Earnings Call Transcript - BTG Q1 2020

Operator, Operator

Good afternoon, ladies and gentlemen. Welcome to B2Gold's First Quarter 2020 Earnings Conference Call. I would now like to turn the call over to Mr. Clive Johnson, President and CEO. You may proceed, Mr. Johnson.

Clive Johnson, President and CEO

Thank you, operator. Welcome, everyone, to the conference call today to discuss the first quarter 2020 financial results for B2Gold. I will start with a few introductory remarks before passing it on to Mike Cinnamond, who will walk you through the financial results. Following him, Bill Lytle will provide an operational update, and Tom Garagan will discuss our exploration activities. Overall, we had an excellent quarter with record gold production, gold revenue, cash flows, and the lowest cash operating costs at $367 an ounce. We are pleased with these results, especially considering the challenges posed by the COVID-19 pandemic. Our operations have continued to perform well during this time, which can be attributed to our early response in Vancouver and at our sites, as well as the extensive experience of our teams at the mines in managing through various situations. We are maintaining our guidance for 2020. Moving forward, our strategy remains consistent: the health and safety of our people is our top priority, alongside maximizing profitable gold production and exploring growth opportunities in our pipeline. Bill will discuss the expansion of the Fekola mill, which is on track for completion in the third quarter of this year, and we're also making progress at Gramalote with drilling and a feasibility study expected in the first quarter of 2021. Additionally, exploration efforts are focused on areas north of Fekola, including the Anaconda and Cardinal regions. We are confident in our guidance and financial strength, as evidenced by our ongoing debt reduction and our recent decision to double the dividend. Now, I will turn it over to Mike Cinnamond for an update, and afterward, we will open the floor for questions. Over to you, Mike.

