Earnings Call Transcript - BTG Q1 2022

Operator, Operator

Good afternoon. My name is Dennis, and I will be your conference operator today. I would like to welcome everyone to the B2Gold First Quarter 2022 Financial Results Conference Call. Mr. Johnson, you may begin your conference.

Clive Johnson, CEO

Thanks, operator. Welcome, everyone, to the conference call today. Obviously, as the operator said, we're here to talk about the first quarter results for 2022. The news which we put out is quite inclusive, and we'll give you a little summary of some of the highlights about it, update you on a few things, and then we'll open it up quite quickly for your questions. We're pleased with the quarter. We had a significant leap versus our budget on operating cost, all-in sustaining cost, earnings, cash flow, and earnings. So a very good quarter. We can talk a little bit more about what that means in the context of going forward, but we're very pleased with that. Many of you realize the challenges that the industry is facing in terms of inflationary pressures, et cetera. We'll continue to remain committed to doing our thing and focus on avoiding the full impact of higher costs. In terms of the focus, we obviously continue to be a profitable, responsible gold miner as we go forward. We're externally in a strong financial position, as you know, with a tremendous cash balance, virtually no debt, and being the highest dividend. Even with their bonus dividend, Barrick is still behind us. I think we're at a 3.8% yield today, which is the highest of the gold producers. We're also very committed to continue to grow the company. So we want to find a balance between dividend and rewarding our shareholders for our great performance and their support, but also being able to continue to grow the company. We have great access to cash through a $600 million revolving credit facility from our banks that has the ability to go to $800 million completely well at this time. Just quickly, looking forward at some of our priorities, and then I'll pass it on to Mike. The priorities in terms of growth are we're closing in on the feasibility study at Gramalote, and we've talked about that quite in detail in the news release. Anaconda is becoming a real focus for us, as you've seen; we're now able to talk about the new resource. In Anaconda, we not only got some reviews that promote the sulfide, just 20 kilometers away from the Fekola mill. So we're going to start talking more when we update you on that. We think, depending on exploration results and how they continue to grow larger, there is potential to build a second mill at Anaconda. It could become the Fekola complex, which we could have significant gold production from two mills and not just one. Bill will touch on that and give you a little more color on that. Exploration has always been a big part of our world and part of our success since we started this company 15 years ago, and we have some very exciting opportunities, not only around the existing mines, but we've had great success in turning inferred resources into indicated resources, finding new reserves, and also new targets in addition to existing terms, extending them on our properties. We've got a great track record of exploration success at existing properties. We're still very global in our view of our beliefs that the cheapest ounces will always be the ones you find. So we have some exciting exploration projects in our budget, and this year, about 60% of that would be on brownfields exploration; the rest is to look at some grassroots targets. Exciting results came out today from Orion, our partner in Finland; we're the operator. We've been doing the drilling, and I think the guys who will ask some questions on that. It sounds like the leadership group is pretty excited about early days, but excited about the potential, given the discovery that they've made and our proximity right on the boundary with the kind of results we're starting to see. There is much more to come there. We're drilling in interesting places like Uzbekistan and others, always looking for new discoveries. On the M&A front, we will continue to look at opportunities. We've looked at a couple of things quite seriously in the recent time but haven't been able to reach an agreement. We're continuing to look. I think time is on our side in the sense of getting the Gramalote study out of the scene, also getting our focus over the next number of months, and hopefully seeing our stock, which has been underperforming, start to come up as we continue to improve the value of the projects we have, our ability to operate them, and also unlock the value of our growth projects and potential exploration. Okay. Operator, we can get into questions to help everybody. Yes.

