Executives: Clive Johnson - President and Chief Executive Officer Mike Cinnamond - Senior Vice President, Finance and Chief Financial Officer William Lytle - Senior Vice President, Operations John Rajala - Vice President, Metallurgy Tom Garagan - Senior Vice President ,

Exploration
Analysts: Rahul Paul - Canaccord Genuity. Michael Gray - Macquarie Chris Thompson - PI Financial Don DeMarco - National Bank Financial, Inc. Steven Butler - GMP Securities Geordie Mark - Haywood

Securities
Operator: Good afternoon, ladies and gentlemen. Welcome to B2Gold Corp.’s First Quarter 2018 Financial Results Conference Call. I would now like to turn the call over to Mr.

Clive Johnson, President and CEO. You may proceed, Mr. Johnson.

Clive Johnson: Hello. Thank you, operator.

Welcome everyone to B2Gold conference call to discuss the results from the first quarter of 2018 company’s financial results. I’m speaking to you from London. And over here I’m seeing some shareholders, et cetera, and so a little jet lagged and a little tired. So maybe to all of your benefit, I may be a little less long-winded in – sometimes in the past. But a great quarter.

We’re going to get into that very shortly here and the details of the quarter and talk about – answer any questions, et cetera, but just a couple of things perhaps I wanted to touch on first of all. Just want to talk a little bit about strategy and where we sit and where we see ourselves sitting today. We’ve been talking about that with a lot of people here in London. At the end of the day, I think, the news release makes quite clear. But the strategy and the near-term strategy here definitely is we’re not in the M&A mode.

We did our heavy lifting when very few were doing it in Otjikoto and Fekola, et cetera, and we are now at this very important new point in production and also the cash flow from operations. We’ll see that in the numbers, dramatic projected increase from 2018 of somewhere around averaging $0.5 billion cash from operations this year and over the next couple of years after 2018 with – approaching 1 million ounces this year and $800 an ounce all-in sustaining costs. So we’re looking at that increase of around $0.5 billion from $155 million of cash from operations from last year, so a pretty dramatic impact. So the focus now is not M&A, not – I think it’s going to get more competitive. We cannot have to compete and for a number of different reasons.

One is, as I said, we’ve done it. Secondly, clearly, our shares have not been rated reflecting the cash flow. And what some observers feel, we should be moving towards getting a re-rating. So that’s not a major reason behind our lack of interest in M&A right now, there’s other more compelling reasons. In fact, one of them is, what’s in the pipeline of projects that we have? So clearly, we talked a lot about and will continue to talk about and are continuing to drill with five rigs on Fekola North Extension and have had some great results recently and are drilling more right now.

And we will expect by the end of the third quarter, we’re now projecting that we would have a new geologic resource to look at Fekola and the potential ultimate size of the Fekola pit, things like that and things like further drilling at Toega, things like the upgrade we’re looking at with the studies we’re doing at El Limon with the exciting new discovery of the Central zone, what does that mean to El Limon. And we’ve seen Nicaragua turning around, as we said, we’re starting to see the turnaround that we had talked about. We can talk about that. Obviously, the quarter was not just about Fekola. The other two mines, two core assets, Otjikoto and Masbate, had very good quarters as well and we expect that performance to continue.

So strategically, what’s in the pipeline? Let’s go and spend some of the $53 million we budgeted on exploration, most of it brownfields. Let’s spend that money and do some studies to find out the potential of what we already have and look at that from the point of growth, et cetera. Other priority going forward and as of now, as we’ve already seen, we’re significantly paying down the revolving corporate facility that we used to build Fekola in conjunction with our cash from operations. So we didn’t use any equity to build Fekola, which I think was a very wise strategy and we didn’t go into silly amounts of debt. So we’re able to repay debt quickly now in terms of the line.

We do have a good debenture [indiscernible] oil, that comes on, on October of this year with a $3.93 conversion price and US$258 million. So pretty safe to assume, given the state of the market today, or at least we should assume that, that is not going to be converted into shares at US$3.93. So our plan at this point is that to pay that back. We have the capability and cash from operations and using some of our line, our revolving line of low-cost debt financing to repay it, and then we would get back to reducing debt again on the line very rapidly as we’ve paid back the convert in October. So dramatically decreasing debt ongoing and again, after paying off the convert with the cash flows that we’re starting to see.

I think one of the things we’ve been talking about and we talked about a lot here in London has been the company’s attitude towards a dividend. We are reviewing a dividend policy now. And as we see ourselves going forward here, we will be looking to introduce a dividend policy. The timing of that, we’re not – we haven’t nailed down yet, but we will be looking at that and we’ve been talking to some shareholders about their views on that. And we don’t want to do anything in this company that impedes us from doing what we do very well in addition to running mines extremely well and exploration, et cetera, it’s building them and growing.

So we always – we want to maintain the ability to grow the company, that’s really one of the points and one of the things that’s really appealing now to generalist funds, I would say. One of the few gold companies that can sell itself as a growth company, which happens to specialize in gold at the end of the day. So a dividend – we think that a reasonable dividend can be started and grow, while you have some debt modest on the balance sheet and while you are still growing the company. And that’s why we’re going to be looking at a policy for that going forward. Final thought from me.

I’ll just get it out upfront because we saw yesterday in Kinross and Mauritania and we’ve had lots of things and lots of talk about what’s happening in Africa, et cetera. I guess, we really would like to see people focus on every company in isolation to some extent and every country in isolation to some extent. At the end of the day, let’s talk about Mali for a moment. What we see in other countries in Africa is different from what we see in Mali. And it’s always disturbing to see rumblings or discussions about increases in taxes, et cetera.

