Randgold Resources' (GOLD) CEO Mark Bristow on Q2 2014 Results - Earnings Call Transcript

Aug. 8.14 | About: Randgold Resources (GOLD)

Randgold Resources Limited (NASDAQ:GOLD)

Q2 2014 Earnings Conference Call

August 07, 2014 11:00 AM ET

Executives

Mark Bristow - CEO

Paul Harbidge - Group GM Exploration

Graham Shuttleworth - Financial Director, CFO

Analyst

Josh Wolfson - Dundee Capital Markets

Howie Flinker - Flinker & Company

Tanya Jakusconek - Scotia Capital

Operator

Good afternoon, ladies and gentlemen, and welcome to the Randgold Q2 Results International investor call. (Operator Instructions). I will now hand you over to Dr. Mark Bristow, Chief Executive Officer, to begin. Thank you.

Mark Bristow

^ Thank you very much, and good morning, ladies and gentlemen in North America, and for those who have dialed in, in the UK, or Europe, or South Africa. Also a very warm welcome to you, and good afternoon.

As you know, we presented our Q2 2014 results today at the London Stock Exchange. I think everyone has had a chance to read everyone's views on these results. So the objective of this call is just to quickly run through the highlights, and then give our North American investors and analysts a chance to ask questions.

We would point to the fact that a full webcast is available on our website, for those who want to go back and check the detailed presentation, from the London Stock Exchange, earlier today.

So kicking off, I think the key is that if we go back three years, we promised the market a step change, up to an annual production of 1.2 million ounces in 2015. And certainly, as you see today, and for me personally, it's gratifying to witness that target coming within reach.

The past quarter brought with it some challenges, and expected in the form of the challenges that we -- one always associates with commissioning a mine of the size of Kibali.

We also brought in a number of additional projects in the -- like the crusher at -- the crusher expansion at Loulo. The paste backfill plant at Yalea was commissioned. And we also made very good progress with the crushing circuit replacement at Tongon. And we're well on track to expand the float circuit, also at Tongon.

We got some -- despite a very solid quarter, where if you look at the run rate, we were well in line with achieving our guidance, we've still got some upside to exploit in the next six months. And I'll touch on that, as we get to the individual projects.

As is customary, the Group is very focused on its [indiscernible] and sustainability. And key building blocks of that, of course, are our relationship with our workers, and more importantly, their safety. And again we, this quarter, delivered a significant improvement in our safety statistics. In fact, we only posted one lost-time injury in the whole Group this quarter. And significantly, Kibali had no lost-time injuries reported for the quarter, so a great achievement by all the operations.

We also made progress -- as you know, we're very mindful of our -- managing our social impact, building our relationships with our community, and equally our environmental management programs and mediation of the environmental impact, particularly around Kibali, where for the first time, we're investing in the middle of a -- the equatorial jungle.

And it's quite a key event for us, to be able to announce our first offset project or initiative, in the form of us supporting the Gorumbwa National Park, in its endeavors to protect its ecosystem, and in particular the elephant population there. And we see that as ability to offset the impact that we have on the forests around our mines, notwithstanding the fact that they already had been deforested when we got there.

Highlights speak for themselves. I don't plan to dwell too long on them. I've covered most of them already. And I'll pick up on the quarterlies.

Really, the numbers are what I've already referred to. And if you look at the numbers, look -- I would guide you to the six month comparisons. We've boasted for some time, the big -- the next step up, in 2014. And this really highlights that, how we've been able to deliver the -- a big step up, 40% plus increase in production, with a commensurate drop in total cash cost, both on a six month and six month basis, as well as if you compare the quarter one -- I mean quarter two with quarter two last year.

And on a quarter-by-quarter comparison, still a very healthy comparison, considering that quarter one results was boosted by our decision to bring a whole lot of high-grade oxide forward in the Kibali schedule, and push out the commissioning by a few weeks into Q2. That's the commissioning of the sulfide circuit, which now we've completed.

Moving on then to the operations. And first up is our flagship, Loulo-Gounkoto. Again, if you look at the graph on the right of this slide, a significant performance, half-year against half-year last year, steady improving grades, which is what we forecast as we developed the purple patch, a substantial drop in cash cost, and a big drive in production, driven largely by grade and recovery, a significant improvement in recovery.

As I pointed out, we've now commissioned the secondary crusher circuit upgrade. We are still -- still got a couple of projects left to do at Loulo-Gounkoto, one being the ramping up of the new 10 ton oxygen plant. And also, we'll continue to invest in our HFO project, which is focused at dropping the power costs at the mine. And we've got our next two medium speed generators being installed there, as part of this project.

