B2Gold Corp. (BTG) CEO Clive Johnson on Q1 2020 Results - Earnings Call Transcript

B2Gold Corp (NYSE:BTG) Q1 2020 Earnings Conference Call May 6, 2020 1:00 PM ET

Corporate Participants

Clive Johnson - President and CEO

Mike Cinnamond - Senior VP of Finance and CFO

Bill Lytle - SVP of Operation

Tom Garagan - SVP of Exploration

Ian MacLean - VP of IR

Conference Call Participants

Ovais Habib - Scotiabank

Geordie Mark - Haywood Securities

Chris Thompson - PI Financial Corp

Joshua Wolfson - RBC Capital Markets

Carey MacRury - Canaccord Genuity

Operator

Good afternoon, ladies and gentlemen. Welcome to B2Gold's First Quarter 2020 Earnings 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

Thank you, operator. Welcome, everyone, to the conference call today to discuss the first quarter 2020 financial results for B2Gold, as the operator said. I'm going to just say a few introductory words, and then I'm going to pass it on to Mike Cinnamond who's going to walk you through the results, the financial results; Bill Lytle is going to come on to give you operations and give you an update on what's happening operationally; and Tom Garagan is going to come on and tell you a little bit about what we're doing in exploration.

In terms of overview, we've had an excellent, very strong quarter again with record gold production, gold revenue, cash flows and record low cash operating costs, $367 an ounce. So we're very happy with the quarter.

And obviously, we're in challenging times these days with the worldwide impact of the COVID-19 virus. We've continued to operate extremely well through the time, and I do like to think it's due in part to jumping on -- the jumping on the seriousness of the virus very early on in Vancouver and in our sites. And also like to think it's because of the experience of our team and our great teams at the mines who have years and years of experience in managing through good times and bad. So we've done a very good job. And partly because of that, we are maintaining our guidance for 2020.

In terms of strategy going forward, it's going to be very much the same. First and foremost, the health and safety of our people is our paramount concern and always our top priority. The other is to maximize -- continue to maximize our profitable gold production and look into our pipeline for growth [Indiscernible] from Bill about the expansion of the Fekola mill and the new fleet that's come on very -- coming on very successfully, and we're on schedule to meet the expansion of the mill by the third quarter of this year.

Also, when we look at our pipeline, the opportunities there at Gramalote, which we'll talk about that, getting back on track there with drilling and a feasibility study that looks below we're looking for the first quarter of 2021 now to have a [Indiscernible] study. And we also, of course, in the pipeline, are things like exploration, which Tom will talk a little bit about, about looking to 20 kilometers north of both Fekola, the Anaconda area and the Cardinal area, which is fairly close to the deposit itself, the Fekola deposit.

So that's really where we are strategically, and we're specially confident in our guidance and our tremendous financial strength, seeing our debt reduction continue. And we're confident enough in our financials to double the dividend, as we just announced yesterday as well.

With that, I'm going to pass it over to Mike Cinnamond, and he'll give you an update, as I said. And then at the end of it all, we'll open it up for questions. So over to you, Mike.

Mike Cinnamond

Thanks, Clive. Just to check, can you hear me okay?

Clive Johnson

I can.

Mike Cinnamond

Yes. Okay. Well, as Clive said, it was a very good first quarter and then quite a few records -- results, records to comment on.

Firstly, on the revenue side, revenue for the quarter was $380 million. That's a quarterly record on sales of 239,000 ounces, and we realized an average price of just under $1,590 an ounce, which is considerably higher, obviously, than the price we budgeted originally at $1,350. Also contributing to the increase against budget was we had approximately 5% more ounces sold in the period than we anticipated.

Moving to production. Production from continuing operations was 251,000 ounces, and that was 17,000 ounces higher than budget, mainly led by Fekola. If you add in our share of our 34% attributable share of Calibre's Nicaraguan production of 14,000 ounces, our total gold production was 265,000 ounces, which is another quarterly production record for the company. If you comment to Caliber's number, we originally -- when we first put out production release, we had estimated Caliber's production at 12,000 ounces, but they've subsequently issued their production results. So it was actually 14,000. So 2,000 ounces higher than total production that we released about a month -- 3 weeks ago.