But I really think that the state of the industry today, it’s all about a fair share for governments and countries involved in deals we’re in. The Fekola Mine under the 2012 Mining Code is the most expensive mining code in the history of Mali. We’re okay with that, because, clearly, we have shown that with the royalties we are paying there 6%, plus and a royalty with the 10% the government gets as a free carried interest and the other 10% that the government’s purchasing that will be – we will retain the dividend of that until the amount of the purchase is realized. This is a very good and fair deal for a government and we believe for the company. So we need to get out there more to explain to people that we think that $500 million that we’ve lent and invested down into Mali from B2Gold, the high risk of building the mine, we think we should get paid back at a reasonable interest rate while the government is getting their royalties and while the government is getting their 10% free carry.

But if you look at the first 10 years of the mine, the mine life, as we talked about it for Fekola, it’s important to realize that we think it’s fair that once we’ve got our loans paid back with a reasonable interest rate – if you look at the economic benefit for the first 10 years of the mine life based on our current projections, including $13 gold, the government would realize about somewhere around $1 billion through royalties, dividends from their interest and taxes, et cetera. Now, that represents 50% of the economic benefit of Fekola and roughly, once we are repaid our risk investment and construction and a reasonable interest rate. That seems like an imminently fair deal. That seems like an imminently fair deal to the government of Fekola. So when many people talk about a new mining code, it’s very important that we realize that in the history of Mali, they have never gone against the codes that they have had 1991 and 1999 codes.

They have never gone back on those codes and try to change fundamental issues. Those codes are protected as ours, it’s with a stabilization agreement as part of it agreed with the government and the governors never look back and try to rapidly to change things. Anyone, in my opinion, that’s under the 1991 code or the 1999 code in Mali, if they believe they’re going to get the benefits they have then in a different world at a different time of tax holidays and 3% smelter royalties in a new code going forward they are dreaming, that’s not going to happen. The government is not very unlikely to do anything that would change the 2012 code to a new code, not looking backwards, looking forward, very likely the government would why they change anything in that code to diminish their return and what we feel and they feel is a fair code and a fair deal. So we’re not afraid of a new mining code.

It’s been openly discussed publicly and with the government saying it would be great for everyone to get one mining code looking forward. But we don’t need and see any need to go and spend time negotiating with the government about the new code, because we expect the new code is going to be the 2012 code with the amendments we made if and when there is a new code, otherwise it’s going to beat the 2012. That set a new bar. And if some people don’t like how bar that’s set, that’s not our problem. This is a modern era in mining and you need to show deals where governments win and the people win and they feel that they are.

So if you look at incidents and events like yesterday and those conversations, look at the royalty rate that those companies are paying on their existing deals with government and look at the benefit to the government of these and the people of these countries from those deals. So I think it’s very important that we don’t start looking at this and saying everyone in Africa feels that they’ve got a crap deal from the government point of view and they’re going to want to change existing mines and future mines and they’re going to want to kill goose that lays the golden egg, not happening in Mali for sure. So I think it’s really important that we try to get people as hard it is not to generalize. Look at it company by company, mine by mine and country by country in Africa. We understand why taxes in Africa in the same breadth right now are setting off alarm bells.

We get that. People – we need people to dig a little deeper to understand the realities. We have our deal with the government going for the final ratification. It’s all agreed with the government purchase of their second 10% at fair market value. All of that is agreed with the government and the final step of that is the approval – the formality of approval in Parliament.

The only reason it hasn’t happened so far was they did change the Prime Minister and therefore, they delayed the session of Parliament for a period of time. It would have been approved, in our view, before this. It’s now on the docket in June to be approved. That’s the final step. This is them purchasing another 10%.

We’re not asking them for anything. That number has been negotiated and agreed in a fair market value and that will be released as the government does the final ratification out of respect for the government, but that’s where we stand. We’re looking to crystallize with the ratification of the government’s 10 – of the government’s extra 10%. So the company – they will own 20% of the company and we’ll give you more detail on that as it’s ratified. But that is not a problem areas as far as we’re concerned at all, it’s been well negotiated with the government from both sides and it’s a good deal for both.

So we’re not concerned about that. So that’s – just wanted to touch on that front, because I know it’s a hot button topic. And we understand people’s concerns or frustrations when they hear this noise about taxes in Africa. We wanted to talk about that from our perspective. Otherwise, Nicaragua, as we said before, we weren’t in a rush to go and sell the assets, because our job is get value one way or the other for the assets.

Nicaragua is starting to turn it around as we expected with the permits we’ve been waiting to get for La Libertad and with the new discovery at El Limon and the permits for the Mercedes pit that we got recently El Limon to allow to go back to underground mining and open pit mining together that’s turning it around. And we believe that the new discovery of Central with its high-grade open, pit nature and product size and proximity to the mill 150 meters away will be a game changer. And we’re looking at expansion, two expansion, one of 25% and one of 100% expansion at El Limon. The first ID of that will come in around the middle of the year on this – on the smaller expansion then we’ll have the study on the larger expansion. So either way, as we leave as it is, if you expand it by 25%, if we double the size of throughput at El Limon this is a very positive thing at the end of the day for the Nicaraguan assets.

Once we get them up to the value, we think that they hold, we will to make a decision. But if we’re going to produce 200,000 ounces a year plus in Nicaragua, a profitable production in a country, we’ve been in successfully for 11 years, why would you sell that when it represents 20% of your production, if it’s profitable production. So that’s the strategy we’ve had for sometime on that and the strategy seems to be the right strategy as well. So that’s kind of just a couple of things, I wanted to touch on about strategy and where we see ourselves going. A hugely transformative time for the company as when these uncharted waters are significant, cash flow operations and free cash flow.

