we claw back some of those working capital changes that we benefit from in Q3, and we make some year-end tax payments that are required. Our total tax, cash tax guidance, $380 million for the full year remains unchanged. So just remind you that. On the investing side for the quarter, we were only probably about $6 million under budget with some pluses and minuses across the sites. I will say that for the year-to-date on the investing side, just over $200 million, we're probably about $35 million under budget, as I mentioned in discussing the all in costs. We are behind in some of the sustaining CapEx through the piece. And we're also -- we haven't spent as much as originally budgeted yet on summaries like exploration. But we do expect that we're going to catch up those CapEx costs by the end of the year.So what we've guided overall for CapEx, if you look in the MD&A, we've given you some guidance there. For sustaining CapEx, we're probably going to be about $10 million over all in for the year, which is fractional based on the total sustaining CapEx that we have. And then for non-sustaining, probably also about $10 million over budget overall for the year. But the main component of that being just some cost for Cardinal, some development and fleet cost for Cardinal, which weren't originally budgeted because we didn't have Cardinal in original budget.We ended the -- sorry, we paid dividend in the quarter of USD0.04 per share and annualized USD0.16 per share, which still puts us up somewhere 3.7% to 4% over the piece dividend yield, which still one of the highest in the industry. And we still are maintaining the line there and our intent is to keep paying at that level. And in the quarter, we ended the quarter with $546 million in the bank. So very solid. And we've still got $600 million available on the revolver. None of that's drawn right now.So I think those are the highlights, just what I wanted to emphasize. So just as a reminder to the operating cash flow for the year, we think we're going to come in around $650 million. We had originally guided $630 million but with the batter beat that we have so far on the production and revenues, offset by some higher costs, as we inflationary costs through the year. We think overall, we got to come in somewhere $650 million for operating cash flow, with approximately $190 million to $200 million of that Q4. And that's my update.
You didn't mentioned the dividend, Mike, I was listening intently for that. Okay. Thanks, Mike. We're going to open up to questions soon. Just to comment, I guess, we are very pleased with the third quarter results as I think many of our shareholders will be as well. And for the analysts, we know you guys had a tough job and lots of companies to come on us to do. I think for the most part, you get it right and do the job. The one thing that's disappointing is to see when you have a $0.01 miss on earnings per share, you see headlines that say Q3 miss. I think you might want to consider a better way, I think you're doing the service to our shareholders, your clients and the companies. When you do that with a blaring headline, how about the cash flow, how about the other costs and things. So just a suggestion, it can trigger the algorithms, it can cause selling, it can cause the investor that reads only headlines to sell shares, et cetera. I just think it's a little bit -- there's a better way to do it. So that's just my comment for the day. A bit of advice.So with that, I think we'll open it up for questions we have the entire executive team available here, so we can pretty much answer any questions. If you are an analyst and you want to go into great detail about the strip ratio 3 years from now at Fekola or other such things, I would ask you to reach out to Ian or you can actually contact Bill Lytle directly at blytle@b2gold.com with any detailed questions. We do respect the fact that you've got models and you want detail, but this is not the time to ask too many questions of that nature with a lot of people on the line.So with that, let's open up for questions.
[Operator Instructions] Your first question will be from Tyler Langton at JPMorgan.
I guess maybe just starting with cost, you mentioned that sort of costs were a little bit higher than budget levels in Q3, but offset by the strong production. Can I guess -- could you just give a little color about sort of how you see costs sort of trending in sort of Q4 and heading into 2022 kind of just sort of general prices remain at current levels?
I can give you a very high-level thoughts on it. I mean -- and Bill, maybe pass over Bill afterwards because some of the detail. But production-wise, we are seeing fuel price inflation. Some are year-to-date, it's probably close to 10%, I would say. But like I said, we have fuel derivatives in place that offset probably half of that cost right now. Are seeing some other input costs that are higher, certainly in transportation, some of the input costs. I mean, overall, if I had to guesstimate cost inflation, you're probably looking at 5% or 6% for the year that's probably in the ballpark. And then you're looking at production increase against budget somewhere in that 4% range, right? So you can see that, that managed to eat up quite a bit of that cost overrun offset.
