B2gold Corp Q3 FY2020 Earnings Call

Good afternoon, my name is James and I will be your conference operator today. I would like to welcome everyone to the B2Gold Third Quarter 2020 Financial Results Conference Call. All lines have been muted to avoid background noise. After the speakers finish their remarks, there will be a question and answer session. Thank you. Mr. Clive Johnson, President and CEO, you may begin.

Thanks, operator. Welcome everyone to our conference call to discuss the third quarter of 2020 financial results for B2Gold. Obviously, I think most of you have probably seen our news release that came out last night, another very strong quarter, putting us on target for the lower end of our cost guidance for 2020. I'm going to pass it on to Mike Cinnamond now, who is going to walk you through the highlights of the financial results. Then, Bill Lytle, Senior VP Operations, is going to give us an operational update and talk a bit more about growth, and then we'll open up for questions. We had a very good session with analysts 10 days ago, so I'm pretty sure they won't have many questions. But if they do, that's fine, and this is an opportunity for our shareholders to ask some questions again. So once again, I'm very happy with the quarter, another strong quarter. With that, I'll pass it over to Mike to give you some of the highlights. Thanks, Mike.

Thanks, Clive. So I'm going to start on the revenue side. We had quarterly record revenue of $187 million, selling 253,000 ounces at an average price of $1,924 an ounce. Included in those gold sales were some sales over $2,000 an ounce. That's pretty exciting to do, and obviously, we're all watching closely to see what happens with the gold price analysis. Hopefully, we'll see the results of the U.S. election in relatively short order. We can also note that year-to-date, we had record revenues of $1.3 billion. It's been an excellent year for B2, even in the midst of this COVID pandemic. Turning to the operating side, we had total production of 264,000 ounces, made up of 249,000 from our three mines and 50,000 ounces from our attributable share of Calibre's results. On the production side, lead is almost by Fekola, with 153,000 ounces, or 3,000 ounces above budget. Fekola had an excellent quarter again. The process grade and recovery were both higher than budget, more than offsetting some downtime on the throughput side as we took the mill down to undertake the Fekola mill expansion high end and also to do a full sag mill reline. Even with that time in place, we still managed to beat the budget by 3,000 ounces at Fekola. Masbate was right on budget with 54,000 ounces. The only difference in the quarter from Masbate was that we had a magnitude 6.6 earthquake in mid-August, which required us to take the mill down for about six days while inspections were carried out by the Philippine Life Sciences Bureau. Those inspections confirmed no damage, and Masbate is running very well. Otjikoto totaled 43,000 ounces, which is 1,000 ounces above budget, and it continues to move along nicely. Yesterday, our consolidated production was 770,000 ounces, including our share of Calibre, which is about 20,000 ounces ahead of the budget overall. Looking at the cost side of that equation, our total cash costs for the period, including Fekola, were $435 an ounce, which is $6 lower than budget. Looking at our three operations, the cost was $411 an ounce against a budget of $428, which is $17 an ounce less than budget for the three-month period. Fekola came in at $333, which was totally in line with the budget. That's made up of slightly higher gold production, as I just described earlier, but with generally in line total mining costs. We saw some costs that were marginally higher than the budget due to changes in mining sequences and some COVID-related costs. We've also noticed in Mali that fuel costs have been on or slightly above budget, which is reflective of the trend we're seeing elsewhere in the world. And just a reminder that in Mali, fuel prices are set one month in advance by the government and don't always follow the underlying fuel lines. Mid Valley was $615 an ounce, which is $33 less than budget, and they continue to have a great run. The same stories we've seen in Q1 and Q2; mining processing costs were lower than budget with lower diesel and HFO prices and lower waste stripping and haulage distances, as we've had a bit of a mine sequence change to deal with COVID. Otjikoto came in at $435 an ounce, which is $66 lower than the budget, so they are continuing to significantly outperform the budget there. Again, as with the first two quarters, we saw higher-than-budgeted gold production and lower fuel costs, along with a weaker Namibian dollar, which all contributed to the positive outcome for Otjikoto. As for the all-in sustaining cost rate, our total all-in sustaining cost per ounce, including Calibre, was $785, which is less than the 2019 budget. For the three operations, it was $766 an ounce, which is $31 less than budget. This may sound repetitive, but as in the first two quarters, we did see some CapEx catch up in Q3, as we've seen some CapEx moved around during the year. I'll comment a little bit more on that. We think CapEx is expected to align overall for the year, but we noticed a little bit of lower CapEx earlier in the