B2gold Corp Q1 FY2023 Earnings Call

Good day and thank you for standing by. Welcome to the B2Gold First Quarter 2023 Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question and answer session. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Clive Johnson, President, CEO and director. Please go ahead.

Good morning and good afternoon, wherever we are everyone. And thanks for joining us. We are here today of course to talk about the B2Gold Q1 2023 operational and financial results, we had another strong quarter of operating performance which led to some very positive financial results. Mike Cinnamond, our CFO, is going to walk you through that, and then Bill Lytle, our COO, is going to update us on the Back River project status and talk a bit about the Fekola Complex expansion projects looking on, and then Victor King, Senior VP of Exploration, will talk to us a little bit about exploration plans for the Back River, which approves a large exploration budget. We will also update on the progress in terms of exploration in the Fekola Complex. And then we will open up for questions after that. So with that, I will hand it over to Mike Cinnamond.

Thanks Clive. So I will walk you through the operating results first and the cash flows. On the revenue side, we sold 4,000 ounces more than we budgeted, for a total of 249,000 ounces from our operating mines. And the good news is we had an average price of just over $1,900 for the quarter. When we budgeted, we had $1,700, so we are very happy to see that $200 increase. Obviously, gold prices continue to increase as you know today. On the production side from all the operations, including our share of Calibre, we produced 267,000 ounces, and from our three operating mines, 251,000 ounces, both of which were 5,000 ounces ahead of budget. Most of the 5,000 ounces were spread pretty evenly across the three operations. Fekola had 166,000 ounces; production was higher than we expected it to be because we had favorable higher grade material coming from Phase 6 of what Fekola did, and the grade was 2.47 grams per tonne, which is right on budget. Masbate was pretty much as planned, but the grade this year is lower than it was in the comparable quarter last year as we know; the peak grade was 0.95 grams per tonne. Otjikoto had 38,000 ounces, slightly ahead of budget. Again, we expect to be in some of the higher grade portions. We will check underground mine, but a reminder to Fekola as we look to the balance of the year, it is more weighted to the second half of the year, as we get into more high-grade material and Phase 4 of the Otjikoto pit, plus continued high-grade from Wolfshag. But overall, good results; production was pretty much on target per budget. Cash costs, we actually did considerably better than budget, so on a consolidated basis from all operations, total cash costs were $600 an ounce, which is $85 ahead of budget. For our three operating mines, it was $576 an ounce which was $88 lower than budget. Looking at the individual operations, the objectives at Fekola were two main reasons why it was significantly lower than budget. One was that we mined less material in the period due to some of the tighter working conditions in Phase 6, including only having one ramp available for haulage, which has now been resolved in April of this year. We also had lower fuel costs. The mining tonnage shortfall is expected to be caught up over the balance of 2023. Masbate again was $176 an ounce below budget, a function of slightly higher than budgeted gold production and significantly lower than budgeted diesel and heavy fuel oil costs. We have assumed that the current indicators show prices have dropped a bit; while the forward curve is not in backwardation anymore for fuel, it is pretty flat. We may see some benefit as we roll through the balance of the year. The all-in sustaining costs, including our share of Caliber, were $1,060, which is $146 lower than budget and the same story from our three standalone operating mines, which is really a function of the lower cash operating costs. Timing of CapEx saw Q1 below budget, sustaining CapEx was $10 million below what was budgeted for the completion of the TSF rates and some of the other fleet equipment rebuilds. That is just timing, and we expect to see all of that reverse as we go through the balance of the year. In terms of operational comments, I am going to touch on the polar complex generally. We continue with the polar regional developments through the period. As announced in our news release, we have done much drilling on the polar regional area, and we sourced results to put into a new resource for Anaconda. That results have taken a bit longer to produce. The result for the polar regional Phase 2 mill study is now expected in the fourth quarter of 2023. On the Otjikoto side, we continue to develop, and we have a scheduled ramp down in 2024, winding up in 2025, based on our current plans. On the Gramalote Project, we are undertaking a joint sales process with our partner and that process is progressing well. We expect to wrap that in the next month or two, with the aim to complete that process before year end. We also have some disclosures regarding the acquisition of Sabina, and we will put in the purchase price allocation in Q2 when we publish the results then. After completing the transaction, we revisited several financing obligations and cancelled the off-take agreement and the facility they set up, and we rode out one-third of the streaming agreement with Wheaton Precious Metals at a total cost of $111 million cash. That will be seen in Q2 results. Overall, we finished the period with $673 million in the bank, minimal debt, and I think that is the highlights.