We’re very much interested in looking at what’s the best thing to do with that in terms of continuing to run this company, grow this company, but also look to reward our shareholders for what we’ve been able to accomplish and what they’ve supported us in accomplishing. So I’ll leave it there and I’ll pass it over to Mike now to talk about some of the great numbers we have in the quarter. And I guess, the only other comment I’ve seen some of the analyst stuff and good comments back, we’re pleased that most of you recognize that beat that this represents. It’s a real mystery to us as to how many of you think that we met your projections for earnings of $0.06. We have no idea how you got $0.06 and that’s we might want to – you might want to have some more detail conversations with us in the future, because how can we have beaten in so many areas in cost and still – and have you guys reflecting that kind of earnings projection, which puzzles us frankly, and it’s not really based on reality.

So at the end of the day though, great support and we do appreciate and I’m not being critical of any of that. We were just surprised to see that meet – met expectations. So real question is, what were the expectations and how were they arrived at? What model would give to someone the kind of projections when we feel we beat projections, including earnings from what we had expected to see. So an interesting point to try and get on the same page going forward, but great support, good write-ups and very much appreciate the support of all of you from the analyst side and obviously from the shareholder’s side. I’m not – I’ve given up on predicting a re-rating in terms of timing for B2Gold.

Let’s just say that, I do believe that if you go that they will come eventually and we’re pretty much long-term players. And on the same page as our shareholders being founders and significant shareholders of the company ourselves. So with that over to you Mike.

Mike Cinnamond: Thanks, Clive. I think Clive did a good work there for the quarter.

It’s transformative, but compared to the prior year quarter and very transformative and the result mirrored and reflect the first full commercial production quarter from Fekola included in the company’s results. So I’ll run briefly down the income statement, the cash flow statement and give some thoughts. So firstly, on the revenue side. Revenue is $344 million for the quarter, so increase in the revenue of 135%, which is based on 117% increase in ounces sold, a lot of that from Fekola – most of that from Fekola and also a 9% increase in the gold price. If you look at the difference between production and sales, we sold approximately 20,000 ounces more than we produced and mainly that represents us drawing down and selling 27,000 ounces of that Fekola inventory that we built up in the last quarter, last year, and it was on the balance sheet.

And we drew it down and sold it this quarter. We saw the benefit of it in this quarter. Production side, a very good quarter. Consolidated basis, 239,000, which was 16,000 higher than budget. 11,000 of those came from Fekola and another 6,000 of that came from Masbate.

And Fekola was 114,000 ounces and it was 11,000 ounces higher than budget really through the trifecta, which is higher throughput, higher grade and higher recovery. Those are all the things that you. want. Fekola came out of the gate very well in the last quarter, last year and continue to do so as we look forward this year. Otjikoto 39,000 ounces, 2,000 ounces over budget, slightly higher grade and higher throughput in the period.

Masbate 53,000 ounces against a budget of 40,000 ounces. And Masbate has higher recoveries and higher throughput and it continues to be – Masbate outperformed the last two years against budget and continues to do so. This year, we’re still. getting higher Colorado Pit material more oxide ore from Colorado than was budgeted. We expected in the budget that we’d have 50% mill feed from Colorado oxide feed and we actually had 78% this period, so continue to outperform.

We should remember that Colorado is forecasted currently to be mined out by the fourth quarter of this year. Then on the Nicaraguan side, Libertad 19,000 ounces, production against a budget of 21,000, 2,000 ounces less than we budget and that really reflects a delay in getting it in and starting up activities in the San Diego Pit. We – there have been some delays in permits, as you know, over the last year at – in Nicaragua for all that’s said, but we now have all but one in hand. And we did forecast that we’d be in and start work on San Diego and have production right from the start of the year. It took us a little longer to get in, but we’re now fully operational up and running in San Diego.

The one remaining permit for La Libertad just, in order for us to execute full mine plan is to have Jabali Antenna open pit. The budget currently forecasted this Jabali Antenna open pit will come online in the third quarter of this year and we’re still anticipating that. But we have put in place a contingency plan, whereby if that gets pushed out and we actually start production from the Antenna open pit at the start of next year, then we have a contingency plan from our existing operations, including fast-tracking and the sort of advance stage that we’re at on Jabali Underground to actually optimize from the existing areas that we have and still meet guidance this year and then push Jabali Antenna open pit production to start next year. And El Limon, 14,000 ounces against budget of 15,000, so almost right on budget. There was a slight delay in advancing Mercedes Pit at Limon.

Clive mentioned Mercedes Pit earlier. We had planned to be in there and developing Mercedes at the end – right at the end of 2017 due to timing – it actually came in just at the start of 2018, but Mercedes is up and running now. And we think Limon is headed back to steady state. Reminder as well that the budget that are out there for Limon, they don’t include anything from Central yet. We’re still working on Central to get – to come up with the initial mine plan and how we think we might process ore there sometime by the middle of this year to get an idea what we want to do with Central to move forward.

On the cash cost side, consolidated cash cost, $481 an ounce, which is $67 less than budget. And that overall beat against budget was driven by Fekola. Fekola is a much greater part of the mix of our production now on the cash cost and also a continued outperformance of Masbate and Otjikoto. Fekola for the period was $268 an ounce, $13 an ounce less than budget. And part of that was, as I said, they had the trifecta of better grade, better throughput, better recoveries.

