African Barrick's CEO Discusses Q2 2013 Results - Earnings Call Transcript

Jul.30.13 | About: Acacia Mining (ABGLF)

African Barrick Gold PLC (OTC:ABGLF) Q2 2013 Results Earnings Call July 30, 2013 8:30 AM ET

Executives

Andrew Wray - Heads, Corporate Development and IR

Greg Hawkins - Chief Executive Officer

Marco Zolezzi - Heads, Operations

Jaco Maritz - Heads, Finance

Analysts

Patrick Chidley - HSBC

David Haughton - BMO

Tanya Jakusconek - Scotia Bank

Operator

Good afternoon, ladies and gentlemen. And welcome to the ABG Half Year Results Conference Call. My name is Fay, and I’ll be your coordinator for today’s conference. For the duration of the call you will be on listen-only. However, at the end you will have the opportunity to ask questions. (Operator Instructions)

I will now hand you over to your host, Andrew Wray to begin. Thank you.

Andrew Wray

Great. Thank you very much and good afternoon and good morning, everyone. Thank you for joining. Hopefully, you been able see the result release which is out on our website today, there is also the presentation that accompany that that we gave this morning and that we’ll refer to the extent during the call. What we’ll do as usual is, Greg will give a quick five minutes overview on highlights in the quarter and also on result, then we’ll go straight to Q&A. So, Greg?

Greg Hawkins

Okay. Thanks, Andrew. Also just with me in the room we’ve got Marco Zolezzi, who Heads up our Operations; and also Jaco Maritz, who Heads up our Finance; and obviously Andrew Wray, who was speaking early, Heads up Corporate Development and Investor Relations.

So, just a quick run through, as Andrew said in term of our interim results. Production was at 312,000 ounces, that’s was above the prior period. We set out a guidance range for the full year of 540,000 to 600,000 ounces. So you can see that we are well on track. So it was a pretty smooth guidance, I mean, we weren’t expecting it to be back-end and front-end in particularly.

So we’re ahead of where we thought we would be, there has been some challenges in the business but we’ve been now able to overcome them and keep them into up. So we’re in good step to the second half of the year. So we continue to track towards the top end of guidance is our current view.

Cash costs were $903 per ounce. They are tracking below the bottom of the guidance range, which was set at $925 to $975 ounces. So, again, that in combination, the efforts on the ground but also underlying that now with work that’s been done in terms of the operation review, we will continue to pay down as cost as we get through the second half of the year as well.

And talking about the operational review, there is quite a lot of detail. We promise and update at this point in the year, about that we try to provide fair amount of detail and that is basically to show the cost savings that we think we can take out of the business off the 2012 revise numbers, so those numbers are out there in the market, so you can sort of basically model back through where we think we can get the business to.

And of that we think there is $195 million worth of potential cost savings. We expect to get $100 million of those by being -- by the end of the year with the remainder coming thereafter.

Of that $95 million is tide up with operating cost reductions which was required to the cash cost per ounce, the rest really come out of, the balance makes up to the all in sustaining cost number. Those include $50 million in reduction and sustaining CapEx, we previously talked about and now an exploration has been reduction year-on-year of $25 million, which we had mentioned before as well.

We’d also talked previously about an $8 million reduction in corporate G&A, that’s now being upgraded to a $15 million reduction in corporate G&A. And you can see in terms of the year-on-year stats at this point in the half year that we are already well down on that.

So, a lot of this is well underway, still some hard work to be done and we’re very executed properly through that business, but we’ve got a very data plan which spend a lot of time in the last few months planning it out, pulling apart the business in the nuts and bolt sense, and putting it back together, so it’s a point we’re very confident about our ability to go and execute and get these things done, and as I said, a lot of them are well underway.

As part of that, when we set out the operational review back in, when we launched it in February, early this year, we were dealing with the gold price environment of $1,600 to $1,700 an ounce, obviously that has dramatically fallen in the second quarter. We have incorporated that into thinking around the operational review and what we need to get out of it and as part of that we have also looked at each of the individual mine plant.

