B2gold Corp Q4 FY2020 Earnings Call

Good afternoon, my name is Jason, and I will be your conference operator today. I would like to welcome everyone to the B2Gold Fourth Quarter and Full Year 2020 Financial Results Conference Call. All lines have been muted to prevent any background noise. After the speakers' remarks, there will be a question and answer session. I will now turn the call over to Clive Johnson, President and Chief Executive Officer and Director. Thank you, Mr. Johnson, you may begin your conference.

Thanks for joining us everyone. Welcome to our conference call to discuss our Q4 and year-end financial results for 2020. We had a productive analyst session this year, which I believe was beneficial for everyone involved. This session also welcomes shareholders and other interested parties. We kindly ask analysts to refrain from asking detailed modeling questions during this call. We’re open to discussing specifics, like the strip ratio in Masbate in 2030, in a separate call where we can ensure transparency and assist in refining your models. For detailed questions, you can follow up with Ian, who can direct you to the right person. Looking back at 2020, it was an exceptional year in terms of our operating and financial results. We're proud of our accomplishments, especially in the face of COVID-19. Our actions this year have shown our commitment to our employees and all stakeholders. Together, we managed to maintain employment levels and fulfill our responsibilities while keeping safety as our top priority. I want to acknowledge and commend our exceptional executive teams at the mines and all employees for their hard work during these challenging times. As we look ahead, we're positioned well to optimize production at our existing mines and maintain our strong financial standing. We'll continue to pay our dividends and utilize cash operations to support growth. This year will bring new developments as outlined in our news release, including the Gramalote Feasibility Study results expected in April. We anticipate a positive outcome, which will be followed by a development plan. Our partnership with AGA is strong, and we're working well together on-site. For Kiaka, we’re cautiously optimistic as we approach mid-year when we'll have updated feasibility study results. Our optimism is driven by recent drilling improvements and potential changes in power costs. We’re exploring various options to enhance the project's economics. Exploration remains a crucial aspect of our strategy, and we have allocated $66 million for exploration this year. Historically, this investment has yielded a strong return in terms of discovered resource ounces. This year, a significant portion of our budget is allocated for Brownfield projects, with up to $25 million earmarked for Greenfield opportunities. We view exploration as a long-term endeavor critical to the company’s growth and extending mine life. We are excited about ongoing prospects in various locations, including Uzbekistan and Finland, as well as other promising areas. Our exploration efforts will persist, driven by geology and not geography. I will now hand it over to Mike Cinnamond, our CFO, to review the financial numbers, after which we can open the floor to questions.

