B2gold Corp Q3 FY2023 Earnings Call

Thank you for your patience. This is the conference operator. Welcome to B2Gold Corporation's Third Quarter 2023 Earnings Results Conference Call. I will now hand it over to Clive Johnson, President and CEO of B2Gold. Please proceed.

Thanks, Isha. Welcome, everyone, to our conference call to discuss the results of the third quarter of 2023. I'll share some introductory remarks before handing it over. Our Board is here in Vancouver along with most of our executive team. You'll hear from me first, followed by Michael Cinnamond, our CFO, who will present the financial results for the quarter. Then Bill Lytle, our COO, will provide a brief update on our mining projects and development initiatives, including the potential for expanding operations in Mali. Many of you have already seen the results from our recent filing. We are pleased with the results for the third quarter, enjoying another solid performance with favorable costs managed by our excellent operating teams across all sites. Michael will expand on that shortly. Importantly, we are confident that we are on track to meet our guidance for 2023, with plans for a productive fourth quarter centered on Fekola. We'll provide more details on that. We'll also discuss our strategies moving forward while emphasizing our commitment to responsible mining and optimizing gold production from our existing mines, alongside our ongoing ESG efforts. Our focus is now centered on the Goose project, which is progressing well. We anticipate first gold production in the first quarter of 2025, and Bill will provide further updates on this. Exploration drilling at Goose and George is yielding promising results, and we're excited about the updates coming next week. Additionally, we are exploring potential ways to expand Fekola's production by trucking ore from the north, and we’ve discussed the possibility of building a second mill in the future. We're awaiting government approval as they are revising the mining code, which we believe will facilitate our expansion efforts. We've regularly received positive feedback from the government regarding B2Gold's operations in Mali, and we are committed to maintaining strong collaboration with them. Exploration and M&A opportunities remain vital for us. We're planning a significant budget for exploration next year, focusing on both brownfield projects around our mines and new regional explorations, including efforts in Finland and the Philippines. The Philippines presents a promising opportunity for investment in the mining sector, and we see ourselves as part of their emerging success stories. We have a 100% B2Gold-owned exploration company in the Philippines to explore further opportunities. We also plan to invest in junior companies with solid exploration prospects. Despite current market conditions, we are maintaining our strong financial discipline, enjoying a robust financial position while offering a leading dividend yield of over 5% and remaining virtually debt-free. This positions us well for the upcoming year. As for M&A, we're not actively seeking new development projects but are concentrating on optimizing our existing assets, including the recent acquisition of the remaining interest in Gramalote. We're aiming to enhance its potential by increasing its output while significantly reducing capital costs. We believe we can create a viable project producing around 200,000 to 250,000 ounces a year with a smaller investment. A study is planned for next year to evaluate this project further. There is strong local support for gold mining in Colombia, which is encouraging. Now, I’ll turn it over to Mike for more details on our results.