Particular focus has been tied to Buzwagi and the reason for that is it’s a lower grade higher cost asset. And I think in the market to be fair there was probably an open question where it will survival at the sort of gold prices.

For us, we are quite confident, given the efforts that we’ve been putting in over the last 12 or eight months to improve it and seeing those in the metrics in terms of mining tonnes and milling tonnes over the last year or so. We’ve made dramatic improvements out there.

We also believe we can take some cost out of the business, but fundamentally at $700 an ounce it’s tough to continue to execute the original lost of mine plant. And therefore, we had a key focus on that, re-looked at it and have come up with a new plan that essentially has a six to seven-year mine life which we think we can run and that basically will generate cash flows at sort of gold price.

So it is going to the restructure which effectively removes a lot of the capital waste movements, shortens the mine life but gives us a much better value equation at this sort of gold price for our inventors.

So, I think that’s pretty -- was pretty important step that we’ve taken. We are continuing to review the last mine plant at North Mara and Bulyanhulu, but they are lower cost producers, higher grade and have a lot more flexibility, and I think its part of the operational review, we are getting to the right spot for that.

Because of that and the gold price and running that through the actual accounting numbers. We have to raise this, the carrying value and obviously, there has been a substantial impairment charge and that’s predominately driven by the Buzwagi change.

So just quick wrap up, as far as we had full year guidance of $540,000 to $600,000 ounces. We are well on track. We are targeting still the top end of that. We think we’ll be -- we are tracking below the cash cost guidance range and we think, again, we’ll be pushing further down on that.

We’d write down a pretty clear plan in terms of what we can do in the operational review and the cost that can come out of the business and I think there is an upside on that as well. So we effectively restructuring the business with the Buzwagi change as well to gold price environment that we have, to make sure that we can sustain the business over the longer term.

What is key for us, is that we have a strong balance sheet. We have $320 million in cash sitting on the balance sheet. We need to make sure that we have done through that and I think the steps that we are laying here today ensure that and that puts us in a very good position internally to run the business but also comparatively against the rest of the market.

So, with that, I’ll just pause there and we can open it up to questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And we have question from the line of Patrick Chidley from HSBC. Please go ahead.

Patrick Chidley - HSBC

Yeah. Good afternoon. Good morning, everybody.

Greg Hawkins

Good morning, Patrick.

Patrick Chidley - HSBC

Just couple of questions, on -- first on Bulyanhulu, so you didn’t take any write-downs there, but you are still in review? Does that mean to say that there could be write-downs at the end of the year and has there been any major changes in what you are doing in terms of the plan?

Greg Hawkins

No. I think, I mean, it’s sort of gold price, we are giving $100, we didn’t have any issues at Bulyanhulu. The refinements that we are looking at in terms of lots of mine are really just trying to make sure that we can optimize that. Bulyanhulu should be in terms of an all-in sustaining cost well establish current gold prices, we just recover from the issues we had like last year, early this year. So we see that in a very positive way.

Probably the only thing is of real note, the areas we just like the decision in regard to Bulyanhulu operates, which is project we won today, we certainly continuing on full speed ahead with the Bulyanhulu CIL plant expansion.

But as it worked out from our own site discussing it, we are look away through. We can delay the decision for a few months, so that actually impacting the production schedule out there in 2015, basically because it’s our choice as to how fast, how many resources we try to accelerating the development there.

So we just thought in this environment it just pay to just sits on for a few months and see what the landscape was. But certainly from, even at this sort of process, is still pretty robust project. But, we want to make sure core business works. We can generate cash flow out of that and then that gives us some confidence to push ahead with that sort of expansion project, that’s about it basically.

Patrick Chidley - HSBC

Okay. So the Upper East project has been delayed and you basically what stopped spending on it, and yeah, and yet it’s still a robust project. So we should still be thinking about this in the plan for 2015, I think it was 190,000, 200,000 ounces a year, is that right?

