B2Gold Corp. (AMEX:BTG) Q2 2023 Earnings Call Transcript

B2Gold Corp. (AMEX:BTG) Q2 2023 Earnings Call Transcript August 3, 2023

Operator: Good day, and thank you for standing by. Welcome to B2Gold Second Quarter Earnings Conference Call. [Operator Instructions]. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Clive Johnson, President and CEO. Please go ahead.

Clive Johnson: Thank you, operator. Apologies on behalf of the phone service, not our technical issues, but theirs. So we’re a little bit late getting going. Welcome to the conference call to discuss B2Gold’s Second quarter 2023 Financial Results. We had another very strong quarter, again, highlighting the excellent performance of our — by operating team. And we’re very pleased with the results, and it makes us feel very comfortable we’re on track to — for our guidance for 2023 for the year of annual guidance. I’m going to pass over to Mike Cinnamond soon, our CFO, who’s going to walk you through, at a high level, what you probably already read, which is the details of the financial results, and we’re going to have an update from the line on focusing on Goose Project construction at Back River, and things are going very — pretty well there.

So we remain in an extremely strong financial position in the company, and that allows us, and Mike can talk at a high level about that to look at funding the Goose and continuing along with our industry-leading dividend and then maintain a very strong cash position with Goose now looking to come into production, as Bill will highlight, in the first quarter of 2025. I want to deal with an issue that’s come up, I guess, since we put out the news release about Mali and about the conversations around a potential new 2023 mining code. What we’ve put out in our news release, what we said in our news release set, the Fekola Mine will continue to be mined on Page 5 — in front of Fekola and Cardinal — actually Page 6 from the Cardinal pits. Receipt of an exploitation license for Bantako, which is one of the areas we were going to — we were hoping to start trucking ore down to Fekola, if you remember the Fekola mill.

The area remains outstanding pending finalization, exploration license for the Bantako North permit area remains outstanding, pending finalization of proposed new 2023 mining code at the state of Mali. What we neglected to say is well or read actually from the MD&A, which is a more thorough analysis of the situation and goes into more detail. What we say in the MD&A on Page 11 is the company, along with other mining companies in Mali, are engaged in discussions with the state of Mali to provide input into the proposed 2023 mining code. It’s still, at this point, remains a proposal. Any new mining code is not expected to impact the existing Fekola Mine operations, which will continue to be governed by the existing mining convention entered into under the 2012 Mining Code and the impact of the new 2023 mining code on Fekola Regional license — sorry, I’ll end it there.

So the bottom line is what we’re saying is that the — any proposed 2023 mining code that was not — in my understanding and recent consultation with the government as last week, the government’s confirming that they are not — this code is not going to look back to previous existing code. That would be unlawful. The 2012 code and the mining convention that comes — that came out of that dictates the terms; the ownership, 80/20, with ourselves and the government of Mali; and also dictate your taxes and all the details of that. That is in the code. And we expect this is implying to other gold miners in Mali as well who have valid outstanding codes and conventions from the past. So I just want to make sure people understand what we’re talking about here.

We remain convinced that the government of Mali wants more gold mining in the country and wants people like ourselves and for investors to invest. We have hopes and plans to expand in Mali initially by trucking ore as you’ve read from the Bantako and other areas down to the Fekola mill to feed soft saprolite material into the mill. We also conceptually have been talking about and looking at the study at the end of the year that could involve building a second mill potentially if the economics work and if all the other factors come into bear with the new resource in the North, et cetera. So that’s what we’ve been talking about potential expansion. I think it’s really important to point out that if you look at Fekola, has a great success in Mali, and other mining companies have had great successes for all stakeholders.

So we invested over USD 0.5 billion to build Fekola, 100% of mine B2Gold. The government owns 20% Fekola. We’ve actually contributed $1.2 billion of revenue to Mali since Fekola Mine started production. And based on our calculations, the people of Mali have benefited, the country of Mali has benefited by over 50% of the economic benefit of the mine. So we took all the risk upfront, built the mine. They realized over 50% of the economic benefit. That’s been a great success. So we remain committed to looking at further opportunities in Mali and where we believe that the government, from what we’ve heard, remains committed to increasing gold mining in the country. So when the new mining code comes out, we will have, I’m sure, further consultation with the government to talk about how we can work with our partner, the government, to potentially expand production at Fekola.

