B2Gold Corp (BTG) 2013 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the B2Gold first quarter 2013 conference call. I would now like to turn the meeting over to Mr. Clive Johnson, President and CEO. Please go ahead, Mr. Johnson.

Thanks, Savichy. Good morning, everyone. Welcome to our conference call to discuss B2Gold's 2013 first quarter results. We put out, obviously, our financials in a news release overnight and then to talk about the results and there it's another great quarter for the Company. And we continue to perform extremely well in our mines and continue to remain in a strong financial position and also continue to advance our growth projects. Just some of the highlights from the first quarter. We did complete the merger with CGA Mining which was relating to the acquisition of the Masbate Gold Project in Philippines. I will talk some -- we'll talk how that's going; Dale will tell us how it's going at Masbate.

We had record cash flow from operating activities of $45.1 million; record adjusted net earnings of $40 million, or $0.07 a share; record gold revenue, $154.9 million; record gold sales of 95,042 ounces. We also had consolidated operating cash cost of $722 per ounce, below our budget. And we had cash and cash equivalents of $120.7 million at the end of the quarter. We also mentioned earlier we closed a corporate revolving credit facility for $150 million, and we are going to talk more about -- we commenced construction at the Otjikoto Gold Project in the first quarter.

And finally, another item, we sold royalty that we owned on a project in British Columbia through an acquisition we had done a few years ago of a company called Central Sun. We had a royalty that we sold to Franco-Nevada for $45 million to us as well. So with that, through those highlights, I'm going to pass it on to Mark Corra, our CFO, to give some more detail and then we'll talk a little about the projects and then at the end, we'll open it up to questions. Over to you, Mark.

Thanks, Clive. As probably people have noticed, there's quite a difference between our adjusted earnings and our GAAP earnings. A lot of that relates to the CGA acquisition and from IFRS, GAAP earnings standpoint, the earnings were quite distorted compared to what they would normally be. So I'll just try and walk through a lot of the changes that we made to how we came up with the adjusted earnings and I guess speak a bit about why those numbers were adjusted from what the GAAP earnings numbers were. As Clive mentioned, our revenue was a record, close to $155 million for the quarter, which was up 140% compared to last year. We produced just over 95,000 ounces of gold and had a realized price of $1,629 per ounce, compared to last year, when we had revenue of 60 -- well, just under $64 million at an average realized price of $1,687.

All three mines performed well in the quarter and that kind of stands out when you look at our cash costs of $722 per ounce, so our budget actually and including the forecast was for a combined consolidated cash cost of around $785. So we did beat that by a fair amount. Both Limon and Libertad came in lower than budget; they both outperformed on a production basis and were able to control their costs as well. Masbate came in a little under our forecast on production numbers but were able to get that mine a slightly higher grade and get better recoveries so they actually beat on what we were expecting on their cash cost number. They came in at about $846. We were expecting about $888 on a cash cost basis, so they also did well.

One thing -- just sort of backing up to the revenue number, included in $155 million is $9.4 million of an adjustment relating to hedges that Masbate had when we took them over when we picked up -- completed the CGA acquisition in January. They have 50,000 ounces sold forward at $900 per ounce. Now, with acquisition accounting, you have to value all the assets at the acquisition date at fair value. So we had to record a liability of $37 million on those ounces, based on the fair value of gold. And what ends up happening is then on your revenue number, you actually end up recording revenue on those ounces at the fair value which, at the time, was $1,678 an ounce. So even though we were only getting $900 an ounce for the gold that we were delivering, on the revenue side, we recorded it at $1,670. So that was the first adjustment we made to adjusted earnings. We backed out $9.4 million from our revenue number.

The other big adjustment we made I'll also go through as I walk through the numbers. Depreciation and depletion was substantially higher than last year. That relates mainly to the acquisition of Masbate, of course, as we have to include their depreciation numbers, again, based on the fair value acquisition cost there which turned out to be just over $200 an ounce in depreciation. Also, because the higher production and sales from both Libertad and Limon depreciation increased for the Nicaraguan operations as well.

The big adjustment during the quarter relates to a fair value adjustment relating to the inventory that Masbate had on site at the -- the day we took them over. They had 32,000 ounces of finished gold in inventory that was then sold during the quarter and, again, due to purchase price accounting, we had to value that gold at $1,678 an ounce. So with our realized price of $1,629, we actually had a slight loss on a GAAP earnings basis from those ounces.

Reality, though, is that those ounces were produced at about $850 an ounce, so from a cash basis, we cash flowed very well. As people probably noticed, we had cash from operations of just over $45 million. So that's a one-time adjustment. It will not affect us in future quarters so we won't have to worry about backing out any numbers there. And so we adjusted that out for GAAP earnings so we added $32.4 million to the earnings number there.