Just to comment on some of the individual components of that. Fekola led the charge. Fekola had 164,000 ounces, which was 14,000 ounces ahead of budget. It's attributable to several factors, but mainly to the higher than budgeted grade that we mined from phase 4 of the pit. We also had some of the expansion fleet on-site early in the quarter and got that commissioned drilling. We had the benefit of that. And as everyone is aware, this is a year where we're executing the expansion plan, which included optimization of the pit designs in the mine plan and actually going after higher grade earlier in general than originally -- the original feasibility study.

Another point to note, I think, is that given what was going on in the world and the COVID-related risks that were being experienced around the world, we decided to temporarily mine higher grade areas in phase 4 of the Fekola pit. And the idea was to supplement the ore stockpiles there, just in case we ever find ourselves having to go to a stockpile-only scenario. But the good news is we continue to run very well at Fekola and, in fact, all the other sites right through the quarter and right through the initial impacts of the pandemic. And I think Bill is going to comment a bit in a bit more detail on that later after the financial update.

Just moving to Masbate. Masbate had 45,000 ounces. Just still above budget by 1,000 ounces, but pretty much on budget. And that was achieved even though we had lower than budgeted throughput at the mill and lower mining activity than we budgeted. We had higher than budgeted processed grade and recovery. And that's really a function of the timing of getting in to Montana pit. We had budgeted to be in Montana right from the start of the year. In fact, we didn't get in until early February 2020. Consequently, we focused more on Main Vein. And we have better ore grade, better oxide, more tonnage in total ore tonnage in Main Vein than was modeled, and that resulted in a higher than budgeted grade in recovery.

For Otjikoto, 42,000 ounces, 2,000 ounces ahead of budget, just a solid quarter for Otjikoto. We're higher than last year, and that's a function of us being in higher grade ore from the Wolfshag pit in the first quarter of 2020. We didn't get into Wolfshag last year until the second half of the year. So overall, 251,000 ounces from our 3 operating mines and 265,000 total ounces. As I said, a record for the company.

We talk a little bit about cost now. So on a consolidated basis, total cost from all operations, including our share of Calibre is $389 an ounce. If you look at the cash flows from our 3 operating mines that we control, $367 an ounce, and that's a record low of consolidated cash cost per ounce produced in the company. On a per ounce sold, it was $382 an ounce. And then if you look at the -- dig into the components of that, it was led by Fekola. Fekola had a quarterly record low for its operation of $251 per ounce produced or $286 per ounce sold, well below budget by approximately $40 an ounce. And that's predominantly for Fekola, it was due to higher gold production, higher production and the same overall cost led to lower cost per ounce.

I should comment, maybe just one comment on fuel at Fekola. We have seen, obviously, the global fuel prices decline. We didn't experience overall fuel price declines at Fekola yet. We're starting to see them come down now and sort of mirror some of the wider crude price declines. But just so you know why that is, in Mali, the government sets the price for fuel once per month in advance. And also in West Africa, there's a certain fixed price component to fuel. Fuel has to be brought in by court, in our case, declare. And then it ships through one continent over another border into Mali. And so it has a couple of components of press order cost.

And the other thing that we do is we typically keep 2 to almost 3 months fuel inventory on-site and on hand. So we built up those fuel inventories during the fourth quarter of 2019 when costs were a bit higher. And we've been drawing those costs down in Q1 as we utilize that fuel. So overall, fuel cost didn't -- we didn't see -- experience decline in fuel costs in Mali for the quarter. They were slightly higher than budget, but we are starting to see those fuel price drop as we move forward.

Masbate, cost per ounce, $722 an ounce. Again, significantly under budget by just over $60 an ounce. Favorable budget variances were a function of cost savings because of lower mine tonnage from Montana and less waste stripping activity and also the temporary suspension of mining activities late in March, when we had the shutdown for a week or so due to disruptions in the fuel supply caused by COVID-19. And as we announced, we had the fleet up and running again very quickly. I should say, when we shut down, we didn't see milling operations, only mining activity. And we got it up and running again very quickly on the mines, up and running again now. We also did see this as value. We saw lower than budgeted fuel prices. Actual unit prices, they flowed through quicker to that site.

