Galiano Gold Inc (GAU) 2017 Q2 法說會逐字稿

Good morning ladies and gentlemen. Welcome to the Asanko Gold Q2 2017 Operating and Financial Results Conference Call and Webcast, which is being recorded. A copy of today's press release, the management discussion and analysis, and the presentation is available on the company's website at www.asanko.com. I will now hand it over to Peter Breese, President and CEO of Asanko. Please go ahead.

Thank you very much. I would like us to turn to Slide 2, the cautionary language. Thank you and good morning, ladies and gentlemen. Joining me on the call is our CFO Fausto Di Trapani; and Rob Slater, our Executive for Mining. Before I begin, I would like to draw your attention to the disclaimer on Slide 2 regarding cautionary forward-looking and cautionary statements regarding mineral resources and mineral reserves. If we could move to Slide 3. Slice 3, Q2 2017 highlights. We released our production and revenue results for Q2 on the 19th of July 2017. As we stated in those results, our quarterly gold production at 46,000 ounces was lower than we achieved in Q1. In spite of lower gold production for the quarter, which we clearly guided to the market well in advance, we have had a solid second quarter which has resulted us in accumulating cash on the balance sheet during the period of growth. Starting with safety, as I have always said, safety of our employees and contractors is our most important value. I am pleased to report that there were no lost time injuries during the quarter and we continued to achieve an excellent safety record. During the past 12 months, we have recorded only 1 lost time injury giving us a rolling 12 months lost time injury frequency rate of 0.2 per million man hours worked. We believe that this is an industry-leading statistic that we are very proud of. In Q1, we published an updated mineral resource estimate for our Nkran mine. Since that time, we have now embedded the MRE into our operation and commenced with a reconciliation process. The first phase of the Nkran reconciliation covering a 3-month period and 1 million tonnes of ore has confirmed the accuracy of the updated Nkran mineral resource estimate to the grade control model to within 2% over this period. The comparison of the MRE to the grade control model is a like-for-like comparison. This result is a significant step forward for Asanko as it clearly verifies the accuracy of our resource model which is used for all life of mine planning. Project 5 million volumetric upgrades to the plants has all been installed and completed 1 month ahead of schedule and within budget. We generated gold revenues of $60 million in the quarter on the backend of gold sales of just over 48,000 ounces in the quarter. Our all-in sustaining costs was down quarter-on-quarter to $930 per ounce, which is very encouraging given the lower ounce profile for the quarter. The mine delivered $33.7 million in cash from operating activities and we had a second consecutive quarter of approximately $25 million in EBITDA. And lastly our cash balance at the end of the quarter was $54.9 million, up $6.7 million or 14% from the $48.2 million in the prior period. Turning to our mining performance on Slide 4. Q2 mining performance. As we previously announced, we expected Q2 to be our weakest quarter of the year as mining operations at Nkran continue to work through a planned low-grade section within the central sandstone area of the deposit. Ore mining has now moved to both the western and eastern portions of the pit and will result in an improvement in grades being mined. As you can see from the table, ore mining rates at the Nkran pit remain at steady state levels averaging 350,000 tonnes per month for the quarter with grades averaging 1.5 gram per tonne. The cut 2 pushback of the Nkran pit continued during the quarter with the western wall sequence which is in mainly oxide and transition waste material, so there are no drill and blast operations making this cheaper to mine. This sequence of the pushback included the geotechnical design changes recommended by the mining consultant SRK to align the sidewall designs to the SRK geotechnical recommendation in the slump area. This included the modification of the surface of side slope angles from 28 degrees to 22 degrees and included an additional 1.1 million tonnes of waste material being moved in the slump area. In the overall context of moving approximately 26 million tonnes this year, these design changes have had an insignificant impact on our mine plant and cash generating capabilities. This exercise was certainly no way near the misguided estimates as clearly published by (inaudible) report that estimated that this work would amount to some 57 million tonnes or 53x the amount of waste needing to be removed at cost between $75 million and $155 million. Once we reach the required design elevation on the western wall, the cut back operations moved on to the next planned sequence for the pit which is in the southeast section to develop future ore blocks in line with our cut 2 design. We will continue mining this section of cut 2 for the remainder of this year. Turning to Akwasiso, our next deposit coming into production. In June, we started site establishment and pre-stripping to open up the deposit to mine oxide ore for feeding to the upgraded processing facility. The early mining activities were focused on moving the previously disturbed volumes of discarded tailing -- sorry, previously disturbed soft surface material from historical artisanal workings including quite significant volumes of the discarded tailings that the artisanal miners had placed within the mined out surface areas in the central and eastern sides of the deposit. You may recall that Akwasiso, which we acquired in mid 2016, was previously a small miner's concession which had extensive artisanal miners working on it. What we learned after 2 months of mining is that the levels of previously disturbed surface material in the center and east of the deposit as a result of historic artisanal workings are deeper than we anticipated and that the workings could go down as far as 20 meters. We