Numbers speak for themselves, a really solid set of numbers. And those who have been following our Company for the last couple of years will realize that we've come an enormously long way, when you consider the challenges we faced when we started ramping up the underground, this quarter now, the third successive record quarter in a row. You can see how we've been able to bring the costs down.

The next big step, as I said in the intro -- we still have some upside, in the sense that we've still got some throughput capacity that we haven't fully exploited. And we expect that -- at least another percentage in the recoveries that we should -- could be able to deliver on.

But having said that, on a midterm basis, if you double that production to date, it puts us way ahead of our (technical difficulty) guidance at 640,000 ounces. And so we're comfortable, barring some unforeseen event, that we'll be able to beat our guidance at Loulo-Gounkoto this year.

So on the Loulo standalone project, I've already referred to the paste backfill plant being commissioned at Yalea, where we're expecting to complete the Gara one this month. And we'll start commissioning it in September.

A record production from Gara underground. And the Loulo underground mines really performed well, on a cost basis and also plant.

These are the numbers. You'll see that when you consolidate the numbers, Loulo was slightly below Gounkoto in production, driven primarily by the fact that we tied in the belt feed, the overland conveyor belt, from Gara into the plant during the quarter, which -- and the underground mines feed into the plant via conveyor belt.

So when we did the tie-in, we impacted on not only the Gara feed, but also the Yalea feed. And whereas Gounkoto is truck fed, and we were able to make sure that we kept going, by adding more Gounkoto ore. And you'll see, under Gounkoto that Gounkoto produced a little bit more this quarter. But we'll get back to the 60/40 ratio during the back end of this year.

Last quarter, we referred to the upside potential of the Yalea south ore body, which is -- and we've done a lot of drilling since then. You'll see that drillers are also starting to show a very significant grade profile for this part of the ore body. And it's an exciting opportunity to be able to reschedule the life of mine, in a way that we do it sequentially because the south part of the main ore body is starting to look just as prospective as the purple patch area.

Just wait for the slide to -- and in Gara, the same thing. We continue to grow and expand the extensions to the southeast down dip. And also, you'll see those six silver stars are really focusing on dropping the depth of the resource limit, so that we can actually schedule our capital in an optimum way.

On the exploration side, we've continued to explore -- we've done a lot of ground geophysics this last two quarters. They're starting to generate new concepts and targets, below the transported material. And that's our big challenge in that area. But the whole Senegal-Mali shear is a big prospective target for us. And you'll see in the next slide, we've been able to extend that reach north of Loulo permit and south of Loulo permit, as a form of joint venture projects.

Gounkoto, as I pointed out, had a great quarter, really driven by a little better throughput, same grade, slightly better recoveries, as we saw in Loulo. And we made good progress on the underground feasibility studies and also the drilling out of MZ3 zone extension.

There are the numbers. They speak for themselves. I'll point to slightly more throughput. You'll see that we mined a lot more tons than we processed, really that being part of our strategy to keep a fairly large high-grade stockpile available, ahead of the rainy season. And that will come through over the next two quarters.

This is the view of the MZ3 underground feasibility resource, which is the real purple patch that you see there. And then the MZ3 extension, which is that red patch, has a couple of silver stars in it, just to the top and right. And we're really working on signing off on that resource, as part of the underground feasibility study, which is just at the end of the year.

And as part of that study, we are also re-readying our optimization and the pit underground interface. We have -- if you recall, we've talked about a super pit, at $1,350 last quarter. That same pit is now -- so that's a the green line -- is now working at $1,210, as we keep adding additional grades with the infill drilling.

And what's interesting is that super pit's cost of mining per ton is now starting to be very competitive with the underground mining cost. And that's part of our optimization project that we're dealing with. And we expect, by year end, to be able to give you some color.

I think the message here is that we do run our businesses on a very commercial basis, looking at what's the best way to get a return on capital, whether it's super pit or underground.

Staying with the Gounkoto license, the orange areas are really the 50 ppb soil anomalies within the Gounkoto Faraba region. What's significant about these is underlying those anomalies are very thick cover. And so we're seeing through the cover. And you'll see how the Gounkoto ore body plots on the anomaly, as does the Faraba resource. So we still think there's potential to make another discovery, or at least sort of extension discovery of the current known mineralization.

Morila, steady as she goes, a slightly higher cost quarter -- this quarter, but still under what we had planned internally, as we sought to process the pushback material. We've processed the first 35,000 tons of ore from the pushback. It came with a big strip ratio tag, so that's why the costs are up. Those costs will wash out over the next three quarters, and so will the grade improve, as we mine more and more full-grade oil from the pit. And so our costs will come down [indiscernible].