Mike Cinnamond, CFO

Thank you, Clive. Can you hear me? Great. As Clive mentioned, we had a strong first quarter with several record results to discuss. For the quarter, our revenue reached $380 million, setting a quarterly sales record of 239,000 ounces, with an average price just below $1,590 per ounce, significantly exceeding our initial budgeted price of $1,350. Additionally, we sold about 5% more ounces than we planned. In terms of production, we operated at 251,000 ounces from continuing operations, 17,000 ounces above our budget, primarily driven by Fekola. Including our 34% share of Calibre's production of 14,000 ounces, our total gold production reached 265,000 ounces, marking another quarterly production record for the company. Initially, we estimated Calibre's production at 12,000 ounces, but their recent results showed it was actually 14,000, which is an increase of 2,000 ounces from our prior estimate. Fekola led our production with 164,000 ounces, exceeding budget by 14,000 ounces, primarily due to a higher mined grade from phase 4 of the pit. We also had our expansion fleet on-site early in the quarter, which aided drilling efforts. This year, we are executing an expansion plan that involves optimizing our pit designs and targeting higher grades earlier than in the original feasibility study. Due to the COVID-19 pandemic, we opted to mine higher-grade areas in phase 4 of the Fekola pit to bolster our ore stockpiles, preparing for any potential stockpile-only scenario. Overall, Fekola continues to perform well, along with our other sites, despite the initial challenges posed by the pandemic. At Masbate, we produced 45,000 ounces, just 1,000 ounces above budget, achieved despite lower throughput and mining activity than projected. Higher processed grade and recovery benefitted from the timing of accessing the Montana pit later than budgeted. At Otjikoto, production was 42,000 ounces, exceeding budget by 2,000 ounces, largely due to being in higher-grade ore from the Wolfshag pit earlier in the year compared to last year. Overall, we achieved 251,000 ounces from our three operating mines and 265,000 total ounces, setting a company record for production. Regarding costs, our consolidated total costs from all operations, including our share of Calibre, were $389 per ounce. For our three operating mines, the cash cost was a record low of $367 per ounce. On a per ounce sold basis, it was $382 per ounce. Fekola achieved a quarterly record low of $251 per ounce produced, attributed to higher production and the same overall costs resulting in lower costs per ounce. As for fuel costs, despite global declines, we have not yet seen a decrease in fuel prices at Fekola because of local regulations and inventory levels from earlier periods. However, we are beginning to observe some reductions in fuel prices. Masbate's cost per ounce was $722, significantly under budget by over $60 due to lower mine tonnage from Montana and temporary mining activity suspensions. Otjikoto's costs were $441 per ounce, which was $64 under budget, resulting from lower fuel costs and currency depreciation. Our all-in sustaining costs were $721 per ounce consolidated and $695 from our three operating mines, significantly lower than budgeted. Overall, we're maintaining our full year capex budget. Regarding production guidance, we expect to achieve 1 million to 1.55 million ounces for the year, including our share of Calibre's output. Calibre has temporarily suspended operations in Nicaragua due to COVID-19, but we feel confident in maintaining our overall production guidance given our strong start in Q1. On cash costs and all-in sustaining costs, we retain our projections of $415 to $455 per ounce cash costs and $780 to $820 per ounce all-in sustaining costs. Fekola’s expansion is progressing well, and Bill will provide further updates after this segment. The solar project at Fekola has been temporarily halted to recalibrate for COVID-related challenges. In terms of Gramalote, we are in the process of sole funding to maintain our position in the joint venture, having funded $12.7 million by the end of Q1. Regarding fuel hedging, we've updated our positions to meet our target of hedging 50% of our annual fuel usage. We are currently at around 40% for the one-year total hedge. On the financials, we reduced interest expenses due to previous debt repayments and have drawn down $250 million on our revolver for precautionary measures. Our current income taxes have increased due to profitable operations and higher gold prices, particularly at Fekola. In terms of earnings per share, we reported $0.07 on a GAAP basis and $0.10 adjusted for non-cash items. Our operating cash flows reached a record of $216 million, equating to $0.21 per share. Despite shipping challenges due to COVID-19, we successfully exported gold and continued operations at our refiners. We expect operating cash flows to increase to over $800 million for the year if gold remains around current levels. In cash flow specifics, we paid down our revolver while generating enough cash flow to remain in a positive cash position by the end of the current quarter. We aim to continue monitoring this and potentially repay debt later in the year. We declared a second quarterly dividend of $0.01 per share, and we plan to increase it to $0.02 per share starting in June. We invested $112 million in CAPEX, with some timing differences expected to be settled later in the year. Lastly, we entered a deal to sell our interest in the Toega deposit for total proceeds of $45 million. We ended with just under $208 million in cash, maintaining a strong cash flow and liquidity position, and look forward to continuing strong operations throughout the year.

Clive Johnson, President and CEO

Thanks, Mike. Bill, can you give us a quick rundown on what's happening in operations?