In Otjikoto, $441 an ounce, which again $64 under budget. Marginally higher production than budget, but really the lower costs were a function of lower fuel costs for both diesel and HFO, lower reagent costs, and a weaker than budgeted Namibian dollar. We saw the rand plummet in March and Namibian dollar followed. We probably had foreign exchange saving of somewhere around $2 million just for labor in March due to that decline in the currency.

And just a comment on all-in sustaining costs. $721 an ounce consolidated, $695 from our 3 operating mines and $721 if you include our share -- our estimated share of Caliber’s cost. And from our point of view, our operating mines were $110 an ounce, lower than budgeted. And that's a function of the lower cash cost per ounce. It's approximately $50. And then really, the other component is timing of capital expenditures. We did see some significant capital expenditure underages at several of the sites and also slightly lower exploration costs than anticipated due to the accessibility of some sites later in March. But for the year, we expect those to reverse. And overall, just a comment on CapEx generally for the year. We're still budgeting the full CapEx that we've seen for the total year. We haven't changed our guidance or our budgeted number there.

Let me comment on overall guidance, production guidance. We had guided 1 million to 1.55 million consolidated guidance for the year. And that includes our attributable share of Calibre between 45,000 and 50,000 ounces -- 45,000 and 55,000 ounces. And Calibre announced late in March that they suspended operations in Nicaragua to proactively manage any COVID-19 related issues there. And it's not really -- it’s not clear at this point when Nicaraguan ounce may come back up and running again. However, given that we're 14,000 ounces ahead -- or sorry, 17,000 ounces ahead from our own mines after -- already in Q1, we retain our consolidated production guidance as we think we can cover any shortfall that might come if Calibre is not able to get its operations up and running in the near term.

And on the cash cost and all-in sustaining cost, just to remind, we're maintaining the same guidance, $415 to $455 per ounce cash cost and $780 to $820 all-in sustaining costs.

A couple of comments maybe on the operations overall. Fekola’s expansion is going well. And Bill -- I think after this segment, Bill is going to give you a bit more detail on that. So I'll leave that to him to give you the overall picture. Also in Fekola Solar, we did announce that we were slowing down the solar. We temporarily halted the activity there just to allow us to better prepare for any COVID-related shift changes and people management at Fekola. So that is temporarily suspended. But we expect that once we start that again, we'll be able to have that up and running and completed within 6 months of starting again.

Otjikoto, just to remind you, the Board has approved the development of Wolfshag underground, and that's portal development expected in Q3 2020.

Gramalote, Bill is going to give you an update on where we are there. But just to comment to you that we had an obligation to sole fund $13.9 million in order to earn our way back to 50-50 in the joint venture and to maintain our position as manager. And by the end of quarter 1, we sole funded $12.7 million. So we're almost back to that. We've almost achieved that $13.9 million in sole funding amount by the end of the quarter.And maybe just a general comment too on fuel hedging. We've got a few questions on that. And fuel hedging, we've always had a -- certainly for the last few years, we've had a fuel hedging program. Our goal is typically to have 50% of 1 year's usage hedged out and then 25% of the following 12 months covered by hedges. At the end of the quarter, we had approximately 40% of our 1-year total hedge and 20% in the next 12 months. We've subsequently -- subsequent to the quarter end, we've actually updated the -- we put on more positions and now we're up to our target of 50% for 1 and 25% for the next -- 50% for the first year and 25% in the next hedged.

We did have -- we did put a bunch of hedges on. We obviously started the year with some in place. So you will see in the income statement there's an unrealized mark-to-market loss above $14 million. The majority of that is fuel, as some of those hedges that we put on in earlier periods were hit by the decline in fuel prices. But overall, because our hedging goal is to never be more than 50%, we never overextend ourselves and not benefiting from fuel price declines.