Thanks, Mike. Mike covered the operational stuff quite in-depth, so I’m not going to talk about any of that. But just quickly discussing the Anaconda Phase I study. I think everyone is aware that it was initially talked about potentially putting out a PA in Q2, but that has now been moved to Q4. This is based on some of the exploration success we have been seeing. What I would like to expand upon is that it’s not just the exploration success. As you know, the Anaconda Phase 1 or Phase 2 study is really about the oxides, but they are also having success on the sulfides. We’re talking about doing an integrated kind of regional complex where we look at everything and give you an update not only for what will happen at the oxide plant but also with sulfides. All that needs to come into play, and we are aiming to put that out in Q4 this year. Related to what is currently going on there, the Phase I trucking program is taking up between 80,000 and 100,000 ounces a year down to Fekola while we are finishing the study and building Phase 2 if that is what we choose to do. That project remains on-track. All of the roads are in now, and we are just finishing up final culverts. The infrastructure is being built. We have received our ESIA for the Phase 1 study and are currently waiting for them to finalize their feasibility review and issue the exploitation license. What I can say is that, right at the end of Q3 or beginning of Q4, you will start seeing ounces coming out of there. And what I will say is just because that is what the study says does not necessarily dictate what we will do. We will prioritize the highest-grade ounces with the highest NPV to process first, and right now there are about 18,000 ounces we anticipate in 2023 coming out of the Anaconda Phase 1. Anything else on that? Okay. Sabina, everyone is aware that Sabina closed kind of in the third week of April. Since then, we have been extremely busy. Some of the questions that we got early on, when people were asking about the deal, we think that we could bring the B2Gold construction team back together to build this one. I can say, with pleasure that almost everyone jumped at the opportunity to come back. We have all of the necessary people in place, including Karen Lofgren and Tom Carter, who have been with us for the last 20 years constructing all our projects in Far East, Russia, Africa, and Nicaragua. They are busy assembling the rest of the team, and I feel very strongly that we have the right team to execute this project. We are still calling for it to be on time; we are still looking at a Q1 2025 commissioning date. Regarding logistics, everyone is aware this is a logistics project even more than a mining project. The winter road this year was a success; while they said they needed 1,200 containers, they had 600 critical path containers. They brought in more than 800 this year. So we have all the necessary equipment and supplies to keep on schedule. The intent this year is to get the camp up, which they are already doing. The kitchen is already up, and they are getting ready to run power into the kitchen. The wings will come up next, and we are expecting an early July date for the opening up of the kitchen or the first phase of the camp. Over the coming weeks, they will finish it up, going into August. We are set to pour concrete this year for the warehouse, mill building, and potentially the powerhouse. All that concrete is on-site, and we are currently scheduling in which order we want to do them. Regarding orders for 2023 and 2024, we remain on schedule, and we are targeting an early opening date for the winter road next year; we will possibly have 2,000 containers we want to bring up the road early next year. We have worked with the former Sabina team to ensure this happens. We have brought in more trucks and more equipment to operate to open up the road from multiple directions. Additionally, we have extended the airstrip, which enables us to fly in larger equipment directly to the site. Overall, that project remains on schedule, and we plan to update our budget before the end of June based on what we have accomplished.

Sure, I will just touch on our recent symposium in Nunavut, the mining symposium. The timing was really good; we had just closed the Sabina deal, allowing us to introduce everyone there to B2Gold and discuss our experiences during our time in Russia. This message was well-received. It was a personal homecoming for me having spent years back in the Yukon. The most important message we conveyed was continuity. We will keep up with good CSR projects that will allow us to increase our budget while maintaining our financial strength. Many were relieved to hear we could maintain the schedule, as prior concerns grew about the potential of another big company acquiring Sabina and shutting down operations. When we acquired Sabina, I made it clear to Bill that it was up to his team to decide the schedule we could live with.