We're expecting a robust back end of the year, as far as production goes, from Morila. Having said that, Morila is in closure mode. And that's our focus is to close it, with its own generated funds.

The numbers speak for themselves. I won't spend too much time on this.

As we move on, Ivory Coast and Tongon mine, a good, solid quarter, a pleasing quarter for me. Team did well. To pick up on the vibrocones challenges, we managed to actually keep the throughput at just above what we achieved last quarter, despite the constant interruptions. I must say Sandvik has worked hand-in-glove with our team to ensure better -- best availability as they can.

We're now in the process of changing up the vibrocones with hydrocones. We've got all four hydrocones on site. We've changed out the first crusher, and we'll do that up to the end of this quarter. And then we've got some steel work to complete by then. And then we'll tie it back into the plant. So we're expecting a step-wide increase in throughput, out to the back end of the year.

Again, the numbers speak for themselves. And what I'll point to is that we have really managed the situation, and we are continuing to manage it. You'll see we are mining less than we're processing at the moment, because we're outputting lower grade stockpile material through the process, given that it's not running at its most optimal.

It's good for cash flow. It's not very good for earnings, but it's good for cash flow, and it gives us the flexibility, really get that perfectly in shape, ahead of our commencing of the crushers and the new expanded flood circuit.

This is how we see the improvements, out over the next couple of quarters, and particularly on throughput. Next.

And just before we leave Tongon, last quarter we talked about the potential that we saw and been able to extend the pits because we've got some higher grade zones sitting underneath the pit shelf. We've started that project. We've also done some infill grade control drilling in the ore body. And the outcome of that is that we are remodeling the ore body.

And we see some significant upside to that model. We've got a bit of the way to go. We haven't got all the results back, but we're just guiding the market that it looks as though we're going to have a positive impact from that work, as we get to refreshing our reserves, towards the end of the year.

And likewise, my big drive to move our Company to a 10-year life-of-mine plan. We've really re-looked at the inventory of resources within trucking distance of the Tongon operation, and we're busy, at the moment, testing those. And we'll be investing some drill dollars to get some of these projects to a preliminary economic assessment stage.

Same with Ivory Coast, but stepping away, into the Greenfield programs, Mankono permit, we've made good progress there. We've certainly progressed the two main ore bodies in this permit, I mean the main soil anomalies in this permit. Some of the soil is running up to 2 grams a ton.

At this stage, the Priority 2 [indiscernible] it looks geologically more interesting than the Priority 1, although we haven't completely got our head around the validation of some of these big anomalies in that part of the permit.

Likewise, in the Fapoha permit. It's a Tongon look-alike setting. You'll see the big pink intrusion, and then the soil anomaly wrapped around the intrusion. We've put in our first line of [indiscernible] holes. We've got some anomalous numbers, some attractive numbers. And now we've got to do a little bit more work, before we really start trying to hone in on the targets there. But it's, again, a well-structured Greenfields target. Fapoha locates immediately to the south and adjacent to the Tongon permit.

And at the same time, we've talked a lot about Cote d-Ivoire and its prospectivity. And with the new mining code now being promulgated, we're way down the road in signing off on the new set of regulations. We've, as Randgold, have always been counterintuitive in the way we manage our exploration. Whilst everyone else is sweating, we've stepped on the gas. We just put in another 10 applications for permits in Ivory Coast. And we're pretty comfortable that [indiscernible] will be quite high.

Moving across to Central Africa, and the DRC, not surprising, quite a challenging quarter, as we commissioned the mine. But still, a great achievement by the team, to get that mine up to the 20,000 ton run rate, within three months. And we're still on track in our gold production, having, as I said, moved some of it into Q1. Q2 looks a little light, according to some analysts, but certainly in line with our guidance of 550,000 ounces for this year.

And right now, when you look at the July results, we're comfortable with that run rate. The key is that the mine has got to deliver on that operational focus, as William, and John and the team have got management to do. And we're excited about Kibali.

Our guidance, 550,000 ounces, at around the same, $550 an ounce, is something we feel comfortable about achieving here, with all the caveats that generally come with mining, I must add.

The numbers speak for themselves. It's been a fantastic experience, Kibali, as we watched the team really deliver, in true Randgold fashion, ramp up from 10,000 tons to 20,000 tones in three months. We have a bit of headroom to unlock on the recoveries. But even that is starting to look better.

We are dealing with two streams, one stream now fully commissioned and operational on fresh sulfide, the other stream commissioned on sulfide, but it's going to deal with a large percentage of transition ore, way out until early -- I mean late 2016, early 2017. We've still got quite a bit to process. So there will be some variations in the one stream. The other stream is pretty steady and focused on sulfide.