Bill Lytle, COO

Yes. How do you hear me, Clive? Mike was static in and out when he was talking. There was a bit of static when Mike was talking, but there's a bit of static now. But go ahead, you sound pretty clear to me. So very quickly on the operations. Mike covered a lot of the stuff, so I'm going to keep it relatively short. I guess the key takeaways that I want to speak about are: number one, we do continue to maintain guidance at all of our operating mines and our overall guidance for the year, as Mike said. Although COVID-19 significantly impacted our operations, it hasn't impacted significantly any of our operations. Also, B2Gold very early on got in front of the pandemic. Early on in February, we made the decision that we were going to cease all unnecessary travel and have a stay-at-home order placed, and that has helped in us being successful in implementing our operational requirements. Just going through the operation updates at Fekola in Mali: Mali has had a restriction on the country since the beginning of April, and they've indicated that they will continue monitoring. We've been able to continue to operate and continue to receive supplies. We have expedited mining in phase 4, so we currently have a very large stockpile to get us through not only the second quarter but also through the second half of the year. So we continue to maintain our guidance of 600,000 to 620,000 ounces for the year. The expansion is kind of 3 parts. It's a full enterprise expansion. On the mining side, the mining fleet was ordered in June of last year, June of 2019, and at the beginning of Q1 2020, ahead of the pandemic. That mining fleet has been put into operation. We've advanced the mining rate and have a very large stockpile to support the expansion from 6 million to 7.5 million tonnes per annum. That expansion continues to be on schedule for completion and commissioning at the end of Q3 2020. Additionally, we talked about doing a double tailings lift ahead of the rainy season for 2020. That project is almost finished, more than 90% complete now, and we anticipate that will be done by late 2020. This will give us capacity into 2023, providing us a couple of years to design and develop the next lift. Additionally, as Mike indicated, the solar plant was put on hold. That solar plant expansion was not required to support the expansion of the mill but was designed to reduce costs. As Mike indicated, once we resume operations, we anticipate within 6 months to have the solar plant complete and operational. At Masbate, maintaining guidance of 200,000 to 210,000 ounces for this year. The pandemic has hit the Philippines quite hard with more than 9,000 cases; they shut down not only international travel but had a stay-at-home order for the entire population. That has been reduced or lifted a little bit as they begin to bring the economy back up. The island of Masbate does not have any cases of COVID-19, and so there is optimism in bringing our workers back from their self-quarantine and getting back to full strength. Our plan is to continue mining in both Main Vein and the Montana pit and mining at full strength. So we're not changing guidance for this year as well. At Otjikoto, Otjikoto early on decided to isolate the country. They were concerned about the issues related to the population living in informal settlements with no power and no water. They went ahead and did a quarantine for the city of Windhoek in that region as well as all of the Khos Region where most of the population is located. That has been very successful. To date, there are less than 20 cases reported in Namibia. Based on that, at last month, the government decided to start releasing some of the restrictions and the quarantines, allowing the Otjikoto mine to ramp back up to full production on the mining site. So there, once again, we maintain guidance for the year and do not see any lasting issues related to COVID-19 at this time. Just about Gramalote: we announced that when the pandemic broke out, that we decided in consultation with both the community and the government to temporarily suspend exploration. The process there was that we were supposed to complete a feasibility study by the end of 2020 and then make a decision in early 2021 with AngloGold. We publicly announced that this would be delayed until the end of Q1 2021, and that was due to the fact that we suspended drilling. However, in the meantime, we have continued to develop the feasibility study. The metallurgical testing has been ongoing, and we are preparing to do some work with our feasibility engineer or our mill engineer. The mining design has been ongoing. So on the engineering side, we continue on schedule and anticipate within 6 months of getting back up to full speed that we will be able to deliver resource to the engineering group, potentially sometime in the first quarter, maybe a little bit sooner, depending on how quickly we can get the drilling up and running. For me, it's really tough because I can hear a bunch of background noise.

Clive Johnson, President and CEO

Go ahead. You're cutting in and out a bit. Are you done?

Bill Lytle, COO

Yes, I'm done. I was stopping if there was anything you wanted me to add.

Clive Johnson, President and CEO

Okay. No, I think that's good though. Thanks. One thing I would add that I meant to mention at the front end is that one of the keys to our success in dealing with COVID and continuing operations is our relationships with our employees and government. I think that we pride ourselves, as everyone knows, on our culture of fairness, respect, and transparency and the way we treat people. In times like this, the mutual trust we've earned and gained with our employees and the governments in which we work really comes to the forefront. It's been a great cooperation. Our employees have been amazing. They wanted to work. The unions and our employees wanted to keep working if they could be safe. The governments and the countries we're in wanted us to keep working if we could be safe. We've had in the past our critics talking about political risk in the areas that we are in the world, and we understand that. It's important to point out that there are positive things to being in countries that want you to be there. They want the tax revenue, and they want the good jobs if we can do so safely, take care of the environment, and be socially responsible. Our success in normal times is due to that, and our success in terms of crisis management comes from our vast experience doing this around the world for years, but it also comes from the relationships we have with people. The governments where we are locally and federally trust us. We've built trusted relationships both ways, and our employees have a high level of trust that they are looking out for their interests. Those are some of the keys to our success. I'd now like to get Tom to give us a quick update on what's happening in terms of exploration. We continue to successfully explore around our mines and are looking for major discoveries. The cheapest ounces are always the ones you find, and we've done a lot of that, and that continues. So over to you, Tom.