So I just wanted to really clarify that situation. And in fact, we probably should have done a little better job explaining it in the news release. The news release was about the financial results and an update on things. So at the end of the day, I wanted to make sure we communicate with everyone about the reality of the situation. Fekola, we expect will continue to be a great success for all stakeholders. With that, I’m going to pass it on to Mike to hit the highlights of the financials, and Bill will talk about — actually one more point on me before I pass over. I was quoted out of context a few weeks ago at an article that said that we were aggressively pursuing more M&A. That was not what I said. But at the end of the day, our strategy remains very much the same as it’s been for a while here, which is focused on our development projects, which includes the Goose Mine, which is — Bill will talk about, also was the potential — we continue to be coming in and building roads et cetera, for the expansion of Fekola by trucking ore.

We’re very committed to that. We’re very committed to a large exploration budget, a very large budget of Goose. We’re excited about the exploration upside there and other projects around the world that we’re exploring, including around existing mines. We are not anxious, we are not pursuing, actively pursuing M&A at the moment. We will not take on other development project that we’ve never done that before. We will not start doing it now trying to build 2 mills at the same time. So I just wanted to get that on the record that we are always looking at what’s out there in terms of other avenues of production growth, et cetera. We are not interested in strapping anything on, whether it would be a problem, mine or someone else or whether it be a further another project to build.

We’re busy. We’re very committed. We’re very focused. Part of our success is our ability to focus on one project at the time. So with that, I’ll pass it over to Mike.

Michael Cinnamond: Thanks, Clive. I’ll just touch briefly. I think, in the results, as Clive mentioned, I think the good quarter from the operations and financially. Firstly, on the revenue side, we sold just under 240,000 ounces at a realized price of $1,969 an ounce. That’s more than dollars an ounce, higher than we were in the same period last year. So benefiting from a good gold price. It’s obviously bouncing around a bit recently, but it’s still well above $1,900, [indiscernible] and as we look forward for the balance of the year as an estimate. On the production side, again, very much on budget. The total production from our 3 operating mines, 246,000 ounces. It’s just almost exactly on budget. And when you take in our share of Calibre’s results, which is 24% share right now, 263,000 ounces right on budget overall.

Saw a little over as under there. Fekola was a little under for the period, 8,000 ounces below budget at 152,000 ounces. There was a delay of excavator there and slightly lower production from Phase 6 just through building access to pit and the amount of production and mining we could actually do there. But we believe we’ll certainly hit Fekola’s target for the year. Masbate was a little over budget. It’s 49,000 ounces. So 5,000 ounces higher than budget, and they benefited from higher-than-budgeted mill feed grade and mill throughput. And in Otjikoto was a couple of thousand ounces over for just generally better, slightly better on budget on all factors. So overall, right on budget, 263,000 ounces in total production for the company. Translating that on the cost side, I saw $636 an ounce overall, including our share of Calibre, an ounce from our 3 mines.

So that — both of those numbers were between $35 and $40 lower than budget overall. We did see some offsetting factors. Fekola was $538 an ounce. It was actually a little higher than budget, which is a function of that lower-than-budgeted gold production effectively. On the fuel side, Fekola, we saw some offsets there. So diesel was a little lower than budget, but then we also saw HFO, we’ll switch into a new HFO source. We switched to new HFO source, HFO-180, which was — it’s a little greener, I think, for environmentally friendly. So that’s a little more expensive than what was budgeted. Masbate, $817 an ounce, which is more than $200 an ounce lower than budget. It didn’t really benefited from lower fuel costs. We were 20% plus lower on both the diesel and HFO at Masbate.