Mining is producing above planned production rates at Fekola, but unit costs are still below budget. We may see some mining cost increase slightly as we move forward due to maintenance requirements increase, but we think it’s just remaining out of below budget for the rest of the year. Otjikoto, $569 an ounce, which is $57 an ounce less than budget. Otjikoto’s lower than budget operating costs were related to the savings in processing and site general costs, along with stronger production. Now this was partially offset by some increase in fuel prices and a strengthening Namibian dollar.

For Masbate, $542 an ounce, $152 less than budget. And Masbate, like I say, it just continued to outperform mainly flat with a higher oxide content from Colorado. Mining costs in Masbate for the quarter were roughly 10% below budget, but mine tonnage higher than budget, which was planned to support future increases in the mill throughput due to the expansion of the Masbate mill from 6.8 million tonnes to 8 million tonnes. That operation and that extension is underway now and we forecasted that will come online sometime in early first quarter of 2019. Then Libertad was $89 higher than budget due to the lower production we discussed earlier at Limon was $1,000 an ounce, which was $200 higher than budget.

And that was higher due to slightly lower production, there’s was only 1,000 ounces left, but also some costs due to the pre-stripping that we did in Mercedes in the first quarter that we originally had thought we would do in the last quarter of last year. And just to point out, that pre-strip isn’t deferred or capitalized anyway, because Mercedes is planned to be mined – mining and be mined out in 2018. Therefore, it’s all expenses incurred. If we move on to the all-in sustaining costs, we basically see that benefit of it – of the lower operating costs flowing in there too. All-in sustaining costs for the quarter on a consolidated basis were $750 an ounce, which was $147 less than budget.

So part of that ids $67 per ounce beat on the cash comp side and also some timing delays in CapEx. We think most of those CapEx delays – the main lower CapEx really happened at La Libertad where comps that we were going to incur and develop in Jabali in the first quarter have been pushed out to slightly later in the year. So we think those will all reverse in time. So overall, we have the beat on the quarter. We’ll see some of that claw back as we move forward, but we should still keep the beat that we already have on the cash cost side.

Let’s look at some other items in the income statement. To comment, on royalties were higher this quarter. They are $21 million in the first quarter versus $6 million last year and that reflects higher sales and also the fact that Fekola had higher royalty rates than the other operations. As Clive mentioned, there’s 6% government royalties there and then there’s another 0.6% stamp duty, which is also treated like a royalty. So in total, the government royalty is 6.6%.

So with the higher sales from Fekola and those higher royalties, we saw a jump in the total royalty expense. G&A was $12 million for the period against $7 million in the comparable period quarter last year. That looks like a big jump, but a couple of things to comment on there. Firstly, the comparable period in 2017 had an accrual reversal point through it, which is non-recurring. So like-for-like, we’d be $12 million, with approximately $10 million.

And the $12 million this year included $2 million for Fekola. Those G&A costs were capitalized during the construction phase, but not until Fekola is fully operational that we see those launched in the income statement. There is an impairment long-lived assets for $18 million that relates to [indiscernible] is a property B2 has basically had and it’s packaged as property since inception. And it was just during the period that we were focused our exploration dollars in other areas, but where we see that much closer near-term benefit for the company areas like exploration around the Fekola property in Mali. So decision was made to dispose of the [indiscernible] property through a junior company.

So we’ve taken back some shares in the junior and added 2% NSR and invoking that transaction has led to an $18 million non-cash impairment charge. We have a gain in the income statement of $11 million related to convertible notes. The notes continue to trade slightly above par there, that’s just over 101% as of the end of March. They mature on October 1 when they will be back at par value of $258 million. Interest costs for the period were $8 million.

And just to highlight for everyone’s benefit, if they look high, they were anticipated. At prior year, they are only $2 million. But in the prior year, we were still capitalizing interest. We would capitalize the interest right up until Fekola came online in commercial production in Q4 last year. So not all those interest charges from our various facilities are being expensed in the income statement, that’s why you see an increase there.

On the tax side, significant increase in taxes, $39 million current taxes against $5 million in the prior period. And some – the reasons for that, well, Fekola was the biggest driver. $22 million of that increase came from Fekola income taxes. Just to point out again for the benefit of your models and such, Fekola doesn’t have any significant accelerated capital deductions at the start of mine life like we’ve seen in other operations. But they don’t have a lot of rules where you can accelerate a lot of your initial capital as deductions.

So basically, what you see gets deducted for completion is pretty close so we get deducted for tax. The other thing I’d point out about Mali and it’s in the tax expense, the 10% free carry interest that the government holds. That dividend is treated like a tax for the purposes of brokering the financial statements. The reason for that is that it’s a right that’s conferred by law and it’s based on a measure of net income. And for accounting purposes, when you pull all those characteristics into the model, it gets treated like a tax.

So within that tax charge, there’s a $5 million expense, which is basically the Fekola 10% priority dividend, that’s being expensed through there rather than see it be deducted as dividend later. And then, the other thing that impacted taxes this period that’s different from prior periods is Masbate. We had the benefit of an income tax holding for the processing plant site at Masbate for the first five years that we owned and operated that mine. At that time, it totally expired in the middle of 2017. So we’re now fully taxable there as we move forward.

And approximately $8 million of that charge there relates to Masbate, which is higher than we’ve seen in prior periods. So all those elements together, great results, operating results and some sort of slightly more unusual one-off items there or different nonrecurring items. We had net income for the period of $57 million or $0.06 a share basic $0.04 a share diluted. On an adjusted EPS basis, it’s still $0.06 a share with the write-down of [indiscernible] when it’s taken out – offset by stripping out the mark-to-market on the convertible notes. Turn to the cash flow statement.