Thanks, Clive. I'll provide a brief overview of the quarter, comment on year-to-date results for year-end reporting, and discuss cash flow. In the quarter, we reported revenues of $480 million from the sale of 257,000 ounces at an average price of $1,868 per ounce. These gold prices in Q4 were among the highest observed, particularly compared to Q3. The $1,868 average for Q4 is slightly above what we've seen in Q1 as we enter the New Year. We sold nearly all that we produced during this period, without significant timing factors. On the production front, we performed well and met our budget. Total production, including our share from Calibre, was 270,000 ounces, with our three operating mines contributing 256,000 ounces, all in line with our budget. Individual site production figures are as follows: Fekola produced 159,000 ounces, Masbate 58,000 ounces, and Otjikoto 40,000 ounces. Looking at our production budget and cash costs, overall cash costs across all operations, including Calibre, were $473 per ounce produced, about 55% higher than budgeted. The increase in cash costs mainly stemmed from Fekola due to changes in mining sequences and higher costs associated with labor and COVID-related expenses. Total costs per ounce at Fekola were $397, exceeding the budget by just over $90. Masbate's costs were below budget at $585, benefiting from reduced fuel and hauling costs. Fekola's fuel costs exceeded budget by about 11%, influenced by government-set prices and related transportation costs. Otjikoto's costs were $520, slightly above budget by $14 due to mining sequence changes, although it also benefited from lower fuel costs and a weaker Namibian dollar. For all-in sustaining costs for the quarter, the total, including our share at Calibre, was $926 per ounce, which is $190 higher than budgeted, primarily reflecting the elevated cash costs and higher-than-expected sustaining capital expenditures. In this period, we saw approximately $19 million in sustaining CapEx over budget, much of which was related to fleet purchases or maintenance deferred from earlier in the year. Moving to annual results, we achieved nearly $1.8 billion in sales, a record for B2Gold, with over one million ounces sold at an average price of $1,777 per ounce. Including Calibre's contribution, we produced 1,041,000 ounces, which aligns with the upper end of our guidance range of 1 million to 1.55 million ounces despite dealing with COVID challenges throughout the year. Our individual production contributions were Fekola at 623,000 ounces (exceeding guidance), Masbate at 205,000 ounces (mid-range), and Otjikoto at 168,000 ounces (within range). All sites faced various challenges yet performed commendably. In terms of cash costs, the consolidated figure for the year (including Calibre) was $423 per ounce, which came in $11 below budget. Fekola's costs were $320 per ounce produced, within the upper range of its guidance, while Masbate and Otjikoto achieved costs significantly under budget. The consolidated all-in costs were $788 per ounce sold, slightly under budget and at the low end of our guidance range. Fekola's costs were slightly above guidance, while Masbate and Otjikoto performed well, being on or below budget. Remarks on site developments include Fekola's mill expansion and fleet being completed by Q3 2020 and operating smoothly despite some minor overages due to COVID-related delays. We also initiated construction on a new solar plant at Fekola, expected to come online in stages through 2021, though a fire incident has temporarily delayed its full completion. At Otjikoto, we are progressing with the Wolfshag underground development and maintaining budget efficiency, while Masbate continued to operate efficiently without significant setbacks or cost overruns. On the financial side, General and Administrative expenses were about $10 million lower than the previous year due to reduced travel and consulting costs. We reported a significant reversal of impairment for Masbate amounting to $174 million. On tax matters, the total income tax charge for the year was $310 million. We are now fully taxable at all sites without accelerated write-offs. This tax includes amounts relating to Fekola's dividend. For the quarter, net income stood at $174 million, or $0.16 per share, while year-to-date net income was $672 million or $0.60 per share. Adjusted income for the year, accounting for significant non-cash items, was $0.49 per share. In cash flow, we reported $197 million for the quarter and $950 million for the year, a record for B2Gold. Our capital expenditures were overall $40 million below budget. This year-end resulted in $480 million cash on hand and available credit facilities totaling $600 million. This summarizes the key financial highlights I aimed to cover. Thank you.

Thanks, Mike. Just something I neglected to mention in my opening remarks was just on strategy. I think it's pretty clear from the news release and from the recent calls we've had. But our strategy remains really the same, which is obviously to maintain our strong financial position we said and the ability of paying a dividend and advance our growth projects. But between the growth projects, the potential we have at Gramalote, at Kiaka, the Anaconda area, etcetera. And all the exploration funding we're doing for both brownfields and greenfields. We're pretty confident in our ability to grow shareholder value in this company over the year, without having to aggressively pursue M&A. So obviously, we'll look at M&A and we all had a big haircut from the highs that we were at, so other companies have as well. But for us to do M&A at this point, whenever that we plan going on and we think potentially we can have a lot of shareholder value, it would have to be seen as extremely compelling even though the unreal expectations of certain companies have tended to come down because of the certain opportunities because of the gold price. We'll see. We're always looking. But at the end of the day, we are quite ambivalent at this point about M&A, which is a good place to be I think, given what we have on our plate. If something comes along that makes sense and adds value for shareholders, of course, we'll definitely have a hard look at it. So I think with that, we'll move to open it up to questions.

Good afternoon. Thank you for taking my questions. Regarding Cardinal, you mentioned sending some material to be processed at the mill in the second quarter. Do you have an idea of what Cardinal's contribution to production at Fekola might be this year, especially after releasing the resource information?

Yes, that’s a good question and it’s worth discussing further. We're looking into Cardinal because there is a real opportunity to create a significant resource there, which was discovered during our condemnation drilling. The ore body is close to the surface, and the expansion we completed in September 2020 has performed even better than we anticipated. We've conducted throughput trials and determined that while our budget is set at 7.75 million tonnes per annum, we can actually operate at a minimum of 8 million tonnes per annum in 2021 based on the ore quality we are observing. Therefore, instead of processing low-grade material at that rate, we explored alternative sources, with Cardinal being the closest. We will continue to drill on the Cardinal resources, which have yet to focus on near-surface exposures. We’ve taken the inferred resource provided by geologists and established our own control pattern to create a mini resource aimed at near-term open-pit success in 2021. We also approached the government to request permission for bulk sampling, which will enhance our mill’s grade profile. In response to your question about potential contributions, if we only processed low-grade material with an additional 250,000 tonnes, we would see around 10,000 ounces. However, with the near-surface exposure of the Cardinal resource, we anticipate a minimum contribution of 20,000 to 25,000 ounces, which would be an add-on. Keep in mind that this is just based on the additional 250,000 tonnes. We expect to operate beyond 8 million tonnes, so the question will be how to utilize that additional capacity, which could also come from Cardinal. We are also looking at the Anaconda area, which has saprolite surface exposure and may yield high-grade pockets for potential bulk processing in 2021. Therefore, we can expect additional ounces from these areas as well. To summarize, we project about 20,000 to 25,000 ounces from Cardinal, with significant potential for more.