That takes us down to G&A, which did increase about 50% from last year. Most of that increase relates to the CGA acquisition and now we have additional staff as well. Also, we have a [Masbate] office in the Philippines that we maintain to help run operations down there. So that's about $1.1 million in G&A cost that were included in our quarterly G&A. There's a CGA acquisition cost relating to B2's costs; it includes legal and advisory fees. So we've also backed that number out from our adjusted earnings, as that is a one-time item.

We had a write-down in the quarter relating to our investment in Calibre. Their stock price was hanging around $0.075 for most of the first quarter at the end. We paid about $0.25 a share when we acquired those shares and so they've been depressed for quite awhile now so we felt it appropriate to write down those costs, write down that investment. Again, that's a non-cash item and so we've added that back to our adjusted earnings.

Share base payment is a bit lower than last year, it relates to stock options and RSUs. Again, that's a non-cash item so we adjusted for that as well. Foreign exchange, that will fluctuate up and down. That's actually unrealized losses in the quarter. Last year, we had a non-realized gain and we backed out both numbers from our earnings so if it's a loss, we add it back; if it's a gain, we subtract it.

That takes us down to another new item on the P&L which relates to unrealized loss on derivative instruments. Those instruments, if you -- you should probably go to our website and load down our financial statements a as they relate to Rand hedges that we've entered into and you can get the full disclosure there. But basically, we've hedged some of our -- about $50 million worth of this year's purchases at between ZAR8.5 and ZAR8.83 per US dollar.

Obviously, that's in a loss position right now but the reason we did this was our budget for the construction at Otjikoto is we're using ZAR8.5 as our exchange rate. So with the Rand being weaker than that, it actually benefits us. So our construction costs on a US dollar basis should come in lower than what we forecast. Unfortunately, though, we can't offset the Rand loss against that. We have to show it on the P&L.

The final adjustment we make is to deferred income taxes, as again, that's more of an accounting adjustment looking at future numbers and doesn't really affect your cash basis. So that, in the end, all told, GAAP earnings coming in at $63,000, of course, distorted by a lot of these changes that I talked about. But GAAP earnings came in at -- sorry, adjusted earnings came in at $40 million, or $0.07 a share, compared to adjusted earnings last year of $20 million at $0.05 a share.

If you turn to the statement of cash flows which is probably the most meaningful statement in the financial statements, you'll see that we did generate cash of just over $45 million for the quarter, an increase of 67% from last year. A lot of that relates to the Masbate acquisition, but also Limon had one of its best quarters since we've been the operator and Libertad continued to perform well as well. So they also contributed to the excellent cash flows we had in that first quarter.

You probably noticed as well we did draw down $25 million of the Macquarie facility in the first quarter. That was the old facility and that's now been replaced by the new revolving credit facility that Clive talked about. That's with the syndicate of three banks being Macquarie, HSBC and Rand Merchant Bank. So that's available to us now and the total amount there is $150 million.

We also -- on the acquisition of CGA, Masbate had a project loan that's outstanding. We made a payment on that loan, scheduled payment in March. There are three more payments that are due over this year and then that loan will be fully repaid but we also have some -- about $9 million in restricted cash at that project. And so at June 28, our plan is to repay the loan fully by utilizing the restricted cash and making the final payments on that loan.

If you go down to investing activities, you'll see that cash acquired on the CGA acquisition was just over $56 million. That was offset by $16 million of acquisition costs that CGA incurred and were paid in the first quarter. That related a lot to advisory fees as well as in Australia, they're required to do a fair value calculation and they hired a BDO to do that and they had a lot of legal fees as well. Again, that won't be a recurring item.

I won't get into the capital costs that were spent during the quarter, as I'm sure Dale will be giving an update on that. I would expect Bill to give an update on the progress at Otjikoto. That left us in a very strong cash position at the end of the quarter with just over $120 million in cash. If you look at the balance sheet, you'll see that's an increase substantially from last year's number. You'll see the restricted cash number; that's separate of that of $9 million that will be used to repay the Masbate loan in June.

The other thing I'd like to point out as well. Some people have noticed this in past financial statements that our value-added tax was quite high at the end of last year, but you'll see that, that's dropped dramatically at the March quarter end down to $10 million. That's a good sign. We've been talking to the -- almost all of that relates to Nicaragua and the local tax revenue service there is called the DGI. We had substantial taxes payable at the end of March relating to our earnings in 2012 from La Libertad and they agreed that we could offset a substantial portion of those taxes payable with our VAT credits. So that worked out quite well for us.