year, with some of it catching up in the quarter, and we anticipate that some of it will be caught up in Q4. If we look at all-ins for the year-to-date on a consolidated basis, we're at $740 an ounce, which is $75 lower than budget, so you can see that we're still expecting to see some of that CapEx catch up in Q4. Taking all those results together, we think our guidance indicates that on the production side of the gold mine, we project to have between 590,000 to 620,000 ounces. We believe we'll come in at the upper end of that range. In terms of value, we're projecting 200 to 210, and we estimate we'll be in that range easily. Otjikoto is forecast at 165 to 175, right in the middle of that range. Overall, including our share of Calibre, our total consolidated guidance for the year was 1,000,000 to 1,055,000 ounces, and we believe we'll come in right at the middle of that consolidated range. On the cash cost and all-in sustaining cost rate for Fekola, it was a range of 285 to 325. We expect to be in that range as well. For Masbate, our range was 665 to 705, and we anticipate being at or below the low end of that range. For Otjikoto, the expectation is 485 to 520, and we believe we'll be at or below the low end of that range too. When you consider a consolidated position including Calibre, it's 415 to 455, and we believe we'll be at or slightly below the low end of that consolidated range. On the all-in sustaining cost side, Fekola's range is 555 to 595, and we think we'll be at the upper end of that range when all is said and done for the year. For Masbate, our forecast is 965 to 1,005 per ounce, which we think will land within the range. Otjikoto is estimated to be 1,010 to 1,050 ounces, and we project to be at or below the low end of that range. Overall consolidated cost is expected to be between 780 to 820, and we anticipate being at the lower end of this range. As I mentioned, we expect some CapEx catch up in Q4, estimating it will fall between $100 million to $110 million. If we look at our total CapEx that we budgeted, we'll likely come in around $10 million less than that total. So when you factor that in, we expect to see CapEx in Q4 of around $100 million to $110 million, affecting all-in sustaining costs. So you will see higher all-in sustaining costs in Q4, but we think we'll end the year at the lower end of the range of 780 to 820 for the year consolidated. Regarding other comments on operations, the Fekola mine expansion is materially complete. The new mill came online and was commissioned in September. I’ll note that the final construction costs of that plant expansion were a little higher than budgeted. They were about $13 million higher overall when all is said and done, primarily due to COVID-19 costs and delays, as well as increased labor and camping costs related to the pandemic and bringing people in and out to finish the expansion. Overall, performance has been good, and the project came in basically ahead of schedule. As for the Fekola solar site, we announced previously that we experienced some delays earlier in the year while trying to manage the movement of people in and out of the camp. We restarted the solar plant activity in mid-September and expect completion by the end of Q1 2021, assuming we're still able to bring people in without interruption. To remind everyone, this doesn't affect our 2020 guidance at all, but we truly believe we’ll bring it online early in 2021. One final note on the Mali situation: Fekola has been operating well throughout the year, considering the challenges of the COVID pandemic and the coup. We still see Fekola operating at record levels. The Mali state is a 20% partner in the Fekola mine and thus directly benefits from our operations. We have highlighted the total amounts paid to the government since we started operations. From 2017 to 2019, we paid over $140 million in wages and benefits, and total payments to the government were around $276 million, making a significant contribution to Mali's economy. That $276 million includes priority dividends that the government receives for its 10% share. Additionally, their 10% stake is also eligible for ordinary dividends, and we've now reached a point of paying these dividends as we've repaid all initial capital investments and loans required to get the Fekola mine operational. Thus, we're starting to pay ordinary dividends now. Moreover, it is worth reminding everyone that Fekola is governed by the 2012 mining code, and we have a 2012 mining convention still in place. When the 2019 mining convention was introduced, it included specific stabilization terms, reaffirming that Fekola, and the way it operates, remains governed under the 2012 code. Now, I’m going to shift a bit to discuss some of the other income statement items and provide some comments on cash flow. On the income statement, I have a few significant items to bring to your attention. One of the most notable changes relates to the reversal of impairment with assets. We experienced a reversal of $174 million, net of deferred income taxes, which had a bottom-line impact of $122 million due to Masbate. We had previously booked an impairment on Masbate years ago when gold prices dropped, and this adjustment represents the final reversal of any remaining impairment charges. This adjustment was driven by a change in our