Otjikoto was also more than $200 an ounce, lower than budget, $611 an ounce for the period. And it benefited both from the slightly higher production, as I mentioned, and also lower fuel costs, not as significant lower as Masbate, but still lower and also weaker Namibian dollar. So remember, a high proportion of our costs and then maybe our denominated in Namibian dollars. So when the Namibian dollar is weaker, it translates into lower U.S. dollars, and we benefited from that. When you look at the all-in sustaining cost side, including everything, our share of Calibre, $1,214 an ounce. So it was a little over budget for the period, and that’s really a function of overall lower cash cost but higher CapEx that are almost exclusively based on timing.

We were lower in the first quarter on a lot of CapEx timing, and we caught up in the second quarter, particularly on some of the mobile cost across all the operations and some of the stripping costs. So overall, a little higher than budget, but no change overall to our guidance for the year. So I’ll just comment on that. So I think as we reiterated in our MD&A and news release, we expect our guidance is unchanged for the year annual guidance. So including our share at Calibre, somewhere between 1 million and 1,060,000 ounces or 1,080,000 ounces for the year. And on the cost side, no change to the cash cost operating guidance for the all-in sustaining cost guidance. We did mention, and as I mentioned there in the remarks, we are benefiting from lower fuel costs as we go through both the first and second quarter.

So we are watching that. We’ll watch that as we go through Q3. If we still see the benefit of that rolling through Masbate and Namibia for the balance of Q3, I think we will come back and look at our guidance again. But right now, we’re maintaining our guidance as is. A few comments on some of the other operations. I know Bill is going to talk to some of them. But in terms of Fekola regional development, we’ve continued infrastructure development there. We got the roads in. We did have 18,000 ounces for Bantako production. And our guidance for the overall Fekola Complex for the year, as mentioned and Clive mentioned. We don’t see that coming through now in ’23. We think that will roll into ’24. But we think we have enough optionality in the availability of ore.

At Fekola generally, that — our guidance will remain unchanged. We’ll still meet guidance for Fekola Complex. On Goose, Bill is going to talk to it. We did put out a news release just updating our CapEx estimate in the period, and it came in very close to what we said as we went through the acquisition itself. So CAD 800 million for the core construction of the plant and then about CAD 90 million that for accelerated underground development where we see that we can actually — we can do some more than was originally planned upfront, and then we’ll benefit from that in the first few years of operation at Goose. So we’re still on track to bring Goose on in Q1 ’25. And our share post acquisition costs when you translate it into U.S. dollars after taking into account the spend that Sabina already had, it’s just over USD 400,000.

That’s what we expected to incur to complete the project. Otjikoto continues on. And just a reminder as well, there is a — Otjikoto [indiscernible] was around ’24, and open pit mining activity at Otjikoto pit to conclude in ’25. But then we will have ongoing production from Wolfshag underground as well as stockpile. Processing that, that should take us right through into early 2031, somewhere around there. Gramalote, the sales process is ongoing. No updates to — to update you there at the present. Strategic investments, you saw us, look at the most significant one in the current period, and they put out a great number today with snowline. So we invested $32 million there for a 9.9% interest in Snowline. That’s part of the company’s ongoing strategy, just like you saw us invest in Matador from 9.9% investment last year.

And the other thing to highlight, maybe on just project side, we did disclose $20 million more in exploration for the year. We’re well over $80 million now, exploration budget for 2023. And that $20 million addition is exclusively for Back River, the Back River District. So both Goose, some more work there and the George prospects there as well. So we’re excited to get up there and see what else we can make for Back River. A couple of other comments on the results. So earnings overall attributable to shareholders is $80 million or $0.06 per share. Adjusted earnings were $86 million or $0.07 per share. And then on the cash flow side, we have good operating and overall cash flow quarter, $195 million in cash flow from operations or $0.16 per share.

So we benefited, like I said, from the higher gold price production, right on schedule, good cash costs overall and some working capital timing. So $195 million was a good result. On the financing side, there’s a couple of items to comment on there. With the acquisition, the main item that impacted the — certainly the balance sheet overall in the quarter was the acquisition of Sabina and while we — as we brought in those projects on the balance sheet. And in doing so, we took the opportunity to extinguish some of the existing financial obligations that Sabina had entered into as part of their financing package. So in total, we spent $111 million, which included extinguishing the offtake agreement that was there with a private equity firm and also to extinguish 1/3 of the existing gold stream with Wheaton precious metals.