are still in the process of removing this material and we anticipate that it will be completed in the third quarter of 2017. Once this is complete, we'll be able to clearly understand the extent of these workings and in the interim oxide ores will continue to be mined from the western flank of the deposit at levels lower than originally anticipated. This has resulted in less oxide tonnes being mined and lower grades reporting to the mill. For the month of June in 2017, we mined 229,000 tonnes of ore at an average rate of 1.2 grams per tonne. In addition, as we have removed these historical disturbances, we have encountered a granite outcrop in the east that was not in (inaudible) and modeled when we completed our resource estimation. During this estimation process, we estimated that this material would be oxidized but in fact they are fresh granites. This has resulted in less oxide and more fresh ore available for mining in these areas than expected. The consequence of this is that the lower quantum of oxide tonnes available to plant the fresh ore from Nkran to feed the mill at higher volume will impact overall plant performance in the second half of this year until the Dynamite Hill deposit is operational in Q4 2017. This will impact forecast gold production for the second half of the year and I will come to that a bit later in this presentation. I would now like to turn to Slide 5. Slide 5, in Nkran mineral resource estimate phased reconciliation process. Before discussing the processing performance for the quarter which I normally do at this point, I would like to give you an update on the Nkran mineral resource estimation reconciliation process that we started, including some recent results that we received in the past couple of weeks. The Nkran mining operation adopted the new CSA mineral resource estimate and mine to metal reconciliation process during the first quarter of 2017. These processes were implemented into the mine's operating system during April. As I mentioned earlier, the first phase of this process is to confirm the CSA resource model to the grade control model. We have now completed the first reconciliation, which covers a 3-month period and in excess of 1 million tonnes of ore. The reconciliation has confirmed that the grade control model is within 2% of the mineral resource estimate for the volume of material used for this reconciliation. This is a significant step forward as it clearly validates the recently published and updated mineral resource estimate that forms the basis of the life of mine planned for Nkran pit which is the major driver of value for the coming years. Once the first step of the reconciliation was completed, Asanko is now able to embark on the second phase, which is the verification of the Nkran reserve estimate. This phase is designed to reconcile our actual mining practices to the assumption made in our reserve modeling. This phase of test work included the use of blast movement technology which accurately measures blast movement to determine actual location of the ore body post the blast through the use of remotely locatable sensors installed within the blast holes prior to a blast. A number of trials have been completed within the past weeks. All the trial blasts to-date has clearly confirmed that our ore moves during the blast as expected and the results are very encouraging in that the technology allows us to amend our dig plans post the blast to maximize gold recovery and limit ore losses and dilution. The use of the technology has now become a permanent feature of our mining operations and we expect to see the full benefits of this program over the coming 2 quarters as the system is embedded into our operational plan. To explain how this works, we have a graphic on the right hand side of the page on the presentation in front of you that shows a typical ore polygon for us to look at. It shows a pre-blast outline and a post-blast outline. Looking at the polygon at the center left of the picture, the pre-blast polygon is everything within the brown and white rectangular type shape. This is the shape that we plan to mine once we have completed the grade control drilling program. Once we take the blast using the blast movement technology, the ore polygon moves to the combined red and white shade. As you can see, this is a significant movement and if we mined the pre-blast polygons, the brown and white, which is current practice, we would incur considerable dilution and ore losses. Now that we have concluded and received the results from these initial tests, we have taken a decision to implement these as a permanent feature within our mining operations. These new systems will take some time to embed and perfect within the mine and we fully expect to see higher grades and less ore losses through this implementation program. I would now like us to move to Slide 6 and talk about Q2 processing performance. The processing plant continues to operate at an annualized rate of 3.6 million tonnes per annum, which is approximately 20% above feasibility level. Gold recovery levels were 94% for the quarter, which is well above our design of 92.5% and we processed 887,000 tonnes despite the temporary shutdowns for the project 5 million tie-ins. The feed grade was 1.7 grams per tonne for the quarter with a total of 46,000 ounces of gold being produced. The P5M volumetric upgrade to increase plant throughput to 5 million tonnes per annum were installed and completed one month ahead of schedule and within budget, which is very encouraging. Plant commissioning of the upgrades is underway and will continue throughout Q3 2017. However, we have already seen some early results with the plant successfully running at 625 tonnes per hour on a campaign basis, which is equivalent to a 5 million tonne per annum run rate. The recovery upgrades including the Intensive Leach Reactor and Knelson Concentrator are due to be installed in the fourth quarter of 2017 and commissioned by the end of the year. That concludes the operational review for the quarter. I would now like to hand over to Fausto, our CFO, who will discuss our financial performance.

