B2gold Corp Q3 FY2022 Earnings Call

Good day. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the B2Gold Third Quarter 2022 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, Michelle. Welcome, everyone. We're here to talk about the financial results for the third quarter of 2022 as we released them last night. I'm going to hand over to Mike shortly to talk about the financial results, and then Bill Lytle will give us an update on operations. As we previously announced in the production release for the third quarter, we were less than budget in terms of our ounces produced. There are reasons for that which are detailed in the news release and we'll discuss them as well. Primarily it was much higher than expected rainfalls, making it difficult to mine, which impacted our ability to access some higher-grade material that was projected in our budgets. Additionally, another main factor was being behind schedule at Otjikoto. We had a contractor who was not performing, so we replaced them with a better contractor, and both of these issues are being rectified as we speak. In fact, at the Fekola mine, and subject to final auditing, we produced approximately 77,000 ounces in October. This is a significant improvement with access to better grades that we couldn't reach before because of the rains. This is the kind of performance we expect for each of the months in the fourth quarter, which brings us back to our projections. Therefore, we have announced that we are very confident to say that we are still on target for our consolidated annual guidance, both for production and in terms of operating all sustaining costs. On a positive note, if you look at the first nine months of the year, we had a strong first half of the year, and at the end of the third quarter, we were very close to budget regarding operating and all sustaining costs, despite the third quarter being less than anticipated. The key takeaway is that some of our fixed costs were divided across fewer ounces due to production shortfalls as discussed. Hence, you will hear more about why we are so confident in returning to our previous performance in the fourth quarter and beating our year-end guidance. We have a record of five years of meeting our own budgets quarter by quarter. Although it's disappointing to have a quarter where we fell behind, we are catching up. Today, we will also hear from Bill regarding the Anaconda update and the exciting progress we are making. There were some external drill results at the Fekola Complex, and we are very seriously considering building another mill to focus on saprolite material in the north, which can dramatically increase annual gold production from Fekola. We announced officially that AngloGold Ashanti and ourselves have decided to put the Gramalote asset up for sale. We had previously discussed our detailed reasons for this decision; despite our attempts to improve the project through cost-cutting measures, capital cost inflation affected its viability. We had hoped to do further drilling to potentially upgrade the resource, but that did not happen, and we have concluded it did not meet our economic criteria. This aligns with our corporate strategy of recognizing areas that should not remain our priorities, including vending the Nicaragua assets into Calibre, which have been successfully handled by them. Those projects are now small for us, just as the deal we did in Burkina Faso for West African Resources to hold shares and support them in building a successful project. Going forward, we will focus on catching up in production in the fourth quarter, delivering a good quarter, and we will keep our focus on the upside potential in the Fekola complex. We are also looking for other exploration opportunities, engaging in more partnerships with junior companies to help fund their exploration programs, while offering technical assistance. This is a strategy we believe will be beneficial in the current market. We are also open to M&A opportunities; however, we do not feel an urgency but are always looking for the right fit. We have a commitment to seek out accretive deals that make sense for us and our shareholders, leveraging our expertise, financial strength, and construction experience. Lastly, concerning M&A, I do think it’s crucial to find the right oil and gas partner, especially given the threats in the gold sector from financing alternatives that are expensive and can be detrimental to shareholders in the long run. We hope to encourage companies to recognize the value in collaborating with firms like B2Gold for reasonable financing terms and moving towards a merger. That would allow projects to advance without compromising the future of shareholders. With that, I will pass it over to Mike Cinnamond to provide an overview of the highlights from the Q3 results, and as I mentioned, Bill will discuss operations. Our executive team is here today, and we will take your questions afterwards. Mike, over to you.