Mike Cinnamond, CFO

Thanks, Clive, and good morning, everyone. So just running briefly through the operating results and some of the key financial results we've reported for the quarter. Firstly, on the revenue side, revenue of $366 million reflects the sale of 195,000 ounces at an average realized price of $1,874 per ounce. We had a high gold price during the quarter, and sales were about 7,000 ounces higher than budget, which really mirrors the higher production that we saw in the quarter than budget. Speaking of production, the total consolidated production, including our share of Calibre's results, was 209,000 ounces, and we saw higher-than-budgeted production at each of our three mines. Fekola produced 102,000 ounces, just 1,000 slightly above budget. That was mainly due to higher-than-budgeted processed grade offset by lower-than-budgeted processed tonnes, which were lower as a result of a reduction in saprolite processed. We took precautionary measures against some of the potential supply chain problems we saw rising in Mali from sanctions earlier in the quarter. We prioritized processing a higher-grade fresh ore to reduce reagent consumption, and that was a temporary measure. I would say the sanctions continue there, but our supply chain has normalized, and we've built up regular levels of reagent and fuel at the site now. As a result of that, saprolite was reintroduced back into the circuit at the end of February, and processing is ongoing as budgeted. Just remind everyone that Fekola's gold production is expected to be significantly weighted to the second half of the year as we guided when we put out our budgeted numbers. That's because the second half is really when we reach the higher-grade portion of Phase 6 in the Fekola pit, and we have the new Cardinal production stream fully online. The drilling from Cardinal started later last year, but we got it fully online throughout the course of this year. At Masbate, we produced 60,000 ounces, which was 6,000 ounces ahead of budget, so quite a beat there, mainly due to a higher processed grade. In the period, the grade was above budget because we mined additional unbudgeted higher-grade areas within the mine areas. Additionally, as part of a function of shorter haulage periods and haulage optimizations related to the expansion of the tailings facility, we were able to see increased mining rates, which contributed to mining higher than budgeted, higher-grade ore in the period. But that's a temporary issue as we work on dealing with the tailings facility. Otjikoto produced 35,000 ounces, 2,000 ounces over budget, and that follows the similar story of Otjikoto being slightly ahead of all factors regarding grade recoveries and mined ore. As mentioned, Otjikoto is also scheduled to be weighted to the second half of the year like Fekola, as that's when we get to the higher-grade portion of Phase 3 of the Otjikoto pit, and the second half will see the Wolfshag underground mine ramp up. Talking about costs related to that production, I'm discussing cash costs on a produced basis. Consolidated cash costs for the quarter were $699, which was almost $100, or $94 less than budget. This was primarily a function of lower stripping in some areas and lower than budgeted fuel costs at Fekola, partially offset by higher-than-budgeted fuel costs at Masbate and Otjikoto. Fekola's cash cost per ounce produced was $624, which was $157 lower than budget, primarily due to slightly higher-than-budgeted production and lower-than-budgeted mining processing and site general costs. Those costs were lower than budget largely due to lower fuel prices realized in the period. Remember in Mali, fuel prices are set in advance by the state; therefore, you're always going to see some timing delay between costs in the broader fuel market and what we're realizing at site. We also had lower volumes of fuel and consumables utilized in the period because we mined and processed lower overall tonnes than budgeted. Mine tonnes were lower than budgeted due to a temporary change in mine sequencing to accommodate that temporary change of saprolite processing. Reminder as well on the power side: the solar plant at Fekola, which we got up and running last year, is running very nicely. Over 20% of the power we generated in the first quarter of 2022 was solar. That's been a great investment for current operations and as we look forward. Masbate's cash cost per ounce reduced to $710 per ounce, which was $50 per ounce lower than budget. This was due again to a result of higher-than-budgeted production, partially offset by higher-than-budgeted mining and processing costs, which were driven by higher diesel and HFO costs at Masbate for the period. Otjikoto's cash cost per ounce reduced to $770, which was $35 lower than budget. This was slightly lower than budget and again a result of higher-than-budgeted production. Our operating costs were pretty much in line with budget, with some increases in fuel prices offset by a weaker Namibian dollar. Exiting from the previous year, we saw the Namibian dollar strengthen, so it increased our cost slightly this period, but so far, we've seen the dollar weaken. We budgeted at 14.5, and we saw it come in over 15, benefitting us by a couple of million in foreign exchange gains. Touching briefly on all-ins: our consolidated all-in sustaining costs, including our share of Calibre, were $1,036 per ounce sold, which was $318 lower than budget due to those savings on the cash operating cost side, combined with higher gold ounces sold and lower sustaining CapEx. During the period, we were $33 million lower than budget on CapEx, partly due to the temporary change in sequencing at Fekola and also timing of fleet purchases and rebuilds. If you put all those together, we were $33 million lower than budget for the period, but we think these are timing issues and expect to see those reverse later in the year. A couple of comments on guidance; we're maintaining our production guidance. We were 8,000 ounces ahead for the quarter, and we're still on guidance for the year. Our consolidated guidance is 990,000 to 150,000 ounces for the year. We haven't changed our guidance on the cost side; we reiterate our annual cost guidance. On the one hand, we've seen a very good first quarter where we beat budget on the cost and all-in sustaining cost side, but on the other hand, we are seeing cost inflation, particularly in fuel. We will look at things again for the next quarter. Overall, we are still focused on operations and environmentally sustainable adjustments.

