Fekola to trigger leap in 2018 cash flow, says bullish B2Gold

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B2GOLD forecast average cash flow from operations over the next three years from 2018 of $500m largely owing to Fekola, the Mali gold mining project the Toronto-listed firm commissioned nearly four months early in September.

Commenting in its third quarter production and financial results published earlier today, the company also projected annual gold sales revenues of about $1.2bn and “… a significant increase in free cash flow” which it defined as operating cash flow less investing cash. These estimates were based on a gold price of $1,275/oz.

The $521m Fekola gold project is as transformative as it can get. Once at nameplate production of 400,000 to 410,000 ounces a year, total group production in B2Gold’s 2018 financial year is expected to be 925,000 to 975,000 oz, an increase of 70%. This compares to revised production guidance of 530,000 to 570,000 oz for 2017.

Consolidated projected cash operating costs and all-in sustaining costs (AISC) would be $525 and $800/oz of gold respectively in the 2018 financial year compared to forecast cash operating costs of $610 to $650/oz, and AISC of between $940 to $970/oz for 2017.

As for its future strategy, B2Gold said growth either through brownfield development or the acquisition of near-term gold projects and mines remained on the table. But the immediate aim was to capitalise on Fekola by ramping up production and aggressively exploring the property in order to “… determine the ultimate size of the Fekola deposit”. Results from the 2017 exploration drilling programme at Fekola would be released shortly, it said.

Completed in September, Fekola contributed 6,340 oz of gold to B2Gold’s third quarter production of 135,628 oz. B2Gold also mines gold from the Masbate gold mine in Philippines, and two operations in Nicaragua: La Libertad and El Lion. It also derives gold from Otjikoto in Namibia which it bought through the takeover of Auryx Gold in 2011.

Despite the success of Fekola, B2Gold has had a more difficult operating performance in the nine months of the financial year compared to 2016. Year-to-date cash flow of $129.4m is more than half the cash generated at the same point in the previous financial year, although $120m of last year’s cash was from prepaid sales transactions.

Net income for the nine months ended September came in at $27.1m equal to $0.03/share compared to net income of $30.5m ($0.04/share) in the comparable period of 2016. Adjusted net income was $46.1m ($0.05/share) compared to $96.5m ($0.10/share) for 2016. The decrease in adjusted net income was mainly attributable to lower gold sales revenue and higher operating costs, the company said.

 

2 COMMENTS

  1. Dear Fellow Readers,

    If ever there was a blueprint on how to management a gold mining company, then the management of B2Gold have done just that. Mind you, these are old Bema Gold chaps who learned a hash lesson during the previous downturn and have come-out smelling like roses at second attempt with B2Gold. I am a fan of this company in a big way.

  2. Dear Fellow Readers,

    Your beloved , and often criticised , armchair critic will now offer you a laconic investment thesis on B2Gold.

    SALIENT POINTS

    1. Production growth ( 158Koz/yr (FY12) – 550 (FY16)) drives increasing CF/IC ( Cash flows/Invested Capital) by CAGR 195% , with est FY18 = ±950Koz/yr, THUS VALUE ACCRETIVE GROWTH!
    2. 5yrs avg Return on Invested Capital = > 15%
    3. FY16 OCF/oz production = $715/oz , amongst the highest in the industry from just 4 assets. For comparative basis, Randgold = ±$500/oz
    4. Clearly defined growth strategy comprising both short cycle & long cycle opportunities in its portfolio, which will be internally funded given their low CapEx Intensity.
    5. Q3FY17 total liquidity = $415M , with LT Debt = $473M

    BACKGROUND

    B2GOLD was formed by old Bema Gold crowd, after Bema was acquired by Kinross. It commands a MCap = ±$2,6Bn , for production base of 0,55Moz= FY16, with est FY17 = 530- 570Koz. It is solid & profitable gold miner, with geographically diversified mines namely Masbate , Otjikoto, La Libertad, El Limon and recently commissioned Fekola ( est 345Koz/yr LoM of ). Fekola Mine was built for a mere $587M. Its LoM avg AISC = $609/oz, so highly cash flow generative mine with low gold price at $1200/oz , or even $1000/oz. fekola has 2P = 3,3Moz @2,37 g/t . The attr. 2P = 7,2Moz for all mines.

    CATALYSTS

    1. Well-defined and clear-path production growth, which will be internally funded, to ±950Koz/yr (@ AISC= $800/oz) by FY18
    2. Competent and experienced management which has operated in diverse countries
    3. Demonstrated project delivery capability
    4. Asset portfolio which consists of Cash Flow spinners , which can withstand even low gold prices.

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