Yes. And maybe just to add to that, certainly, shipping costs are a big one, right. The cost of shipping has gone up significantly this year, and we'll see those carry into 2022. And then, of course, labor, as various economies are seeing inflationary pressure, of course, the employees are also seeing that, so they're asking for pay rates. We did a really nice thing actually this year. We locked in Fekola, our key asset. We locked in increases for the employees, basically about 5% per year over the next 3 years, basically guaranteeing that can be stabilized. And of course, we typically at Otjikoto, do the same thing, where we have a 2 or 3 year agreement, which will be up for discussion this year. So that's already started for 2022. But we would see that also in that kind of 5% to 7% range is probably where we'll end up. And so I would say shipping fuel, spare parts, they're also up. We had a good discussion with Caterpillar here in September. Caterpillar has awarded B2Gold global pricing. So basically, we get the same price for everything, but they have announced that because of production costs and shipping costs that they will be passing along some increases as well in that regard. So those are the main things.
Perfect. That's helpful. And then just on Fekola and production. I know you sort of given formal guidance for the next several years. But could you just talk about, I guess, directionally, how you kind of view production with Cardinal sort of coming in maybe Bantako Nord a little bit later to sort of the moving parts that could affect production there over the next several years?
Well, we're still obviously working on that. So Cardinal, I think basically, we've talked about, it's an inferred resource of north of 600,000 ounces. We would see that over the next kind of 4 to 6 years, putting it into production. One of the things we are doing to make sure that we come in line with the guidance is we are drilling off the 2022 production into reserves, that will be out by the end of the year, then we'll do the same thing in 2022, at least for 2023. So we're going to try and be a year ahead. I think what we've been saying is we're kind of in that 60,000 ounce plus/minus range for Cardinal coming in. But then, of course, you've also got what could be Anaconda, Bantako. We have a mine plan on that right now. Depending on what happens with Menankoto, is how we'll decide to go forward. But certainly, we could see a couple of hundred thousand ounces over the next couple of years if we so chose coming instead being truck in from Bantako. So all those things are in play right now. What I'll say is that if you remember, there was a dip actually in 2022 in production, when we did our original life of mine. But we've pulled that dip out of there through some of the work we've done at Cardinal and potentially in Anaconda we see 2022, not finalized yet, but it's going to be a really good year. As far as the production, I think I'm not going to say it's got a sick in front of it, but I'm saying we're going to get up near that number for sure.
Next question will be from Josh Wolfson at RBC.
First question is on Cardinal. Earlier in the year when the opportunity was discussed, there was some guidance about grade for the initial feed being about 3 grams. I know the resource when that was issued, was lower. But the initial stockpile that's been built up is also kind of more along that overall resource grade of about 1.5 grams. What was sort of the difference between the initial guidance and what the stockpile looks like now?
I'm sorry, I don't understand the question.
You mean grade or-
Yes, for the grade. Yes. So the grade, I think, initially, I know the overall Cardinal feed was -- or the resource is about 1.5. But I think there was some guidance earlier this year that it was going to be significantly higher initially, unless I'm mistaken, and the grade is 1.5 today. Was there a variance versus expectations there? Or...
No, no. I think certainly, we've seen really what everything that was in the inferred has kind of played itself out so far. What I will tell you is that like in 2022, we're going to see the grade from Cardinal increase a little bit. I think it's going to be -- it's above 2 grams per tonne, for sure, in 2022. And as we bring that into reserve, of course, we'll report that.
Okay. And as it relates to looking at the overall split in terms of processing, the guidance for 9 million tonnes of feed going forward is pretty similar to what the asset is doing now. Should we assume a similar kind of split between the sulphides and the oxides that the assets processing today is kind of continuing going forward?