Bill Lytle, COO

Yes. I definitely wanted to spend just a little bit of time talking about regional Mali development and what it all means. I think there's a lot of questions and maybe misunderstanding on what we've got going on there. I'm going to work my way through it, hopefully in a logical fashion, keeping in mind that we have increased the mill to produce nine million tonnes per annum, which is really the basis of all the beginning stuff. At nine million tonnes per annum, we've always talked about our ability to process an additional 15% saprolite material. Currently, what's included in the Fekola life of mine plan is only the Fekola open pit and the early Cardinal deposit reserve. We have, since then, freed up the Menankoto license, the Bantako license, and consolidated by getting the Bakolobi license. We basically have the entire belt from Fekola all the way north to Bantako North. What that allows us is some optionality on where we're going with this. We have previously announced and are discussing with the government right now the potential to truck from Anaconda, which consists of Menankoto and Bantako, or maybe potentially separating those to handle them individually. Both of those studies are complete, and both have environmental and social impact assessments ready to go. It's just a question now of which way we want to go. We additionally have a study going with consultants to analyze the best way to process or what is the most economic way to process ore from all the various sources. That study has been kicked off and is expected to be done by the end of this year. What we're currently talking about is the potential to have a Phase 1 where we truck, and I will say that as Mike indicated, we have a budget of $33 million to get that going. We have started ordering equipment that is coming through the profile right now. We're in the process of designing the road from that area, and we believe that can be done by the end of this year; it's just a question of which is the best way to optimize it. On top of that, everyone is aware that we're looking at potential to create a stand-alone complex to the north as a regional mill. In that case, we would look at consolidating some of our ore based on our existing resources and exploration successes to create a second mill, potentially having something like a Fekola complex in that area. That is also being looked at. The last thing I think people forget is that there is a very real potential for underground mining at Fekola. We have begun preliminary studies looking at what happens down-plunge or below the Fekola deposit to the north. It's still open to the north, and there is a resource there on which we are starting to put a mine plan. Economically, at least the preliminary numbers look very good. That study is ongoing in 2022.

Clive Johnson, CEO

And so we did assume the worst case and potentially we couldn't get something timely. We did change our mining sequence in Q1 and the material we were milling, but we quickly realized our success was that we were able to bring everything in, so we went back to normal operations. There are reasons why ramp gold back in the day is now back, and many other companies have had great relationships in Mali, financing and gold mines to be responsible. We do some great community work, which is all detailed on our website. It’s a good place to be. Mali is a good country for gold mining, and that hasn't changed, and we do not anticipate that changing. As the government reaches an agreement about new elections within hopefully the next couple of years and gets back to a democratically elected government, we believe Mali will continue to be a good place to be. It still has the capability, as we've demonstrated, to show significant additional major gold deposits, world-class deposits. We think we may find another one here with Anaconda. Just remind people when we acquired Fekola from Papillon, we did an excellent job taking it through the first stage and into a feasibility study. We had four million ounces in total resources. We have more than doubled that, and we believe we're really scratching the surface with Anaconda. Mali remains a good place to be, and we will continue to promote Mali as other companies strive to help people understand why we are there.

Bill Lytle, COO

Columbia. I just want to touch on this in case there may be questions about it. I'll give a little summary of where we stand. As we said, we are completing a feasibility study that will be available in the third quarter. We're working closely with our partner, AngloGold Ashanti, as we're the operator in a 50-50 joint venture. We are awaiting the results of the study and have done substantial work to see if we could drop the capital cost through legitimate reengineering and redesign. That seems to have had success, but the question remains how inflation will affect the costs of some of the gains we might have made by lowering the capital costs. We'll have a clearer view of that over the next two months internally. Both parties will review it and decide whether they want to participate and make a development decision to build the Gramalote mine, which could produce 400,000 ounces of gold a year and has the economics to support the capital cost expenditure. We are in the same position of waiting for the study results as our partner. Some negative press has come out regarding another project in Colombia and the responses from the government. However, we believe the Gramalote situation is very different in terms of sensitivity due to location. We're located in the right part of Colombia, with a strong mining history and tremendous local support.

Operator, Operator

Your first question comes from Habib Ovais with Scotiabank.

Habib Ovais, Analyst

Congrats on a good quarter, especially regarding cash costs and all-in sustaining costs. Just starting off on that, regarding the guidance for the first half, Q1 obviously, all-in sustaining costs came in at $1,036, guidance for the first half is around $1,250 to $1,290. Mike, you touched a bit on catching up on costs over the year. Are you being conservative with this guidance for H1, or are you expecting costs to be significantly higher in Q2? Are these costs going to be spread out throughout the year?

Mike Cinnamond, CFO

Overall, like I said, I think we can expect to see the benefits of a very strong Q1. So we will see some of that roll into the first half for sure. I think that’s likely. But is it conservative to not refinance the half? Probably. As I mentioned in my comments, the prices are quite volatile. We see significant cost inflation, especially in the all-in sustaining cost area, due to some timing differences. We were quite a long ways under in Q1, so when you look at that all-in cost for Q1, you have to consider that. I think it’s better just to maintain our guidance for the halves as we have it.