Okay. Just a couple of comments maybe on the income statement. You see interest in financing expense significantly lower this year than last, and that's a function of us having paid down $200 million in debt last year and continuing to do so this year. We did announce earlier -- in early April that we had, as a preemptive measure, drawn down $250 million on our revolver. That's money that was purely precautionary. That was money that you don't need for operations or we don't have intended for any other purpose right now. It was just precautionary, given the sort of economic environment that we saw around the world and still see. And that money was just reinvested and is sitting there. It is our intention overall as we move through the year to keep monitoring that cash position. And we expect to be probably a net cash positive position sometime later in this quarter and certainly have the ability at some point during the year to be able to repay that debt if we see that the economic environment has settled a little bit and there's easier movement of goods and services around the world.

Also comments on the current income taxes, $63 million, quite a big jump from the prior year quarter of $25 million. That's a function of more profitable operations, especially at Fekola and much higher gold prices that are primary driver for that. In that total was $47 million for Fekola, $37 million of it is for current income taxes and then $10 million is the priority dividend. So that's that first 10% interest that the government of Mali own in Fekola operations and that's reflected as a tax, just to remind you of that.

I want to comment now, a few comments on -- sorry, maybe just a comment on EPS, too. So when you put all the results together and what do we get? On a GAAP basis, we have EPS of $0.07 per share and an adjusted EPS, taking out some of the large noncash items, we came up to $0.10 per share.

On the cash flow. Another quarterly record to highlight, $216 million in operating cash flows from operations. That includes as well any working capital movements. That equates to 21% -- $0.21 per share of operating cash flow. Record operating cash flows. And I should say as well as what we saw -- as certainly later in the third month -- or the last month of the quarter in March, as individual countries were impacted by changes in airline schedules or international flights being canceled or banned, it certainly got more difficult to ship gold from sites. But we were successful at all our sites in being able to continue to do that using our own or shared charters with other companies where needed. So we've continue to be able to ship gold and also our refinery, our refiners who run refinery in South Africa and Metalor in Switzerland, they've continued operations uninterrupted as well. So we haven't had any overall issues in being able to ship gold or refined product and then have it available for sale. And we've been able to take advantage of these higher gold prices.

One other comment on the operating cash flow. We guided for the year that we expected at $1,500 golds for the full year. We thought operating cash flows would be somewhere around $700 million. If we see gold stay where it is right now, around the $1,700 per ounce mark for the balance of the year, we expect operating cash flows to be somewhere north of $800 million for the year.

Here are the comments just on some items in the cash flow. So $25 million, we repaid them the revolver. That was pre us doing that preemptive draw of $250 million in early April. And like I said, it was always our intention to pay down that outstanding revolver debt of $200 million this year. And we currently have $425 million drawn with that preemptive draw. Again, like I said, we do expect to be generating enough cash flow that we’d be in cash positive territory by the end of the current quarter. And certainly, our goal would be to monitor this and hopefully pay down in paramount to that debt later in the year.

Post -- dividend, just to comment. We did pay our second quarterly dividend of $0.01 per share. We started our B2 deposits first-ever dividend, quarterly dividend in the last quarter of 2019 at $0.01 per share. We repeated that in the first quarter for a cost of $10 million. And as Clive mentioned, we have announced that we're doubling our quarterly dividend from USD 0.01 to USD 0.02 per share, and we expect to declare the first $0.02 dividend later in June.

Cash from -- flow from investing activities. We spent $112 million on our investing activity. And as I said, we -- when I was discussing the all-in cost per share, sustaining cost per share, we have had some CapEx timing differences. There were some CapEx that wasn't in accredited sites, mainly some prestrips to mobile that we're planning and some prestrip development in, for example, in Namibia, the Namport connection. Though we didn't get those things done in Q1 as we'd originally budgeted, but we are expecting that they will happen later in the year. So really, those CapEx are just timing differences.

I should comment, too, that I think, as we mentioned in our news release, we entered into a deal with West African Resources to sell our interest in the Toega deposit, post 3 of them, for total proceeds to us over time of $45 million plus a small royalty.

And with that, I guess we ended the period with 200 -- just under $208 million in cash and very healthy situation, cash flow and liquidity wise, like I said, and looking forward to continue strong operations from the balance of the year. And I think that winds up. Those are the main items that I was planning to comment on.

Clive Johnson

Thanks, Mike. Bill, can you give us a quick rundown on what's happening in operations?

Bill Lytle

Yes. How do you hear me, Clive? Mike was static in and out when he was talking.