Greg Hawkins

Yeah. It’s obviously got to ramp up but at a full run rate that they ran that at 80,000, 90,000 ounces a year. We get some early production out of that in 2015 and then it ramps up over ‘16 and ’17 beyond.

Patrick Chidley - HSBC

Okay. Are you still spending on that?

Greg Hawkins

Well, we got some mining equipment in for about $4 million or $5 million in the first few weeks ago and we’re just, I mean, basically at the moment the only spend required on these is just sort of continuing to do bits of desktop analysis on it. So it’s pretty quite anyway.

We’re just sort of looking at what is the amount of capital risk at any point in time with that project and how far underwater you want to be. So it depends on just how quickly you want to ramp up the production on it to be honest and what risk we want to take on that. And given that sort of fairly flexible, we felt we could just sit quiet on it for a couple of months until we get a more concrete view as to where the world is going to land and confidence in the gold pricing, confidence in our earning internal gold business.

Patrick Chidley - HSBC

Okay. And then just at Buzwagi, you mentioned few of the details of the plan, and how about the strip ratio for the next three years, what’s that going to be for the remainder over the last, I guess three-and-half years?

Andrew Wray

It’s -- Patrick, its Andrew. Hi there.

Patrick Chidley - HSBC

Hi.

Andrew Wray

‘14, ‘15, ‘16, the strip comes in around about 3 to some of the 3:1.

Patrick Chidley - HSBC

3:1 that’s the new trend, okay. Thanks.

Andrew Wray

Yeah.

Patrick Chidley - HSBC

And then in terms of stockpiles, I guess, at Buzwagi and North Mara, you still got significant stockpiles? Can you give us an idea of how big those are in terms of tonnes and grade?

Jaco Maritz

Yeah. The tonnage for Buzwagi is about 5 million tonnes sitting there at around 1 gram of ton and North Mara has got 2.4 million tonnes, Marco has the grade, I’m not sure.

Marco Zolezzi

The grade you see we have 1.5, okay?

Jaco Maritz

Grade 1.5, yeah.

Marco Zolezzi

Yeah.

Patrick Chidley - HSBC

Okay. Thanks. And in terms of that material, is that fully, nothing untold about the recovery that you might expect from that in terms of factory nice (inaudible), anything like that?

Greg Hawkins

No.

Patrick Chidley - HSBC

Just typically no more ore, okay. I’ll jump in….

Andrew Wray

Patrick, sorry, the number of us work shows you that over the next three years, we clearly are going to be building stockpiles up on the first color of the plan because as we’re looking at three years at the end of the mine life where the processing just stockpiled. So last three years as they plan more or less of the current kind of run rate and part of what we’re doing over the next three months, we’re just seeing if there is optimization of that. So we’re not carrying pretty much capital in stockpiles any one time.

Patrick Chidley - HSBC

Okay. So a follow-up question I have on that is that while you’ve given a strict ratio, what is the amount of tonnes of low grade ore that you’ll stockpile in last two years?

Greg Hawkins

We’ve got to say we’re piling it now and we’re going to price at three years at around four or so. Probably, build up about 7 million tonnes over the next 3.5 years and then you didn’t have the stockpile of that 12 million tonnes or so to run that over the next three years. But as Andrew alluded to, while we’re very confident, we have ran various scenarios to come up with this plan. And as heading shows it stood out as the best plan.

We are now also going to just optimize that for the scheduling because it doesn’t -- you’re investing capital -- working capital into building up those stockpiles. So we’re just seeing if we can optimize that even a little bit better as well.

Patrick Chidley - HSBC

Okay. And then just on your cash cost in terms of the new cost savings that you’ve identified relative to 2012. Is that sort of mean that you’d expect for the -- at least the second half of 2014 maybe the cost to be $95 million in terms of operating cost, $95 million lower than 2012 operating cost?

Andrew Wray

No, not quite. We assume this year out of the 95 operating cost and 15 corporate overheads so let’s put it a 110 combined. We get run rate just over 30% of that by year end 2013. And then we get 90 odd percent. So predominantly done by the end of 2014 but obviously there is a build up from 30 to 90 plus over the balance of next year.