Thank you, Peter. So turning to Slide #7, I would like to start with our cost performance. This quarter is marked by 2 key financial highlights, namely a positive cost performance despite lower production and 2 consecutive quarters of approximately $25 million in earnings before interest, tax, depreciation and amortization demonstrating the Asanko gold mines' ability to generate true cash flow. Our mining cost is $3.22 per tonne, which is a 17% improvement on the previous quarter as we reap the benefits of mining the soft oxide material in the cut 2 pushback as well as the development of Akwasiso. The plant also enjoyed a cost improvement quarter-on-quarter with processing cost of $12.80 per tonne. This is achieved in spite of the plant's downtime and reduced throughput as a result of the P5M tie-ins. On a per ounce basis, these savings were, however, offset by a lower processed head grades as previously mentioned by Peter. The overall result is a reduction in all-in sustaining cost to $930 an ounce from $956 an ounce in the previous quarter, which equates to year-to-date all-in sustaining cost performance of $945 an ounce. The cost performance this quarter is very encouraging considering our production and sales were less than in the prior quarter. As we look forward to the second half of the year in the context of our revised guidance, which Peter will be discussing in more detail shortly, costs are expected to be similar to the first half as a consequence of the ore yield from Akwasiso and the associated oxide mix in mining and processing. Although we will have the benefit in the second half of the expanded plant capacity and the related volumetric upgrades spreading overheads and fixed cost over larger volumes, we anticipate full year all-in sustaining cost guidance to be in the range of $920 to $960 an ounce. Moving on to the income statement on Slide #8 and looking at our income statement, we generated earnings before interest tax depreciation and amortization of $25.2 million despite lower gold sales in the quarter. We continue on our path of positive earnings with net income of $1.2 million this quarter. This is a healthy outcome. Our net income would have been closer to $6.6 million had we not adjusted for taxes. We do not currently pay cash taxes and the charge of $5.5 million for income tax expense was largely driven by accounting processes to essentially catch up on non-cash income taxes for the year. If we calculate earnings per share before non-cash taxes we generated earnings of approximately $0.03 per share. I think this is a positive result given revenue decline by $9 million or 13% quarter-on-quarter driven predominantly by the lower volume of ounces sold, of course offset partially by higher a realized gold price of $1,238 an ounce as compared to $1,199 an ounce in Q1. Our all-in sustaining cost margins increased to $308 an ounce in Q2 against $243 an ounce in Q1. Thanks to a positive performance in our operating costs, we maintained a gross margin of 25% for a second consecutive quarter. This means we now have had 4 consecutive quarters with a gross margin of 20% or higher, which as you would expect sets the stage for us generating positive cash flows. So let's now turn to the cash flow statement on slide #9. As we expected, we generated cash this quarter despite lower sales and continued growth expenditures. We generated operating cash flows before working capital changes of $26.7 million, which clearly demonstrates that this mine has an ability to generate base rate cash flow. Cash in the balance sheet grew by $6.7 million despite the commencement of the cut 2 pushback and plant downtime associated with the P5M upgrades during the quarter. Cash flow from operations was a respectable $34 million this quarter, an increase of approximately 140% over Q1. To be fair this larger increase over Q1 was driven by positive working capital movements. As I mentioned during the Q1 earnings call, at that time we enjoyed a mine to money cycle time of between 10 to 14 days. To clarify, from the time bullion is poured at the Asanko gold mine, it is converted to cash in the bank within 10 to 14 days. Since Q1 we have improved the cycle time to 5 to 10 days, as a result to switching our refiner. The mine to money cycle is important to understand because it can cause some volatility in core key cash flow from operations. With that being said, it's more appropriate to focus on cash flow from operations before working capital changes, which was approximately $27 million for the quarter. We continue to work with the Ghana revenue authority to manage the VAT receivable we carry on the balance sheet. During Q2, we had a net VAT inflow of some $5 million after a refund was collected amounting to $12 million. We continue to expect to carry approximately 2 quarters worth of VAT on the balance sheet. Turning the focus to capital expenditure for the quarter, we spent approximately $8 million in completing the volumetric portion of the P5M plant upgrade. Waste stripping of approximately $11 million is reflective of progress made with the next phase of the cut 2 pushback in the Nkran pit. We continue to see the Asanko gold mine capable of delivering strong operational cash flow. Our focus for the second half is to continue to manage and focus on costs. I will now hand back to Peter, who will give you an updates on our guidance for the balance of the year.