Thank you, Clive. I will provide a report on the quarter and an overview of our expectations for the year along with our guidance for the full year. It has been a solid quarter. On the revenue front, we sold 249,000 ounces at an average price of $1,920 per ounce, resulting in revenues of $478 million. Overall, sales exceeded our budget by about 16,000 ounces, which were taken from opening inventory. We anticipate that trend will continue, leading to slightly higher sales compared to production for the year. In terms of production for the quarter, we produced a total of 225,000 ounces from our three operating mines, which is 8,000 ounces less than our budget due to some interruptions. Specifically, Fekola was about 13,000 ounces under budget, largely due to lower grade and mill feed impacted by significant precipitation that hampered mining of higher-grade materials. However, we are currently processing material that will help us recover in Q4, and we expect to meet our budget for Fekola in that quarter. Both Masbate and Otjikoto are exceeding their production budgets, with Masbate producing 51,000 ounces—5,000 ounces ahead of budget—and Otjikoto producing 45,000 ounces—2,000 ounces ahead—thanks to better grades and higher mill feed. Notably, Otjikoto's better grades are partially driven by the Wolfshag material, which we’ve been mining underground and expect to continue doing until 2026. On the cost side, our total cash operating cost was $741 per ounce produced, which is approximately $50 lower than budget. Fekola was slightly over budget at $688, impacted by lower gold production due to weather factors, while Masbate has outperformed expectations, primarily due to increased production and lower fuel costs. Our all-in sustaining costs for the quarter totaled $1,273 per ounce, around $90 less than budget, mainly due to lower cash costs and higher sales than anticipated. We also see lower capital expenditures than initially estimated, particularly at Masbate, where we expect around $10 million in permanent cost reductions for the year. Regarding production guidance, we are very close to our budget year-to-date, being down 3,000 ounces, but we foresee a catch-up in Fekola for Q4 and remain confident in meeting our production guidance range of 580,000 to 610,000 ounces. For Masbate, we anticipate it will be at the higher end of its guidance range, around 190,000 ounces, while Otjikoto will fall within the 190,000 to 210,000 ounces range. Our consolidated guidance remains unchanged. As for cost performance year-to-date, Fekola is close to budget on cash costs, while Masbate and Otjikoto are significantly under. We have adjusted our guidance downwards for Masbate and Otjikoto's costs, though we expect to come in below the low end of our consolidated cash cost guidance. Fekola's sustaining capital expenditures have increased, primarily due to fleet and solar plant costs. As a result, we might exceed our budget for Fekola’s sustaining CapEx by about $50 million for the year, necessitating an upward adjustment to its all-in sustaining cost guidance. Additionally, we announced our full ownership of the Gramalote project, resulting in a non-cash impairment adjustment of about $112 million. This gives us the opportunity to evaluate a lower scale operation, which we expect will offer higher returns with lower capital intensity. On the Goose project, we have invested $157 million in cash capital expenditures, taking steps to secure necessary raw materials for its development. Lastly, we have incurred $12 million related to severance costs as we approach the end of Otjikoto's open pit operations. The overall income attributable to shareholders is $43 million, with a net income loss of $43 million or $0.03 per share. Adjusting for non-cash items, the adjusted net income stands at $65 million, translating to an adjusted EPS of $0.05. Operating cash flow after working capital was $110 million for the quarter, influenced by increases in consumables and inventory items. Our financial position remains strong with $309 million in cash, and we have drawn $50 million on our revolving line of credit as we anticipate significant capital expenditures for Goose in the upcoming year. That concludes my operational results overview.

Okay. Thanks, Mike. Just maybe a little on Otjikoto, as we said, we're going to be seeing the end of the open pit mining, but we do have some great stockpiles in the future. We've had some encouraging results potentially to continue underground mining more about that as we keep drilling. So there's significant potential to produce beyond when they open pit. We see significant production potential to produce around 100,000 ounces a year in the future than where we're at right now. So we'll see how that develops. With that, I'll pass it over to Bill.

Thanks, Clive. A lot of what I planned to discuss has already been touched on, but I want to provide more details on certain issues. Operationally, Mike did an excellent job explaining everything. The main point to emphasize is that for Q4, we are on track and anticipate a strong quarter, particularly at Fekola as we aim to complete the bottom of Phase 6. Otjikoto is also expected to have a significant quarter. As Mike mentioned, we are on track to meet our guidance. Speaking about Fekola regionally, I want to share some background. Last year, we conducted a preliminary economic assessment followed by a feasibility study, which we presented to the government before they paused everything to review the new mining code and local content law. It's important to note that the study was economic, and the government permitted us to begin building all necessary infrastructure in the area, which is now complete. This is crucial as we move forward. With the new laws in place, the government now needs to create an implementation decree for both. A couple of weeks ago, we had discussions with our team about local content and its implications for us. We identified a path to resolve any outstanding mobile content issues. Currently, we are waiting for the implementation decrees, which we expect either at the end of this year or the beginning of next year. Once finalized, we can promptly submit our documentation in line with the new laws. If the economics remain favorable, which we believe they will, we will consider proceeding to production. We estimate needing about three months after receiving our licenses and government feedback. Internally, we are discussing the timing for later in the year. If we assume Q1 is focused on finalizing negotiations and infrastructure, we should be ready to move forward in the latter half of the year. Regarding Goose, we recently held a successful analyst trip there, and we are pleased with the progress made. We remain on schedule. As a reminder, we previously highlighted some key developments. The camp was completed and opened in early summer. We needed to construct three major buildings: the mill building, the workshop, and the powerhouse. All are now up and undergoing cladding, with three-quarters of the mill already clad. Installation of the mill is ahead of schedule this month as the team is actively on-site with cranes installed to assist. Constructing the mill is progressing faster than expected. However, critical logistic issues remain. All procurement for the 2024 construction season is complete, and everything was shipped and has arrived at the MLA. We have over 3,000 containers ready to be transported via the winter road. The winter road construction team is on-site, and all equipment has undergone maintenance checks; we are just waiting for colder weather. The plan is to begin work in December, continuing through the first couple of months, with transport beginning in early February. This provides us with a sufficient window until early May to ensure everything is delivered. We remain on track. One question raised several times is about the updated mine plan. We have stated it will be released at the end of this year, and it will also be included in our budget for next year. We do not foresee any issues with this. Lastly, I want to discuss Gramalote. Mike alluded to this earlier. Gramalote is a project we've examined several times, always believing it needed to be larger within our permit's constraints. Now that we have full ownership, we can focus on developing the best design for this project. We are considering a smaller scale that one company can operate effectively, while consolidating infrastructure to minimize high resettlement capital costs. Our goal is to commence work in Q1 of next year, aiming to have a preliminary economic assessment ready by mid-year. I want to caution that not all PEAs are created equal. However, we have a robust resource of indicated material. Ultimately, while we will primarily work on infrastructure, we can move quickly if the outcomes are favorable afterward. If there's anything else you'd like me to cover, let me know.