Clive Johnson

There was a bit of static when Mike was talking, but there's a bit of static now. But go ahead, you sound pretty clear to me.

Bill Lytle

Okay. So very quickly on the operations. Mike covered a lot of the stuff, so I'm going to keep it relatively short. I guess the key takeaways that I want to speak about are: number one, we do continue to maintain guidance at all of our operating mines and our overall guidance for the year, as Mike said, and [Indiscernible] significantly impacted our operations, it hasn't impacted -- significantly impacted any of our operations. Also, B2Gold, very early on got in front of the pandemic. Early on in February, we made the decision that we were going to cease all necessary -- all unnecessary travel and have a stay at home order placed, and that has helped in us being successful in implementing our operational requirements.

Just going through the operation [Indiscernible] at Fekola in Mali. Mali has had a restriction on the country since the beginning of April, and they've indicated that [Indiscernible]. An so we've been able to continue to operate and been able to continue to receive [Indiscernible] indicated we have expedited mining in phase 4, so we currently have a very large stockpile to get us through not only the second quarter but also through the second half of the year. So we continue to maintain our guidance at 600,000 to 620,000 ounces for the year.

On the expansion. The expansion is kind of 3 parts. It's a full enterprise expansion. On the mining side, the mining fleet was ordered in June of last year, June of 2019 and at the beginning of Q1 2020, ahead of the pandemic. That mining fleet has been put into operation. And as I already noted, we've advanced the mining rate and have a very large stockpile to support [Indiscernible] expansion from 6 million to 7.5 million tonnes per annum. That expansion continues to be on schedule for completion and commissioning at the end of Q3 2020. In addition to that, we talked about doing a double tailings lift ahead of the rainy season for 2020. That project is almost finished, more than 90% complete now, and we anticipate that [Indiscernible] 2020. That will give us capacity into 2023. So that will give us a couple of years to design and develop the next lift.

Additionally, as Mike indicated, the solar plant was put on hold. That solar plant expansion was not required to support the expansion of the mill. That expansion was designed to reduce costs. And as Mike indicated, once [Indiscernible] we bring the solar group back in, and we anticipate within 6 months having the solar plant complete and operational.

At Masbate. So Masbate in the Philippines, maintaining guidance of 200,000 to 210,000 ounces for this year. The pandemic has hit the Philippines quite hard with more than 9,000 [Indiscernible] shut down not only international travel, but had a stay-at-home order for the entire population. That has been reduced or lifted a little bit. Now it's a [Indiscernible] as they bring the economy back up. The island of Masbate is -- does not have any cases of COVID-19. And so there [Indiscernible] of bringing our workers back from their self-quarantine and getting back to full strength. Our plan is -- we're currently mining in both Main Vein and the Montana pit and mining at full strength. So we're not changing guidance here for this year as well.

At Otjikoto. Otjikoto early on decided to isolate the country [Indiscernible] first. They are concerned about the issues related to the population living in informal settlements with no power and no water. So they went ahead and did a quarantine for the city of Windhoek in that region as well as all of the Khos Region where most of the population is located. That has been very successful. To date, there's less than 20 cases in Namibia reported. And based on that at last month, [Indiscernible] the government decided to start to release some of the restrictions and the quarantines. And so the Otjikoto mine is currently in the process of ramping back up to full production on the mining site. So there, once again, we maintain guidance for the year and do not see any lasting issues related to COVID-19 at this time.

Just [Indiscernible]. So Gramalote is [Indiscernible] we announced that, when the pandemic broke out, that we decided in consultation with both the community and the government, despite the fact that we were allowed to continue to operate, we made the decision to temporarily suspend exploration. The process there is we were supposed to complete a feasibility study by the end of 2020 and then make a decision in early 2021 with AngloGold. We publicly announced that, that would be delayed until the end of Q1 2021, completion of the feasibility study. So -- and that's due to the fact that we suspended the drilling. But in the meantime, we have continued to develop the feasibility study. The metallurgical testing has been ongoing. We're getting ready to do some work with our feasibility engineer or our mill engineer. And [Indiscernible] the mining design has been ongoing. So on the engineering side, we continue on schedule, and we anticipate within 6 months of us getting back up to full speed that we'll be able to deliver resource into the engineering group. So maybe sometime in the first quarter, maybe a little bit sooner we're seeing what the schedule will be once the drilling gets up and running.