What we did do this quarter two is we changed out the old crusher on the outside circuit, as we converted it into a hard rock circuit, and introduced a jaw crusher on that circuit.

As far as the underground mine development -- and now I just remind you that Kibali is only completed in 2017, when we eventually deliver on the underground mine. That underground development is ahead of plan. The shaft is ahead of plan. The underground declines are ahead of plan. And we're now developing our first stopes underground, on the 5,000 load, and we expect to start mining in quarter four.

And we're very proud of these set of photographs. This is our first hydropower station in [indiscernible]. It's not a small hydropower station. It's working. And hats off to the team, to get it up and running. And we've already started the construction of the second one. And we expect to commission another every year, for the next three years.

And the relocation project at Kibali is coming to an end. The last shoe to drop is the completion of the Catholic church. We've now just put the roof on, and we expect to do that this quarter. Otherwise, really the focus now is on transferring the management of what has become a sizable metropolitan area to the local authorities.

Staying with Kibali, with the ramp-up of the new mine, with the plant setting down, we're mindful that we're chewing away at our stockpile. We've come up, as I said, to 20,000 tons a day fairly quickly. One of the big focuses, from our side, is to make sure that we build some flexibility into it in the early phases of the mine, until we get the full benefit of the underground development, in 2017.

So we've been fast checking the Gorumbwa feasibility study. It's an old Sakima underground mine, which we've delineated about 300,000 to 400,000 ounces in an open pit. And we have to get that done by the end of the year.

And then moving back to West Africa and the Massawa project, we're really wrestling with this project. It's a very interesting project. We've recently -- certainly stacked up this project to some of the other projects that were put on the -- into the market for sale, recently. We're comfortable that we still -- this project still trumps the value.

We've got a bit of work to do, to really get our head around how we bank particularly the central zone, high grade part of the ore body. And we've got some test work ongoing as well, to really fine tune the reduction in volume through the float program.

Again, we'll keep you posted on this. We have no key rush. We've met with the authorities in Senegal, updated them on our plans. Of course, any power infrastructure rollout would benefit this mine. But I think we've still got some way to go, before we can categorically say that's the way we're going to develop it or that's the way somebody else will develop it.

On the expiration side, this time of the year we hit the rainy season in West Africa. It's a time of reflection and review, building up to our annual strategy workshop for exploration, which is always in September. And it's -- we will be working up towards that. Our Exploration Manager, Paul Harvey, has given us notice that he's planning to leave us at the end of this month. We've been working with him since he made that decision. And he's here with me across the table. I say, thanks, Paul, for all your hard work.

We've got a -- and he's been working with me -- been with us for 14 years. He's been the leader of the team for 10. It's tough work out there, in sub-Saharan in Africa, and he feels it's time to hand the baton over. In the interim, Joe Holliday has taken on that job from Paul. He's Paul's [indiscernible]. He'll act as -- in that position, up until the time we get the team together in September, on the strategy. And then we'll decide just how our business is going to operate and the leadership structure going to work out.

And it's exactly the same we did when Dave Reading left us and Paul stepped into that position.

I'm also using the opportunity to shake up the exploration team and just refocus some of our business units. It's a period where a lot of geos are again flipping hamburgers.

And so there's a lot of good people without a job. And it's a good time to just scout around and see if we've got the right funds and [indiscernible] in our organization. And it's something we do from time to time, across the Group.

And as is traditional, the scorecard of how we're doing again in the market. I would just add that this forecast is becoming more and more challenging every quarter because the industry and our peer group particularly have, as you know, written down large chunks of money, like some $58 billion in impairments over the last year. And we haven't. So on an earnings basis, we're still depreciating our full capital. And so it's harder to deliver value -- or perceived value. We're still up there in the -- with the frontrunners.

And in the inset, our production profile is something pretty well identical to our five-year plan we shared with you five years ago. And that makes us very motivated to continue to focus on what we've always done. And that is creating value for all our stakeholders, shareholders and governments and communities and our own workers alike.

So with that, thanks for your interest and attention. And we'd be delighted to take any questions. We've got Joe]and Paul and Graham and others around the table to help me field any of the questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) The first question comes from the line of Josh Wolfson from Dundee Capital Markets. Please go ahead.

Josh Wolfson - Dundee Capital Markets

Just moving onto some of the questions. For Kibali, looking at some of the per ton costs, it seemed like things were a little bit steady this quarter at around, maybe, $50 per ton. Should we expect that to increase going forward as a greater proportion of sulfide material? Or will that stay around that level?

Mark Bristow

I'm not following you. Josh, are you talking about Kibali now?