And just to add that would largely come, I'm guessing, in the second half of the year?

Well, that's the funny thing, right? So we don't necessarily think it's going to come in the second half of the year. We are pushing very hard, actually, Randy Reichert, our VP of Operations, is at Fekola right now kind of laying out mine plans? And what does that look like? I mean, certainly, when we did our optimization on the mining side, we optimized on basically hauling from the Fekola pit. So we've got the issue of, how do we truck this stuff? It's only 500 meters, but how do we truck it to the mill? And so we're in the process of trying to set up maybe a small contract minor service for 2021 until we get our head around it. So ideally, we would actually see it in Q2.

Got it. Okay. We've definitely observed significant inflation in oil, diesel, steel, and freight costs. When the studies for Gramalote and Kiaka are released later, can we expect that they will reflect these current levels of cost? I would like to gain a better understanding of this.

When you mention reflecting this current level of cost, I don't quite understand what you're asking.

Will the studies for Gramalote and Kiaka be based on the current prices for oil, diesel, and steel that we are seeing now, or will they reflect prices from the past? I'm trying to get a better understanding of that.

No, I think you're aware that we updated the PFS that AngloGold conducted in 2017 into a PEA due to the inferred versus indicated issue in 2020. We certainly made some updates at a high level in 2020. As part of the feasibility study, we will include full feasibility costs, and we have indeed gone out for quotes.

Thanks Operator. Hi, Clive and B2 team, congrats on a good quarter and thanks for taking my question. With respect to what's on Cardinal, which kind of I think Bill kind of gave a good overview of. I mean, I'm guessing the near term, the reason why it's brought into the near term, where it was previously expected to come in around the Q4 time period. It was based on the fact that now you're just doing that grade-control drilling, and that's given you confidence to bring it into production earlier. Is that how should we be thinking about this?

Yes, that's correct. However, to be completely honest, we currently have extra capacity and are processing lower-grade material. We're actively working to introduce higher-grade material into the mill. While we initially anticipated that this could happen in Q4, we feel confident about starting even sooner due to the ongoing grade-control drilling. I know I should conservatively say this will occur in the latter half of the year, but in reality, we're currently focused on grade control.

Perfect. And just in terms of metallurgy and just having that kind of information in your hand, all that has been done previously already?

Yes, sure, Bill. The metallurgy is very similar to Fekola. We've done testing on representative samples, and it responds very similarly to the Fekola ore. So we're confident that we'll get similar recoveries as Fekola on Cardinal.

Yes. First of all, I want to comment that this is a significant budget, which is the result of many years spent developing projects, engaging with junior firms, and collaborating with governments while exploring various opportunities. Over time, we have built a portfolio of early-stage projects. If I had to highlight one area that excites me more than others, it would be the work we're currently doing in Uzbekistan. This project has been important to me and our team because of the many years we've invested in its development. Additionally, in Finland, we are drilling near a recent discovery made by Rupert, and we are optimistic about what we are observing on our own land. As for the other projects, I prefer to keep details private for now as we continue to develop them with plans to drill later this year.

First, a question on the tax side of things. Thank you for the additional disclosure. I noticed the commentary and the call information that the priority dividend would be paid as a tax. In the cash flow statement this quarter, there was still a distribution to non-controlling interest, I guess, of $9 million. What would that be related to? And is that expected going forward?

Well, the priority interest that we have, we do have interest in Namibia, right, we have a 10% holder, like, owner in Otjikoto. So there are some payments made to them.

Okay. But can we assume that the full 20%, including the free carried interest and equity interest for Fekola, will be reflected in the taxes line rather than the distribution to non-controlling interest line?