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And we did that because we — they’re effectively royalties, and we obviously really liked the prospectivity at Goose and Back River generally. So it makes sense to try and take those out upfront if we can. So we took that opportunity. Then on the dividend side, we’ve maintained our USD 0.04 per share for the quarter. The dividend is higher this quarter overall in gross terms because of that actually 200 million-plus shares that were issued as part of the Sabina acquisition, and it’s our goal to maintain that dividend going forward, that level of dividend going forward as well as financing our capital obligations that we have for our various development prospects globally with more significantly that the Goose prospect — Goose project is currently underway.

We did finish the period with, as Clive said, great financial shape, over USD 0.5 billion in the bank. We still have an undrawn revolving credit facility. It was $600 million. We added National Bank in for another $100 million. So now we’re $700 million available on the line undrawn, $0.5 billion in the bank at the end of the quarter. So $1.2 billion in sort of available right on hand liquidity. And as we look forward to bring in Goose online, as we go through, I think what we see is we’re very comfortable in our ability to finance Goose, keep paying the dividend as we see and then also evaluating sort of the other capital needs that we have on the group. So I think we’re in good shape financially there. And with that, I think — the only other thing I’d add, we’d like to give you an update on cash taxes each period for your model.

So we did update the MD&A. There is an increase in cash taxes to just over $250 million, and that’s because we budgeted at $1,700 gold, and now we’ll reforecast — we’ve come through the first half of the year over $1,900 and we’re forecasting $1,850. So our new cash tax is approximately $250 million, just for your models. And with that, I’ll hand it back to Clive.

Clive Johnson: Thanks, Mike. I’ll pass it over to Bill to give us that high-level update on the exciting progress we’re making at Goose construction.

William Lytle: Sure. Thanks, Clive. I guess I want to start out with talking a little bit about really the key things for this project. Number one, obviously, we continue to maintain excellent relationships with the Kitikmeot Inuit Association up in Nunavut. We’ve had several stakeholder meetings over the course of the quarter, introduced them to the B2 philosophies and very positive outcomes. Additionally, and I think everyone is aware, this really — more than anything, this project relies on logistics for success. And if you look at the timeline, we’ve been very publicly stating that, yes, in fact, we will try and maintain the existing timeline, which has us producing first gold in Q1 2025. With that, the logistics — the overall logistics has gone excellent so far.

I think everyone is aware, B2Gold has their own logistics group — procurement and logistics group that has done this before. We did it in Far East Russia. And so they jumped right in and really maintained the excellent progress that had already been done. So far, there’s been a herc program, a C-130 program. We brought in more than 60 loads for the summer season this year. All of the shipping and ordering has basically been completed now. So things are on the boat heading towards a marine laydown area. Barges, which were stranded last year by Sabina, have been picked up, and they’ve arrived at the marine laydown area. So overall, as of today, we see that the procurement and logistics remain on schedule. As part of the next phase, we needed to come out and finish the Phase I construction of the camp.

That was completed at the end of July. So we currently have more than 130 beds. We’ll be going up to over 200 here over the next little bit. And that allows us really to bring our full construction team on site. So the construction team, at least the first wave, has arrived. And just to remind everybody kind of what the scope is this year, this year, we’ve got kind of 3 major areas that we need to work on. We’ve got the mill, of course, we’ve got the powerhouse, and we’ve got a big workshop that we have to get done. And really, the scope for this year is to get the concreting, get the steel up and get it all weathered in. So the concrete group has arrived on site. They are currently pouring concrete. And I should add that originally, we had inherited from Sabina, kind of an EPC contract, which was not the typical B2 model.