Thanks, Clive. Clive has set the tone for the Q3 results and provided a contextual backdrop for the quarter year-to-date. I will focus on putting this quarter in the context of the half-year and where we expect to be for the full year. As reported, production was down 45,000 ounces in Q3 on a consolidated basis. This decrease is largely due to a temporary change in mine sequencing driven by seasonal rainfall limiting our access to higher-grade ore in Phase 6 of the Fekola pit. We also had identified delays getting into the Wolfshag Underground’s higher-grade ore, resulting from lower development rates earlier in the year. We have replaced our mining contractor there, which has allowed us to accelerate underground development, and while it's now on budget, it has resulted in production at Wolfshag being pushed into Q4. Essentially, it’s a sequencing issue. For the whole year, we expect to see this reversed in Q4. The forecasted grades for Phase 6 from the Fekola mine are between 3.4 grams and 3.5 grams per tonne, leading to increased production metrics. In Q4, we anticipate Fekola mine grades surpassing 3 grams per tonne. We are currently in the higher grade of Phase 6, and at Otjikoto, we have commenced accessing stope ore, while also developing higher-grade portions of the Otjikoto pit. These factors contribute to the expected rise in production. We still anticipate meeting our original production guidance range of 990,000 to 1.55 million ounces on a consolidated basis, which includes Calibre. We continue to expect a significant output from Fekola and Otjikoto while maintaining business as usual at Masbate. Regarding the operating results, you may notice cash costs and all-in sustaining costs were higher across all sites, which is expected due to the lower Q3 production. Costs in the quarter were also impacted by higher-than-budgeted fuel costs and other consumables, with fuel being the primary driver. However, lower haulage costs and a weaker Namibian dollar benefitted our costs at Otjikoto. For the full year, we expect to meet our original conservative guidance ranges for cash costs and all-in sustaining costs. Specifically, we forecast cash costs could be at the upper end of the range of $620 to $660 per ounce. Once again, that is dependent on getting back to our production numbers. We still anticipate we're well within our original guidance for the year, so our ongoing review indicates a positive trajectory toward meeting goals. We have continued to consolidate licenses and are focused on integrating these new licenses into our production plan. Bill will elaborate more on the Anaconda project, including the phases of trucking and building a potential new mill. On the financial side, we have experienced a foreign exchange loss of $8 million in Q3, resulting from local currencies weakening in Mali and Namibia. We also noted a significant deferred income tax expense, primarily from currency translation in Namibia and Mali. Today, we've reported a loss of just over $21 million or $0.02 per share on a GAAP basis; however, when excluding non-cash or significant non-recurring items, we had adjusted earnings of $31 million or $0.03 per share. Cash flow from operations was $93 million. While we expect higher cash flow in Q3 and Q4, it's weighted heavily towards Q4 due to anticipated higher grade production. On the investing side, CapEx amounted to $55 million for the quarter, with expectations of catching up in Q4 to meet budgeted guidance. As of the end of the quarter, we are in solid financial shape with $550 million in the bank, our revolving credit lines undrawn, and essentially a debt-free balance sheet. Overall, our positioning remains strong, and we anticipate continued positive results into next year.

Thanks, Mike. Okay, we'll pass it over to Bill to give us an indication of Waihi and the operations team are so confident about our ability to meet our projections.

Yes, thanks Clive. As Mike and Clive mentioned at a high level, two key issues impacted us: the Underground operations at Otjikoto, which have been a known factor since Q1, and the water issue at Fekola. Starting with our three operations, we anticipate no issues at Masbate for Q4, expecting to meet the lower end of our uplifted guidance there. Otjikoto has seen improvement with a new mining contractor starting in April. They reached the required production metrics as of June, and we have now accessed some stope ore. Thus, we expect a strong Q4 for Otjikoto. At Fekola, we had a significant month in October, with over 76,000 ounces produced and, as we progress into Q4, we anticipate further production with grades exceeding 3 grams per tonne. We have eliminated the water issue in the pit and do not foresee any complications for November and December, maintaining production rates similar to those seen in October. Regarding development projects, we are finalizing permitting for Phases 1 and 2 at Anaconda, where we initially plan to truck high-grade saprolite material to Fekola. All necessary equipment is on site, and we are preparing infrastructure such as warehouses and shops. We aim to put Anaconda into production next year in Q2. We are also developing the underground at Fekola, with a contractor already on site scheduled to start development by January in Q2 next year. Regarding additional long-term projects, we are conducting Phase II studies for a new mill in Anaconda, assessing both oxide and potentially fresh rock sources, with results anticipated by Q2 next year. We assess our reliance on HFO at Fekola ongoing, aiming to minimize generator usage during daylight hours by switching to solar energy. Our Anaconda project includes planning for solar energy development. Dandoko is scheduled for development in the latter half of 2023. However, we are observing similar grades emerging from Anaconda, providing us with options for sourcing high-grade material.

