B2gold Corp Q2 FY2024 Earnings Call

Thank you for joining us. This is the conference operator. Welcome to B2Gold Corporation's Second Quarter 2024 Financial Results Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, analysts will have the chance to ask questions. I will now hand the conference over to Clive Johnson, President and CEO of B2Gold. Please proceed.

Thank you, operator. Welcome everyone to the conference call discussing our Q2 financial results for B2Gold. We had very positive results this quarter, and our CFO, Mike Cinnamond, will provide details on that. We will also address other matters mentioned in the news release. Bill will give us updates on operations in Mali related to production. Additionally, we'll discuss an update on Goose. To begin, we have an excellent track record in operational performance over the years. However, we experienced an unusual incident where an excavator tipped over, leading us to revise our production guidance down by about 50,000 ounces for the year. This situation is ongoing as we move into next year, which is why we provided this guidance. Bill will explain what happened with the excavator and the steps we've taken to prevent such occurrences in the future. Regarding Mali, we are in the final stages of discussions with the government to understand the full implementation of the 2023 Mining Code. We expect these discussions to conclude soon and hope to announce the outcomes shortly. This will trigger the swift receipt of an exploitation permit for the regional areas where we plan to begin transporting ore, potentially adding 80,000 to 100,000 ounces a year. The government is eager for the expansion of Fekola, and we are looking forward to a quick response on this issue. There is also significant exploration potential in the Fekola complex, and with the government's approval, we will launch an aggressive drilling program with about $7 million allocated for exploration in that area. We have taken an impairment charge which Michael will discuss, but it's essential to highlight that the final value of the Fekola complex is being evaluated with further exploration successes expected. The mine's ultimate life and value should grow from this asset. Now, I’ll turn it over to Mike for a review of the financial results. Before I do, I want to emphasize our strong track record and ability to tackle challenges. This has been a transitional year, and we anticipated lower production and significant capital expenditures. Nevertheless, we remain in a robust financial position and are focused on growing the company based on our existing assets.

Thank you, Clive. Firstly, I'd say financially, it was a strong quarter. On the earnings side, after adjusting for one-time items, the company generated $0.06 per share of adjusted earnings, which benefited from stronger average gold prices during the period. Operating cash flow was at $62 million after changes in working capital, with $192 million before changes in working capital. Again, these are very strong results from the operations. As Clive mentioned, we did lower production guidance at Fekola due to equipment availability issues in the pit. Thus, we have guided production for the second half and for the full year of 2024. We also reviewed cash costs and all-in sustaining costs for each of our operations. At a consolidated level, we maintained the consolidated cash cost guidance of between $835 and $895 per ounce, benefiting from lower fuel prices this year. However, for the overall all-in sustaining costs, the reduction in production paired with higher royalties resulted in an upward guidance adjustment to between $14.20 and $14.80 per ounce. Clive mentioned the non-cash impairment charge on Fekola operations, which is based on our best estimate of how the 2023 Mining Code will be applied as we gain clarity through ongoing discussions. Spending on the Goose project has increased with the completion of the 2024 Winter Ice Road and transportation of necessary materials to the site. Our balance sheet remains strong with cash and cash equivalents of $467 million at the end of the second quarter and minimal debt. We have $700 million available on our revolving credit facility. We are prepared to draw from this as we progress with our capital expenditures and the Goose project, and we maintain financial flexibility to support growth initiatives and exploration programs.

Thanks, Mike. Yes. So, on the operational side, I'll do the easy stuff first. Looking at Masbate, Masbate continues to perform at a world-class level. Everyone is likely aware that it has now reached more than 2,000 days without an lost-time injury, and we continue to see strong cash flows. Otjikoto also continues to perform very well. The exciting news there is that we are preparing a PEA study, expected to be released mid-next year, which has the potential to expand the ounce profile through the existing life of mine to the early 2030s and add additional ounces to the existing stockpiles. As for Fekola, it’s down as you've heard from Mike. We need to point out that Fekola has historically produced ounces consistently. There was an operator error recently where an excavator tipped, but we have rectified that situation. We've provided extensive training and retraining to all personnel on equipment usage. We see that incident as a one-off, an unlikely event. While we may have some delays in regional production, we have not lost any ounces. We are currently mining out the high-grade ounces in Phase 6 and expect to see high-grade ounces from Phase 7 appearing in the fourth quarter of this year. For the Goose project, operationally, we’re also running smoothly. The 2024 Winter Ice Road has been successfully completed, bringing in all necessary materials for project completion. Our camp has been expanded to accommodate over 600 people, enabling us to keep things running on schedule. The critical tanks at the MLA are complete, and we will be filling them this month. Concrete work is over 75% complete and should exceed 90% during Q3. We are ahead of schedule and expect to produce gold by Q2 2025. Regarding cost estimates, I acknowledge we were overly ambitious aiming for a release in June. The previous owner's cash issues limited the project's initial potential. We are ensuring all orders meet B2 standards as we finalize our financial assessments. Lastly, on Gramalote, we continue working on the feasibility that should be available mid-next year, staffing our teams and making good progress. Clive, did you want to add anything?

Maybe just a quick update. What is the status regarding shipping and preparations for next year?

Yes, that's very valid. We are currently commencing the sealift for 2024 with 11 ships, including over 85 million liters of fuel and sufficient cargo to support operations through the 2025 season. Everything remains on track, and our Logistics team is performing excellently.