Tom Garagan, SVP Exploration

Thank you, Clive. Can you all hear me all right? I can hear you well. Okay. Good afternoon or good morning, everybody. Exploration for B2Gold has continued at the mine sites in Mali, Masbate, and Otjikoto through this time. A lot of our grassroots exploration has been cut back to minimal field work or none at all due to limitations created by COVID, but we hope to get back going in some of those areas later on in the summer. In terms of exploration of Masbate, we've drilled 7,000 meters out of a 25,000 meter program so far. The focus of the program has been on drilling near the base pits as we see the pits have great potential to get larger with the higher gold prices. So we're focusing on the bottom of those pit areas. At Otjikoto, we've drilled 4,000 meters out of a 14,000-meter budget. The focus on Otjikoto has been to drill the Wolfshag area as well, looking at the underground development coming into the area, we want to see what it looks like going down. We've had success so far in continued mineralization, and now we want to get a better handle on grain with tighter space drilling. We're also doing some grassroots drilling near the mine site on several other parallel sectors we see have potential. At Fekola, exploration has continued through these times. So far this year, we've drilled about 10,000 meters of diamond drilling over 24,000 meters of RC drilling at the Fekola area. Focus has been mainly on two areas in our Mamba area to the north and related parallel structures at Anaconda and Adder. We’ve started to focus more on the Cardinal area. Cardinal area is just a little bit west of the Fekola pit, within 500 meters of the Fekola pit. In fact, an area that was originally planned for some waste area, we've had quite a bit of good success in that area and are starting to define a resource. So we're refocusing the drilling in that area with infill drilling and testing out where the edges of this are to see how big it can get. That will continue for the rest of the year, but we will continue with at least 1 or 2 drills in the Mamba area also. We also plan to start doing some met testing on the Cardinal ore in the near future. I have no other discussion. Over to you, Clive.

Clive Johnson, President and CEO

Thanks, Tom. Okay. I think operator we'll open it up for questions now.

Operator, Operator

And your first question comes from Ovais Habib.

Ovais Habib, Analyst

Clive, can you hear me? Sure, Ovais. Again, just want to say congrats on a good quarter. And also congrats on being able to maintain your guidance during these unprecedented times. So Clive, just my first question is on Fekola. Clive, how should we be looking at Fekola in the second half in terms of production and costs? I mean you've got the mill expansion kicking in in Q3, and do you expect this high grade coming from phase 4 to continue into the second half as well?

Clive Johnson, President and CEO

Yes. No, I don't think so. I'm going to pass it over to Bill.

Bill Lytle, COO

Yes. No, Ovais, basically the whole concept is we pulled ounces forward to make sure that we had the ounces for Q3 and Q4. At this time, we're not comfortable in saying that we're going to continue the grade through Q3 and Q4. We’d like to say that we're going to meet guidance at this time until we know what's going to happen with the mill expansion.

Ovais Habib, Analyst

Okay. And so I mean, what I'm trying to ask you is like, I mean, is there kind of low-grade stockpile that you guys have on-site that you can blend through in Q3 and Q4? Or is it just continuing to go through phase 4 and then into phase 5?

Bill Lytle, COO

Yes, there's a lot of low-grade stockpile on site.

Clive Johnson, President and CEO

Okay. Moving on to Masbate, Bill. The oxides at Masbate were expected to end in 2017, as we've discussed previously. You have continued to mine these oxides into this quarter. Are these transition ounces that have converted to oxides, or were they not tested as oxides? Do you anticipate these oxides will continue into the second half?