Patrick Chidley - HSBC

All right. But if we would take 2012 costs…

Greg Hawkins

Yeah. That’s again a 2012 cost base because in that number we’ve suffered inflation but we’ve netted that off. So we’re just giving you the actual reduction against 2012.

Patrick Chidley - HSBC

Okay. So 2012 was a certain amount than 2015 will be, you think $95 million or $110 million less.

Greg Hawkins

The way to look at it, I guess, if you take 2012 and the variables are your operating costs are about $95 million lower as it pointed out. This obviously depends on LOM’s profile is but operating cost down by that much. So sustaining capital developed $50 million lower and we look at seeing actually by 2015 if we can get that lower still because while we put about $32 million in last year, about the same this year, we’re clearly going to look at that on the basis of a shortened mine life.

So we’re looking at what we can do without sustaining capital but $50 million lower is the current case. Then obviously on the waste strip, we’re seeing higher cost from 2012 because we move more waste this year, both Buzwagi and North Mara. But likewise we’re getting more ounces. So we’ll look to try and get a pretty good offset between the two of those on a per ounce basis.

Then, on our copper admin, we’ve got 50 million of that 2012 number. And on the other element, it’s marginal, on the other element, it moves around, it probably about 5 million from expiration that was capitalized and went into all-in cost in 2012 that won’t do as we go forward.

Patrick Chidley - HSBC

Okay. All right. Well, thanks very much. I have taken enough time up, I’m sure. Thank you.

Operator

Thank you. And our next question is from the line of David Haughton from BMO. Please go ahead.

David Haughton - BMO

Hi. Greg, Andrew and the rest of the team. Just following on from Patrick’s question, looking at Buz conceive a revise plan, little bit surprise going for 1.6 to 1.7 grams over the next 3.5 years. It’s above where we’ve been tracking for the first half. How you’re kind of get that kind of grade?

Andrew Wray

The grade whether -- the profile, maybe the market took a little bit of where we’re actually on new ore body but it’s a SKU between the next couple of years which are probably close to 1.5 and third year where we’re getting into more of the higher grade core of the ore body. It’s closer to 2 grams. So the blended across those three years is that 1.6 to 1.7.

We’re dropping a lot of the lower grades plays out of that material which helps the growth in mining so far. But in the market, was there anything?

Greg Hawkins

Andrew has explained it pretty well for non-mining tools. And really what’s happening is because we’ve taken essentially what we’ve done is dropped stage 4 which is a lot of waste with some ore. And we’re now concentrating on moving less waste with more ore in it.

So the strip ratio drops from around about seven to one to round about three or four to one in the first year. So we were actually generating more tonnes of higher grade that’s really what the difference is. And then Andrew is right, you don’t get the full benefit of that in 2014 but you are start seeing higher grades in '15 and then back to where this while we had been mining some very high grades closed to 2 grams in '16.

David Haughton - BMO

All right. So from a unit costs point of view, the benefit you’ve got here is dropping your strip from seven to one down to three or four to one. And then the benefits of the grade improving the (inaudible) profile?

Andrew Wray

Yeah. And part of that benefit of moving less tonnes is obviously, you’ve got less fleet moving. You’ve got less people. You are using less material also.

David Haughton - BMO

Right. Okay. So there might be a low fixed cost component as well.

Andrew Wray

Yeah

Greg Hawkins

Yeah.

David Haughton - BMO

All right. Just moving to Tulawaka, you’ve got closure. You’re saying that next quarter might really be if you still got some closure expenditures to outline, should we be thinking about the closure expenditure in the second half of this year and also into the first half of next year or would you say it will be quicker than that?

Greg Hawkins

No. I would say it over probably an 18-month period. So second half of this year and then all of 2014 and probably, I would say this probably about 16, 17 million to go.

Jaco Maritz

It’s about 19 million.