Yes. Well, that, once again, is kind of a -- I think John is on the call, so he can correct me if I'm wrong here. But what we've always said is that we don't think that really the mill can handle more than that 10% to 15% of saprolite material. And so it all depends on what the mine plan has for Fekola and saprolite that's available at Cardinal and whether or not we've bring Bantako in. But what I'll tell you is that if we can get 50% saprolite, we feel pretty good at that 9 million tonne per annum. And once again, that also assumes that the material doesn't get significantly harder as we go to depth at Fekola. But that's kind of what we're projecting at this point. I don't know, John, if you want to add anything to that.
Well, that's right, Bill. I think everything was said there is accurate.
All right. And then maybe final question as it relates to Gramalote, with a bit of work that's sort of been done since the last update, is there any kind of additional insight into the -- I guess, the extent of the changes and what the permitting modifications that would be required for that would be? Or is it still a work in progress?
Yes. I'll kind of update you on where we're at. So you remember, there's a bunch of things going on here. Number one, there's the engineering work where we're basically trying to simplify the process and take out some of the confusion, which has happened over 10 years of design. That work has been very successful, and we've certainly seen some uplift in the IRR related to infrastructure. The resource drilling is ongoing. They actually had -- they have a very significant program there, which I don't think is even going to be done drilling until, I think, the end of November or December. And so then, of course, we'll have to wait for the resource to see where that ends up. And then, of course, there's things like the social issues, which include the resettlement, which is really one of the key drivers, trying to do a phase for settlement. So the long answer to your question is, we have seen some improvements. What we've done is we've approached the government about a phased approach as far as permitting. We would see kind of in Q2, maybe the end of even Q1, we're going to approach them with some modifications to our existing operational permit and EIA. We're assuming that those will be kind of minor changes, which will allow us in the second half of the year, if it's positive, to do some work on the ground. And once that is approved, we would then do some major changes, which would include adjusting, looking at the tunnel and turning it into a diversion ditch, which we think would take us into 2023 before that would be approved. So the short story along is we believe end of Q1, we'll approach the government with a modified -- request for a modified permit and then kind of 6 to 8 months later, submit a second half. Our second version of a modification, which would take us into 2023.
Your next question will be from Ovais Habib at Scotiabank.
A couple of my questions have already been answered. But just don't want to harp on -- too much on the Cardinal side of the boat. Can you just tell us exactly kind of essentially, how much of the revised guidance on Fekola is due to Cardinal? And also in terms of the guidance provided on Cardinal, that the deposit has potential to add about 60,000 ounces of gold per year. Again, can you just give us a little bit more clarity on the constraints on that 60,000 ounces a year, especially the fact that the mill is running at 9 million tonnes per annum?
So if I understand your question, you're asking for what is the ounce profile from Cardinal over the next couple of years?
That. And Bill, just trying to understand, is there any sort of constraint on that 60,000 ounces of go over year that you've laid out in terms of, I guess, soft guidance?
Why not more, I guess, he is saying.
Yes. So the constraint really revolves around looking at what the Fekola permit -- or what the Fekola pit grade is versus what Cardinal is versus the mining sequence. And so all that is being taken into account. Remember, Cardinal is a little bit further haul. And so we're obviously taking the higher grade first. And then, of course, you've got to include stockpiles in that. What I'll tell you is that in 2022, right now, we're estimating about 650,000 tonne coming from the Cardinal deposit. And that actually adds up to about 50,000 ounces for 2022. And then as you get deeper into some of the higher grade zones, you'll pick that up in some of the later years.
Got it. And just in terms of -- obviously, you've been drilling into the inferred ounces as well. Have you been doing -- also maybe this is a question for Tom, but have you been doing any sort of step-out drilling as well? Is there any extent to this in terms of strike potential?