I’ll comment on a couple things. I think Clive already addressed some of them. First of all, on the cash flow from operating activities was $107 million increase in cash flow from operating activities in the period. That’s from a – we had $147 million this period versus $40 million in the prior period. And that’s driven by revenue increases and offset by higher production costs and higher royalty costs and taxes.

On the financing side, again, I think Clive mentioned it. We repaid $75 million. We drew down – or we paid back $75 million on the revolver. In the period subsequent to the quarter-end, we paid back another $25 million. So as it stands right now, we paid back $100 on the revolver this year.

The revolver is sitting at $250 million drawn and we have $250 million available facility at our disposal. Should also comment, in the financing side, we also accelerated the use of the Fekola and Masbate equipment leases. In our loan facilities, we thought we might show those much later in the year, but we were actually able to utilize them early, so see the benefit of that flowing into financing. On the investing side, we spent $71 million, which $21 million of it’s Fekola. We were about $15 million under budget in total for the quarter, which is made up by $4 million from various items at Fekola and $11 million at La Libertad, mainly for the delay in Jabali Antena capital costs that we think will reverse later in the year.

So that left us for the period we had – we generated $20 million net cash flow for the period and we had $158 million available cash at the end of the period, all covenants fully met. And I think that the only other item, I think Clive did address it, relates to the convertible notes. So they do mature in October 1 of this year, and if you look at the cash on hand that we currently have and the available facilities that we have and the cash flow we expect to generate as we move forward for the year, we’re well positioned to be able to make that payment on October 1. I think that wraps up what I wanted to talk about on the results side unless anyone has any questions.

Operator: [Operator Instructions]

Mike Cinnamond: I’m sorry, operator.

I think that we should probably just leave questions in the end. So maybe we can leave them at the end, we’ll go through the rest of the materials. So, Clive, I guess, we turn it back to you now. And is there anything else you want to – anyone else who wants to comment on anything, who is here?

Clive Johnson: No, I mean, I – we can go on and talk about some different things. But I think, at this point in time, I think the news release is quite detailed.

And we’ve laid out some of the strategy and things going forward. I guess, the only other things that spring to mind are what’s happening, for example, in Nicaragua. We seem to have lots of things in the world change with political change or potential change. The Nicaragua scenario for us is we still have the support of the government and the local communities and local governments in what we’re doing in the mines and the benefit that we have and all sorts of different ways in Nicaragua, jobs and taxes and community programs and education and CSR and health and all the other things that we do. We’re seeing a transition perhaps to some push for more democracy and other changes within Nicaragua.

But this is a wide-based movement from many different groups in society working together and wanting to work together peacefully with government. So we see the – we do not see the prospects of that being negative from our perspective or from, I guess, a more global perspective and to presume a country moving in a – a country that’s had some good success moving in a good direction. So I think that’s most of it. I think we should turn over – we should turn it over to questions, Mike, unless there’s anything else or anything else you guys think that I’ve forgotten that’s compelling to say now or whether we should let the questions go.

Operator: [Operator Instructions] Your first question comes from the line of Rahul Paul with Canaccord Genuity.

Your line is open.

Rahul Paul: Hi, everyone, congratulations on another great quarter. I’m wondering if you could go into a bit more detail on the HFO solar hybrid plant at Otjikoto. You mentioned that you expect to lower power generation fuel costs by 10% in 2018. Is there an opportunity to lower HFO consumption even further by maybe moving to a greater reliance on solar or other some constraints or technical limitations at this point?

Clive Johnson: It sounds like a Bill or John answer to me.

Over to you guys.

William Lytle: Yes. Thanks, Rahul. Good question. It’s certainly something we’re very proud of.

So the solar plant was commissioned in the – at the beginning of the – at the end of March, beginning in the second quarter. We’re ramping up now and we’re seeing great solar penetration at 6.8 megawatts DC power fully online. Basically, if you figure in all the various iterations of how we can – how we think we’re going to be able to match the solar to our existing operation, it basically cuts $0.02 per kilowatt hour off of our power costs about 10%. So the answer is, yes. We certainly think that we can increase that.

They’re actually currently working maybe on several other strategies. Without going into too much detail, one of them is potentially hooking up with the overhead power line that Namibia has and then buying some off-peak power as well. So the answer is, yes. We do believe there are potential for significant savings going forward on power.

Rahul Paul: Thanks, Bill.

And then a little bit further on that, at what point do you think you could adopt this – the technology on a bigger scale at maybe Fekola, perhaps even look at this as an attractive power solution for Toega, or is it just too early to say at this point?

William Lytle: Yes. It’s really early. I think, if you talk to the operations guys or people like John that are doing the design, of course, it’s attractive for sure. But it is – it’s a technology that we’re still getting comfortable with. So certainly, we want to see some more reliability before we start talking about putting something like Fekola on solar.

So it’s – I think we kick it around for something maybe in the future, but as of right now we just want to see this testing.

Rahul Paul: Perfect. Thanks, Bill. That’s all that I had for now.

Operator: Your next question comes from the line of Michael Gray with Macquarie.

Your line is open.

Michael Gray: Hey, good morning. Thank you very much for taking the call. At Fekola, the unit costs are tracking better than feasibility study. Can you provide a breakdown of your unit costs for mining, processing and G&A in Q1? And maybe a little bit of color on the reasons and opportunities for the improvement versus the feasibility?