Like I say, for me, it's really -- it's hit and miss on what I'm saying because I can hear a bunch of background noise.

Clive Johnson

Go ahead. You're cutting in and out a bit. Are you done?

Bill Lytle

Yes, I'm done. I was stopping if there was anything you wanted me to add.

Clive Johnson

Okay. No, I think that's good though. Thanks. Just one thing I would add that I meant to mention at the front end. I think one of the keys -- one of the reasons for our success in dealing with COVID and the -- and continuing so well in our operations is our relationships with our employees and government. I think that we pride ourselves, as everyone knows, on our culture of fairness, respect and transparency and the way we treat people. And I think in times like this, the mutual trust we've earned and gained with our employees and the governments in which we work really comes to the forefront. So it's a great cooperation. Our employees have been amazing. And they wanted to work. The unions and our employees wanted to keep working if they could be safe. And the governments and the countries we're in wanted us to keep working if we could be safe.

We have had in the past our critics talking about political risk in the areas that we are in the world, and we understand that. But I think it's important to point out that there's some positive things to be in countries that want you to be there. They want the tax revenue, and they want the good jobs if they could be safe and if you take care of the environment and if you're socially responsible and do the right things and deliver on the promises you make. So sort of the flip side of political risk sometimes is the fact that there are countries in the world that you're a very important part of the economy and you're important part socially and environmentally in what's happening. And I think that's the case for B2Gold. So I think a lot of our success in the normal times is due to that and our success in terms of the crisis and crisis management comes from our vast experience of doing this around the world for years, but it comes from the relationships we have with people.

The governments where we are locally and federally trust us. We built trust relationship both ways with them, and our employees have a high level of trust they are out looking out for their interest. So I think those are some of the keys to our success.

I'd now like to get Tom to give us a quick update on what's happening in terms of exploration. We continue to successfully explore around our mines and are looking for major discoveries, the cheapest ounces are always the ones you find, and we've done a lot of that, and then that continues. So over to you, Tom.

Tom Garagan

Thank you, Clive. Can you all hear me all right?

Clive Johnson

I can hear you well.

Tom Garagan

Okay. Good afternoon or good morning, everybody. Exploration for B2 has continued on at the mine sites at Mali, Masbate and Otjikoto through this time. The -- a lot of our grassroots exploration has been cut back to minimal field work or none at all due to limitations created by COVID, but we hope to get back going in some of those areas later on in the summer.

In terms of exploration of Masbate, we've drilled 7,000 meters out of a 25,000 meter program so far. The focus of the program has been on drilling near the base pits as we see the pits have a great potential to get larger with the higher gold prices or continue to higher gold prices. So we're focusing on the bottom of those pit areas.

At Otjikoto, we've drilled 4,000 meters out of a 14,000-meter budget. The focus on Otjikoto has been to drill [Indiscernible] on Wolfshag as well looking at the underground development coming into the area, we want to see what it looks like going down. We've had success so far in continued mineralization, and now we want to get a better handle on grain with tighter space drilling. We're also doing some grassroots drilling near the mine site on several other parallel sectors we see have potential.

At Fekola, exploration has continued on through these times. So far this year, we've drilled about 5,000 meters of -- sorry, 10,000 meters of diamond drilling over 24,000 meters of RC drilling at the Fekola area. Focus has been mainly on 2 areas in our Mamba area to the north and related parallel structures at Anaconda and Adder. And then we've started to focus a lot more on the Cardinal area. In fact, we're shifting our exploration focus or some of our exploration focus to the Cardinal area. Cardinal area is just a little bit west of the Fekola pit, within 500 meters of the Fekola pit. In fact, an area that were originally planned for some waste area, we've had quite a bit of good success in that area and are starting to define a resource. So we're refocusing the drilling in that area with infill drilling and testing out where the edges of this is to see how big it can get. That will continue for the rest of the year, but we will continue with at least 1 or 2 drills in the Mamba area also.