I also want to point out that our inventories at the end of the quarter, we had about 16,000 ounces of finished goods at Masbate at the end of the quarter. So that's something we're going to be looking at over the next couple of months to see if there's a way we can expedite the shipments of gold out at Masbate so that we can get it into gold sales faster rather than having such large inventory balances at the end of each quarter. Just one final thing on the liabilities. You'll see a deferred revenue number of $28 million. That's a remaining balance on our -- on the hedge contracts that were acquired from Masbate and that will go into income over the next four quarters -- or the next three, remaining three quarters. And of course, we will adjust that out of our revenue number though when we talk about adjusted earnings.

And finally, I'd just like, again, to encourage people to go and download our financial statements and look at the notes, especially Note 6, which relates to our purchase price allocation for CGA. I think that will be helpful to people trying to understand the transaction. And with that, I'll turn it back to Clive.

Thanks, Mark. As mentioned before, we'll have questions for Mark and others a bit later on. I'm going to talk a little about operations now and I think everyone's pretty much aware that we have a very strong operations team and it's exhibited again by the great performance from the mines in Nicaragua and some performance at our Masbate. And we've got some ideas on perhaps improving that along the way. But our operation team's led by George Johnson and Dennis Stansbury and Dale Craig. Dale is responsible for -- as a VP recently promoted to Vancouver after being the country manager for us in Nicaragua. Dale is now responsible for operations in Nicaragua and Masbate.

And I'm going to have a little bit later on Bill Lytle, who is our Vice President, Country Namibia -- what's his title again? What's his title down there? Yes, he's Country Manager as well as Vice President and he's in the Namibia for us. He's going to give us an update and along the way, Tom's going to touch on exploration. So no further ado, I'll pass it over to Dale.

Thank you, Clive. The Operating Groups have delivered a strong performance for the quarter; consolidated production was 79,661 ounces, a Company record as we combined production from Nicaragua and the Philippines. Driven by great quarters at both Libertad and Limon mines, consolidated cash operating costs were $722 per ounce, compared to the consolidated budget value of $785. The Company is projecting another record year for gold production in 2013 with consolidated production from La Libertad and Limon mines in Nicaragua, estimated to total 185,000 to 195,000 ounces of gold at a cash operating cost of $605 to $635 per ounce. With the completion of the CGA Mining transaction, the Company is projecting consolidated gold production in 2013 of 360,000 to 380,000 ounces from La Libertad, Limon and Masbate mines.

The Masbate Mine in the Philippines, B2Gold assumed control of Masbate on January 16. So production attributed to B2Gold is after that date. First-quarter gold production at the recently acquired Masbate Mine in the Philippines was 43,554 ounces. Attributable gold production to B2Gold based on the January 16, 2013, acquisition date was 36,467 ounces at an operating cash cost of $846 per ounce, and a total cash cost of $889 per ounce from 1.263 million tonnes of ore milled at an average grade of 1.08 grams per tonne. This compares to the forecast of 36,720 ounces from the January 16 acquisition date, with an operating cash cost of $883 per ounce.

So compared to B2Gold's forecast lower tonnage throughput resulted from SAG motor failure and lost process time for work on the crusher run of Mine bin. Recovery was better than forecasted as the Mine moved towards optimized pit sources, a change that will allow us to review and develop waste movement strategies for some of the pits. The new SAG mill shell and ends will be installed early in the fourth quarter. In addition, related motors and gear boxes will be upgraded at that time. The current SAG mill, which had cracking issues in the past and has been repaired, continues to perform acceptably and continues to be monitored.

Per ounce operating cash costs for the Masbate Mine in the first quarter were better than forecasted, mainly due to slightly better grade of 1.08 grams versus 1.04 grams in the B2Gold's forecast; better recovery, 83.2% against 80.8% forecast, which was offset by slightly lower throughput, 1.263 million tonnes versus a forecast of 1.352 million tonnes. Maintenance costs improved due to a new maintenance schedule and mining costs were also lower than forecast as a result of lower haulage costs. The Masbate Mine is projected to produce between 175,000 and 185,000 ounces of gold in 2013. B2 plans to reduce -- expect to release full guidance on the Masbate Mine near mid-year of 2013, once the Company has taken additional time to complete a new mine plan and cost estimates based on updated mineral reserve. We talked about moving to an optimized ore source a little bit earlier and basically that was recategorized oxide material at the Colorado Pit and that may provide some upside against our B2Gold forecast.

Our technical staff continues to focus on areas of performance in Masbate. The geology and engineering staff are finalizing the revised geological model and will now develop short and longer-term Mine plans. We'll be ready to share those as we indicated in the third quarter. There are a number of initiatives with upside potential including modified sequencing, equipment change, optimization of licensing strategies and optimization of tailings dam management. Metallurgical engineers are now reviewing [metallurgical] planned expansion, a process that will take to year end. We will be looking for an expansion strategy that both expands production and incorporates treatment of lower grade material if the economic drivers indicate that direction for low grade which is less than 0.7 grams in stockpiles.