Greg Hawkins

Sorry. Jaco is correcting me. 19 million over the next 18 months. Obviously it’s exciting time, we’ve got -- we’re having at least some preliminary discussions with the Tanzanian government mining arms, TAMICO, as to whether they want to take it over. If you remember there was a -- there is still a little resource -- satellite resource out in the western zone but they’re interest perhaps taking on. So potentially might disclose it before the end but obviously we’re going to work that way through that as well.

David Haughton - BMO

All right. North Mara, some pretty good grades coming through in the quarter. What should we be thinking about on a go-forward kind of basis? Should we be upping that 3ish gram level or in the high twos but what would you be recommending?

Greg Hawkins

Look what we’ve seen then it’s been a really good pleasant opportunity is that the reserve model has been outperformed by what we’ve seen from the grade control and what we mined. So we’ve seen more ore tonnes, better 20% more ore tonnes spend are in the reserve model. That we don’t see continuing as we start moving out of the high grade ore pods so we see ourselves go back to traditional mine grades. So we’ll see ourselves dropping to the 3 grams this quarter down to the high 2 grams as we generate less ore tonnes and having to process more stockpile ore.

David Haughton - BMO

Okay. Well, let that’s a good break to have.

Greg Hawkins

Yeah. It is.

David Haughton - BMO

Now switching over to Buly, where you’re at with the tails retreatment. Is that still on the go or you’re rethinking that with the current metal prices?

Greg Hawkins

No, we run scenarios at different metal prices at 1300, 1200, 1100 and the project is still a good project. We’re fully committed to it. So we started that project at the beginning of the year. We’ve spend to date by about $48 million.

Jaco Maritz

No. That’s here I mean, total $72 million.

Greg Hawkins

Okay. That’s right. So we spent about $48 million. We will be spending about $72 million. We are starting the tailing storage again this year. We’re still committed to delivering ounces in quarter one next year and at this stage, still forecasting to be within budget dollar spend.

David Haughton - BMO

Okay. And you’re looking there at an incremental 40ish thousand ounces per alliance per annum.

Greg Hawkins

That’s right. For about the first six to seven years and then it will drop down to slightly over 10,000 ounces for the life of mine from the owners.

David Haughton - BMO

Okay. So I think that’s my shopping list of questions. Thank you.

Greg Hawkins

Thanks David.

Operator

Thank you. And we have a question from the line of (inaudible) from HSBC. Please go ahead.

Unidentified Analyst

Hi Greg. I have a couple questions on North Mara and follow-up on Patrick and David’s questions. Could you maybe remind us what the original mine like was for North Mara and also when did the ounces, Nyabirama and Gokona ounce was suppose to commence to production sort of? And the third question would be how will taking those ounces out change in great profile next couple of years and what should be we thinking in terms of your grade profile, head grades from next two, three years?

Greg Hawkins

Okay. There are some of those questions I suppose we might pass on but essentially I mean what you’ve got at North Mara is, you have got three open pits, Gokona, Nyabigena and Nyabirama. We -- obviously, we’ve been looking at the life of mine and just trying to work out the best way of mapping that forward. I think at the moment it's about Kenyan mine life, but obviously that is contingent on some of the land acquisitions and obviously maintaining good social license to operate with all the various committee issues and the rest of it out there.

But the land acquisition is pretty fundamental because we need that in the case of say, the Nyabirama pit for buffer zone to be able to do -- cut back three properly and also cut back four which are currently in the life of mine plans. At the Gokona pit, the big land acquisition program is really about getting exit dump space for both, PAF, potentially acid forming material and non-acid forming material, NAF dumps. But -- and that allows us to do Gokona stage 2 and 3 and that basically will take about eight to ten years sort of thing from this point.

So, we are obviously actively mining in Gokona as we speak and that's where you are getting the grades that we are currently performing at. And Gokona usually averages around 3 grams a ton anyway over the four life of mine. We have got a little satellite mine called Nyabigena which will probably work their way through by this year or early next year, but that’s pretty small in the fencing.