The B2 model is self-performed. So we’ve ended that relationship, and we’ve now brought back the same group that really has made us successful for the last 5 projects, has arrived back on site and is in the process of pouring concrete. So that is going very well. And actually so far, even the structural steel superintendents and supervisors have arrived on site. They’re busy sorting steel with the intent of getting everything put together as they can on the ground and waiting for the concrete to be poured, so we can move forward very quickly on that. On the underground side, just looking at it, one, from an operational perspective, that goes very well. We have — so far on the open pit, we’ve come down a couple of benches already. Remember, the first open pit is going to be used — has to be mined out for our tailings location.

So that remains on schedule. The underground, we’ve developed more than 1,300 meters in the decline, more than 128 meters in the vent raise and more than 374 meters in the access ramp. So basically, everything remains at or ahead of schedule. And what’s probably of more interest to you, we talked about initially when B2 acquired the project, the potential of kind of front-end, some more ounces. And so the engineering team here in Vancouver has been working with the site engineers. And I’m pretty happy to say, without having the final details that certainly, we are looking at kind of in excess of 300,000 ounces a year over the first 5 years of production, which I think is significantly more than what was in the Sabina feasibility study. And along with that, we’ve, of course, taken a first cut at what kind of the operational cost would be.

And I think we’ve already said it at least several times in the market. But what we’re really talking about is we’re talking about $1,000 an ounce, plus/minus right in there. Remembering — sorry, is in the all-in sustaining cost. And remembering that, that is still preliminary, with still some final work left to do. Mike already talked about the costs. We are talking right around CAD 800 million, plus an additional CAD 90 million for supercharging the development of the underground. And I guess maybe I’d end with it. I believe everyone is aware that there’s an analyst trip coming up. I think it’s the 26th of September, where we’ll be introducing people to the work that we’ve done on site, but also the excellent management team that we have that we brought over from Sabina and also, of course, our construction team and of course, showing all the excellent progress in logistics that we’ve had to date.

Clive Johnson: Just we had Board meetings over the last couple of days, of course, to review the quarter and present results. And a lot of discussion of the presentation around Goose, of what we’re doing there. And I think I can say, the Board takes great comfort as I do in the — in what we’re doing there and the experience factor of the team, as Bill touched on. This is what we do. We build our own mines, and we have history of doing it on budget, on schedule or even ahead. And we feel very comfortable where we are today. As Bill has highlighted, you’ll all see that those will be able to make the chip up there. There’s a lot of companies who have struggled in the North. We’re very aware of that. And we believe that we can set a new standard here for how we do it, whether it’s Northern Russia or Northern Canada.

So we’re feeling — the board is feeling very comfortable with the work that’s been done, and that we did inherit a good situation from Sabina. They’ve done a lot of the work and exploration feasibility and had kicked off construction in a difficult circumstance as a single-asset company to be able to arrange financing and advance the project. So as Bill said, we’ve combined our team with some very good people of Sabina that we’re pleased to have stayed with the project, joining forces with us. So a lot of good work has been done with KIA, our partners, the landowners, excellent relationship there. If you look at the history of B2Gold, where we’ve taken that culture of fairness, respect and transparency around the world, and the key is to deliver on the promises you make.

So we’re very excited about what we can do working with the KIA for — to advance and progress in Fintech, education, health care and other areas in the North we’re close with our partners. So the other exciting thing, and Sabina knows this very well and some Sabina shareholders know this very well, that Bruce and his group, Mcloed did the right thing, which is focusing on advancing the Goose project. And therefore, they went out and spent an awful lot of money in the exploration, although they would have — they would have liked to. At the end of the day, they did the right thing for their shareholders. So they had a relatively modest exploration budget because of the fact they were trying to build — to finance building the mine, that was the focus, of course.

So we’re very excited about the exploration upside, and I’m just going to pass it over to Vic here quickly to talk about how many rigs are on site and what our plan is for this year, exploring the Back River, the Huge Back River property as well as further looking at the extensions of Goose and the George deposits. So over to you, Vic.