Josh Wolfson - Dundee Capital Markets

Yes.

Mark Bristow

And you're talking about processing or all-in costs?

Josh Wolfson - Dundee Capital Markets

All in.

Mark Bristow

Okay.

Josh Wolfson - Dundee Capital Markets

Processing would be very helpful, too.

Mark Bristow

Yes. Processing was high this quarter. So these costs aren't normal. We expect to finish the year on about $550 an ounce. And the reason we sort of blew out this quarter is really because of -- it's not a quarter you should use for anything because it's a commissioning quarter.

We did a lot of tie-in work, we tied in the secondary and tertiary crushers. We changed our crushers on the front-end of the plant, from rolled offsite crushers to jaw crushers. We were -- we've dealt with a lot of upgrades on managing the spillage. We commissioned the coarse ore stockpile in the circuit. So there is a very -- it was a lot -- as we guided it's a commissioning quarter.

So I would -- I wouldn't say that this is a quarter that you would -- our processing costs, we expect to get down to -- once we get the full benefits of the hydro scheme down to around $15, Graham?

Graham Shuttleworth

Yes.

Mark Bristow

And mining is about $3, thereabouts, $3.50. And underground mining, well, with the backfill -- but we've got some way to go for that, before it impacts. And $3.50, you take the strip ratio, we're nowhere near -- $50 is high, it makes -- it's not a good number for me in my head. So you should forget it, if I was you.

Josh Wolfson - Dundee Capital Markets

Okay. So then in terms, I guess, of where you expect to be towards the end of the year is that steady state, five times strip ratio, 3 to 3.2 grams--?

Mark Bristow

We're looking six -- we're looking at 6.6 million to 6.8 million tons a year run rate in the numbers that I've given you.

Josh Wolfson - Dundee Capital Markets

Okay. And then at Tongon, just looking at some of the resource upside. I guess first off with the satellite deposits, that 1.58 gram per ton material at $1,000, is that something that you're envisioning that will be economic and be in the reserve? Or that's just upside if everything is depleted at the north and south pit?

Mark Bristow

No, it's very much -- we feed some of that lower stuff ore -- grade ore as we speak. And it's all about strip ratio. But what we've said to the mine management, we've got six years life. We're pretty sure we're going to pick that up with the work we're doing around the pits at the moment.

At the same time, we've proved to ourselves we can make money at two grams. We've got low cost power and some of these satellites are very shallow oxide. So that works. But having said that, we've got to prove it. Our challenge there, Josh, is to get Tongon up to 10 years. It's got six years life, we pay back the capital next year. If we can add another four years, it's a really good business for us. It's got very low sustaining capital. It's a well-run operation.

Josh Wolfson - Dundee Capital Markets

Okay. And then -- I guess similar lines to that for Gounkoto. Is the current plan -- I guess, are you leaning more towards the open pit scenario or open put and underground combination scenario, even though the gold price requirements are a little bit above the Company's typical threshold?

Mark Bristow

No. We're just doing good, sound commercial analysis. We'll make the decision -- the appropriate decision on the best returns possible. And that's what we -- I think the message here is, that's the way we run this company. We do these things properly. We're not just trying to max out on grade or tonnage or ounces or anything in one particular order. We really do drive our business.

And our big debate amongst the team at the moment is, when you've paid off the capital of a mine, do you use different parameters to when you are making that initial development to -- that initial investment to get the capital back? And that's our debate. And we've become quite skilled at that open pit, underground interface. And the big drivers in that decision are risk because everyone goes for the open pit, but we can show you that the underground inflation cost pressures are much lower than an open pit where you are beholden on the diesel price and yellow plant, equipment inflation.

So we are mindful of -- or we've learned a lot about these interfaces, we have three underground mines in our stable, or highly mechanized. And we've been through that interface analysis a couple of times now. And that's what we're busy doing in Gounkoto. And of course, the exploration team's still drilling Gounkoto, we're still working on some of these -- particularly the job zone. We've got -- we're by no means watertight on our model yet.

And a small variation in grade changes the whole thinking in that. And if we get -- we're busy now with a line of deeper holes between -- there's a gap in the $1,000 pit and the $1,210 pit. If you get four out of five bore holes giving good results, you'll change the pit profile and the cost quite quickly.

Josh Wolfson - Dundee Capital Markets

Okay, that sounds…

Mark Bristow

It's really work in progress. But we're just keeping the market informed.

Josh Wolfson - Dundee Capital Markets

It's a breath of fresh air to see hard work going in before the actual development decision.

Mark Bristow

Yes, you see, we've always tried to drill out the ore bodies properly so that we get the stuff more than half right.