But the Nyabirama pit is very dependent on getting that buffer zone land acquisition. It's of lower grade. I think it runs around 3.7 grams a ton. Yeah, so Marco has given me a good note on that one, around that sort of mark, but we would like to have them working in sacred such that we are always generating high grade ore out of one or the other of those pits. That’s where the land acquisitions becomes vital. It’s to try and keep that program alive and working our way through and with that that will start to get constrained.

In terms of grade, I think the overall reserve guidance in North Mara overall is about 2.7 or 2.8 grams a ton. And if you can take the pits in sequence, then we should be able to average around that pretty smoothly. If I get out sequence, you will see higher grades in Gokona pit and lower grades in Nyabirama. But it is all a very contingent on how the land acquisition goes just to the timing. As always with North Mara, we have always got a plan B, a plan C and a plan D, probably a few others in the back pocket as well. So we have to take my timing of flexibility on that, but that’s roughly what we are trying to do with pits Nyabirama and Gokona going together.

We are doing some controlled blasting on stage 3 of Nyabirama. The moment, if we get the land we can take moving along, but we are probably seeing that hopefully getting interactive production in a serious way later in 2014 as Gokona starts to tail off a little bit and we have to do if further -- further work on the waste to get into Gokona stage 3 at that point.

So it's planned out to try and keep a fairly smooth performance in terms of grade and ounce profile as we go forward. But the land acquisition can curtail that all throughout around in terms if we get sparks and troughs in each year.

Hopefully that was a -- that sort of answers some of your questions but not quite a complete map out of the grade profile. Do you think it’s useful?

Unidentified Analyst

Yeah. It did. Thank you.

Operator

Thank you. (Operator Instructions) Now we have a question from the line of Tanya from Bank. Please go ahead.

Tanya Jakusconek - Scotia Bank

Hello.

Greg Hawkins

Hi, Tanya.

Marco Zolezzi

Hi.

Tanya Jakusconek - Scotia Bank

Hi, how are you? Yeah I have just a couple of more questions on your cost -- operating cost productions and thank you very much for the detail on page four. I just want to follow up a few things. I am trying to get a feel for how much of the reductions in operating costs are actual versus you noticed people being removed. And I just wanted to know from your supplier side, what sort of the lease have we seen and sort of cyanide or tires, maybe just a percentage this year, and labor would be another one I am interested in and exploration would be another one?

Andrew Wray

Just on the -- Tanya, it's Andrew, hi there.

Tanya Jakusconek - Scotia Bank

Hi.

Andrew Wray

On the suppliers where, as I think we said earlier, we are starting to see some benefits there. We are looking at potential anywhere between 5% to 10% reduction in cyanide pricing dependent on whether that supply actually comes true or not, is that sort of order of magnitude. We are looking at things like SMBS potential alternative suppliers there that can bring pricing down as well.

But, it's probably low-single digit percentages where looking at this point in time, but we are certainly starting to see more receptiveness to talk to discuss and to move on the other side than we have seen for a while. So, I think that’s something the industry is beginning to see now as obviously demands starting to move down a little bit.

So, we have got the ability to do it that way. We have also got a pretty diverse supplier base and we are looking to concentrate that more to get about 550 suppliers we use at the moment. But in probably, the top 10% or less of those concentrate 80% of what we are spending and we will certainly see pricing benefits as we bring that number of suppliers down.

We are also looking at our contract base and what we can do with some of that contractors even in terms of just simplifying the schedules of the contract you can start to see reductions from that. Moving a proportion of our contracts away from input based to output based, and again that’s a sort of thing you can do when the negotiation leverage is on the side of the buyer and you can see in some instances 10%, 15% reduction in contract terms through having an output based pricing mechanic rather than input based.

Tanya Jakusconek - Scotia Bank

Yeah.