Habib Ovais, Analyst

Just quickly switching gears to Anaconda. Bill, your team is looking to complete a PEA on Anaconda as a stand-alone. There have been discussions about Anaconda becoming integrated into the Fekola complex. Are you able to share infrastructure with Fekola in any way and possibly reduce CapEx to develop Anaconda?

Bill Lytle, COO

Yes, for sure. That's one of the things I should have mentioned. When it comes to the capital cost for constructing an entire mill and associated infrastructure, we can eliminate a lot of that expense. Right now, we're examining how to align our regional tailings facility, which represents a large capital investment. We could expand the tailings, and the workshops can be shared. Everything outside the mill, including power—remember we have about 36 megawatts of solar power there, so there's extra capacity. That’s one of the things we didn't emphasize, but we just picked up the Bakolobi property, which fits between the two and is not only a good exploration target but also offers a great opportunity for us to consolidate our infrastructure.

Habib Ovais, Analyst

My last question is for Clive. Regarding the development of Gramalote or the potential development of Gramalote, is that development completely separate from building Anaconda? If you proceed with Gramalote, does that impact Anaconda? Conversely, if you move forward with Anaconda, does that affect Gramalote?

Clive Johnson, CEO

Good question, Habib. Bill can help me here. We don't think so. We've always said we're not going to build two significant mines or mills at the same time with our construction team. Looking at the potential sequencing targeting for Gramalote, a lot of the infrastructure will start as soon as we get the permitting. We have a permit and some of the changes that we've made or updated. Looking at the timing of everything, we definitely wouldn't foresee issues where the earthworks teams would do initial work at something like Gramalote—and we would then potentially move on. The priority there is to start trucking the saprolite down. If things go as we hope, while we truck the saprolite down for a couple of years, we may see the productivity of Anaconda as we build the mill as appropriate. We’d expect to produce between 80,000 to 100,000 ounces in Anaconda while we're doing that, and we might be able to build Gramalote while simultaneously building Anaconda. We just don’t see a major sequencing issue or problem. When talking about Phase 2 at Anaconda, which could involve a new mill, we currently see that as likely following Gramalote.

Operator, Operator

Your next question comes from Geordie Mark with Haywood Securities.

Geordie Mark, Analyst

I'll follow on with a relatively similar question about solar power, which I find a very interesting topic. 20% of your power was supplied from solar in Q1. Does it make sense to expand that plant, given the quick paybacks on oil prices and the potential expansion at Anaconda, or will you keep it at 36 megawatts?

Bill Lytle, COO

We’re definitely studying the possibility of expanding the solar plant. Not only are we bumping up against production engineering-wise, but there's also the ESG components that everyone is focusing on more and more. The reality is that solar is a solution that provides financial payback and is the right thing to do.

Geordie Mark, Analyst

And perhaps an extension on that, regarding Otjikoto—if I recall, you were looking at a similar initiative at Masbate, but I'm not certain if that's still in the mix?

Bill Lytle, COO

For Otjikoto, we've identified that because Southern Africa has been active in putting renewable energy resources, Namibia has shifted from being a net consumer of to a net generator of power. We now have the ability to connect to the overhead power lines, which will reduce costs greatly. We're going to be in a good position in terms of ESG credit through that. The Philippines, on our end, is land-constrained; however, we're looking at options for expansions.

Geordie Mark, Analyst

Okay. Great. And maybe one more question before I turn it over to others. In terms of Anaconda, can you remind us what potential scale you're considering within the PEA for future facilities?

Bill Lytle, COO

It's too preliminary to provide specific numbers. We want to truck between 1 million and 1.5 million in Phase 1. As for Phase 2, we are still preparing estimates. We started at 4 million tonnes per annum at Fekola and are now around 9%. My guess is that initial scale could be similar or smaller, with potential for expansion.

Anita Soni, Analyst

Regarding Fekola proper without the Cardinal deposit and Anaconda deposit, can you provide a baseline scenario of what we should expect from that asset over the next five years?

Bill Lytle, COO

I think that information was published in the revised feasibility study from 2020. You should overlay Anaconda, Cardinal, and the underground increase on mill throughput on that baseline.

Operator, Operator

There are no further questions at this time. Mr. Johnson, back over to you.

Clive Johnson, CEO

Thanks, everyone, for your time. If additional questions arise, feel free to reach out to Randall Chatwin, and he will direct you to the appropriate member of our executive team for answers. Thank you for your time, and have a good day. Thanks, operator.

Operator, Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.