Thank you very much, Fausto. I would like us to turn to Slide 10, where we talk about 2017 guidance update. There is nothing to our knowledge within our business to suggest a valuation reflected in our current share price. As you have seen yesterday, the mine generates free cash flow at a time of growth, is operating well and looking to improve upon that past performance through various operational intervention that are already giving us clear indications that we can improve our gold extraction efficiency. That being said, it is a new mine and one that is undergoing both mining and processing expansions and so accordingly we do expect some deviations, as we fully bed down our systems and processes. As mentioned, we are amending our guidance in a prudent move whilst we implement the changes that we have extensively discussed in this presentation. Production is now forecasted for 2017 between 205,000 ounces and 225,000 ounces. This is an average decrease of 9% as compared to our prior production guidance. All-in sustaining costs are now forecast at between $920 an ounce and $960 an ounce. This is an average increase of 5% as compared to our prior guidance. As previously stated, these guidance revisions were as a result of deeper levels of artisanal workings at Akwasiso together with ore losses and dilution at Nkran pits. We have clearly identified an action plan to tackle these issues and the initial results from the blast movement technology trials that we have carried out in recent days are confirming the work we need to undertake. To help understand the impact on these changes to our guidance, we have provided an illustrative example with respect to our all-in sustaining margin. Earlier this year, we presented at a $1,200 gold price an estimate of annual sustaining margins between $64 million and $77 million. Had we used the volume and cost assumptions in our amended guidance in using $1,250 an ounce, we would have guided $59 million to $74 million. As a comparison, we are talking about a decrease in our expected margins of approximately $3 million to $5 million for the year. The mine continues to generate significant operating cash flow. And for the past 4 quarters, it averaged $28 million per quarter from operations. We expect to continue to generate strong operating cash flow for the balance of H2. We will continue to grow our asset and expect to spend $23 million during the balance of the year on completing the P5M plant upgrades and around $8 million on the conveyor earth works to meet minimum contractual requirement. Additionally, our focus will continue to be the full implementation of our reconciliation process, which drew the entire value chain with a view to improving our mining and processing efficiencies and ultimately our margin delivery. With this plan in mind, we believe we can deliver to shareholders the returns they deserve. Thank you all for listening. Operator, we will now take questions.