For a visual update, people can visit our website where we've showcased remarkable construction progress, thanks to our team. Taking all this into consideration, we expect to have plenty of questions, so operator, please open the floor to inquiries.

We will now begin the analyst question-and-answer session. The first question comes from Wayne Lam with RBC. Please go ahead.

Yes. Thanks, guys. I'm wondering about the impairment charge taken this quarter. This is the second impairment related to Fekola over the past year for almost the same amount. Besides the increase in the discount rate, can you discuss some of the factors involved in taking these two impairments in succession, as well as the additional concessions being negotiated? With the implementation decree finalized, are you confident a deal is imminent? Can you provide a definitive timeline for completion?

We're very confident that we will reach an agreement that satisfies all stakeholders in the near term. However, we cannot discuss negotiation details at this moment. Regarding the impairment, Mike, could you elaborate on that?

We will keep this at a high level. We have assessed impairment indicators and used our best estimates at each reporting period. New clarifications and implementation decrees have been issued, and we are optimistic. We believe we accounted for the factors that may influence the carrying value based on current estimates. However, we prefer to wait until we finalize discussions before providing specifics.

It's indicative of how close we believe we are to finalizing the agreement that we took the impairment charge.

Understood. Regarding the updated ASIC guidance at Fekola, does this account for stripping planned for regional ounces next year? Is this going to fall under non-sustaining CapEx? Should we expect costs to decrease next year as per the 2024 mine plan, or should we anticipate similar costs due to capitalized stripping and underground development?

To clarify, no regional production or related costs are included in these numbers for this year. The re-guided number does not anticipate the stripping campaign. For future guidance, Bill, would you like to address the mine plan for Fekola?

While we haven’t released cost guidance yet, we have been clear that we anticipate underground production to start in Q2 of 2025 alongside regional ounces next year. Given the imminent agreement, we are ramping up work for the regional project, with all necessary infrastructure already in place.

Understood. Can you elaborate on the remaining large CapEx items causing the review delays for Back River? Are most large capital items already spent, with the increase primarily driven by labor and logistics? Or, are there still equipment replacements necessary?

It is challenging to pinpoint exact numbers at this moment as we are currently reviewing it. Most major purchases are made and onsite; it’s primarily about addressing minor issues. We still have an extra quarter, which impacts things, and require time to determine the full extent.

The next question comes from Don DeMarco with National Bank Financial. Please go ahead.

Thank you, operator, and good morning, Clive and team. Bill, could you provide more details on the guidance increase and the 2025 outlook? Of the 90,000 ounces added, how much comes from Fekola deferrals from '24, regional ore trucking, and Fekola underground? How do these factors influence 2025?

Yes, Peter, it might be more appropriate for you to address this question.

Thanks, Bill. For 2025, about the deferral of ounces is mainly sliding the high-grade zone from Phase 7 back. We're revising the mine plans, aiming for replacement rather than an increase for 2025.

Understood. So, we are simply replacing higher grades without changes to Fekola's Regional or Underground, as stated, which will remain unchanged.

That's correct. We're not modifying anything concerning those projects. However, they remain progress-wise intact.

No regional trucked ore is included in the 2024 guidance, correct?

Correct.

Regarding the equipment availability issue, when do you expect it to be fully resolved? Is there a risk to this timeline? Fekola costs improved in Q2; should we expect higher costs in Q3 due to this recovery?

The issue has already been addressed. We replaced the excavator, though it took time to get it in. A replacement has been moved forward. In Q3, we have met or exceeded production targets so far, and the issue has been resolved.

Regarding costs, remember there are two components. We moved less tons due to equipment capacity. So, while costs might catch up, we also saw a 25% reduction in fuel costs at Fekola, which we expect to continue. These factors will mitigate costs going forward.

The next question comes from Francisco Costanzo with Scotiabank. Please go ahead.

Hi, Clive and team. I appreciate the opportunity to ask a question. Given the challenges in Mali leading to a lower guidance, could you address the integrity of the dividend considering the budget review? Also, could you elaborate on your liquidity and how you plan to fund projects amidst this?

Certainly, regarding liquidity, we have access to $700 million and nearly $500 million in cash, which puts us in a strong position for capital projects. Maintaining our dividend is a priority; we'll continually monitor these elements as we progress with larger capital projects, but our liquidity remains solid.

Would you like to add anything, Mike?

Thank you for that clarification. That's all from me.

This concludes the question-and-answer session. I would like to turn the conference back over to Clive Johnson for any closing remarks.

Thank you, operator. Thank you everyone for joining us. As usual, we like to conclude these calls by discussing upcoming catalysts. We are hopeful regarding discussions with the government of Mali and the agreement that will allow us to start trucking ore down to the Fekola Mill from the regional targets. Moreover, this will trigger significant exploration in the area to define the value of the Fekola complex fully. We will provide a detailed budget update on the Goose construction capital costs early in September and are actively working on the Gramalote feasibility. There will be exploration results from various new and existing targets by November. Lastly, we have recovered from the ramp-up following the rare incident with the excavator, and we are making promising progress. Following the challenges of this year, I am optimistic about our performance and future growth opportunities through the expansion of existing assets. Thank you all for your time. For any follow-up questions, please reach out to Michael McDonald, and thank you again, operator.

This brings us to the end of today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.