forecast gold price assumption based on analysts' consensus and other analyses we conducted. Our long-term gold price assumption is now set at $1,500 an ounce for accounting purposes, resulting in the impairment reversal. Additionally, we noted common share income on our associate Calibre, reaching almost $11 million based on their performance in Q3. The taxes section is also significant. We're taxable in all jurisdictions. In Mali, there were no accelerated deductions, so we're paying taxes right from the beginning. Masbate and Otjikoto are fully taxable now as well. Any residual tax loss carry-forwards, accelerated investment deductions, etc., are all gone now. We're now paying taxes everywhere, driven largely by our mines running well and higher fuel prices, which translated into net income for the period of $277 million. Of that, $262 million is attributable to shareholders of the company, resulting in $0.25 a share. When adjusting for significant non-cash items, including that Masbate impairment reversal, our adjusted income amounts to $161 million, or $0.15 a share. Year-to-date results show net income approaching half a billion at $498 million, of which $468 million is attributed to shareholders, equating to $0.44 a share, with adjusted net income at $368 million or $0.35 a share. Now, turning to cash flow: we had a great quarter with operating cash flow exceeding $300 million, translating to $0.31 a share. Year-to-date, our operating cash flow has reached $755 million, or $0.73 a share. We believe we're well-positioned to reach that billion-dollar level in cash flow if we project it out. In previous reminders, we provided a detailed look at the MD&A, noting that part of our operating cash flow includes significant taxes that haven't yet been paid in cash. We've accrued these in our financials, but they haven't been discharged yet. For Q4 and year-to-date, we expect to pay cash taxes amounting to about $94 million. For the full year, we're estimating around $205 million in cash taxes, with substantial payments expected in Q4. It's essential to remember these for your models. Additionally, there will be true-ups of Malian taxes in Q1-Q2 of next year as outlined under the rules for tax payments in Mali. Those cash tax numbers of around $200 million-$205 million do include roughly $50 million in tax prepayments for the year that aren’t due until Q1 or early Q2 next year, but we determined these taxes were incurred already, and we might prepay some of them, particularly those related to Mali. In terms of financing, we have fully repaid the revolver this quarter, which saw a $425 million pay-down on the outstanding balance. Currently, we have no amount drawn under the revolver, with just a bit of debt under finance leases associated primarily with Fekola, around $50 million, but aside from that, there's no other debt. On the revolver, we also have $600 million of undrawn capacity, plus an additional $200 million accordion, giving us about $800 million of available firepower there. We expect about $40 million to come in from kickbacks as we have always used cash to help finance part of our fleets worldwide. This also ties into the Fekola fleet expansion. Dividend-wise, we disbursed $62 million this past quarter and $73 million year-to-date. Our current quarterly dividend is $0.04 per share, annualizing to $0.16 U.S., amounting to about $170 million per year, translating to a yield of around 2.4%, which positions us among the top gold companies in terms of dividend return. On the capital allocation front, we are generating strong cash flow, as evidenced by ending the quarter with $365 million, and we expect to continue generating cash as the year progresses. As we advance into next year, we have several substantial capital allocation decisions, with the most significant one concerning Gramalote. We expect to have the feasibility study completed by the end of the first quarter next year, which will put us in a position to make a build decision and discuss options with our partner, AGA. In addition, we are evaluating our options at Kiaka in Burkina Faso and considering how to address that project. We also have a significant drilling campaign underway in various regions, returning promising results in Mali and other locations. Once we obtain a clearer picture of our capital needs, we can revisit the potential adjustment of our dividend allocation. To summarize our investment side of CapEx, we've budgeted around $390 million for the year in total CapEx. We anticipate coming in about $10 million under this budget, projecting a final amount of approximately $380 million. Thus far, our reported cash outflow from CapEx stands at $265 million. So, we expect to have around $110 million to $115 million remaining for Q4. Regarding Gramalote, we haven't provided an update on its CapEx, but we're currently on track overall for the year, with our share of Gramalote expected to reach around $26 million, of which we think we've spent most of it. At the same time, we are a bit behind on exploration this year, but our total exploration budget is $53 million, and we forecast spending most, if not all, of that by year-end. This summary encapsulates the status of our cash and cash flow as of the end of Q3. We look forward to advancing that cash balance through the end of the year and into next year.