Yes. So I'll say first. As far as -- basically, we've divided it up, the operational group is bringing the inferred indicated, but the geologists are right next to us because it is open for sure. And maybe either Tom or Brian can discuss that, but it is wide open, and we see this thing continue to grow so much so that we've actually included in 2022 budget, some more work on the social side to make sure that the communities are not kind of land restricted as we make this bit bigger.
Tom, do you want to talk on that next question further?
Yes. Ovais, just to answer your question, Cardinal is still open. It's open both at depth and on strike. And then we have an adjacent deposit called FMZ, which is on the sort of West, Northwest side of Cardinal, which almost [works] against us. So our exploration is not only extending Cardinal, but it's extending FMZ, and it remains open, and we'll continue with that exploration again next year. That's within the budget for next year.
Okay. So just Clive, just over to you. And just -- you mentioned at the beginning of the call that you've started -- or B2 started looking at some M&A opportunities as well. Any color you can provide on whether you're looking at kind of development projects or this is operating mines, JV opportunities? Any additional color you can provide?
Yes. I think I said we continue to look, as we always have. And I mentioned, we like what we see in our pipeline and some of these great exploration projects that we have and Gramalote and the potential of Anaconda, et cetera. But I would say that the large shares underperforming I know the sector I think starting to catch up recently. We hope that continues along. Obviously, we wouldn't want to go and dilute our shareholders in any significant way. Finding an accretive deal with our discipline around acquisitions for the last 30 odd years about not paying promises that might be there but not overpaying for projects. And it's going to be hard to go out and win a big work with other companies that didn't do what we did in the last 10 years and build mines where it was unpopular and don't have as good pipeline as we have. So I think having said all that, though, there's some special opportunity where we can bring our strength of building mines, financing them or improving mines as we did not forget in Masbate some years ago. We're looking at those types of things, keeping an eye on a number of things. But I must say though, I think one of the really positive aspects in that regard is the opportunity to do M&A using combination potentially of cash and our shares to minimize dilution. We have a tremendous amount of cash, and we also have access, as Mike said, to $600 million from the banks, including another $200 million. So $800 million is available for us for potentially part of an acquisition. So that changes it a little bit for me in the sense of I can't imagine finding something accretive today that we would bid on. Also, I can't imagine doing something today using just our shares unless it was a very special situation where something was grossly undervalued. So we're looking and we'll continue to look in interesting places. Sometimes we're obviously see the trend for opportunities. So -- but if we do a deal, I'm pretty confident that you guys and our shareholders and our Board of Directors would have viewed it accretive, because otherwise we wouldn't be doing it.
Next question will be from Anita Soni at CIBC World Market.
So my first question is with respect to the Bantako permit. So I think you mentioned in the MD&A that the -- bringing it into production would be subject to the mine plan and also getting all necessary permits. Could you just elaborate on what remaining permits would be for that?
Yes. So Bantako is a separate license area, right? So it's not like Cardinal was easy, where we just basically had to update the EIA and then show them how it fit into the mine plan, and then it was approved for production, which that is now fully -- we're now fully permitted on that side. Bantako is once you submit a feasibility study, then you have to go through the full situation of getting an EIA approved, then, of course, then there's the shareholders agreement, what percentage of the government we want to take on it. We assume it would be very similar to Fekola. And then you've got the convention, which basically lists out your fiscal stability and everything else. So there's a whole long process, which will be required for sure. And that's why the reality is we actually have already just for Bantako, we have a study ready to go that we get tomorrow if we wanted to submit it. But the issue really relates to how then are all these legal steps, which have to occur, how long does it take that? We put in, that's why you often hear Clive talk about the second half of 2022. We randomly put in 6 months because we think that's how long it will take, but maybe it'll go faster than that.
Okay. All right. Yes, I was wondering about how it would come in, in 2022, and we're still permits, but since you have a steady ready to go. That's good. And then just getting an idea of the tailings dam. I think you said that because of the Cardinal and the higher throughput levels that you're going through currently now, great that the mill is performing. But the tailings facility, could you just give an idea of like what kind of a lift would be required and how often you would have these additional risks in sort of the capital associated around that?