We also plan to start doing some met testing on the Cardinal ore in the near future. I have no other discussion. Over to you, Clive.

Clive Johnson

Thanks, Tom. Okay. I think operator we'll open it up for questions now.

Question-and-Answer Session

Operator

[Operator Instructions] [Technical Difficulty] And your first question comes from Ovais Habib.

Ovais Habib

Clive, can you hear me?

Clive Johnson

Sure, Ovais.

Ovais Habib

Again, just want to say congrats on a good quarter. And also congrats on being able to maintain your guidance during these unprecedented times.

So Clive, just my first question is on Fekola. Clive, how should we be looking at Fekola in the second half in terms of production and costs? I mean you've got the mill expansion kicking in, in Q3 or at the end of Q3 and you -- do you expect this high-grade coming from phase 4 to continue into the second half as well?

Clive Johnson

Yes. No, I don't think so. I'm going to pass it over to Bill.

Bill Lytle

Yes. No, Ovais, basically the whole concept is we pulled ounces forward to make sure that we had the ounces for Q3 and Q4. So at this time, we're not comfortable in saying that we're going to continue the grade through Q3 and Q4, that we'd like to say that we're going to meet guidance at this time until we know what's going to happen with the mill expansion.

Ovais Habib

Okay. And so I mean, what I'm trying to ask you is like, I mean, is there kind of low-grade stockpile that you guys have on-site that you guys can blend through in Q3 and Q4? Or is it just continuing to go through phase 4 and then into phase 5?

Bill Lytle

Yes, there's a lot of low-grade stockpile on site.

Ovais Habib

Okay. So just -- and then just moving on to Masbate, Bill. Obviously, the oxides at Masbate, I think we've talked about this in the past that they were supposed to end in 2017. And you guys have continued to mine these oxides into this quarter. Are these transition ounces that have turned into oxides or were not tested as oxides? And then do you expect these oxides to continue into the second half?

Clive Johnson

Bill?

Bill Lytle

Yes. There's -- yes, there the question of the day. The answer is, yes, there are some transition oxides, which have turned into oxide. But a lot of it is that we're mining through surface dumps, in some of the stock works from some of the old underground, which have been backfilled with material that's now basically considered ore. And so I can't answer that going forward. It's something that we continue to look at. What I will tell you is that some of it does come as a surprise, as upside, and that we continue to hold our guidance.

Operator

The next question comes from Geordie Mark.

Geordie Mark

Yes. Maybe some questions to Tom first. And in terms of Cardinal, can you give us an idea of reminders, you did mention last time that it was away from [Indiscernible] just a tighter mineralization there and it's more [Indiscernible]?

Clive Johnson

Tom -- you’re kind of breaking it up there, Geordie. But I think I got just a bit about Cardinal, asking about Cardinal. Tom, do you have a comment on that?

Tom Garagan

I couldn't hear Geordie very well. But in general, Cardinal is slightly different from portfolios hosted within a combination of die rates. And I guess you can call them black shales and they -- or mudstones zone or multiple zones associated with very intense alteration, disseminated sulfides, a little bit of copper and occasionally some visible gold. They're definitely a different style zone. They’re more sheer zone related. However, it's been pretty wide space drilled so far. So we're still learning about it. Was that your question, Geordie? I couldn't hear you very well.

Geordie Mark

Yes, that was. And maybe just sort of follow-on for Bill in terms of Fekola mining fleet and mining fleet capacity as you have today. Any thoughts in terms of changing with that mining fleet capacity gold price, where it is changing the effective strip ratio, stockpiling strategies given your bonding capacity that you've instituted?

Tom Garagan

I didn't get that question at all.

Geordie Mark

It’s all right. I was asking about…

Clive Johnson

I might just write these out, and we can take that offline.

Operator

Your next question comes from Chris Thompson.

Chris Thompson

Congratulations on an absolutely stellar quarter. And as I've said, it's really good you guys are holding guidance through a tough period. Just I've got one question. I guess it relates to the Snake deposits, obviously, within reach of Fekola there. Can you give us a sense of where we sit by way of the testing of the economics of these deposits?