Greg Hawkins

Probably, applying the penalty clauses, we have a lot of those contracts as well for not meeting availability rates or not delivering to standards and that is 3%, 4% sometimes of contract values. So the host of things that we are looking at there that we’re seeing movement already some of that contract movement takes a while because we’ve obviously got contracts on different periods are rolling off at different times. So we’re assuming that takes us six to 18 months to actually bring that through but certainly seeing a bit attraction on it.

Tanya Jakusconek - Scotia Bank

And what about suppliers or even your labor?

Greg Hawkins

Suppliers we’re looking at from both pricing perspective to potentially again shift suppliers. Also from the usage perspective where we average across the open pits 3,000 ounce at Buzwagi, about 3,400 at North Mara, and we’d be looking closer to 4,000 ounce plus for industry benchmark and that’s partly training, it’s partly improving the road condition so little bit investment in that. But it’s usage but it’s also the pricing we’ll get double benefit.

Tanya Jakusconek - Scotia Bank

Yeah. And in terms of the pricing, have you seen a similar 5% to 10% in tire?

Greg Hawkins

We’ve not seen that yet but we’re looking at where we can get on suppliers.

Jaco Maritz

We actually at the moment negotiating on that…

Greg Hawkins

Yeah.

Jaco Maritz

…with the tire prices coming down. So we’re in the process of doing that.

Greg Hawkins

So we’d expect, I mean that’s where we’d be heading.

Tanya Jakusconek - Scotia Bank

Yeah. Okay. And then maybe just on exploration because that’s another area I found a lot of the costs have been coming down on drilling and also maybe just a bit on your labor. I know your labor is a little bit different because of your expats that just a little bit maybe on what your labor negotiation or wage inflation has been or is looking at?

Jaco Maritz

Yeah. Just and I’ll take the labor one and exploration probably differ to Greg if you can give me numbers on that. On labor, the assumption at the start of the year was we were seeing about 6% labor inflation in terms of cost inflation and we’ve assumed that against the savings that we’re targeting. So clearly from the end of 2012 through 2013 there were wage agreements at the start of the year which we’re seeing, but we’ve netted that off against the savings that we’re targeting.

Tanya Jakusconek - Scotia Bank

Okay.

Jaco Maritz

Obviously, the pressure is starting to come off. We see that more in expat labors. You go through the year because you tend to get hire turnover there. So you’re more frequently replacing people in the market and certainly, pressure has come off so leaving salaries up. We’ll need to look. We do an annual wage increase. So we’ll obviously have to look as we get to the end of this year and into next year is to what that means. But, certainly, the savings are taking into account and wage inflation we’ve seen.

Tanya Jakusconek - Scotia Bank

Okay. And then just maybe on explorations.

Greg Hawkins

Yeah. On exploration, I suppose that the predominant thrust really there in terms of saving has been a focus on, we’re allocating the dollars we have various programs and cutting down a lot of it and focus has been we’re pivoted to intensify on Bulyanhulu and Kenya and elsewhere in Tanzania drastically reduce the programs.

Certainly talking to Peter Spora ahead of exploration you can tell that a lot of drill rigs have been packed up across the whole continent in Africa…

Tanya Jakusconek - Scotia Bank

Okay.

Greg Hawkins

… and so there is pricing, so we’re getting, if you like, we’re sort of getting more bank for a buck, a little bit in some of the stuff we’re doing in Kenya. I’m actually haven’t talked to Peter about how we did on the contract with at Bulyanhulu. But, certainly, yeah, there are people are talking up to drill rigs all over the place, so they came to take an active way, we actually have some dollars to apply to it, but the major thrust for us has been the overall, just the straight reduction in activity for us with them.

Tanya Jakusconek - Scotia Bank

Okay. Okay. Well, thank you very much.

Greg Hawkins

Thanks.

Operator

Thank you. (Operator Instructions) Okay, we have no further questions coming through at the moment.

Greg Hawkins

Okay. Great. Thank you very much. Well, thanks to everyone. If there is anything else because here afterwards Charles is around, I’ll be around, and then also give us a ring and hopefully, we can answer that. Thanks and we’ll speak next time.

Operator

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