Okay. Well, I don't know that I have the capital numbers right at hand. But certainly, from a lift perspective, remember, we were always kind of telegraphing that we had this kind of 6 million going to 7.5 million tonnes per annum. And so based on that, that's what our tailings expansion schedule was. Now given the fact that we're operating at 9 million tonnes per annum, I mean, that is a knock on effect, not a lot of things across the site, but the one you mentioned was tailings facility. So the reality is, we've started already putting the next lift on it, and it's going to be a double lift, basically getting us up to the final elevation of what that facility could do. That's going to take us -- I think that's going to take us into 2025 or 2026, it's somewhere around there. So basically, we're going to have to start doing the design work and the engineering on a new structure, which we've already identified a location for and getting that permitted in 2022 so we can construct in late 2022, 2023, which puts us into production in 2025.
Okay. And then my final question. Sorry, did you want to -- were you continuing?
No, I just want to say, I didn't have -- I don't have the costs for that, obviously, in front of me, but it's -- the operating cost or the construction cost, typically, I think I remember seeing something is around $10 million, somewhere in that range for the next lift.
All right. And you said a double lift, so maybe just around that. Okay. And then lastly, on Gramalote. So your decision to kind of differ Gramalote wise in retrospect, given the inflationary environment that everyone is hitting. As you -- you're obviously seeing costs escalating in your current operations, you're doing things to mitigate that. But as you think about Gramalote and further progressing that forward, could you give us some parameters around how you think about cost escalation in light of capital build? We've seen a lot of your competitors really facing some headwinds, and they're all bidding for the same one part to get something rolling. So could you give us some, I guess, color on your thought process on whether or not you could defer Gramalote further? Or would you go full steam ahead on that?
Well, from the corporate point of view, I mean, obviously, we're building in some inflationary factors in terms of the things we're looking at Gramalote on how long those factors are going to be in place as it is obviously a great debate and how long the inflationary trend will continue. But I would say that if we have a strong economic case, we had a 15% IRR before, but decided that project could get better. And we've seen signs that, that is happening by significant changes that can get at reducing the capital potentially quite significantly. So inflation may tune into that a little bit, but we will be looking at that closely. But I must say that I think that as a company, historically, if we've got something that's got good economics, we're going to want to go and the government of Colombia, like all governments these days, if there's an economic project they're going to want to build. We have a very supportive government there. We're in the right place in Colombia, Antioquia and the local people really want this to happen. So there's also an issue there where if it's economic, we're going to want to move forward for satisfaction and the government of Colombia and the local people really want us to move forward with this. And AGA has signaled that there on this engages us obviously awaiting the results of the final feasibility study.
Yes. Maybe just to add just a couple of things to that. I mean, clearly, we just updated the cost for our study, which was done in 2021. We'll update those again. And as we go into additional detail on the mill and stuff, with those costs are obviously being very tightly refined. But then the other thing is, remember, the Colombia, the exchange rate, the Colombian peso has weakened a little bit. So what we're going to see there is that these things like that you buy onshore will actually be cheaper to us. And so that will be some offsetting, for sure.
Your next question will be from Don DeMarco at National Bank Financial.
Congratulations on a strong free cash flow quarter. Many of my questions have been answered, but maybe I'll ask one on ESG. I think I heard Mike say that the Fekola cash costs have been reduced by about 3% from the solar plant. And I'm hearing across the board, the electricity and fuel are drivers of inflation. Is the cost to generate solar power at Fekola subject to less inflationary pressures than the cost to generate genset generated power? And secondly, company-wide, what are some of your next ESG initiatives?
Okay. Well, certainly, I'll let -- actually, the answer is yes. Of course, I mean, it's much less subjected to inflationary pressures doing solar. But I'll let John maybe Talk, John Rajala kind of our king of power, and I'll let him talk about what solar costs are and what that all means for our operations.