No, no, it's split. So the first 10% of Fekola, the priority dividend will always be reflected in operating activities. It's recorded as a tax charge and paid within operating cash flows. And then the second 10% is just an ordinary dividend, and it will be reflected as a payment.

Certainly, I can address the first part of that. AGA has consistently communicated to us, as they did again yesterday during their investor call, that they are very interested in Gramalote. We also consider this project crucial for them. They are slightly behind Gramalote in terms of timing, but they recognize the importance of being part of a successful joint venture with us as the operator. This will demonstrate to Colombia what a significant open-pit gold mine could look like and how effectively we can operate it in a wonderful region of the country. At this stage, I would be quite surprised if there were any changes in ownership. We've previously discussed that according to our agreement, once we submit a development plan, if AGA chooses not to fund, we have the option to acquire their interest based on market terms informed by the feasibility study economics. They also have the option to reduce their stake to 30% under the same agreement. Of course, we could also consider bringing in another partner if we wish. I believe there would be considerable interest from various companies, especially if the economics align with our expectations, to collaborate with B2Gold in Colombia on building the mine. Although circumstances can change, AGA appears very committed to Colombia and has expressed a desire to participate in this project as we move toward feasibility and development decisions. Now, who would like to address the second part of the question?

If you want, I can do it. I assume you're referring to the Zante claim?

Yes.

Okay. Yes. So I don't know if you know the background of it. But basically, the way it works in Colombia is when they did their cadastral layout, originally, it was all done in paper copy, and then they switched over to an electronic copy. And during that, some of the claims didn't line up when they put them in the computer. Zante kind of jumped in there and said that they would like to claim a small portion of that. The government has rejected that outright. Right? They said that that's not the case, and there's really not an open area. And even if there was an open area, that small area, you could never develop it anyway. So they don't think that it's a real thing. Zante has filed a suit against the Government of Colombia saying that they don't agree with that. The government themselves say, it's without merit, right? We've asked to join that case as Gramalote as an interested party, obviously and once again, I think our internal view is that there's no merit to this case at all, and we just got to play itself out.

In light of this ongoing situation, is there a way to continue with construction progress, or does this issue need to be resolved first?

Well, I'll answer it from a non-legal perspective and then they can correct me. But my understanding, the government wants this project to go forward expeditiously, right? They're pushing us even harder than we're trying to go. So I don't see any way where the government tries to stop us from developing this project. Legally, what that means, I guess that's a question for Roger and/or Randall.

Hey Josh, to follow up on your first question, I was trying to recall the timing of the call. We made our very first ordinary dividend payment to the Malian government just before the end of the year. So, part of that $9 million you're mentioning includes about half of that as the initial government share from these ordinary dividends. I mistakenly thought it was early January, but we actually completed it just before year-end.

Hi, Clive and Bill, thanks for taking my call. First question is for Bill. So Bill, at Fekola you mentioned before you were testing higher throughput rates in December. I was wondering if you could give us an update on how that's going. I heard you say earlier, it looks like maybe you can do 8 million tonnes per year, but what are you finding based on your testing you've done so far? Can it go higher? Or where are you at?

Yes, we believe we can achieve higher throughput. Currently, we are operating above 8 million tonnes per annum. However, I want to caution everyone that our original design was for 7.75 million tonnes per year. We're performing above that level now, but we lack experience at these higher rates. While we prefer to state that we can maintain 8 million tonnes per year without specifying a maximum, we see potential for higher numbers. That said, factors like maintenance, spare parts management, and downtime all need consideration, aspects we are still trying to assess. Therefore, I'm hesitant to provide a maximum figure at this time.

Okay. Fair enough. So the guidance for 2020 calls for 7.75 million tonnes per year run rate. And so when you mention Cardinal to add on additional 250,000 tonnes. To get 25,000 ounces, I just ran some math here. It looks like you'd be grading about 3.3 grams per tonne, which would be well above the guidance grade of 2.3%. So is that right? You're sort of thinking to get that 25,000 you'd be topping 3 grams per tonne from Cardinal?

Yes. I would say, yes, but maybe Randy can correct me.

It seems that achieving 8 million tonnes per year will likely see 250,000 tonnes at capacity, but is there any other potential from Anaconda? I believe this was discussed in previous calls.