For La Libertad Mine, La Libertad Mine continued its excellent performance for the first quarter of 2013, producing 29,124 ounces of gold at an operating cash cost of $588 per ounce, and a total cash cost of $622 an ounce from 488,000 tonnes of ore milled at an average grade of 1.98 grams per tonne. We've been talking in the last number of MD&A reviews about the focus on plant operation and the impact on results. It's obvious as gold recovery improved to 93.8% compared to a budget value of 92%. We anticipate throughput improvements in the third quarter as plant modifications get implemented as planned, increased tankage and the [pebble] crusher. Our sources were slightly different than the budgeted material as material adds ore from Santa Fe -- or Santa Maria, sorry, came on stream in late Q2.

We saw positive increases in grade from both Mojon and Crimea Pits. Better grade, better recovery has resulted in a great quarter for production and costs. La Libertad Mine is projected to produce between 131,000 and 137,000 ounces of gold in 2013 at an operating cash cost of $560 to $590 per ounce. Gold production for the first half of the year is estimated to total 56,000 to 59,000 ounces of gold at a cash operating cost of $620 to $650 per ounce. And for the second half of 2013, 75,000 to 78,000 ounces of gold at an operating cash cost of $515 to $545 per ounce.

For the Limon Mine, the Limon Open Pit and Underground Mine, which is comprised of the Limon Mine total had an outstanding quarter. Part of the gains were a result of deferred maintenance. 50% of the gains were the result of improved recovery, throughput and grade. In fact, we had already achieved our year target of 53 tonnes per average, still looking forward through implementation of the plant expansion as scheduled. As a consequence, we have indicated we are moving in the right direction with regard to gold production and lower cost.

We are currently forecasting that we might meet our budget commitment for Q2 notwithstanding the four-day maintenance break that we took in early April. The Limon Mine is projected to produce approximately 54,000 to 58,000 ounces of gold in 2013 at an operating cash cost of approximately $715 to $745 per ounce. Gold production in the first half is estimated to total approximately 26,000 to 28,000 ounces of gold at a cash operating cost of $710 to $740 per ounce. For the second half of the year, 28,000 to 30,000 ounces at a cash operating cost range between $700 and $750 per ounce. So in summary, we see strong production for operating units as we continue to focus on the basics that deliver better performance.

Great. Thanks, Dale. Just I'm sure a comment to start off from all of us here would be the operating team is the management that run the mines for us in Nicaragua and there's a very strong team at Masbate that we're enjoying working with as well. Without the hard work in the field guided by our team from here, this performance wouldn't be possible. And I guess I've been accused of stating the obvious before but these operating results stand out in our industry that is sadly lacking the good results over the last couple years and obviously, we're intending to continue this very good performance going forward.

I'd like to get Tom to talk a little bit now about exploration at -- around the mines. I think one of the things that -- one of our great models for success is to look at doing accretive acquisitions for what's there. And then we have a remarkable proven exploration team that in the case of, we all know the story of Libertad of adding a higher grade success, 10 kilometers away at Jabali that we're going to start mining real soon. We think that pattern could very well be repeating itself in -- maybe in Otjikoto and also with the potential of Masbate. But first, Tom, maybe I'll ask you to talk about exploration on the mines and then we'll talk -- ask Bill to take us through Otjikoto and then you can talk about exploration there.

Thanks, Clive. Good morning, everybody. Currently right now at the Libertad Mine we have two separate programs going on. One is a drilling program with one drill, drilling deep underneath both Jabali and Mojon following the ore shoots to depth with the idea of future underground mine plans which we're currently evaluating as a sort of distant potential for the mine. In addition, we have a large surface exploration program going on two areas of the property, the Southwest corner of the property and the central part of the property where vein forms have been located, both by us and recently by small miners and we're doing a program of soil geochemistry, sampling and trenching right now which will be followed up with drilling later in the year.

At the Limon Mine, currently almost all the focus is on the infield drilling of the Pozo 5 area which is immediately north of the current Santa Pancha operations. We had brought that to an inferred resource last year and currently are drilling it to indicated to allow detailed mine planning to go ahead by the end of this year. That's a significant development for Limon in that it could add at least four years of production to the current mine plan at Limon. In addition to that, there's a small surface exploration program going on, specifically in the Western part of the property, evaluating the new area that we just had recently acquired surface access to called [La Sola], which is a large area covered by [astrufs] never seen previous exploration on a property.

On to Masbate. Currently, we're now down to three drills as part of a $11 million exploration program. Drilling is focused on specifically near mine work to locate and infill -- or sorry, to locate areas of oxidation -- or to drill areas of deeper oxidation and also drill areas of high grade, specifically the pothole project to the north, which is oxidized north of Colorado. To the west, the Montana Vein System which was expanded last year, what I'll recall, Montana north with a -- some drilling by CGA. In addition to that, there's some deep drilling going on around the main vein infilling some inferred material and bringing it into indicated.