(Operator Instructions) Our first question coming from the line of Rahul Paul with Canaccord Genuity.

Peter, you detailed the blast movement issues at Nkran with a pictorial representation on Slide 5. I wasn't sure about the scale used in that image. So I was wondering if you could quantify the extent of the movement of those polygon, say in meters?

Yes, Rahul, it's a good question and it's not a simple answer because the movements change on a flitch spot flitch basis. So just to -- a detail, as you know we mine 6 meter benches where we design to mine 6 meter benches and then we physically extract the ore in 3 meter flitches. And so the trough that we have done to date we're noticing that the top flitches the movement is minimal and the bottom flitches the minimum -- the movement is quite a lot. To give you an example on the top flitches the movement is between 3% and 8%, but at the bottom the movement is somewhere between 8% and 16%.

And then also just wondering if you could just quantify the impact of those issues on the pit at Nkran. I mean you I guess you spoke about the reconciliation of the pit control versus a block model and if I guess I would be looking for the distance between the mine grid and the grid control model?

Yes. So that's the issue, Rahul, is we've done the resource reconciliation, which is the first test. We've only started these blasts last week. So it is a little bit early because I could be giving you information that doesn't make any sense. We plan for 5% losses and 5% dilution and what we're seeing right now is those numbers are roughly double that.

Okay, that is helpful. And then just wanted to follow up on the issues at Akwasiso, now the negative reconciliation in the (inaudible) materials due to disturbed (inaudible) seems to be a fairly common phenomenon in West African deposits that have been mined from the past. And frankly, I've seen other companies struggle as well, but when you updated reserves and resources I would have expected you to take a conservative approach to modeling those ounces, which are key to the mine plan this year and the next year as well. And how did you budget for this when you put together the mine plan? I guess it's not so much the challenges at Akwasiso that surprised me, it's just the extent of the issue?

So Akwasiso, just quickly, Akwasiso is the only deposit in our mine plan over the next 11 years that has been historically mined before apart from Nkran, which we're mining today. And so when we plan for Akwasiso we use the assumptions we couldn't get into the central and east area because of the tailings dam and the river. I think you've been there before but the tailings dam and the river passes right next to that. So we drilled from the western limb and we assumed between 5 to 7 meters of disturbances and what we're doing right now in the east is we're moving the tailings. We expect it to be up to about 20 meters deep, yes. So we assumed 5 meters to 7 meters and in certain areas there is -- what is the right -- there is artisanal, what we call, rack holdings that is little soft systems and we also assume to dilute some of those soft systems out of our planning. And on the west actually we're getting more or less what we expected. It's the east where it's deeper than we thought.

And then just a bit further I guess you partly answered this, this is about the granite outcrop that you spoke about at Akwasiso, how big was that in terms of tonnes and ounces? And I'm just wondering this is like [aside] beyond the granite outcrop. Are you still seeing (inaudible)-like material as expected at Akwasiso? And basically what I'm trying to get at is what implications could this have for current reserves which is 240,000 ounces at Akwasiso?

Well firstly, the granite outcrop on a global mineral resources estimate for that whole deposit is about 22% and its impact that hasn't gone anyway and all it is, it's hard as opposed to being soft, and what we've done is we've taken in a quick estimation and we don't know yet because we still got to move the old tailings, but if we assume 20 meters on a global basis on all the other (inaudible) the resource estimate will move by less than 5%.

At Akwasiso in particular.

Yes. Akwasiso. At Akwasiso.

And I guess --

Which is, on a global scale, less than a quarter -- 1/10 of a percent, yes.

Yes. And I guess the -- so the issues are mostly this year so you would not expect the challenges to continue into next year?

As soon as we got the mud out of the way, which is -- as you know it is difficult to dig it because it's so sloppy. And so you can't do it in an efficient manner because you got to make platforms with the diggers to go on this so it just takes time to get that. As soon as it's out of the way then we could go full steam ahead again.

Our next question coming from the line of Chris Thompson with Raymond James.

Just a couple of questions here. Congratulations on a solid quarter by the way. Just focusing on some comments related to some data points that you were talking about last quarter. Firstly that the stockpile, Peter, I mean where do we sit right now by way of tonnes and grade?