Clive Johnson: Bill, I don’t know if you want to tackle all that right now, or do you want to give some of that and then invite a separate conversation or information that come from that? But go ahead.

William Lytle: Yes. Let me – for some reason, I actually wrote that down. Let me just find it here.

Clive Johnson: That’s supposed to be off the top of your head, no?

William Lytle: Yes, I wish.

John Rajala: Mike, I’ll – on the processing, the reagent consumption – some of the reagent consumption in grinding media, particularly in ball mill have been less than feasibility projections, so that’s helped to reduce the processing costs.

William Lytle: I think overall basically, so for Fekola in Q1, we saw lower mining costs, as Mike mentioned, significantly lower $1.34 versus $1.94, that’s a cost per tonne. And the primary reason was that we’ve had lower cost on the front-end as far as the materials, the hardness of material and the actual amount of blasting we had to do. So we think – and of course, the maintenance is below. So we think those are probably going to track back towards our original numbers and then, of course, the site G&A track very nicely with the budget estimate. So the main thing was on the mining side.

Michael Gray: Okay. So lower costs in Q1 maybe not sustainable, tracking back to the feasibility eventually, is that fair to say?

William Lytle: Oh, yes, that’s what we’re saying. Of course, once again, you have to remember, we’re still early on in the cycle itself for…

Michael Gray: Yes.

William Lytle: …us to say that. What we can say is that, we have been pleasantly surprised versus what the budget is.

Michael Gray: Yes, okay fair enough. And then just second question, with oil prices rising noted in the MD&A, the $11.4 million in fuel oil, $11 million – $8 million in gas or hedged as of March 31. Just want to know what percentage of the energy consumption that is?

Mike Cinnamond: The hedges right now represent just under 50% for 2018 and approximately 20% or 30% for 2019, that’s roughly where our hedge right now might be.

Michael Gray: Okay. Thanks very much, guys.

Mike Cinnamond: Thanks.

Operator: Your next question comes from line of Chris Thompson with PI Financial. Your line is open.

Chris Thompson: Hey, good morning, guys. Congratulations on a stunning quarter.

Two quick questions. One on Masbate. Obviously, continued surprise by way of processing more oxide ore than anticipated. I’m cognizant that you have the expansion, obviously, that you’re working on, my understanding, that’s going to come online first quarter of next year. Do we see a possibility of sort of stretching out the favorable, I guess, ratio oxide to fresh to marry with that expansion the remainder of this year?

William Lytle: Our initial plans with Colorado Pit were to finish off in the final quarter of this year.

And we took a recent look at that and really we don’t see any change there. We know that final cuts in Colorado will be narrow and we want to make sure that we optimize our mining – our mining efficiency in that pit ahead of dealing with wet weather. So no change currently in Colorado mining. Certainly, with the capacity of the fleet that we have, we can look at some alternatives in terms of development, which provides some carryover. We’re still looking at those now, but we’re well positioned to do so.

Chris Thompson: Thanks for that, Bill. Thanks. Just quickly on Fekola. Obviously, great results you had on grade, tonnes and recoveries as far as budget. I mean, are we – do we expect, I guess, these grade tonnes and budgets to normalize to budget for the remainder of this year, or are we seeing surprise that you weren’t anticipating?

Clive Johnson: So we’re seeing some surprise like even on recoveries But once again, we’re still early on in the process.

It’s really too early to say anything about what’s happening there other than it’s a great quarter.

Chris Thompson: Yes. Okay, great. Okay, guys, congrats.

William Lytle: Thanks.

Operator: Your next question comes from the line of Don DeMarco with National Bank Financial. Your line is open.

Don DeMarco: Hey, guys, thanks for taking my call. This question maybe is more of a strategic nature. So you mentioned that the focus is not on M&A.

And so I’m just wondering is that because you just don’t see good value in the M&A phase. And I’m also wondering if maybe you feel that you’ve reached the optimal sustainable size for a gold producer?

Clive Johnson: Yes, good question. We don’t think we’ve reached the optimal sustainable size for a gold producer. I mean, we don’t set kind of numbers and then decide when we should do acquisitions to try and meet them in terms of numbers of lost production and timing of all of that. We were – we’ve always been opportunity-driven.

If you look back at our successful 10 years, it looks very systematic in terms of the growth with accretive acquisitions and good mine building or good improvement in production in things like Masbate and exploration success in all of those things. But at the end of the day, the M&A attraction or lack thereof right now is for a number of different reasons. We think we have a great pipeline, including Fekola immediately north, as we discussed, and the snake zones, anacondas, et cetera, we’ve touched before, elephant country looking for additional Fekolas, Toega, et cetera, upsizing Masbate, Nicaragua turning around, Otjikoto doing well. So we feel that the best way for us to look at growing the company for the next while is look at organic growth. But let’s see what we have for free, let’s see what we already have in our pipeline of projects that we didn’t pay for when we did acquisitions, because we don’t pay for accounts that might be there, that’s a lot of the driving force.

We’re obviously not in a situation where we would feel that we would be able to find an accretive deal or an acquisition, given our lack of performance or lack of value based on the new cash flows and it’s all new we get that, but the – if we look at the target prices of the 17 mining analysts, they – there are some good analysts out there these days and we don’t think they are wrong, so therefore that’s another driving force, but that’s secondary. We don’t see a lot of good opportunity out there, there is a great difference between something being cheap and something being of value. So if someone looks at a company that used to have a market cap of $8 billion and now they are less than $1 billion. If people say why were they so cheap, you guys must be trumping a debate, because Clive is saying no M&A and there must be so many things that are attractive today and that must be killing you not to do M&A, it’s not the case. A company that’s gone from $8 billion to $1 million or less, maybe it’s because it was terribly managed and it was a bit of a disaster, maybe it was never worth $8 billion or maybe it was briefly and certain bad decisions and bad actions turned it into something less than a $1 billion.