Then there's a large surface exploration program going on, specifically the south half of the property. CGA had done some stream sediment geochemistry and had some very strong stream sediment elements in the southern part of the property and our initial follow-up work to the south has found some new veining. We are now doing solid geochemistry and trenching in that area. They're bringing those to a drill target which we hope to get at, hopefully later in this year, if not, early next year. Thank you.

Thanks, Tom. Bill Lytle is on. Maybe, Bill, could you give us a quick rundown on what's happening? We were just down there with of our Board of Directors, and had a great trip and we also -- Bill will talk about the fact that we had a celebration at the -- for the start of construction with the local people and some dignitaries that was very, very positive. Now for your point of view and in support of what we're doing and maybe over to you, Bill.

Okay. Clive, can you hear me all right?

Yes, I can.

All right. Well, thanks, Clive and good afternoon to everyone from Namibia. Obviously, it's a very exciting time on the project here in Namibia. The main point which needs to be delivered today is we do remain on schedule and on budget. On the ground here, we are beginning to see all of our mining equipment and construction equipment show up on-site. All the major mining equipment to mine has arrived and the construction equipment continues to arrive every day. On the ground here, we're seeing significant movement of earth in the tailings and the mill area. And as Mark indicated, we do -- we are under budget at this point significantly, but it's more -- it's -- we've got -- we've spent about $7.8 million to date for this year against a budget of about $25 million.

But that's mostly a relic of the way the invoices are coming in. We do remain -- we will catch up to that budget and we are on schedule. As Clive said, we did at the beginning of this month have a groundbreaking ceremony where we receive continued support from the government with the Minister of Mines giving the keynote address and publicly stating that he was very impressed with the schedule and pace that B2 is working on and he was very impressed with the project that we've designed to date. And that's about all I've got from Namibia.

Okay. Thanks, Bill. Just a reminder, I guess of the schedule there. We're looking at construction in the fourth quarter of 2014, with first full year of production being in 2015. And we've had some exciting news from quite nearby, the planned Otjikoto Pit with a zone called Wolfshag that was originally discovered by the Auryx guys in the late before -- in the piece before we finally take over and Tom's guys have been expanding it dramatically. So Tom, you want to tell us about that?

Thank you, Clive. Currently right now in the Wolfshag target, which is by the way less than 500 meters to the northeast of the existing planned pit for Otjikoto. we have three drills working there right now doing infill drilling, trying to bring the Wolfshag project all into inferred by the end of this year to allow some preliminary mine planning to go on with it. The deposit currently is sitting where -- the zone is about 1,600 meters long. It remains open to the south, average is 75 to 100 meters wide and is up to 35 meters thick. As I said, it remains open to the south. Infill drilling will be done, we think, by June. It will allow us to get an inferred number by the end of the year.

In addition to that, drilling around that Wolfshag to try to find the edges, we seem to have touched on another zone to the east which we are now expanding our drilling in that area to see if there's something to it. This remains very similar to at Libertad and it represents a -- what appears to be a much better grade zone than what is currently in the mine plan. And, hence, the rush to bring it into inferred and then following that, probably maybe later this year or certainly next year to bring it -- to start drilling it to bring it to indicated. The sooner it gets in the mine plan, the better for us. Thank you.

Thanks, Tom. Last but not least, let's talk a bit about Gramalote, our joint venture with AngloGold Ashanti in Colombia. We're in the process, very close, I think, to creating a program and budget with Anglo, where in this period of time through to October, with a view to finishing an economic analysis or prefeasibility study of Gramalote. I'm going to pass it over to Dennis Stansbury. Dennis, can you just walk us through, just give an idea of what's going on the ground, and just talk a bit about the proposed program and budget? Dennis is trying to find his mute button.

There we go. Sorry. I had to unmute it. (laughter) Yes, thanks, Clive. Current work in the field is focused on infill drilling, primarily in Gramalote Central. There's, especially deep in the ore body, there was some large zones of inferred ore in the models and stuff. We're testing those theories, and making sure we can confirm all of that. There's also a lot of work going on in the field related to the social aspects, working with the small miners, working with the farmers in the area, which need to be relocated, things of that.

We've improved the tailings dam concept, it's a different construction technique and I won't go into the details of it, but basically it has the potential to drop the capital cost significantly and the ongoing future operating costs also. So that's another positive thing that's happening there. And then with the cut-off date of really, roughly the end of April, on the drilling, there's a new block model being formulated right now. Tom's guys have had a lot of input into how that block model should be put together, et cetera. So we're looking for the -- and anticipating the results of that.