The stockpile, right now Chris, is around about 2.4 million tonnes of about 1.1 grams.

And I know you've previously mentioned, I guess, maybe about a couple of months ago that you had about 166,000 ounces of in situ resource or reserve that wasn't required, didn't require any CapEx at the bottom of Nkran. Can you give us a bit of an update or a sense where -- what's the figure today if you were to do an estimate?

So Chris that previous guidance though I think it was round about March, April is still the same number less depletion that we've had since then. So it's still intact and we have plenty ore to feed this mill until the southeast section of the pushback gets into ore, which we will start getting to ore in September as it starts to open up and it will be fully operational by the end of the year.

Great, thanks for the clarification there, Peter. Just the -- are you -- is the Nkran pit accessible by 2 ramps yet, have you commissioned the second ramp, are you still running on the 1 ramp?

No, so the remediation was -- the work that we did in line with the SRK recommendations was to flatten the slope the angles as I said from, 28 degrees to 22 degrees and to remove some of the old waste dump. So that exercise is fully complete and they gave us a design down to the context between the transition and flitch that exercise is fully complete. The ramp, we have not established the ramp and the only reason for that is it will take us about 4 to 5 days to do if we need it. And what we've done is we've just moved the diggers to the eastern pushback. Because in terms of SRK recommendation there is no more risk of movement in that area.

Just a -- and a quick comment if you would on how advanced are you as far as grade control drilling in Nkran right now, ahead of production?

We are just under 3 months ahead of ourselves right now. And we've revaluated our grade control methodology because the tightness in the bottom of the pit as you know it's quite a tight pit. We expect that at best we'll get to between 3.5 and 4 months which is always quarter in front of us. And how we've had to do that is we've had to integrate grade control movements and planning into the blast and digging planning so it's all integrated into our mine planning now, which is a new process that we've also just implemented in the last quarter.

Okay, great. And then you mentioned obviously I guess grades coming out of the Nkran is 1, 1.5 gram per tonne and expect some grade improvements towards the back half of this year. Can you quantify that for me?

Yes, so the average reserve grade for Nkran I think is 1.91 or 1.92 grams per tonne. As the center of the pit is mining what we call the central sandstone, which is very itty bitty, very broken up very discontinuous. So we've been mining that area for the last quarter. We have recently moved the digger to the southwestern sandstone and only last week we averaged about 1.98 grams per tonne. So it is a quantum jump in the grade, it won't stay there because we also got to go to the northeast so we will, in the coming quarter, be moving in terms of the mine plan to various sections on the pit. I would expect the grade for the rest of the year to be somewhere around about 1.85 grams per tonne.

And just a final question if you would, you mentioned obviously the strip ratio kind of high this quarter as you had guided. Do you see the strip coming down in the second half of this year? And if so what should we be modeling?

I think, Chris, if we carry on working at 6:1, I think our new (inaudible) mine plan that we published in the feasibility call for an average strip ratio of round about 6:1. As you are aware we are working on a P5M optimization program. It's too early to say what that will be but it will only impact next year and the following year. So I think modeling right now round about 6 would be a fair assessment with the balance of waste being in oxide.

(Operator Instructions) Our next question coming from the line of Jeff Killeen with CIBC.

Just thinking about the Nkran pit grade control, as you mentioned you are about a quarter ahead of mining. That seems to actually have compressed from mid-2016, so can you comment on why that's the case and do you actually see that getting extended or are you planning to operate with effectively 1 quarter ahead of yourself from grade control?

I can't see us with the tightness of that pit getting much more than maybe 4 months ahead of ourselves, until such time that the pushback is complete and we open up that deposit, grade control will always be tight. And just the nature of the pit, I think, you have seen the pit, it's very much an egg shape and therefore working space is always a premium in a pit such as this. So I can't imagine that there would be a significant improvement in the forward looking terms of grade control.