Graham Shuttleworth

And means we're doing a lot of work on Massawa.

Mark Bristow

Yes, and Graham just points out, that's why we're spending so much time on Massawa. And I think the point that we're making -- our big debate now in Massawa is how much money would we have to spend to bank it properly? To be sure of the grade. And that's really the big debate in our team. And whether we go and just drill out a pattern or do we drill it in a phased way, just testing the impact. And that's the debate. And Rod and his team are really wrestling with that.

Josh Wolfson - Dundee Capital Markets

Okay. And just last question on the cash and debt situation. I guess you had contemplated drawing down, depending on what the gold price would be in the second quarter. Going forward, is your motivation going to be to pay down that debt as quickly as possible? Or is there still some uncertainty with VAT timing and cash taxes and so forth that could delay you paying that down in the second half of the year?

Mark Bristow

As you know, we've drawn on the RCF. As of today, we're -- have no (background noise) any more. We haven't paid it back yet but we've got more cash than what we need to pay it back. As Kibali's settled in nicely and it's really -- run-rate wise, July had a good month. And we can see the numbers, we are building cash. If they continue, both Loulo and Kibali at these levels, we're very comfortable that we will get back to be able to settle that -- to clean up on the RCF.

I think for us it's been an interesting exercise. I think we're very clear in our head that we want to keep facilities in place. I think for our banking syndicate, we've shown that we manage our business well.

The big challenge, as you pointed to, is the VAT issue because there's about -- a bit more than $200 million of VAT owing -- that flows back through to Randgold. On the Kibali side, on the DRC side, we've made good progress on that, albeit in that we have at least stopped it from getting bigger. And we've got an agreement on how we can eke it back up on offsets.

At the same time, the government is mindful that it needs to find a way to reinvest that and, as we've said every time we've engaged with the market, we've never had any denial of that. Everyone's working on that.

On the Mali side, it's grown a little bit, the VAT credit. But at the same time, the Malians have now announced the going-forward structure of VAT and trading it back, which is really going to be managed through an independent bank account and not through the treasury. So we're comfortable that they -- and they're taking it very seriously.

The next shoe to drop is to finalize the funding on being able to recoup the VAT -- historical VAT. And the debate is whether they can find enough funds and get approval to pay back the whole lot or do it in a series of steps. And we know that they've deeply engaged with the IMF and their various donors, or funders. But we are engaged in constant communication with them. And again, we've -- there's no denial, there's an acceptance of that liability.

Josh Wolfson - Dundee Capital Markets

Okay, maybe just one last part, just really to what you're saying. I think on the UK presentation you had mentioned something related to DRC gold shipment delays because of something related to taxes or fees. Could you just elaborate on that a tiny bit?

Mark Bristow

Yes, we -- as we do from time to time, in Africa, you get people who become overly zealous on the collection of things that are not provided for in our investment agreements. And we had a standoff over one of these incidents from one of the [indiscernible] that are charged with collecting royalties, a royalty. It's an export type royalty, an export duty.

Anyway, we resolved that but again, we don't -- we've never been a company that facilitates anything. We stick to the rule of the law and our agreements. And so it's -- that discussion resulted in a small amount of gold not being shipped at the end of the quarter.

Operator

Thank you. And the next question comes the line of Howard Flinker from Flinker & Company. Please go ahead.

Howie Flinker - Flinker & Company

You guys did a very nice job collecting those charitable fees on your bike ride. Congratulations to everybody (multiple speakers).

Mark Bristow

Thank you. Yes. No, it was great fun, too.

Howie Flinker - Flinker & Company

I'll bet. What is that large -- two questions. Is that large receivable the VAT or is it just something that has slightly slowed payment to you?

Unidentified Company Representative

Yes, so Howie, it's frankly the VAT at -- in Mali as it relates to Loulo-Gounkoto and Morila.

Howie Flinker - Flinker & Company

Do they have the money to pay you or is it going to be slow because they're stretched fiscally?

Mark Bristow

They're already looking for the money, Howie.

Unidentified Company Representative

Yes, they're obviously -- Mali's been through a pretty difficult time as you can imagine with the conflict and the various other challenges. And so cash is tight. But they are busy engaged in a discussion with the IMF on increasing their budget to cater for these funds that -- amounts that are outstanding. But as Mark has alluded to earlier on in the call, there's no debate as to whether they're owing. It's just a matter of how they find the cash to repay us.

Howie Flinker - Flinker & Company

All right. And one final comment.