Clive Johnson

Well, I guess I would say that, Chris, that we're looking at the saprolite. There's 800,000 ounces in that resource a little over Gram and the saprolite, they’ve just not gotten quite a bit bigger but it appears they’re getting bigger. And now we're getting some very nice hits on the lower -- the meat, as you know, on the sulfide both on Mamba and Anaconda.

So right now, we're waiting to see a bigger dip, to be frank. So I think we would need to -- is this additional feed down the road for Fekola at some point in time in the mill, it's 20 kilometers away, as you know, or is this a stand-alone scenario. So we're really giving Tom the ability here at the time to aggressively drill these multiple targets that we've seen in those sulfides now and find out, one, how big does the saprolite get; and secondly, are we looking at potentially significant deposit in the sulfide or deposits in the sulfides as well. So I would think that as we go through the end of the year and into next year, we're probably going to start getting a bit of a better handle on that. Would you agree -- would you see that here the same, Tom?

Tom Garagan

Yes, Clive. That's pretty good. If I could add to that, we've had multiple hits in the sulfides. And certainly at Mamba, we've now seen at least 2 very good looking continuous zone and mineralization that have a plum. We're working on trying to interpret those plums and with the drilling that we're doing on saprolite, we continue to find other areas of saprolite mineralization. So I would say it's still early stage. And as Clive said, they've given us the chance to try and figure out where it's going and how big it could go before we hand it over -- hand the resource over to the engineers.

Chris Thompson

Great, guys. And just one more quick question maybe just on Masbate. Can you give us a sense of sort of steady-state run rate sort of the split between Main Vein and Montana?

Clive Johnson

Bill?

Bill Lytle

Steady state? Well, it's -- we're kind of changing that right now because as you know, originally, we were projected to be into -- or into Montana in February. And now we've gotten in there now. And so we're actually looking at that right now. So I wouldn't want to come right out and just say what I think the steady state split is going to be for the rest of the year until we get our revised mine plan up and running.

Operator

Your next question comes from Josh Wolfson.

Josh Wolfson

Just a quick question [Technical Difficulty]

Ian MacLean

Yes. Hello, everyone. It's Ian MacLean here. We're obviously having a tough time with the line. [Operator Instructions]

Operator

Your next question comes from Carey MacRury.

Carey MacRury

Can you guys hear me?

Clive Johnson

Yes. I can hear you, Carey.

Carey MacRury

Yes. Okay. So maybe just another question on Fekola for Bill, $251 in the quarter. Is there anything sort of unusual in the quarter that we should expect to reverse in later quarters? And then secondly, any color on the cost, mining versus milling, et cetera, in terms of where you're seeing the productivity?

Bill Lytle

No.

Clive Johnson

No what?

Carey MacRury

And in terms of mining versus milling costs?

Bill Lytle

Yes. Well, no. I mean, certainly, we don't see anything as far as production. I mean, we're basically implement [Indiscernible] we went a little bit faster on phase 4 and a little bit slower on phase 5. We will see some of the capital expenditures that -- which were deferred in Q1 be pushed out. And I think that Mike had already commented on that, that basically we're not adjusting our capital costs down for the year. We're going to stay exactly what -- we're going to stay on budget for that.

Carey MacRury

Okay. Maybe I think the question Geordie was trying to ask was in terms of the mining fleet for the expansion, is that now fully deployed and up and running?

Bill Lytle

I didn't get that. I didn’t get what the question is. I'm sorry.

Clive Johnson

He's asking about the mining fleet. Is it fully up and running now, the new mining fleet?

Bill Lytle

Oh, okay. No. Sorry. I'm really struggling to hear on this line. So the answer is no. Phase 1 of the mining fleet is up and running. Phase 2 is arriving on site right now. We actually, literally, within the last week, have been receiving the next batch of 6040s and 789 trucks.

Operator

I would now like to hand the conference back over to Clive Johnson.

Clive Johnson

Okay. Well, thanks, everybody. Ian, maybe you can talk to whoever's set this call up and see if we can improve it next time or use somebody else. If we can put a man on the moon, we should be able to have an expletive conference call. Okay, thanks, everybody, for your participation. Stay safe. Have a nice day.

Operator

This concludes today's conference call. You may now disconnect.