No, I think that's a good update. Bill, I think with that, we'll open up to questions. Operator?

The first question comes from Ovais Habib with Scotiabank.

Congrats on a good quarter. Again, this is despite the rainy season in West Africa and great to see the development of Goose progressing well. It's also great to see costs coming in below guidance as well. So just a couple of questions from me. My first question is regarding the new mining code in Mali. From what I understand, once the decree has been provided to B2, B2 then applies for the permit or the exportation permit and then kind of moves forward with some sort of a trucking option. Does the negotiations that you're having with the Malian government right now impact how you're looking at the stand-alone operation as well? Can you provide a little bit more color on that?

So I'll happily take it. Of course, Ovais, everything has to be on the table now. Certainly, the new '23 code applies to anything regional. Quite frankly, without the decree, we can't really say which way we're going to go, but we have to look at both of them through the lens of the new decree for sure.

What I'm trying to ask, Bill, is if you do get the decree, and you go forward with the trucking option, is there a chance that negotiations could continue and then you get a better understanding of the economics for the stand-alone mill? Or is that kind of set in stone once you get the decree for, let's say, the initial start?

Yes. I think conceptually, what you're saying is right, but we just don't know at this point. The decree hasn't come out, and we haven't had the discussions with the government. Clive hinted at it; recently, when we were down there talking about local content, we did meet with the Minister of Mines. The one thing he said was he likes what B2 does and they do want mining in the country. So how that all plays itself out is yet to be seen, but that will all come from discussions after the decree.

I think one of the interesting things, Ovais, was the fact that Bill touched on it. Even though we were delaying it in the permit because of the mining audit and the new code, the government encouraged us to go ahead and build the infrastructure for trucking ore. Most of the infrastructure is in place, ready to go. The government was anticipating us to go ahead and build the infrastructure, even though we didn't have a permit in hand, signaling from the government that they clearly want to see that happen. Everyone knows that Mali is looking for increased revenue during difficult times. Gold mining and the 20% ownership potential under the new code of the area about potential expansion areas of the Fekola Complex in the North are of great interest to the government regarding increasing revenues. They should be highly motivated to get permitting in our hands and get mining as soon as possible. So we're encouraged by that, and we'll see how the discussions go.

Switching gears, I guess, to the Goose project. You guys were doing a lot of exploration work drilling in the area. When do we expect some results, and how are those results looking so far?

Yes. I think we touched on that earlier, but we are seeing results from a lot of drilling that has been ongoing. We're going to have new results for you next week, which will give you detailed updates on what we're seeing from that Goose drilling down including some assets. We're very encouraged by what we're seeing so far, replicating some of the grades before and also looking further down plunge and further opportunities. We're very optimistic about the potential. As I said earlier, Sabina, understandably, as a company trying to build, did not spend a lot of money on exploration, which was $5 million a year. We've had over $20 million this year and even looking for more into next year. You'll get a good update on that next week.

Regarding the drilling, when we were at that site, you gave us an update on the underground development that had already been completed. Is there any drilling taking place from underground, or is it mostly surface drilling right now?

The plan is to develop towards the ore first. The priority is to drill from the surface. As soon as we have the opportunity to drill from underground, that will happen. There is already an underground rig on site, so as soon as we can, we’ll replace that surface drilling with underground drilling.

I just wanted to go a little bit further into the options for Fekola. I know you touched upon it a little bit, but could you reiterate where you think additional ore sources would come from? Should you not get your permits for the satellite deposits?

If we don't get approvals for the satellite deposits, we would have to stay inside of the mid and handy permit. So that's Fekola and Cardinal, and continuing to develop the Fekola underground, but we wouldn't see any ore in '24 there.

I know you mentioned that you were looking at ways to mitigate the 18,000 ounces that you had expected this year by accelerating Cardinal. Could that extend into 2024?