Yes, absolutely. The quality of the work done by the Sabina team is top-class. I’m happy to say we have virtually retained almost the entire team. We intend to hit the ground running and will be supplemented by people from the existing B2Gold team as well. The budget has increased; our global budget has increased by US$20 million. This is to put it into context; Sabina had around CAD$5 million average exploration budget, so this US$20 million is a significant increase to be spent over six months. We plan to complete at least 25,000 meters of diamond drilling, primarily on the Goose project, which comprises several deposits where we will be focusing on the highest grade, contributing the most to the resource. Some drilling will also be done to improve the density of drilling for underground planning. That represents around $15 million of the budget. An additional $5 million will focus on excellent opportunities in the nearby area. We also have another three project areas that have had economic intersections of mineralization, which we will follow up on. Just to give you an idea, over the last year, we have completed significant drilling in Mali, focusing on infill drilling in the saprolite to move more material into the indicated category to support studies related to the expansion options we’re examining in the area.

One of the tasks we have taken on with this project is generating a new capital schedule and operating costs profile. It is our intent to have those done in Q2. By the end of this month, we will be ready to talk about it. This also includes revisiting the underground methodology and the schedule to provide an update on how far we think we can push this project.

One of the studies that Sabina started will pick up regarding the potential for wind power. We are leaders in the industry concerning solar power, as demonstrated in Namibia and Mali. However, we are currently waiting for a study to be completed. For our strategy going forward, we are pleased with our growth profile, focusing on the expansion and other exciting projects. This confidence, supported by our strong financial position, has fueled our growth and our ability to explore opportunities, including investments in junior companies with promising projects.

Thank you. Our first question comes from the line of Ovais Habib from Scotiabank.

Thanks, operator. Hi, Clive and the B2 team, again congrats on the beat and strong start to the year. It's great to see the development of Back River progressing well. I have a couple of questions starting with the Anaconda Phase 2 study. It appears based on exploration success, especially on the sulfides, that you have pushed out the study to Q4. My question is whether there are plans to change the scope of the project toward a larger processing facility or any guidance you can provide regarding the project's direction.

Sure, Ovais. We aren't looking to put a second mill on; it does need to be bigger and more well-structured. That said, we are definitely not changing the scope of the second mill. We are looking at a 4 million ton per annum oxide mill. However, we did include capacity to expand or eventually add a sulfide circuit if necessary. In general, the sulfides will have to go south to Fekola. Thus, we see this project as part of a regional play that will showcase the complex's potentials.

Clive would want me to mention that we hold meetings with decision-makers and technical experts where we assess various options for our corporate strategy. We had one just yesterday. The outcomes of these meetings indicate that the options on the table hold potential; however, we still need to confirm which direction aligns best with our overall strategy.

Thanks, Bill. Additionally, could you provide color on how operations are progressing at Fekola as we move into underground mining?

Sure; this project is currently considered an exploration project, with ambitions for development. Our progress has involved obtaining permits for surface infrastructure, and we are now working on building the portal and supporting infrastructure. Dennis, maybe you can add a few words as you recently conducted site visits.

Yes, we met with the regulators last week and had a productive session. They've provided us with a short list of questions, and we are compiling those answers to submit this week. The tone of their communication indicates that we will receive the permits to advance on the underground project next week. We have also done outstanding work to get down to the final level, which will provide access for our first blast. Access has been very good, and the project looks first-class. We hope to kick off the first rounds of the underground soon.

I appreciate the insights on that. Moving toward the end of open-pit mining in 2024 and the underground concluding in 2026, are there potentials to extend the life of the underground operations beyond what is currently planned?

The short answer is yes. We have consistently stated there is a resource down plunge that we need to drill off from underground. However, we caution that extending the overall life of the mine is uncertain. There is potential for new discoveries, but findings may not necessarily lead to a longer overall life of mine.

We can discuss the exploration activities occurring three kilometers south of the Otjikoto pit, where we have found interesting intersections. Eventually, these will also necessitate underground mining. The critical question is whether we can develop a resource that warrants further investment.