Unidentified Company Representative

Sorry, and Howie, I would, sorry, I would just add one more point to that. And that is, we have the right in our convention to offset taxes -- these type of taxes against other taxes that are owing. So one of the mechanisms we have to reclaim this VAT is by offsetting it against the corporate tax that's payable. So particularly in the case of Loulo.

And obviously as the mine continues to produce, we will continue to offset. And there's a mechanism through -- over a period of years where we would be able to get this back.

And that's why some of the receivable is sitting in short term and some of its sitting in long term. Because (multiple speakers) there's portion of it that -- yes, there's a portion of it that we recognize won't come back within a year.

Howie Flinker - Flinker & Company

And I'll make one comment, which is really a favorable comment even though it may not start off that way. Your return on capital annualized is about 9% currently, at the current low price of -- or the present low price of gold. Amazingly, that stands out in the industry. Most people in the industry would dream of achieving the modest 9%.

That leads me to believe that it'll be a long time before these people get money to develop really large producing mines. Even if the price of gold were $1,600 or $1,700, they could not justify spending the money on a mine. That bodes well for the products you product, namely gold, because a reduction of -- or constriction of supply points to a much higher price. And then your returns will come back to where they used to be.

Mark Bristow

Yes, but, Howie, thank you very much for that backhanded compliment. But the point I would make to you is, if you roll our business out, we don't -- our capital is coming down at -- very steeply. So that return on capital grows over the next couple of years. And that's the key. This return on capital is really a longer-term modeled equation, rather than a snapshot.

Howie Flinker - Flinker & Company

Agreed.

Mark Bristow

And right now, there's a lot of capital being delivered into our balance sheet because of the Kibali commissioning, which wasn't there last quarter. So --

Howie Flinker - Flinker & Company

You and I are discussing two different things.

Mark Bristow

I don't need a higher gold price to deliver growth in my return on capital.

Howie Flinker - Flinker & Company

That's right. But you're talking about plant,; I'm talking about the capital that rests on the balance sheet. It's there, it's not going away. But also (Multiple Speakers).

Mark Bristow

So I'm going to deliver more ounces against that capital, Howie.

Howie Flinker - Flinker & Company

Exactly. And it also says that you have the wherewithal to find or finance or buy a new project that Jones and Smith Mining or American Barrick -- or Barrick Resources, cannot afford to buy. So while the capital is only returning 9% now, that does not mean that you will not be able to capitalize on an opportunity three days from now, three months from now, three years from now, when others cannot. So that bodes really well for your next five years.

Mark Bristow

I'll take -- basically after some persuasion, I'll take it as a compliment.

Howie Flinker - Flinker & Company

You can. You can.

Mark Bristow

I still think you're low-balling us.

Howie Flinker - Flinker & Company

What's that?

Mark Bristow

I said, I still think you're low-balling us.

Howie Flinker - Flinker & Company

It could be. But I remember when the return on capital was in the low-20s. Why couldn't it return? Why couldn't it go back there?

Mark Bristow

[Indiscernible].

Operator

Thank you. And the next question comes from the line of Tanya Jakusconek from Scotiabank. Please go ahead.

Tanya Jakusconek - Scotia Bank

Just I wanted to talk about Kibali, if I could, Mark. I just wanted to understand, what did the recovery do in the month of July?

Mark Bristow

Well, it went from 90% to 71%.

Tanya Jakusconek - Scotia Bank

In the month of July?

Mark Bristow

Oh July, it's back up around 80%.

Tanya Jakusconek - Scotia Bank

Okay, so we moved back up there. Okay.

Mark Bristow

Yes, we've got to have this, the long -- remember, Tanya, the Kibali's sulfide circuit is -- at an optimum level is 86% because we made a very specific decision not to re-treat the tailings because of the metallurgy of the ore. So the whole nameplate is designed around 86% recovery. There will be periods where it's slightly below and periods when we treat -- our oxide always will be slightly above.

But it's -- because we don't -- the tailings, the floatation tailings don't get treated with cyanide, and we discharge it into an unlined tailings dam. And in fact, most of that goes down the mine as backfill.

Tanya Jakusconek - Scotia Bank

Okay. And maybe just for my understanding from the mining standpoint, from today until 2017 when we're fully underground, I understand we have the oxide circuit, the sulfide circuit, we're going to be putting transitional ore through, we've got the stockpile, we've got the open pit. We're getting to the underground stope in Q4. How does all of this transition through 2015 and 2016 in terms of areas you're drawing from? So I can understand where the ore's coming from. That's my first question.

And then secondly, where's my -- the ventilation, how's the ventilation coming?

Mark Bristow

Yes, I think that's the problem with some of the analysts who try to mine the mine. And it gets everyone in a tight spot. We don't --

Tanya Jakusconek - Scotia Bank

I'm not trying to mine it, I'm just trying to understand it.