So at the end of the day be careful for things that are look cheap, but don’t don’t necessarily have value. We don’t see a lot of good development projects out there. We did it when no one else was doing it. We acquired Fekola with no competition or $0.50 billion worth of our shares. Many analysts, and I think they are right and I agree with them think that if it was out there today Fekola is almost three years, the bidding would start closer to $1 billion, but we got it with no bidding because growth was so out of favor, so we don’t see a lot of opportunity.

We want to digest what we have, we want to be – make sure we are the best million ounces a year producer out there. And we want to see what’s in the pipeline, stay financially strong, repay debt and look at a dividend policy. So going forward we can be that unusual gold company that can sell it, sell reasonably well to generalist funds who are looking for a company that is very good at what they do and produces cash flow and is a growth company, dividend paying growth company. That’s on the cutting edge of everything we do in the business, but definitely we will go back into M&A at some point, not in the near-term, but we’ll do it in our terms and our timing. Why go and do anything involving M&A when you’re looking to buy ounces.

If you don’t know how many ounces you already have and things like Fekola can be dramatic impact in terms of ounces just in the north extension, not just in adding mine life, but in looking at potential expansion of Fekola in the relative near-term if we continue to get these great results and we’ll have a new resource hub by the end of the third quarter is our projection on the Fekola pit and how big can it be. So that’s strategy. So we’re not anti M&A at the right time, we did it at the right time. We are and a lot of others are doing it at the right time. You have to be prepared to be contrarian if you have a long-term view as we’ve had for many, many years.

So M&A, we’ll look at it again in time, but right now it doesn’t make any sense to us and we just don’t see other Fekolas out there today. Very few quality projects, growth is back in favor, so little concerned that do we get back into the silly season soon where people are overpaying for things, which is never a good idea to buy something that needs higher gold price or exploration success to justify the purchase price, which we’ve always stayed away from that. So, that’s the strategy, I think it’s sound and I’ve had some great conversation over here in London with some of our large shareholders who are hopefully soon to be that are really intrigued by this strategy as one of the few gold companies that’s performing well. There is a few others, but very few, and also that can look at growth and can be a company that doesn’t need gold to go higher to make our shares of interest or our shares and our market cap perhaps go higher, that’s where we want to be.

Don DeMarco: Oh okay, okay thanks for that, that’s a – that provides some good insight into the strategy and clarification.

And maybe as a follow-up then, you mentioned a dividend and like from a capital structure point of view, what’s the debt that level you’d be happy with? Obviously you have a capability paying down all of your debt even within a couple years, but do you have a long-term sort of capital structure target?

Clive Johnson: Well, to be honest, we don’t right now. I mean I think that this is for us a – this is a new stage after 10 years of aggressive and successful growth where we are taking cash from operations and putting it back into building the next mine, with mostly debt financing, not equity to – for the rest of money. So we’re having, we’re really looking at that now. We’re in the – we are in discussions internally and getting some outside input from our shareholders et cetera about what level of – what level of dividend would you start on if you started a dividend policy. What level of debt make sense to have some debt along with that and also what percentage of your cash from operations are free cash flow should you be looking to dividend out versus what you are going to keep aside combined with cheap debt financing facilities to grow additional things whether it’s organic growth or whether it’s something down the road, that is an M&A scenario, so that – I think you’ll hear more from us from that kind of thing over the next quarter I would say.

Don DeMarco: Okay, thanks for that, that’s all for me.

Clive Johnson: Okay, good questions, thanks.

Operator: [Operator Instructions] Your next question comes from the line of Steven Butler with GMP Securities. Your line is open.

Steven Butler: Thank you operator.

Guys Fekola, just back to that asset here for a second. Obviously you’re – Mike, you earned a lot of soft ore in the first quarter, I’m just asking here about whether that was about in line expectations, the level of soft ore that you were mining and how that will trend throughout the balance of the year? Are you going to get into any hard rock anytime soon this year or is it wait for later years?

Clive Johnson: It sounds like we needed to clarify that one, Bill, you want to talk about the hardness or John the harness of the rock we’re in now and what we started up in, because I think there is a misunderstanding there perhaps.

William Lytle: Yes. So I’ll talk a little bit from the mining side and then John you can start to talk about how we started the mill on the hard rock. But when I say soft ore, it’s – the Fekola ore is very hard.

Just we had anticipated on the mining side, which go through a lot more of our where –wears parts much quicker due to the hardness of the ore, but the reality is we just haven’t seen that. But we did start up, I mean we have more than 3.3 million ton stock pile right now of hard rock and so we have been mining hard rock from day one. John?

Steven Butler: Okay.

Clive Johnson: Yes, I’ll just add that the majority of the ore that we have been processing has been harder rock, it’s fresh ore from the pit. We have been blending in some saprolite, which has had some higher grades and that we need to get into the process, but the majority of the feed has been harder ore, so the mill has been performing well on hard materials.

Steven Butler: Okay. I just saw the reference in the MD&A to a proportion of soft ore, free ore digging, that’s – that was a reference. I guess that was a waste, waste tonnes mined, because it is soft material, not requiring drilling and blasting, maybe there was a lot of that being waste I guess.

William Lytle: That’s correct.

