B2gold Corp Q3 FY2021 Earnings Call

Good morning and afternoon. My name is Sylvia, and I will be your conference operator today. At this time, I'd like to welcome everyone to the B2Gold Third Quarter 2021 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. Mr. Johnson, you may begin your conference.

Thank you, operator. We welcome everyone to our third quarter and interim results call. I'm just going to make a few opening remarks and then pass it over to Mike Cinnamond to walk you through the financials and then we'll open it up for any questions. As you can see from the release, we had another strong quarter in the third quarter despite the challenges of COVID and some inflationary pressures on the cost side, so we're pretty pleased with the results of what we're seeing. Leave us in a very strong financial position now and going forward, being strong in cash and debt free, and looking to generate some $650 million over the year from cash flow operations. Mike will go through the details on that. The books for the company going forward will continue to optimize responsible profitable gold production. We're going to continue to advance our development projects, obviously Gramalote; we're looking at a feasibility study by the second half of next year and we've had some positive results from our engineering reviews so far. We're also drilling away, looking to turn some more inferred into indicated resources, so we can divide the capital potentially over time. We think that's heading in a positive direction at Gramalote. Another aspect that has us excited is the potential we are seeing from Menankoto in the Anaconda area 20 kilometers north of Fekola. The excitement there is the ability to start hauling saprolite weathered material the 20 kilometers from the tackle down to the Fekola mill, which has been running extremely well. It can definitely process saprolite material because it's softer material on top of the hard rock. So we see the potential there about the second half of next year to start hauling more. Also, obviously, the biggest excitement has been the Cardinal discovery, 500 meters from Fekola on the same licenses. We received a permit from the government to start mining there, and that can add to production as well, so positive developments there in the short term. In the longer term, we continue to have productive conversations with the Government of Mali to resolve that situation where we hope in the next few months, to see our license extended or renewed for Menankoto. That will be an important part; we mentioned that Menankoto has a separate license so we can start hauling from there while also drilling both. Extensive drilling is ongoing at Menankoto, and we are seeing very good results. Our target there is to see if we have in the sulfides below the saprolite the potential for Fekola type sulfide mineralization. We're starting to see that now in some of the recent drilling as well. We have a very substantial, aggressive, but high-quality exploration budget, some $65 million which is obviously continuing to target the areas we've done well for a long time and you've seen some good results coming from the drill bit. We are seeking M&A opportunities; we're always looking but I would say that we're looking at a few different opportunities that might increase our production through an accretive deal or could add another development project. We're happy to announce a sale to West African mining of the Kiaka Project in Burkina Faso, which we felt was a positive move. We are focused on what we are doing while wanting to be involved with projects we value. Recently, we received a three-year extension of the Bantako license demonstrating our good relationship with the Government of Mali. Overall, we look forward to positive resolutions in the near term. That’s all I have to say for now. I’ll pass it over to Mike and he can walk us through the financials before we open it up for questions.

Okay, thanks, Clive. So I'll start by walking us through the results for the quarter, some commentary on year-to-date, and how we see the year panning out. Firstly, for the quarter, revenues were $511 million, based on the sale of 287,000 ounces, at an average selling price of $1,782. Year-to-date, our average selling price for sales stands at $1,794 per ounce, which closely aligns with our cash flow guidance, reinforcing we're still on track. On the production side, we had a good quarter; consolidated production including our share of Calibre was 310,000 ounces, 21,000 ounces ahead of budget. Reasons for this include higher mill throughput at Fekola, which has seen an increase in production due to low-grade material from stockpiles filling additional mill feed. Overall, Fekola produced 166,000 ounces in the quarter, beating our budget by 10,000 ounces; Masbate produced 61,000 ounces in Q3, and Otjikoto produced 69,000 ounces, 2,000 ounces ahead of budget. Regarding costs, we came in right at budget, with consolidated cash costs at $445 per ounce. While we are seeing general cost inflation across our sites due to the environment, stronger production helped offset these higher costs. Year-to-date cash costs consolidated, including our share of Calibre, are $556 an ounce, which is about $14 less than budgeted. All-in sustaining costs year-to-date appear to be $795 an ounce, just $14 over budget, which we attribute to timing of CapEx. Given the positive production results, we have updated our production guidance for the year: the range is now between 1,015,000 and 1,055,000 ounces. For the cost side, we believe we'll maintain cash costs within the guidance range of $500 to $540 per ounce. As a final note, I want to emphasize that we are well-positioned with strong production performance and cash generation. This supports our expectations for a solid Q4 leading to a successful year overall.