Bill Lytle, COO

Yes, it's the question of the day. The answer is that there are some transition oxides that have converted into oxides. However, much of what we're working with involves mining through surface dumps from some of the old underground stockpiles, which have been backfilled with material that is now considered ore. I cannot provide a definitive answer for the future, but it's an area we are continuously examining. I will say that some of these findings come as unexpected positives, and we are maintaining our guidance.

Geordie Mark, Analyst

Yes. Maybe some questions to Tom first. And in terms of Cardinal, can you give us an idea of reminders, you did mention last time that it was away from something, just a tighter mineralization there and it's more something?

Clive Johnson, President and CEO

Tom, you're a bit hard to hear, Geordie. However, I believe you were asking about Cardinal. Do you have any comments on that?

Tom Garagan, SVP Exploration

I couldn't hear Geordie very well. But in general, Cardinal is slightly different from other portfolios hosted within a combination of dyke rates. You can call them black shales or mudstones zones associated with very intense alteration, disseminated sulfides, a little bit of copper, and occasionally some visible gold. They're definitely a different style zone. They’re more shear zone related. However, it's been pretty widely spaced drilled so far, so we're still learning about it. Was that your question, Geordie? I couldn't hear you very well.

Bill Lytle, COO

Steady state? Well, we're kind of changing that right now because, as you know, originally, we were projected to be into Montana in February. And now we've gotten in there now. We're actually looking at that right now. So I wouldn't want to come right out and just say what I think the steady state split is going to be for the rest of the year until we get our revised mine plan up and running.

Chris Thompson, Analyst

Congratulations on an absolutely stellar quarter. It's really good you guys are holding guidance through a tough period. I've got one question. I guess it relates to the Snake deposits, obviously, within reach of Fekola there. Can you give us a sense of where we sit by way of the testing of the economics of these deposits?

Clive Johnson, President and CEO

Well, I would say that we are looking at the saprolite, which contains 800,000 ounces at just over a gram. It hasn’t significantly increased in size, but it does seem to be getting larger. We are also seeing some positive results from the lower sections of the sulfide at both Mamba and Anaconda. Currently, we are waiting for a more substantial drop to assess whether this could provide additional feed for Fekola in the future, since it is 20 kilometers away, or if it will be a separate scenario. We are giving Tom the opportunity to drill these multiple targets aggressively and determine how large the saprolite might get, and whether there could be significant deposits in the sulfides as well. As we approach the end of the year and move into next year, we should get a clearer picture of this. Would you agree with that, Tom?

Tom Garagan, SVP Exploration

Yes, Clive. That's pretty good. If I could add to that, we've had multiple hits in the sulfides. Certainly at Mamba, we've now seen at least 2 very good looking continuous zones of mineralization that we can explore. We're working on trying to interpret those zones. With the drilling we’re doing on saprolite, we continue to find other areas of saprolite mineralization. I would say it's still in the early stage. As Clive said, they've given us the chance to try and figure out where it's going and how big it could go before we hand it over to the engineers.

Bill Lytle, COO

I didn't get that question at all.

Clive Johnson, President and CEO

He’s asking about the mining fleet. Is it fully up and running now, the new mining fleet?

Bill Lytle, COO

Oh, okay. Sorry. I'm really struggling to hear on this line. The answer is no. Phase 1 of the mining fleet is up and running. Phase 2 is arriving on site right now. We actually, literally, within the last week, have been receiving the next batch of 6040s and 789 trucks.

Clive Johnson, President and CEO

Okay. Well, thanks, everybody. Ian, maybe you can talk to whoever's set this call up and see if we can improve it next time or use somebody else. If we can put a man on the moon, we should be able to have a better conference call. Thanks, everybody, for your participation. Stay safe. Have a nice day.

Operator, Operator

This concludes today's conference call. You may now disconnect.