Clive Johnson: Those waste, yes, he pointed there that was waste.

Steven Butler: Okay thanks Clive. Uh, guys, and Clive, maybe just a comment, because you guys give us very extensive disclosure on your pre-financial reporting, you give us very good disclosure on production tons, grade recoveries, while we don’t have our cost per ton. So you did a great job in the first quarter for sharing cost per ton at several of your assets, including Fekola as you described earlier. So, $0.06 comes about from a consensus with gold price being actually realized et cetera, et cetera, $0.06 comes about from all the good work you guys gave us in advance with respect to all this good production numbers. So, that’s why we are probably somewhat accurate this quarter, I’ll leave it there.

Clive Johnson: Well, okay, but not really because at the end of the day and once again we can talk about this more, but because we do think it’s worthwhile for have the narrowing of or a realistic expectations out there. If you look at what we did in the quarter and we obviously announced the production numbers before, but you add the, what we just announced today in terms of the beat on costs, on sustaining costs and all that. It’s hard for us to understand in a way when we beat that much from what must’ve been your expectations in cost unless you have wildly optimistic expectations which you guys don’t tend to do, you tend to be at the lower end or in costs you tend somewhere near the higher end of our guided projection. How we can beat that much in cost and have you guys come out and say we’re in line on earnings, there is a miss there somewhere and it’s not criticism here. But there is something happening there, which I can’t imagine you guys were all projecting the kind of operating costs that we’ve come in with an all sustaining, you’ve said yourselves that we beat on that, how can we be then within expectations on earnings? So, I’m not saying anything wrong, but there has to be some way that’s in all of our interest probably to get the shareholder, shareholders to get closer to the fact we’re – because that’s what puzzles us a bit.

Steven Butler: Yes, I hear you Clive. The only thing that for me personally that happened was that the taxes ended up coming through a bit higher to offset all these EBITDA improvements or cost benefits, my taxes were a bit light that’s all, so therefore earnings came through. So I’ll leave it there, but I look forward to seeing the site here in next few weeks.

Clive Johnson: Yes, and as I said, you know Steve this isn’t a take a shot at the analyst, but apart from it, you guys are doing a lot of really good work and I think we’re just real curious, because we like to try and be transparent as always with our disclosure, how come – what can we disclose more, they can get us more on the same page where we don’t come out with a dramatically better financial quarter that we expected and a bunch of you guys come out and say we have expectations on earnings, so you know what I mean just a bidding in congress.

Steven Butler: Yes, I hear you, okay thanks a lot.

Operator: Your next question comes from the line of Geordie Mark with Haywood Securities. Your line is open.

Geordie Mark: Yes, thank you. hello everyone. Just – perhaps to belabor on Mali here and maybe move over to Burkina thereafter.

Just looking at, and obviously the very, very good 3-foot rates coming out of the mill there at Fekola. Well and truly above nameplate in the first full quarter there for commercial production. Just wondering in your years projection, are you projecting to hold at rate to meet your guidance is your sort of guidance sort of set it to sort of a 5 MTPA rates going forward.

Clive Johnson: Mike, do you want to handle that?

Mike Cinnamond: Well, I think a bit – on the [indiscernible] here about whether they want to be able to make 3 to 5.5 million.

Clive Johnson: The question was, is our guidance set 5 million tons per annum, the answer is, yes.

Mike Cinnamond: Yes, so Geordie our guidance still for the rest of the year is still 5 million tons a year is the guidance, so we’re obviously ahead of that. We are not prepared to say will that, because we are in the – this is the first quarter, we’re not prepared to yet say that that 10% higher throughput than we had guided, where we don’t – we don’t have reason to us, I doubt that this is going to have for the full year, we are just not prepared to go out and re-guide that. That’s probably we remain cautious, because it’s random mining and it’s going very well and it been to make sure people realize we are in hard rock. But so we’re hopeful that that kind of thing continues and as we go through perhaps at the end of the second quarter, we’ll probably look at that and see if it’s time to perhaps re-guide if appropriate.

Geordie Mark: Okay, very good, it makes sense.

And perhaps moving over to Toega if I can. Just trying to get a – maybe some further detail in terms of the expiration that’s been carried out thus far this year within that $9 million budget. And the planned scope of that all of drilling within the defined volume and then the targeting outside looking for the new zone I guess, mineralization, just trying to get a further update on that, given the ore systems of your sort of focus on organic value?

Clive Johnson: Sure, Tom, you want to talk about that?

Tom Garagan: Sure. The drilling right now at Toega, looking at the edges of Toega, it still remains open down on to the depth. We are out looking at potentially down at depth, maybe there is an underground potential as a result keeps ongoing.

And then we are looking at other areas in and around Toega area. We are not doing infill at this time, we still feel that Toega needs to get bigger before it’s a project, but it’s something going in a positive direction.

Geordie Mark: [indiscernible] cheers.

Clive Johnson: Cheers Geordie, thank you.

Operator: As we have no further time for question, I will now turn the conference back over to Clive Johnson.

Clive Johnson: Okay, well, thank you very much for your time and attention and good questions. Obviously from our point of view and the company, we are very pleased with the progress we’ve made in the quarter, not just Fekola, but the other operations running well and we’re set up to have a great year. So we’ll be reporting back on you on that to you and also more of our strategy opposite dividend policy and other things like that. So thank you very much for your attention. If you think you may have questions, feel free to reach out and email us as and we will look to answer them with hopefully our ongoing transparency.

So thanks all very much.

Operator: This concludes today’s conference call. You may now disconnect.