You mentioned the dividend, Mike?

I did.

I was looking at something unclear. Okay, thanks, Mike. We're going to open up to questions soon. I just want to say that we are very pleased with the third quarter results, and I believe many of our shareholders will feel the same way. For analysts, we know your job is challenging with many companies to cover. It's disappointing to see a $0.01 miss on earnings per share reported as a miss for Q3. I think it would be good to approach this differently. It does a disservice to our shareholders, potentially triggering algorithms that can lead to selling. There’s definitely a better way to handle this. That's just my comment for today. Now, let's open it up for questions.

And your first question will be from Tyler Langton at JPMorgan, please go ahead.

Good afternoon and thanks for taking my question. I guess maybe just starting with cost; you mentioned that costs were a little bit higher than budget levels in Q3 but offset by strong production. Can you elaborate on how you see costs trending in Q4 and heading into 2022?

I can give you very high-level thoughts on it. We are seeing fuel price inflation, so year-to-date, it’s probably close to 10%. But we have fuel derivatives in place that offset about half of that cost right now. We expect overall cost inflation to fall in the 5% to 6% range for the year. Our production has increased against budget somewhere in that 4% range, which helps mitigate costs.

Just to add, shipping costs are up significantly this year and will carry into 2022. Labor is also applying inflationary pressure as employees are asking for pay raises. We've locked in increases for employees at Fekola, guaranteeing it at around 5% per year over the next three years. Similar discussions are underway for Otjikoto.

That's helpful. Regarding production at Fekola, I know you've given formal guidance, but could you talk about how you view production with Cardinal coming in and what moving parts could affect production over the next several years?

We're in discussions about Cardinal, which has an inferred resource of over 600,000 ounces. We see production from it over the next four to six years. We're also drilling off the 2022 production into reserves, aiming to be ahead a year with these estimates. Currently, Cardinal is projected to contribute roughly 60,000 ounces. Given some developments with Anaconda, we could see additional ounces coming in the next few years. Overall, we expect 2022 to be strong.

Thanks. I want to ask about the Cardinal grade expectations. Earlier this year, there were indications that the initial feed would be about three grams, but now it seems to be closer to one and a half grams. Can you clarify this difference?

No, I believe the inferred resources reflected the expectations we had. In 2022, we anticipate an increase with grades exceeding two grams per ton as inferred becomes indicated. We have specific resource plans for it and will report accordingly.

So regarding M&A opportunities, are you focused on development projects or operating mines, and can you share any insight on your criteria for what would be considered accretive?

Yes, our approach continues to look at both development opportunities and potentially operating mines with room for improvement. We are cautious about overpaying but are open to special situations. Our cash position and available bank access mean we could engage in a mix of cash and stock transactions for acquisitions, keeping shareholder dilution in mind. We're interested in projects that we can convincingly argue are accretive.

As for your ESG initiatives, can you explain how the solar power project impacts Fekola and whether you have plans to expand it?

Solar power has a significantly lower operational cost compared to HFO generation, and we expect improved performance as we enter the high iridescent months. We may consider expanding solar at Fekola or potential opportunities at other sites in the future.

Exactly, we are always looking for ways to increase our operational efficiency and sustainability through solar and other initiatives. We’re committed to keeping ahead in ESG.

Regarding Gramalote, could you share insights on the timeline for moving forward given the current economic climate?

We're closely monitoring economic factors while updating our feasibility studies. If the project remains economically viable and the government supports it, we will proceed. Inflation is a consideration but our historical track record leads us to be confident in pursuing projects with strong economics.

With multiple ore sources like Bantako and Cardinal, are you comfortable with the capacity at Fekola to exceed 9 million tons per annum in the mid-term?

There is room to exceed capacity, but it would require significant additional work and cost assessments. We will also evaluate the potential for additional milling operations based on surrounding resources.

We’ve continuously expanded and improved our production capabilities, and we will explore all options to ensure we maximize output sustainably.

Thank you. At this time, I would like to turn the call back over to Mr. Johnson.

Thanks, operator. Thanks everyone for the good questions. If you have any further inquiries, don't hesitate to reach out. We look forward to reporting another great quarter at the end of the year. Thank you for your time.

Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. Once again, thank you for attending.