Then in regards to the ore losses and dilution that you have quoted, you had suggested you were going through a planned lower grade section of the Nkran. So can you quantify to us like you had mentioned losses and dilution of about 10% versus your estimate of 5%, is what we should be thinking that the grade you mined at the Nkran pit was roughly 5% lower than planned or can you give us a better sense of what those changes would look like?

The problem Jeff is as I said to you we have only taken 3 blasts, 3 blasts doesn't make a summer, we are talking about less than 100,000 tonnes. So I would expect because we mined in the central sandstone in the quarter, which as I said to Chris earlier, is very discontinuous, very broken up and not as easy to mine because the ore zones are -- move all over the place. I would expect that actually in the quarter the grades were diluted by more than 5% above plan.

Then thinking about the reserve grades, you noted you think it will around [18, 18.5]. Can you give us a sense when you would actually expect to hit reserve grade from Nkran?

Well, we've already have amended our blasting techniques from mining what we call grade control polygon to blast adjusted polygons as a result of using BMT technology. I don't know if you read about it, there is quite a good fact on it if you Google BMT, blast movement technology, it gives you a pretty good idea. But what that does is it, when we physically mine what we've found with mining the grade control polygons, which is before the blast induced polygon, we are mining positively around about 3% year-to-date against the designed polygons from grade control drilling. So if we kind of assume that we will continue with that kind of benefit and we roll it out throughout the organization and we train that I would hazard a guess that we should be able to get there in relatively quick time, but we are running a 24-hour a day, 7-day a week operation and there are literally over 1,000 people that we need to train and get into the habit of doing this properly. And that's the time, but it unfortunately it takes time to do that.

Okay. Sticking with Nkran you noted the strip ratio a little bit higher probably due to the SRK's recommendations on leading cut 2 back a little bit more, suggesting that you should be entering more of a free cash flow period into next year, but you still have a fairly significant cut back for next year as well. So how does that reconcile and 2 had SRK made any other recommendations for a Cut 3 and Cut 4 in terms of potentially laying those back shallower and having a positive or a negative impact on that strip ratio in the future?

Yes Jeff, in terms of our (inaudible) mine plans as we put out in our feasibility, our cash cutbacks are included fully in our all-in sustaining cash cost guidance in the feasibility study. So we plan to move every year between 20 million and 25 million tonnes a year and it's a really included in our all-in sustaining cash cost guidance that we put into the feasibility study. So there is no extra cost and I think that's the misconception that people have had like this remediation move, people assume that you got to go and fix this thing and by the way you got to do a cut back. Well, we do cut backs continuously and will continue to do cutbacks in the Nkran pit, as long as that pit shelf survives apart from maybe the last year or best of that -- that life of that pit. So cutbacks are a way of -- are a fact of our life. And they are a fact of our forecasting and timing and included in our all-in sustaining cash cost guidance and feasibility level. As far as the SRK recommendations, they recommended that we lay flat the oxides to 22 degrees from 28 degrees, they recommended that we move the old (inaudible) waste dump that is sitting on that wall because it's added weight on top of the old oxide. It also holds water so it's a wonderful perched water table, so we have removed those oxide that we require to move. And as we do cut backs year after year when we go to Cut 3 and Cut 4 so we will move those -- that material out of the way on a continuous basis without any impact on our costs or our design in the future going forward, we've already made that decision. We have already made that amendment. They also recommended that we look at our dewatering boreholes. We have got 9 boreholes around the pit and they recommended that we put in 3D watering boreholes around that old waste dump that has been completed. And they've also asked us to put in pressure dewatering bores in the sidewalls which has also been completed. So all that remediation is complete.

Then lastly from me, I believe you mentioned previously in terms of that you have deferred that 1 year to 2018 and you may have the ability to defer repayments an additional year, would you be able to confirm that that's the case today or is that something that's still to be negotiated.

That is a -- it is a clause in our agreement, we have the option at our request and we can exercise that option between; Fausto, if I am correct, between January and March of 2018.

That's correct, Peter. March 2018 is the deadline to exercise that option.

Our next question coming from the line of Geordie Mark with Haywood Securities.