Once we have that new block model, then there will be some new work done to establish pits on the block models, et cetera, to confirm the project size and economics, trying to wrap all that up in a final report by September for the reviews of both B2 and Anglo at that time. So that's basically where we're at right now. The budgets for this thing are -- the estimate going forward for the next -- well, through October, from May through October is a budget of just over $45 million, little over $22 million of that, our share has been proposed to get all of that work done. So that's where we're at with -- that's a forecast that's been put out there right now. This is a -- and they're doing a good job of actually getting that down. These are actually lower estimates than we saw from them earlier in the year.

Thanks, Dennis. Just a comment, I guess where we're -- where I see us going with this. Anglo's been a very good partner; done a lot of very good technical work. Dennis has been very involved with them, and we've had involvement on the exploration and geology side as well. It's been a very good joint venture. It's actually been reassuring that two operators can actually work together with Anglo being the manager of this project, but I think it's mutual respect between the two companies.

And then looking at the prefeasibility study, big companies tend to like big mines, maybe less so today. But Anglo's a bigger Company. So we just want to make sure the process of prefeasibility, looking at from our shareholders' point of view what's the right size to build Gramalote. We're of the view that bigger isn't always necessarily better for every company. So we want to look at some various -- we've talked to Anglo about looking at some various cases to look at different levels based on the reserves, so the measured and indicated, what we're going to have at that time. So that's some of the discussions we're having.

We want to see a range of different proposed tonnages on this thing. That's how, of course, different proposed arts is a production of year based on where we are in terms of reserve and measured and indicated resource. So that's the kind of conversations we're having now. We're confident we're going to come to an understanding, agreement on that. We think it's in the best interest of the project. So we should be shortly, hopefully, in a position to come out and confirm that we've agreed the budget and program with Anglo. So hopefully that will be forthcoming.

Just a couple of other comments before we go to questions. Obviously, a very busy quarter, a very successful one on a number of different ways as we've talked about for both. Let's talk a little about the market today. Obviously, we've seen a significant drop in the gold price. And we've seen, as I mentioned earlier, some rather unfortunate performance from a lot of gold producers. We're of the view that for companies like ourselves that are very strong technically, exploration and construction and production and very strong financially, there's an opportunity here sometime over the next few years, we think there's going to be an interesting opportunity to continue to do what we've done well, I believe, which is accretive acquisitions. So we're not going to make acquisitions that are subject to higher gold prices or subject to exploration success to make those acquisitions look accretive or intelligent. We're going to continue in our discipline. We really like our growth profile now. I think we're obviously very busy. But I don't believe we're overextended.

If you look at the stages of our project, it's not -- we're not trying to build three mines at the same time. I can just -- so many people need to understand, when you look at how well things are being run in Nicaragua. You've got a great team in the Philippines as well that we're working with those guys and then you look at what Bill's doing with the teams that's building Otjikoto. We're putting out the construction team at Otjikoto, is a lot of construction supervisors, a majority of them are the same guys, the same individuals that helped us at La Libertad Mine in Nicaragua; helped build that and helped build the [Cooper Mine], mostly for Bema and briefly for Kinross before coming back to us and they built the Geita Mine for Bema as well, a lot of these sitting advisors.

So you have this extraordinary team that likes working together and likes working with our guys so I don't think there's many companies that have that. And maybe that's one of the reasons why we continue to be successful in terms of looking at building projects as well. So we will continue to look. It could be an interesting time for acquisitions because the major companies clearly are -- the major companies clearly are doing the opposite of what they were doing a few years ago when they were acquiring projects for growth at any cost. It didn't seem a lot of regard for a return on investment. Now it's switched around completely where some would argue they should be buying projects now with gold lower. But if anything, they'll probably be sellers of projects.

Junior companies continue to struggle and some of them have good projects. Unfortunately they're unable to finance on any remotely attractive terms, if at all. But we see the opportunity to be the friendly consolidator as we look at more opportunities. Once again, but, we're not driven by that today. We're always looking and we like what we have but we'll obviously continue to grow the Company with our discipline about how we acquire things.

One final point. We have applied for and hope to be in June, having a listing on the New York Stock Exchange. What's the name of that market? It's the New York Stock Exchange, end market to market. That will be hopefully a precursor to a full listing on the New York Stock Exchange. We should start trading there sometime in June. So with that, I think we'll hand it over to questions if anyone has any.

Thank you, Mr. Johnson. We will now take questions from the telephone lines.

(Operator Instructions)

There will be a brief pause while participants register and we thank you for your patience. Rahul Paul of Canaccord Genuity.

Congratulations on a very good Q1. In terms of costs, you did much better than budget at all operations. I'm just wondering how much of that positive surprise was due to lower than expected costs for consumables, power and other supplies?