Victor King: Thanks, Clive. I guess straight out of the gate, we were active up at the George Project. It was basically — the focus there was due to waiting for space to open up for the exploration team down at the Goose Project. We’ve completed 12 holes there. We don’t have all the — many of the results back yet, but that program has been completed. The focus now with the accessibility of accommodation down at Goose for the exploration team is Goose itself. To remind you, we have 5 excellent deposits there, and these are all open down plunge. So there’s a immediate potential there to actually extend these resources down plunge, and we’re looking forward to that. As Mike pointed out, we have $20 million for the balance of this year in the budget, which is to put it into context, Sabina was spending around CAD 5 million on annual exploration.

The $25 million, $27 million is 5x that much in half the time. So there’s been a very extensive ramping up of exploration at the Back River Project. We have 5 rigs planned for surface drilling at Goose itself. And then as we get access to underground drilling possibilities, we’ll be strapping in 1 or 2 rigs to that, hopefully, early towards the end of this year or early next year. So yes, very, very active in terms of our exploration and ramping up very fast.

Clive Johnson: The other thing is we have there at least a great exploration team of the Sabina, and everyone knows our strength in exploration has been a great — we have a benefit from the experience of the Sabina and exploration team, all their knowledge of the project. So that’s another area where we’re combining forces to aggressively pursue the exploration opportunities that we see there. I think with that, operator, we’ll open it up for questions.

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Q&A Session

Operator: [Operator Instructions]. Our first question comes from the line of Ralph Profiti from Eight Capital.

Ralph Profiti: Clive, I appreciate the clarification on the Mali situation. But I want to come back and maybe ask a question sort of in broad terms, when you’ve engaged in discussions and they solicit your feedback, where have you think that the concentration should be in terms of giving your input, right? Where are there any specific issues that should take precedent in these discussions in your view?

Clive Johnson: Well, I think the discussions with the government, ourselves and from what I’ve heard, other mining foreign investment mining companies successful in Mali is the fact of maintaining — the importance of maintaining an attractive economic environment to go and invest in Mali as we’ve done in the past. So that’s what we emphasized to government, and we always do the same and where we go in our conversations with the government, which is find a balance there; fair reasonable tax regime, which we feel we have under the — we’ve had in the Fekola scenario. And obviously, for a public company, part of the incentive of what we do is profitable mining. So our conversations with government and all governments is always surrounded about what is fair and equitable and what maintains an attractive environment.

Mali’s had such a rich history of gold mining for thousands of years. And the governments — for has been there a lot longer than us now, of course, . But they’ve been very — benefit a lot and have been very good to work with. They have changed the mining codes over time to more reflect the reality of the kind of standards that we see worldwide. So I would say the 2012 code reflects what we considered to be a fair and equitable environment for all stakeholders, as I mentioned. So that’s kind of the focus when we talk to governments all around the world is how to find that balance with the people of Mali should, of course, benefit from gold production in their country, of course, it’s their gold. At the end of the day, what’s the balance because they are not, at this point in time, able to raise hundreds of millions of dollars as we have done to build something like Fekola.

So that’s the balance, and we’ve had successful conversations in the history of Mali as a gold producer, I believe. We believe going forward, the government is keen on — I mean, the economy is driven in part to a pretty significant step of gold production, and we believe they’re going to want to see more successful development of gold mines in Mali.

Ralph Profiti: Got you, yes. I want to switch topics and come back to the construction update at Goose that was given last month. And the move to long-haul underground for Umwelt, right? And I’m just wondering, does that move sort of stope an ore pass and all this development as one of the critical path items. The reason I asked is that, that particular deposit and the old Sabina plan was at the front end of the mine plan. I’m just wondering how sort of ore sequencing by deposit happens now that you’re sort of changing the mining method.

William Lytle: Yes. So you’re actually like right in where we’re at right now in the design. So I don’t really want to comment. I would maybe say give us another quarter back — give us another quarter to really kind of come back and answer that correctly. We are looking at the sequencing. And really, a lot of it revolves around the crown pillar that needs to be mined out ahead of when you use the pit for tailings. And so sequencing. I don’t think we’re ready to talk about exactly which one, but certainly long haul stoping seems like the way to go for us.

Clive Johnson: That we think — that will add, positively add to the production profile.

William Lytle: Yes.

Operator: Our next question comes from the line of Ovais Habib from Scotia Bank.