B2Gold aims at 950,000 oz gold output as Fekola hits the straps

5
499
B2Gold's Fekola gold project in Mali

THE transformatory impact of B2Gold’s Fekola gold mine in Mali, commissioned last year three months ahead of its original schedule, were in plain view earlier this week as the company forecast a 300,000 ounce jump in annual production in 2018, and a significant fall in all-in sustaining costs (AISC).

The Toronto-listed firm said in its fourth quarter and full-year trading update, published on January 11, that the outlook for 2018 provided for “dramatic production growth”. The expectation is that B2Gold, which also mines in Namibia, Nicaragua and the Philippines, will produce between 910,000 and 950,000 oz of gold.

Cash operating costs and AISC would come in between $505 and $550/oz and between $780 and $830/oz respectively. This compares cash costs of $610 and $650/oz and between $940 and $970/oz respectively in the 2017 financial year. Gold production for the year was put at 630,565 oz – a ninth consecutive year of record output.

The Otjikoto Mine in Namibia also had a record year in 2017, producing an annual record of 191,534 oz of gold exceeding the upper end of its revised production guidance range by 6%, and the top end of its original production guidance range by 9% or some 16,534 oz.

The company has budgeted for exploration of about $52.4m in West Africa and Nicaragua in 2018 of which about $25m will be spent on exploration in Mali, Burkina Faso and Ghana. The total exploration budget for Namibia in 2018 is $5.1m.

“Looking forward, the company will remain focused on continuing its impressive operational and financial performance from existing mines and continue with aggressive exploration and development programs to unlock the potential of its existing portfolio of properties,” the company said in notes to its trading update.

The hope for B2Gold shareholders, however, is that Fekola starts to contribute meaningfully to cash as forecast previously by the company. It said in November that group-wise average cash flow from operations over the next three years from 2018 would be $500m. This is a function largely of the Fekola development.

Cash flow as of the first nine months of the 2017 financial year was $129.4m. More than half had been 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.

5 COMMENTS

  1. Dear Fellow Readers,

    AS you are now aware, that yours truly is a fan of this company. I wrote the following catalyst about this company on the 9MFY17 results announcement:

    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

    BULLISH THESIS :

    All the points above have been confirmed. This company does NOT receive its due spotlight in RSA BUT it is a stunning epitome of “how to manage a gold mining company”. Truly remarkable! Just to illustrate its value creation record ( with more to come!) here are the juicy metrics :

    1. Production Growth ( Koz/yr) : FY13:366Koz ; FY14:384Koz ; FY15:493Koz ; FY16:550Koz ; FY17: 631Koz , and now FY18e : 910-950koz

    Thats a production CAGR = 35% over 5yrs! BEST IN CLASS!

    2. Invested Capital ( $M) : FY13 : $1925M; FY14: $1850M ; FY15:$1817M ; FY16:$2053M ; FY17e: $2070

    CAGR = 15% , thats a FULL 20% less than prod CAGR! So this is an epitome of VALUE ACCRETIVE PRODUCTION GROWTH!

    3. EBITDA ( $M) : FY13: $249M ; FY14 : $131M; FY15: $175M ; FY16:$316M ; FY17e:$350M(TBC at results release)

    The gold price declined 25% from FY12:$1669/oz to FY17:$1250/oz , BUT EBITDA CAGR = 7% mainly because of increased low cost ounces dominating production profile to date. THIS IS ROCKSTAR PERFORMANCE!

    WHAT DOES THE FUTURE HOLD:
    The assets and their AISC are as follows :

    Fekola : Prod = ±400koz/yr @ AISC = $650/oz
    Masbate: Prod = ±190Koz/yr @ AISC = $900/oz
    Otjikoto : Prod = ±160koz/yr @ AISC= $725/oz
    Nicaragua Mines ( La Libertad & El Lion) : Prod = 200Koz/yr @ AISC=$1000/oz

    With plenty of exploration projects and targets. Given the growth story thus far, we can trust that this will be the modus operandi going forward.

    For Net Operating Cash Flows, the readers must just pencil in their preferred gold price ! I have it at sustained $600M/yr for Dividends & Growth funding! The torque/leverage to the gold price is stunning whilst being investable given the superb margins.

    My Valuation Model spits out Equity Value = $7Bn ( current MCap= $3Bn!).

    CONCLUSIONS

    This is my no.1 choice for long-term growth gold company!

      • Dear David,

        I wish to firstly define my approach to mining investing. The longterm value creators in mining (Freeport, Newmont , Southern Copper, RTZ etc) replace their assets timeously and throughout the commodity cycle. It is fundamental & mandatory to success. My long-term timeframe is >10 yrs. A mining co. must demonstrate that R+R of its portfolio assets ( operating mines and advanced exploration projects) can sustain profitable current production volumes for >10yrs WITHOUT a need for external capital. This is so to avoid acquisitions at the less opportune time of the cycle. Agnico Eagle does this exceptionally well, and thats the script that B2Gold is following.

        My forecasted average gold price is $1250/oz. B2Gold total attr. R+R has >7Moz with consisted grades , there is no drop-off or high-grading required. Randgold ( Mcap = ±$9bn) Fcast OpCF = $600/yr BUT at higher gold prod base ( ±1,3 Moz) with better quality orebodies than B2Gold. Randgold Mines have attr.R+R =23Moz. But all the good news , inc Massawa, are already in the price. The same cannot be said by B2Gold.

        B2Gold equity has been ±3Bn , even without Fekola due to high OpCF generation of its assets. Given Fekola achieves its production potential, and maintains its forecasted low AISC, then B2Gold can deliver the similar OpCF = $600/yr from Operating assets. Which will cause a rerating of this excellent gold miner BUT significantly short of the mercurial Randgold. Some say Randgold is ex-growth….I think B2Gold growth is nascent, hence it is my no.1 gold growth pick!

        Please feel free to critique.

        Regards
        GS

    • Dear Curious,

      Incidentally, I think they have done well for their early shareholders given the share price performance. Production growth for the period FY13-FY17 from 460Koz/yr to now FY17e = 650koz, which is a NOT good for CapEx spend of $650M which signify bad Capital Allocation.

      I am NOT a fan , given that their Ops are JUST NOT generating commensurate OpCF. For FY16, a mere $142M from 584koz DOES NOT excite me! This indicates poor quality mining assets, thus high costs etc. They also have R+R = 7Moz. But with such poor cash flow generation , I posit that the R+R is just dirt and nothing to get excited about for this Mcap= ±$2Bn gold miner.

      Furthermore , the management is NOT forthright given that they had indicated, in 2014, that they will achieve 900koz/yr by 2018, then revised it down to 800Koz/yr and fired their RSA-born COO for it. I still do not see then making >700koz this 2018.Such management team needs to be left to their own vices!

      Yours Truly,
      GS

LEAVE A REPLY