Okay, thanks, Mike. I just realized that in my intro, I may have misphrased. I think I said we would be at the lower end of guidance for 2020; I meant the lower end of cost guidance, which Mike thankfully clarified. Obviously, it was a very strong quarter with good financial results, and we’re on track for the mid-range of our production guidance of approximately 1.05 million to 1.055 million ounces of gold. Regarding costs, we expect to be at or below the lower end of our guidance range, with operational costs projected between $415 and $455, and we expect all sustaining costs to be in line with our guidance of between $780 and $820 per ounce. I want to clarify that point. Now, let’s hear from Bill, who will provide a focused update on potential growth opportunities.

Yes, sure. Thanks, Clive. I don’t want to rehash what Mike said in the first three quarters of 2020. I’ll just reiterate that we remain on guidance for the year. Obviously, it has been a great quarter, especially considering everything happening worldwide. I'd also like to emphasize that we have maintained a remarkable health and safety record, with no lost time incidents to report this quarter. So our injury frequency rate remains at industry-leading levels, if not the best in the industry. Looking ahead, I want to touch on production projections over the next couple of years and even the next five years. We recently prepared a slide for analysts illustrating that if everything goes according to plan, our production should continue to look strong, hovering near that one million-ounce mark. By the end of this year, we have some developments coming up. Our exploration group has indicated that they will turn over an updated resource for Anaconda, which we will use to assess its long-term potential. As Mike noted, we’re optimistic about the Gramalote feasibility study, which should be finalized by the end of Q1 next year. Additionally, the exploration team plans to release a resource on Cardinal FMZ by the end of Q1, which could have a significant immediate impact on our production profile. When we completed our mill expansion, we represented that it would increase capacity from 6 million tonnes to 7.5 million tonnes per annum. Now that the expansion is complete, we’re working to determine the maximum possible production rate. If we can source the right materials, such as low-grade ore, this could incrementally enhance our ounce profile. However, if we find higher-grade materials in Cardinal FMZ, we could fast-track that into production, potentially beginning as early as late 2021 or 2022, if all goes well. In terms of production for 2021, we can anticipate contributions from Fekola, Cardinal FMZ, Masbate, and Otjikoto. For 2022, we expect to continue with Fekola and Cardinal FMZ, along with the same sources from Masbate and Otjikoto. We foresee Otjikoto moving to underground operations, producing up to 200,000 ounces in 2022. Looking further to 2023, we anticipate maintaining similar contributions from mill operations at Fekola, Cardinal FMZ, Masbate, and Otjikoto, including expanding on underground production. By 2024, we plan to have Gramalote operational as well. In summary, we expect to achieve a steady production profile of around one million ounces per year from 2021 to 2024, along with potential contributions from projects like Kiaka and new resources developed. Clive, is there anything else you would like me to discuss?

No, Bill. I think that’s a strong summary. Let’s open it up for questions. We're ready with our team. As I mentioned earlier, we've had extensive conversations with analysts recently, but Tom is available to address any inquiries on exploration. So, let’s begin taking the questions. Thank you.

Our first question comes from Ovais Habib from Scotiabank. Go ahead, please. Your line is open.

Thanks, operator. Hi, Clive and B2 team. Congratulations on a good quarter, and thanks for taking my questions. My first question was going to be on capital allocation, but Mike covered that well. So my next question is for Bill. In regards to Wolfshag, B2 has it towards production at about 500 tonnes per day, equating to about 182,000 tonnes per year. Currently, you have around 1.6 million recoverable tonnes. At the Analyst Day, you indicated it would transition to underground operations by mid-2025 and start in 2022. Are you being conservative on the underground mine life, or am I misunderstanding something?

Oh, sorry. I’ve been talking for two minutes on mute. My apologies. The answer is yes, it is a bit conservative, Ovais. There absolutely is production rate upside, and the reality is, if you remember, we've always discussed this potential down plunge extension that can extend beyond our current estimates. So, we focus on the existing mine life and reserves but there is upside.

Okay, so that's a matter of functional drilling then? Just trying to get a better understanding.

That's correct.

Okay, got it. And just moving on to Cardinal FMZ, what are you looking to see in the resource update at Cardinal to get it across the line into production? Are you looking at anything specific in terms of metallurgy or other factors that need to align before it comes into production?

Yes. I can’t speak much from the exploration standpoint, but I can share that we have high-level metallurgical testing already completed and we don’t foresee any issues from a milling perspective. We are looking for additional confidence in the existing inferred resource, but even without further drilling, we could incorporate it into our mine plan.

That’s great. That’s it for me. Thanks so much.

Our next question comes from the line of Geordie Mark with Haywood Securities. Go ahead, please, your line is open.

Thanks for the call today. Can you run over the Masbate reversal, possibly touching on the implications for updating future resource-reserve estimates? Given the shift in commodity price assumption, is there an easy migration? And are you considering additional drilling to enhance geological confidence of resources? What life of mine expansion can we expect to see from that financial assumption through 2036 as detailed in the MD&A?

Could you maybe clarify your question a bit? It sounds like there are two parts, and I want to make sure I understand.

Sure, my first part would be if any near-term changes in the reserve resource estimates could arise from a higher gold price assumption? And then the other component is what kind of drilling would be needed, if any?

To answer your question, we took our existing resource, and projected it based on increasing gold prices. Yes, the pit can expand with higher prices. The drill program we’re running this year aims to bring as much of that into our indicated category as possible. However, we will need to continue the program next year. With our results this year, we'll look to update some resources in the drilled areas and hopefully report some of that in the AIF.