Hello Rahul. It's Dale, how are you doing?

Hello.

Rahul, our costs in general for consumables came in on track. The big difference that we saw for the quarter in both operations in Nicaragua was power costs. We anticipated an increase in price. That increase will be implemented in the second quarter, not the first. So we had a gain in electrical costs but consumables in general tracked pretty much as expected.

Okay. Thanks, Dale. And then just at La Libertad again, the plant continues to perform much better than what you had budgeted, especially in terms of recovery. Is - are the 94% recoveries something you think you can sustain and are there any opportunities to improve recoveries beyond those levels?

It would have to be 94% but -- (laughter)

As an operator, I would have to say I love the number there, the recovery number, and really reflects the investment that we've made over the last couple years. In addition, it reflects the expertise that we've been able to develop in blending the ores from various pit sources. As you know, we're into an expansion there, so the year-to-date numbers are good.

We just completed the leach tank in La Libertad. So we're on-stream to come into probably July, we'll see our expanded process capacity and the learning still continues. We understand clearly that investments in process plants both at La Libertad and at El Limon. Suffice to say, our [remarks] right on the money, 94%; that's pretty awesome.

Of course, I'd like to say, we're always improving, though.

Yes. Just moving forward at Masbate again on the recovery front. You mentioned that you've been looking at opportunities to improve recoveries from where they have been. Would that come mostly from finding an optimal blend of ore for the mill or are there any other opportunities that you'd see?

Exploration, Tom, do you want to speak to that?

I'll first answer to just the recoveries in general. We plan on seeing better recoveries there, largely because we see from the previous work, the feasibility work that was done on CGA that oxides had a much better recovery than what they call a transition ore. They had a much better recovery in sulfite ore. One of the things we recognized early on was there were classification issues at the project. So we spent the first couple months with our geologists, guys from Vancouver here, working almost exclusively on reclassifying the ore.

Once we did that, we were able to then create a new block model with a reclassification of metallurgical rock types. With that, we then handed over to the engineering group who are now looking at modifying mine plans and putting together a future plan based on this metallurgical reclassification of rocks and a new block model. So it's now in the hands of Dale's crew, Dale's and George's crew to see what they can do in terms of this year's mine plan, and long-term mine plan. Dale, if you want to follow the second part with the plant?

Yes, what Tom talked about basically in terms of optimizing recovery, looking through to year-end with a focus on Colorado Pit, we would naturally see an improved recovery relative to our forecast recovery and that provides us some upside for recovery. We know we have our metallurgic guys working with our technical group in Masbate and based on our experiences in Nicaragua, there's always room for improvement.

If I could add to what Dale just said. The plan is to start a metallurgical infill program later this year to collect a lot more sampling so we can get a better idea of what the metallurgy of the project and plant would be.

I think it's really important to point out, this is not work that's being done because of issues, per se, with metallurgy. We acquired this project on the belief that oxides would get better recoveries, transitional and they would get some better recoveries than sulfide. We knew that, the feasibility work in our opinion showed that. That's what we acquired and that's what we're going to continue to optimize. This is not a problem responding to it at all. This is an opportunity for upside. I think it's very important that people understand that.

Rahul, you've had your three questions. Do you have any more?

That's pretty much it from me. I'll get back in line. Thanks.

Thank you. Michael Gray of Macquarie Capital.

I might have missed it but on Masbate, did you mention when you'd be making a decision on expansion of the Masbate mill?

Well, we've committed to coming out publicly with our views on expansion at the end of the year. I'm pretty sure that, that will be nearby the date when we would decide if we were going to move forward with that. And we see some positive signs for potential there but I'm not going to -- we're not going to say more than that at this time. The guys have to do their work and they're working hard at it to come out and say what's the best plan going forward for Masbate. We obviously have a large ore body, which we thinks gets larger. You really want to look at increasing production.

We always thought that was something we would have a hard look at. But I think, once again, it's important to remember that there's certain things we're doing now that are very important things that Dale has touched on. New mine plan is big, new life of mine plan, maybe the first one. But a life of mine plan that's indicative of what we see and all that work's going on now. There's positive signs but we're not going to get too much into it until we let our technical guys do their work. It's only fair.

That's fair enough. The other question I had was on the EVI going to 10% and not proceeding to 15%. Any more background and color on that transaction with respect to Otjikoto?

Mark?

No, not really. It's an agreement where we're actually providing them quite a benefit. When they purchased their 8% interest, they did it with borrowed money with a bank down in South Africa. Frankly, it was not a very good deal for them. They were paying an interest rate of over 9% and it was kind of eating up their potential profits in the future. So we did a deal with them to get them out of that situation and they're very happy I think with what we've done for them and as part of that agreement, they agreed to give up their right to go to 15%. They have a right to go to 10% which we do expect them to exercise and we'll help them with that, so --.