Thanks, Bill. Just before we open for questions, I want to mention the exploration results we've seen from the Anaconda region. These results indicate the potential for building a second plant for oxide processing, which could significantly enhance production levels from Fekola. We are optimistic about the exploration potential, with multiple targets across the 25-kilometer belt we now consider part of the Fekola Complex. We continue to expand our oxide through exploration and detailing prospective targets through drilling, including promising results from the Mamba area. Our significant drilling programs position us to uncover more gold. We will now open the floor for questions.

Your first question comes from Lawson Winder of Bank of America Securities.

I wanted to start off with a question on M&A. As you search for potential acquisitions, are there opportunities today? What geographic areas are you targeting, and how large of an acquisition are you considering?

Sure, Lawson. The good news is we remain open to opportunities across various stages, reflecting our successes and technical strengths. We can track everything from early-stage exploration joint ventures to larger development project acquisitions. Our disciplined approach to due diligence means looking for accretive opportunities that align with our operational and financial capabilities. Whether considering mergers with other producers or developing projects, our history supports our method. While certain companies may seem appealing, we are cautious as many lack the necessary financing or technical support. As long-term investors, we are careful to protect shareholder value and appreciate the risks that certain financing avenues may present. However, we're assessing a range of opportunities and aim to follow our established approach without feeling rushed to make decisions.

I might just ask two more questions regarding the Mali mining company audit. Can you discuss the nature of that, and whether you expect potential changes to the mining code?

Yes, the audit is quite comprehensive, focused on the interactions between mining companies and governments. We are well-positioned concerning this audit. Rumors of new mining code proposals exist, but there's greater emphasis on improving the understanding of benefits accrued by Mali from mining. Overall, we view it as a positive exercise for clarifying these relationships and enhancing transparency.

I believe it aligns both companies’ interests. While it's common to approach audits cautiously, this one is positive as it's an effort on the government’s side to quantify their benefits from mining endeavors.

This is not seen as a predatory audit; rather, it serves as a means to reinforce the positivehistoric relationship that has developed. It's important to acknowledge that the benefits of mining significantly outweigh the costs, with our contributions to the economy and communities being substantial. We maintain trusting relationships with our partners and government authorities.

Fantastic. One final question regarding cost expectations for the Fekola Complex development in 2023. Can you provide a sense of the CapEx and cost directions heading into next year?

I would appreciate some discretion here as we’re just beginning our studies. We have considered earlier preliminary estimates around $300 million for these expansions, but new data will refine these figures as we proceed. We are also factoring in significant projects, such as our tailings facility. Thus, expect to see proposed CapEx soon. It's premature to disclose specific amounts until the process is fully engaged.

I would like to receive more color on Otjikoto's grades and tonnages expected at Wolfshag this quarter. Should we anticipate a pullback next year?

Regarding the Underground operations, we expect grades in excess of 6 grams per tonne in Q4. Tonnage for the year is projected around 73,000 tonnes.

For long-term operations in the Underground, we're targeting an output of around 1,000 tonnes per day, with variances as we establish operations.

Could you also elaborate on production cost expectations moving into next year in relation to inflationary pressures?

We are reviewing operational costs and each aspect, including fuel, shipping, and others. While there may be some offsets in shipping costs, we will have a clearer picture in another quarter as the budget process unfolds.

I would ask about Q2 cash flow guidance tracking. What is your outlook for cash flow for the remainder of the year?

We may see some adjustment based on current market conditions, but we will better gauge the grade and production metrics in Q4 before any firm guidance.

We have commenced producing ore from stopes recently and expect strong support from there shortly.

We expect a visible increase in grades between 4 to 6 grams per tonne, but further updates coming down the road once full operations are underway.

There are no further questions at this time. I will turn the conference back to you.

Thank you, Michelle, and thanks everyone for joining us today. Have a great day.

Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.