That's useful, thanks. And lastly, just regarding the current drilling at Cardinal, are you working with two rigs while looking to extend the loan boundaries down plunge?

Currently, we’re down to just one drill at Cardinal, which is drilling deeper. We'd been limited this year by our camp setup and isolation protocols for COVID, so we only have one core drill active. The other three drills have been moved up to Mamba, this area showing significant upside for us, but one drill continues to operate in a different part of Cardinal.

Thank you. I appreciate it.

Our next question comes from Carey MacRury from Canaccord Genuity. Please go ahead, your line is open.

Hi, good morning. Maybe another question about Cardinal. How does it compare to Fekola in terms of things like widths, strip ratio, mineability, and grades?

In terms of width, it's quite a bit narrower compared to Fekola, which is close to a couple hundred meters wide. We don’t see anything like that at Cardinal; the maximum width we've seen there is very close to 30 meters, but typically less than 10 meters. As for the strip ratio, we don't have those details yet, as we haven't completed the resource and mine plan is still being finalized. Once we finish the resource update in the first quarter, it will be accompanied by an inferred and indicated portion that will allow the engineering team to devise a mine plan with better estimates.

Switching to Kiaka, previously you mentioned a technical study coming there. Could you provide insights into plant sizes? Is it intended to be a smaller, high-grade project in line with what the previous owner considered, or do you have different expectations?

You want me to handle that or pass it to Dennis?

Sorry, I missed your question.

In general, we aim to update the existing feasibility study. We anticipate plant size around 12 million tons per annum, as most studies have been completed. The key differentiators involve fuel costs, with the potential to run a dual fuel truck system, thereby impacting overall economic viability.

And our next question comes from Lawson Winder with Bank of America Securities. Please go ahead, your line is open.

Hello, gentlemen, thank you for taking the question. Great quarter! I just have a question about Fekola. With the increased mining equipment, should we expect grades to be materially higher in 2022 compared to what we saw in the last technical study?

I’ll answer, and Randy can correct me if I'm mistaken. Remember, when we defined the study, we optimized it for the mining equipment available, employing an optimized stockpiling strategy from day one. Therefore, I don’t anticipate seeing significant variations from the PA in 2022. Is that correct, Randy?

That's correct.

Okay, that's very helpful. One more question about Kiaka. I'm intrigued by the potential there, but given the relatively high quality of your existing assets, could it dilute your portfolio? Are you considering a potential sale instead of building it yourself?

Yes, valid point. It's relatively early days regarding Kiaka. As interest in the project grew, my initial thought was that we wouldn't build two mines simultaneously. This led to discussions around possibly bringing in a partner or selling it altogether as a first response. However, Bill and the team started exploring ideas, and conceptual scheduling emerged, showing there could be ways for both projects to proceed without overlap. I’ll pass it to Bill for further thoughts. We are proceeding with caution, adhering to our conservative strategy of building one mine at a time.

Indeed, as Clive mentioned, everything we're discussing is purely conceptual at this point. However, we’ve begun considering how to best schedule our teams and mitigate overlaps in construction without compromising on our standards. We have the capability and resources to tackle this effectively should we choose to pursue both projects.

Indeed. We have a strong track record of responsible growth, as demonstrated in the past 13 years, showcasing our potential for scaling effectively. We have many assets in the pipeline to review for additional growth.

Thank you for your insights, Clive. Just one final question regarding Greenfield opportunities. Given your previous statements regarding the limited availability, where do you currently stand on Greenfield M&A? Are you still actively seeking to add opportunities to your pipeline?

Yes, we continue to look for potential Greenfield exploration opportunities. However, we haven't seen a plethora that truly excites us. Those that do exist tend to be scarce and quite prized. Our approach has always leaned toward Brownfield exploration, especially given Bema and B2's historical achievements. We remain committed to uncovering and investing in exploration potential driven by geology rather than geography. Major M&A is less likely at this fashion. Let’s focus on developing the current assets and understanding the untapped potential in areas like Cardinal and Anaconda. We have a robust pipeline of potential assets with good upside for shareholders. Our budget for exploration is projected at about $60 million going forward, allowing us to explore the best opportunities while ensuring we remain fiscally responsible.

Thank you for that clarification, Clive.

There are no further questions in the queue. At this time, I'd like to turn the call back over to Clive Johnson.

Okay, thank you all for your time. If any further questions arise, including from shareholders, feel free to reach out to Ian MacLean, and he'll connect you with the appropriate party to provide answers. Thank you for participating.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.