They had to pay to go to 15%. So we found a very amicable solution. The bank deal was kind of tough for them. You can argue that now. I guess there's some truth to that. The banks will tell you not a lot of banks were lending money to exploration projects back at the time this deal was struck. So they're very happy as we want -- a strong back in part and they're a great group. And we've put them in a situation now where with the successful Otjikoto, it's going to mean success for them and that's well deserved. They put up some of the early money here and they borrowed it. So they were risk takers and they're going to be rewarded in the structure of the deal as it is today.

Thank you. Chitimukulu Musonda of CIBC.

Just one quick question on Masbate. My understanding is CGA had already contemplated replacing the SAG mill after it failed in 2011. Is that accurate? Is there a unit sitting there, waiting for replacement?

The unit is currently being prepared. It's on schedule. The completion will be July or August and delivery subsequent to the operation. So we're on track and we are talking about the same unit.

And I'm assuming that the scheduled down time is baked into your production forecast?

That is correct.

Great. Thank you.

There is room for optimization on that schedule and we're currently looking at that, we're bringing the mine manager down there.

Thank you. Ovais Habib of Scotiabank.

Just congratulations everyone on a great quarter. My question was answered basically on the Masbate expansion and also on the down time. Just a little bit more on the down time. I mean, how -- can you give us a sense of what you're expecting in terms of down time? Is it going to be a couple of weeks or what are you expecting on that?

On the outside, 10 days, on the inside, what we're looking at is the potential to shorten up the change-up time by doing -- by basically constructing the mill and the associated gear adjacent to the plant and doing a one lift install which will certainly shorten up the time to reconstruct the mill assembly on-site, inside the mill. We're still working out the details of that; it involves a big, heavy crane lift. We're working on the details on that.

We've got two weeks in the schedule now?

About two weeks in the schedule.

And in terms of associated costs, what can we expect on that?

Yes, transport, $750,000; install, about $2.6 million, and is there remaining cost allocated in our capital for the final payment for the mill is around -- I don't have that number at my fingertips.

In our budget.

But it's in our budget.

Awesome. Thank you very much.

Dale, I think it's important to point out, too, that you're going to be using your small crushing system and you'll still be running the ball mills during that change-out so the plant isn't at zero production.

That's correct. Yes, you're correct, Tom.

Thank you.

(Operator Instructions)

Rahul Paul of Concord Genuity.

Just -- I was wondering if you could clarify on the agreement with EVI for Otjikoto, does EVI have to come up with 10% of the CapEx or will they be carried?

We'll be carrying them. We will be charging them a nominal interest rate on it, but yes, they'll be carried.

Thank you. There are no further questions registered at this time. I would like to return the meeting over to Mr. Johnson.

Okay, Mark had [said that] EVI was actually carried, they're not. So we're funding and charging them an interest rate for the funding.

Right.

So it's not. I [underestimate I'm wrong] because you're the accountant. But I look at the full area as being somewhere you put up nothing. But they're going to -- it's going to be more partly attributable to them of what we gain back.

It will be funded by us and we'll be charging them a rate for it; yes. They're not having to come up with any funds on their own.

Right, but it's not a full carry. We can debate that later. Okay. All right. Thanks very much for your time, everyone. And -- hang on. You got another question?

Thank you. Chris Thompson of Raymond James.

Sorry. A little late here. Congratulations, guys, on a good quarter. The question relates to Masbate. Probably one for Tom here. You've spoken a lot about potential for improved recoveries. A little bit about grade. Can you tell me about grade, any indications of improvement in grade? I mean, what are you seeing on the ground there?

First of all, Chris, I want to correct what you say in terms of improved recoveries. In terms of budgeting long-term, or short-term, improved recoveries are more as a result of a metallurgical reclassification as opposed to something that was a fault within the existing reserves or existing network. And then the next part of that will be, as we do with all mines, metallurgical programs to look at improving recoveries. And as far as your question is improved grade, it's still very early on in our thing. But I mean, that's why we refocused the exploration on the two aspects.

Exploration is going to be focusing on oxide targets number one, and two, targets that we know have better grade. Specifically right now in terms of oxide would be Pojo to the north and then Montana North which is to the west of Colorado. So we are focusing on those targets. That's -- as always with exploration, it takes time and not always successful. But that's how we are focusing our exploration. I think -- does that answer your question?

Yes, that's great. Thanks a lot, Tom. Thanks guys.

Thank you. There are no further questions registered at this time. I would like to return the meeting over to Mr. Johnson.

Okay, thanks for your time and we'll look forward to talking to you after next quarter. Thanks.

Thank you. The conference is now ended. Please disconnect your lines at this time and we thank you for your participation.