Mark Bristow

We don't allow you to mine our mines.

Tanya Jakusconek - Scotia Bank

Oh, I don't want to mine your mine.

Mark Bristow

The driver now is that we mine at a -- ore tons from underground are mined at a rate higher -- quite high out to 2018 at around 5.4 million to 6 million tons a year. We build up the underground tonnage, we're planning a modest 600,000 tons next year and then 1.2 million and then 2 million and then we flatten out in 2019 at 3.5 million tons per year from underground.

And then we manage those -- the feed into the plant at a rate of around 6.2 million to 6.8 million tons a year. With -- and manage the grade as well because as we go -- we stop open pit mining in 2023, under the current plan. Because we've never presented a model that has anything other than proven reserves in our life of mine plan. But we're still producing -- we are over 550,000 ounces in 2026 and 2027, just from underground, because the grades are sitting at a relatively high grade.

So that's really the way we plan to manage this operation. And of course, every open pit we deliver, like Gorumbwa, which is not in this plan at the moment, and another couple of hundred thousand ounces changes the way we manage our feed profile. And the focus is to deliver 600,000 ounces out to 2017, around 600,000 ounces, the guidance then is we step up to around 650,000. And we stay above that way out to around 2023.

So -- and total cash cost at this stage, we're sitting in the -- most of that period, sitting around $550 to $600 an ounce.

Tanya Jakusconek - Scotia Bank

So is it fair to say that this transitional ore, then, will stay with us until 2017 until we go fully to the 3.5 million tons from the underground in 2018?

Mark Bristow

Yes, we have a transitional ore -- and remember, this transitional ore will be all over the place, as it has been this last quarter for a while. And slowly it'll become more what we call soft sulfide, which is easier to process.

The very oxidized transitional ore is giving us very good recoveries. So the point about transitional ore is its variable. But we also have already improved the way we operate and we do -- we've got these -- at the ROM pad, we've got these finger -- we manage it on these big fingers, we blend it, we monitor the metallurgy and the [indiscernible] and we feed it in the plant.

So we know, more or less, how it's going to behave. And we manage, optimize the reagents and that. So -- we're very nimble in dealing with it.

Tanya Jakusconek - Scotia Bank

Are we always going to have some sort of sizeable stockpile on surface?

Mark Bristow

Now the mine has come up so quickly to design that -- you will have seen in our presentation, we're jumping around with some additional flexibility with open pits.

We're getting -- we're under pressure on feed. We're not right now, but we are eating that stockpile very quickly. And so we're mindful -- and that's the right way to run a mine. (Multiple speakers)

Unidentified Company Representative

At a design capacity of 7.2 million tons, we're running --

Mark Bristow

We've never fed it.

Unidentified Company Representative

6.8 million, so yes, Tanya, it's unlikely that we will have a lot of stockpile (multiple speakers).

Tanya Jakusconek - Scotia Bank

Yes, okay. All right, I think I have an idea of how the mining is working. What about the ventilation? The tiny little picture -- can't really see much in the tiny little pictures. But how's our ventilation coming?

Mark Bristow

We're still in the grass roots level, Tanya. We've got -- the ventilation's in good shape, it's in a part of our plans. The key thing, if you want to ask a tight question, ask about backfill. Because these stopes] we're going into, like the very wide stopes in Yalea are all wide stopes. So the backfill part is our critical part. Ventilation is definitely not something that worries us at the moment.

Unidentified Company Representative

Nice thing about Kibali is it's got that vertical shaft.

Mark Bristow

Vertical shaft.

Unidentified Company Representative

So right from the word go, you get very good ventilation because you've got the declines and the vertical.

Tanya Jakusconek - Scotia Bank

No, I'm just trying.

Mark Bristow

So the backfill and the bore holes down to distribute the backfill are now critical parts.

Tanya Jakusconek - Scotia Bank

Okay. We'll follow it along as you guys go along.

Mark Bristow

Sure.

Operator

Thank you, we currently have no more questions coming through. (Operator Instructions). We have no further questions so I will hand back to your host to conclude today's conference. Thank you.

Mark Bristow

Thank you very much, Bridgette and thank you, everyone, for making the time. We know it's summertime and everyone has got other things to do this time of the day but thank you and particularly to the London folk who pitched at our presentation. We appreciate your time. And again if there's anyone who has any follow-up questions after this call, you know our numbers. You're absolutely welcome to call, send us an email or just post the question on our website and we'll get back to you. Thanks very much.

Operator

Ladies and gentlemen, thank you for joining this call. You may now disconnect your line.

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