I'll just thrown on, from obviously the backend of the line here, a few questions. In terms of processing blend to the requirements, I guess in terms of volumes of oxide versus hypogene material. Where do you see that sort of balance coming through the year and what sort of normal balance do you want to have I guess when you're operating at 5 million tonnes per annum.

The feasibility study assumes it at steady state not now, but it assumes 3 million tonnes a year of hard rock and 2 million tonnes a year of oxide. If we maintain pressure fittings on hard rock as they are today which is minus 145 millimeter for the sag mill, we can increase hard rock to 4 million tonnes a year and run those oxides at 1 million tonnes a year. If the other is true, we can also reduce hard rock to about 2 million tonnes a year and have oxide at 3 million tonnes a year. That is all predicated on current crasher setup. If we crush everything to [P80] of 19 millimeters which is the plan for assessing, as you know, once the oxides are mined we will crush everything to a P80 of 19 millimeters. The mill will take 100% of the 5 million tonnes per annum.

And in terms of plans for Dynamite Hill, when do you think you will be able to exploit much material in later this year or what is the sort of ramp up design there for activities?

So we completed the tender exercise I think we've -- just going backwards and forwards with the shortlisted tenders on -- tender queries that would last I think 2 to 3 weeks and so that tender exercise is complete they will be out and mobilized by the end of this quarter and we -- whilst that is going on we're already in the process of building the road. The road comes from the right stump, the rump head past Akwasiso to Dynamite Hill. That road is always -- already in process. So what we're doing right now is we are grade control drilling, we will be starting that now and we should be starting bush clearing and everything else before the end of this quarter.

Excellent. And the -- so the 8 million that was outlined in H2 sort of conveyor earthworks and other capital, is that a component or that was just strictly just for the growth capital I guess?

Yes, that's got everything in it so the conveyor is a portion but there is also money in there for the road and opening up of Dynamite Hill, yes.

And the timing in terms for Knelson is still on schedule for completion say in November, is that right?

Yes, the Knelson and the Intensive Leach Reactor, in fact the Intensive Leach Reactor is ready for performance testing right now. I think the engineers are planning in about 10 days time to go and do the performance test before they ship it. And it is just the shipping time, so as soon as that arrives we will put it in. The steel is as of last week 90% complete. So we have no reason to believe that those won't all be installed and running in -- for the end of November beginning of December, yes.

Excellent. And in terms of Akwasiso you are saying the reinterpretation, I guess, on the actual on the east side was, I guess the re-workings was down maybe 20 meters is it. Was that an area that was sort of had limited drilling before or it is just ultimately the areas between the drilling showed something different to the interpretation?

Because it was a -- and as a geo you would understand this -- because it was full of old tailings and as you know that area is quite wet, we couldn't drill directly on the surface material because you couldn't get a drill through the sluggy tailings. So what we did is we did extensive drilling underneath through stepping out further to the east and to the north and to the south and we also just drilling from the west, which confirmed that continuity of mineralization throughout that deposit. And then we overlaid that with the extensive pre-artisanal mining drilling from west route. And that's how the mineral resource estimate was built up. (inaudible) I think drilled above 14,000 meters of drilling over that area there. So that is how we did the interpretation and in fact the granite that we've already encountered is about 3 or 4 meters below surface. So we are estimating 20 meters it might be shallower it might be slightly deeper but it couldn't be much more than that.

And if I could indulge, in terms of the revised guidance for the latter part of the year, any sort of guidance maybe on this in terms of average throughput you're expecting per quarter or?

Yes, we obviously have, we originally planned to mine 70,000 tonnes a month throughout the rest of the year from Akwasiso because of what's happening we've had to cut that guidance down so we're dropping those numbers in the way we thinking down to about 30,000 to 40,000 tonnes a month. And that's the reason for the change of guidance, as soon as we get this stuff out the way we can grade control drilling and then we'll be able to sort of reassess where we stand vis-à-vis the ability to mine softer type of ore. So currently, we're processing hard rock in excess of 11,000 tonnes a day and we'll supplement that with oxide.

Thank you. Ladies and gentlemen, that does conclude the earnings call for today. We thank you for your participation and ask that you please disconnect your lines. Have a great day.