Yes. Okay. Bill. Yes. So as far as the cost of generating solar power, it's just a fractional cost. And whereas generated power with HFO is much higher. And we are expecting good costs going -- we had a very good quarter in Q3 for our costs, power generation cost was $0.152 per kilowatt hour versus the budget of $0.156. That resulted in an overall savings of about $0.60 per tonne of ore costs. So -- and then going forward, we're getting into the higher solar irradiance month now and we're expecting even better cost performance from the solar. So does that answer your question?
Yes. And do you have any plans to maybe expand that solar facility at Fekola or build other ones at other -- at your other mines?
Well, possibly. Go ahead. Go ahead, Bill.
Joh, you go first.
I was just going to say, yes, we're -- we've been thinking about that, but no immediate plans to expand, but it may possibly happen in the future there as well at other sites, if it's warranted.
Yes. We actually had a very interesting discussion at our Board meeting yesterday, where we talked specifically about that. If you look at something like, let's say, Bantako, right, or Menankoto, we get it back, and we want to wheel power out to that site. And certainly, you can do it there. But because now remember, this -- we've got a 7.5 megawatt facility at Otjikoto and now this facility at Fekola. We consider ourselves to be kind of on the cutting-edge and on the front -- leading front of that. So now we're looking at that standard is actually looking at things like is for Gramalote, does that make sense. And obviously, that's kind of land restricted. But can we do it there? Can we do it in Masbate in yard? There's some technologies out there, and I know that both John and Dennis have been studying this, that you could put it on the tailings facility, because you put it on the face of the dam. We're looking at all that stuff. And we're pretty high on it, for sure. And then the second half of your question related to other ESG initiatives that you'll see, and once again, I would argue that we're kind of on the cutting-edge or the leading front of ESG, and we've always been very successful. And I would say, in 2021, a couple of the key things you're going to see is our climate change initiatives that we've got ongoing. We're looking at doing a full inventory of our emissions. And of course, our water conservation. We work in some places that have desert environments. And so we're really focused on how do we reduce water consumption. And once again, at the leading edge of ESG on those topics.
And of course, as you remember, we put out -- one of the very first solar plant and mining in Otjikoto some years ago we were very ahead of the curve on that. So it's a big commitment for us to look at increasing it and also to look at where else as Bill said we can use it.
Okay. And my final question, and this is an extension of a question asked by a previous caller. And it goes back to Clive in your preamble, you mentioned you'd consider accretive M&A opportunities. Did you mean accretive in terms of production? I mean that is would be to consider an operating asset if justified? Or is your focus on M&A still primarily on development projects?
No, I think it could be a special situations where, let's say, a minor set of problems through some poor management or other issues that we think we can make it better now allow people in this industry do deals and promise that. And then sometimes it doesn't materialize, although I like that the fact that the industry since the beginning better technically overall. If you think back to Masbate in 2013, I think it was when we acquired CGA Mining, as a single mine company. They did a pretty good job. But when we acquired their operating costs were $890 an ounce. And I remember some of the guys brought it forward, and I was just saying why are we talking about this, it's $890 ounces, and they said, well, here is out, there's a lot of things we would change. So last year, I think we had a couple of quarters under $500 an ounce of operating costs. So not only are we very good at building mines with our great construction team, and we'll continue with that. But there is that opportunity. Also, sometimes these days, it's harder and harder for a single asset company to convince investors and banks, et cetera, sometimes that they can build it, do they have the team to build it? Do they have the owners team if they're going to do so kind of a contract build, which I think is always been dangerous, but do they have a strong launch team and can they finance it on reasonable terms. So I think some of those situations. There is competition, as I mentioned earlier. So we might be in a situation we're in a location where it's the trend, which we've done successfully before. But we may find the right fit, as I said, is something we can make better. Clearly, we'd like to find a good development opportunity that was -- we could argue to our shareholders successfully that it was an accretive opportunity, we have retained to do that as well. As of now, we were pretty optimistic that Gramalote could very well be the next construction build for us. And then again, we also have the potential, as we talked about, 1 day is there possibly another mill at Fekola, it's too early to say now, but there's a possibility for Anaconda.