Yes, there is definitely potential from Anaconda. However, it is important to note that it falls within a distinct license area, which brings its own challenges. Currently, we are conducting an internal study to evaluate the situation. Randy Reichert is overseeing this study with the goal of obtaining a bulk sample from Anaconda, as we view this as a long-term opportunity rather than a short-term issue. We believe there is a significant resource at Anaconda, but it requires time for drilling. In 2021 and 2022, we have seen some fluctuations, but there is potential to extract additional ounces from Anaconda. Our strategy is to permit a bulk sample, considering that much of it involves sample layer calculations. This raises questions about the total tonnage and the ability to add sample layers on top. We expect to take a substantial bulk sample from Anaconda in the latter half of the year as a test, which will inform our projections for 2022. Therefore, we do anticipate additional ounces from Anaconda, which I have mentioned before, with further opportunities in 2022.

No, I would say not at all. Gramalote is definitely our top priority ahead of Kiaka. If we receive the results we're hoping for from the study and move to the drilling phase, that will be our main focus. It’s important to note that everyone involved, including the local communities and governments, is eager for this mine to proceed as quickly as possible. They've made their expectations very clear. Gramalote is prioritized in our pipeline because it’s ready to advance, and we're looking forward to starting the feasibility study soon. There’s considerable anticipation from the local population and government regarding when construction will begin, which we are aware of. While this isn't the sole factor driving our decisions, we have a supportive government and community, a strong joint venture, and a dedicated construction team ready to mobilize. More importantly, Gramalote is projected to significantly contribute over 200,000 ounces annually to B2Gold, and we can fund our share of the estimated $450 million capital cost over the next 2.5 years, partly through cash from operations and possibly financing some equipment over five years. Kiaka is also on our radar, with the governor of Burkina Faso showing enthusiasm for investments, especially in gold mining, which has proven resilient during COVID. We’re coordinating with the government, with team members meeting next week to discuss advancing our feasibility study, aiming for a review by mid-year. We have always maintained that we will not split our construction team to simultaneously build two mines, as maintaining focus is critical to our success. If both studies yield positive results, there are options to bring in a partner for Kiaka or sell the asset. We’re considering the sequencing of operations, potentially having the earthworks team shift from Gramalote to Kiaka once construction begins in Gramalote. While some may be alarmed by the anticipated capital expenditures over the coming years, we have various plans for Gramalote based on the favorable study outcomes we expect with our partner. For Kiaka, we have numerous options depending on its potential. We have a solid track record of growth through acquisitions and exploration over the past 13 years, and these two assets currently hold limited value in our share price, which is understandable for now. However, we aim to grow the company responsibly and will not rush into any reckless decisions regarding its development. We have a disciplined approach, and while some may critique our capital expenditures, we are confident in our strategic direction and plan to ensure returns for our shareholders without taking on excessive risks.

Okay, great. That’s very helpful. So that’s all for me and congratulations on a strong 2020.

Thanks a lot, Don. Appreciate it.

Hi, good morning everyone. I have another question regarding Cardinal. You mentioned the potential impact for 2021. Looking ahead, is the objective at Cardinal to maintain the 500,000 ounces at Fekola for a longer period, or is there a possibility of increasing production in the coming years?

Well, that really gets into what the ultimate resource looks like. I don't think there's an initial resource coming out, but the ultimate resource is still some time away from being developed. I would probably turn that over to Tom.

Can you hear me? The resource you’re currently working on for grade control will be completed in a couple of weeks and will be classified as inferred. We intend to leave most of that resource for exploration drilling this year, as we have some targeted drilling focused on the ore shoots to trace them down plunge. We also have plans for deeper exploration drilling and some grade control style drilling within our exploration budget. This year, we have nearly 12,000 meters of diamond drilling and around 6,000 liters of RC drilling planned for Cardinal. We still view it as an exploration opportunity, but it's important to note that we are still in the early stages at Cardinal, which was discovered last year and is now beginning to be mined. I’m not expressing any dissatisfaction; I just want to highlight that we’re at a very early phase. The final size of the resource is yet to be determined, but it is part of our active exploration program. I'm not sure if that fully addresses your question.

No, that's helpful. So beyond the bulk sample, is there any plan to keep it in the mining plant in the near term? Will there be a bulk sample followed by a break, or can you continue mining as you progress with the exploration?

No, I didn't say that. The inferred model that we're going to have is going to be incorporated into the planning by the mining department. We don't plan to turn that into all indicators. They're already doing grade control drilling on it, and we'll continue to follow that, and then we'll continue to drill it deeper.