Absolutely.

Could you just quantify what Cardinal could potentially add to the fold?

No, I can't really quantify because we're right in the middle of doing that during our budget season right now, so it would be premature. But I will tell you that we are looking at how Cardinal fits in and if there are additional ways to mine Cardinal in advance while we wait; all those things are on the table.

Regarding Otjikoto, could you tell me what the levels of the stockpiles are? I don’t have that anywhere. So that you'll be processing once the underground and the open pit ore mined out in tons and grade if you have it?

I don’t have it in tons and grade, but I know we have more than 10 million tons in stockpiles that is around 0.404 grams.

Are you planning to continue running the mill at current levels while processing the stockpiles?

At the end of the mine, I think there'll be close to 20 million tons of low grade, sort of in the range of 0.44 to 0.48 grams per ton. That's kind of a blend of low grade and mid-grade. So that's kind of where we'll be at the end of the mine life. So definitely 6 to 7 years of throughput available there to supplement with underground at the end of the open pit life. We can talk about the mill; I think Anita is asking about would be.

We have looked at bringing the mill back down. Currently, we don't necessarily have to. Right now, the life of mine shows us continuing to operate in that kind of 2.5 million to 3 million tons per annum and making a profit. It does require us, as you heard Clive or Mike indicate, we're going to have to retrench all of the open pit workers and reduce our costs, but it is profitable at those grades, and that’s what the economics show for the next six through 2031.

Can you remind me what the closure liability on it is in 10 years from now or in 7 years?

I don’t know the exact number, but by the time we're done, it’s probably going to inflate up to somewhere more like $20 million.

Remember that because the open pit is closing next year, we have already started concurrent reclamation. Many of the waste dumps are already under reclamation right now.

Maybe just a follow-up on Fekola. Was the original plan before the delays on the regional for Fekola to kind of be in that 600,000-ounce range next year? My question is, were there the regional should we be expecting production to be down at Fekola or was that expected to be growth at Fekola?

Yes, production will have to be less. If you go back, you really need to look at the technical studies we had when we put out our last technical report, and it showed '24 as a down year. We always projected maybe less than 600, but for whatever we're going to produce and whatever we get in the regional stuff for 2024, it will be down.

Now that you're back in the high grade, can you give a sense of what sort of grades we should be expecting for Q4 at Fekola?

I think it's plus 2 grams. But you could calculate it, if you just look at what our range was and where we're at, and you could do the calculation because we're saying we're going to be at the lower end of our range.

Maybe I'll start with Goose. Bill, you talked about the ice road. So the ice road is going to start in early December. You're waiting for it to be cold enough. Can you give us an idea of what specifically you need in terms of sustained temperatures before you can start?

What I can tell you is that we're looking for ice thicknesses. Once we have like a 1-meter thick layer of ice, then we can start dragging some of the containers up. When it continues to freeze, it can reach heat sometimes in excess of 2 meters, and then we can bring heavier loads up. I said early September, but it’s actually likely going to start in December on the Tundra, which freezes first and work our way out towards the water sources.

So the team is ready to go on site. You're just basically measuring ice thicknesses or waiting for the green light to go ahead? Targeting early December to start, just to clarify?

Yes, that's right. The team will be put in place early December. They've got to make sure all the equipment is operating. We’ve already done full maintenance on it, but we've got to identify right now which containers are going to come up first, loads, weights, all that stuff is happening at MLA right now. That’s the early work we're focused on right now.

The total distance is about 163 kilometers. If you build that over 2 months, 60 days, your target is roughly 3 kilometers per day, but you're building it from maybe 3 different fronts, right, the ends and the middle?

Yes, that's correct. Remember, we're going to do the sea ice last. I think there's 20 to 30 kilometers of sea ice, maybe 40 if I recall. That’s the key area that has to freeze up and thicken before we can begin.

Regarding Calibre, I see from the financials ASIC is still attractive, running around $1,200 an ounce. What are your strategic intentions with your 24% share in this company? Calibre has done a good job. It was a great deal, and virtually all of the Nicaragua employees from the B2 tents remain in place. Calibre's got some good technical people; they're doing a great job. We’re happy shareholders, and they are good friends, doing a good job. We're happy with our investment going forward. I’ve always said to the Calibre team, if you're seeking new development going forward, we would consider positions. However, we’re not in any rush to do that. We’ll work with them, and we like what they're doing. Okay, thanks all for your participation and your good questions. We look forward to continuing to update you; as I said, next thing out in terms of news would be the update on exploration in Back River, Goose, and George. Thanks for your attention.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.