[Operator Instructions] Your next question will be from Geordie Mark at Haywood Securities.
Just a couple of questions. Extensions of a few and some new ones. Maybe on Fekola, given the multiple source origins you could have in the near to midterm Bantako and Cardinal, stockpile with Fekola and Fekola primary hypogene and the upgrade, I guess, to 9 million tonne per annum on a blended source. Are you comfortable with 9 million tonnes per annum capacity? Or is there some functional sort of capacity to go beyond 9 million tonnes per annum over the midterm, given the success from the drill bit?
I can just hear John screaming where is it enough? So the long answer is, Geordie, if you remember, we did way back in the day, when we kind of expanded, remember, we went from 4 million tonnes per annum to 5 million tonnes per annum. And then we looked at optimizing, and we actually had a step function. And we looked at plus 1.5 million, which was basically increasing the existing circuit. And then the second study that was looked at was a 10 million tonne per annum, and it was very quickly ignored because the step function is 7.5 million, which is now 9 million, was so much more cheaper at $50 million. So there is the capacity to grow bigger. That's a big step function and would require a lot of additional work, is there ability to put it there. I think John would say, yes, but then you'd have to start weighing this whole concept of wouldn't it be cheaper actually to put something up at Menankoto, right? Would you have a whole complex where you'd have maybe 2 mills running up there, so you wouldn't be trucking all that ore all that distance. So I think if you found enough ore that you would ultimately want to build something separate, but those studies would have to be done.
Yes. Okay. So no one really improved for now. Okay. Maybe over to Masbate. It's a nice positive recovery percentages there. Given the history of positive percent of recovery versus the model, are you looking to revise the model? Are you going to continue, I guess, sort of a more conservative stance on that? Or how should we look at that going forward?
Yes. So for the 2022 budget, we actually did up the recoveries just a little bit based on the ore type and how it fit in or where it was coming from. Remember, it's all kind of anecdotally, right? It's all from results that we've already received as opposed to doing additional drilling or additional testing of the metallurgy. So at this point, we're -- I think we're still a little conservative, but we're moving towards just based on experience, a higher recovery. And I don't know that there's any science behind it. It's just -- this is what we see, and this is what we're saying.
Yes, I'll just add to that, Bill. We've been doing some ore campaigns through the mill at Masbate with the major ore types to get a good estimate on recovery on a flat scale. So -- and that's being built into the model as well for 2022.
And in terms of -- maybe last one for Otjikoto and Wolfshag underground. What other steps to ultimately get to first oil production underground now? It's obviously not too far away from first production. So what are you looking at there?
What's the question?
First production, what's left?
Yes. No, I mean Randy literally at Otjikoto now, so maybe I'll let him answer. What I will tell you is that we just continue the development of the down plunge, and the plan is to start producing ore in Q1 or at least getting some more out there in Q1. Randy, you want to talk about what are the final steps we have left to do?
Yes, that's pretty well -- the development contractors working on the main deep line right now as we speak, we've made a couple of little tweaks there to the development plan and when we get into ore we'll be starting to take out some development ore in the first quarter. And then we've selected a production contractor that's going to be gearing up and coming in towards middle to end of Q1 and getting started there.
The development ore and then coming into a great proportionate start seeing, I guess from there on.
Yes, correct.
[Operator Instructions] At this time, I would like to turn the call back over to Mr. Johnson.
Okay. Thanks, operator. Thanks, everyone. Good questions. And if there's any other questions that you have don't forget to reach out to us. And we look forward to reporting -- planning reporting another great quarter end of the year. So thank you for your time.
Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.