Thanks for your insights, and also to Bill. That is all for now; I will get back in the queue.

Thank you, Ovais.

Thank you. Our next question comes from the line of Ralph Profiti from Eight Capital.

Thanks operator, good afternoon everyone. I have a couple of questions regarding the logistical success we have seen recently. Is there a mechanism to take advantage of sequencing critical material delivery between the ice road and the sea lift? Also, regarding the early opening of the ice road in February, could you share how the timing of the 2022 season plays into this?

Yes, logistical challenges are always present. As you know, we need to meet our targets to move supplies via the winter road. In the past, we prioritized critical materials, which has enabled us to maintain schedules. Regarding the extension of the hauling season, we have increased the number of trucks and changed our approach this year, enhancing early stabilization on site.

Yes, indeed. In prior years, we constructed many kilometers of ice roads that ache to overcome logistical challenges. With the previous experiences, we are more prepared this year to expedite progress due to better collaboration with the Sabina team.

Thank you. Our next question comes from Justin Stevens from PI Financial.

Hey, Clive and team. Congrats on a good quarter; it surpassed my expectations. I have a few more questions about modeling for the rest of the year. With Fekola's Phase 6 providing a boost this quarter, should we expect a decline in the upcoming quarters as we move through the mine plan?

Yes, we anticipate producing slightly fewer ounces, and consequently, the grade will be lower progressing into Q3 and Q4.

Furthermore, Otjikoto's production is forecasted to help offset Fekola's gradation decline.

Understood. With the Phase 7 strip underway at Fekola, should we expect a steady distribution throughout the year, or a boost in a specific quarter?

We are already stripping in Phase 7, and I expect that to remain consistent throughout the rest of the year.

Regarding the modeling for the Fekola Regional Phase 1 trucking, how should we attribute production with the potential for 10% free carry?

You should assume that the production ends up 80:20, the same as for Fekola. There may be variations depending on how the final agreements settle, but generally, your expectations are correct.

Exactly. Would this be subject to the same independent valuation process as the previous agreement?

That is correct.

Perfect. Finally, for Goose, given that most supplies are to be procured by 2023, should we expect a spike in capital spending mid-year?

We are likely even this year, spending will be distributed throughout the year.

It's been spread evenly across Q2, Q3, and Q4. Our primary concern has been labor and scheduling.

Just to clarify, we have already paid for most of the materials scheduled for delivery. The majority of remaining costs will be tied to labor and scheduling logistics.

That makes sense. Thank you.

Thank you. Our next question comes from Don DeMarco from Nation Bank Financial.

Thank you, operator. Good morning. Congratulations, Clive and team. Continuing with the CapEx query, while it appears evenly structured, can you provide a rough estimate for magnitude in 2023 for Goose? Bill previously mentioned further insights would be offered in Q2, but can you share anything currently?

The current estimates are based upon what Sabina put forward. We are looking at a range between CAD 750 million to CAD 850 million.

Yes, our guidance is between $100 million to $200 million. The total capital will balance over years with focus on physical construction to conclude by Q1 2025.

Is there capability to traverse directly from Vancouver or Edmonton to the project site now with the extended airstrip?

From Edmonton, yes. We currently utilize Dash 8 aircraft for rotation.

Also a site visit for analysts to observe Back River progress is being planned for September, providing a good opportunity to see the airstrip first-hand.

Thank you for that insight, and thanks again for your strong performance.

Thank you.

Our next question comes from CIBC World Markets, Inc.

Hi Clive, congrats on a good quarter. I wanted to inquire about the second area of study, which will be included in Q4 2023. Will the goal be to hit the ground running as soon as the results are out, or will an economic decision on the project be delayed?

While we will need to wait for the study results, we foresee no reasons as of now that our current projections won't hold. If we progress with Phase 2, we expect production by 2026.

Thank you. As a final point, regarding the Masbate unsold output after Q1, should we anticipate that being sold in Q2 or later in the year?

It's a timing issue of customs clearance, ensuring logistics align with quarter end. Yes, the assumption is that it will be sold in Q2.

Good insight, thank you.

Thank you. That concludes today's conference call. You may now disconnect.