B2Gold Corp

TSX:BTO

Earnings Call Analysis

Strong Quarter Amid Challenges and Future Plans

In the latest quarter, the company posted $0.06 per share in adjusted earnings, supported by coal prices. Operating cash flow reached $62 million. Production guidance at Fekola was reduced due to equipment issues, lowering annual guidance by 50,000 ounces. Guidance for all-in sustaining costs has been revised upwards to $1,420-$1,480 per ounce. The Goose project progresses well, expected to produce 320,000 ounces annually by mid-next year. Cash reserves stand strong at $467 million with additional $700 million credit facility available, ensuring liquidity for ongoing projects and growth initiatives.

Navigating Challenges: Operational Insights

In the latest earnings call, B2Gold Corporation outlined some operational challenges that led to a reduction in production guidance. Key among these was an operator error resulting in equipment damage at the Fekola site, which caused a production dip of approximately 50,000 ounces. However, the company assures stakeholders that this issue has been rectified through extensive retraining of staff and management, suggesting that the scenario is unlikely to recur. Furthermore, though total ounces were deferred, there are no permanent losses, and the production timeline is being adjusted rather than entirely disrupted. Future production is expected to rebound with the phased introduction of high-grade ounces from upcoming phases in the mine plan.

Financial Performance: Strong Metrics Amid Adjustments

Despite operational hiccups, B2Gold reported a robust quarterly performance, achieving $0.06 per share in adjusted earnings, bolstered by favorable coal prices during the period. Operating cash flow totaled $62 million, demonstrating operational resilience. The company maintained its cash cost guidance, which ranges between $835 and $895 per ounce. However, the all-in sustaining costs have been revised upward due to lower production and higher royalties, now estimated between $14.20 and $14.80 per ounce. This adjustment reflects the reality of managing production amidst fluctuating operational conditions.

Strategic Growth Initiatives: Focus on Existing Assets

Looking ahead, B2Gold has emphasized a significant growth potential stemming from its existing projects rather than acquisitions. The company anticipates a production increase from its current assets estimated at around 650,000 ounces of gold. The Goose project is projected to begin operations mid-next year, contributing approximately 320,000 ounces annually. Additionally, a positive Preliminary Economic Assessment (PEA) has set the stage for possible further expansion, with further feasibility studies due next year indicating a potential additional 240,000 ounces from optimizations.

Exploration Opportunities: Unlocking Fekola’s Potential

The Fekola project remains a focal point for exploration. With discussions with the government of Mali nearing completion regarding the full implementation of the 2023 mining code, B2Gold is poised to initiate exploratory drilling programs totaling $7 million. This exploration is aimed at expanding the resource base and further validating the asset, which could significantly enhance its value. An agreement with the government could also pave the way for trucking regional ore, adding another 80,000 to 100,000 ounces annually, underscoring the strategic importance of securing favorable permits.

Financial Stability: Strong Liquidity and Debt Management

B2Gold boasts a solid financial position with cash and equivalents of $467 million and minimal debt primarily in the form of equipment leases. The company maintains a $700 million revolving credit facility which it plans to utilize judiciously to fund ongoing and upcoming capital expenditure projects. Management has emphasized the importance of sustaining a dividend amidst these challenges, with a commitment to reassessing capital returns as they progress through significant capital projects.

Looking Forward: Strategic Focus and Expectations

As B2Gold navigates through a transitional year characterized by challenges in production, the management team's forward-looking statements foster confidence. Plans to ramp up production, development of existing assets, and exploration initiatives form the crux of their strategy. Looking at the financial horizon, the upcoming budget review in September will provide further clarity on capital costs for the Goose project. As they address equipment capacities and optimize operational efficiencies, B2Gold remains confident in its ability to enhance shareholder value while pushing through these transient challenges.

Earnings Call Transcript 2024-Q2

[Operator]

Thank you for standing by. This is the conference operator. Welcome to B2Gold Corporation Second Quarter 2024 Financial Results Conference Call. [Operator Instructions]. I would now like to turn the conference over to Clive Johnson, President and CEO of B2Gold. Please go ahead.

[Clive Johnson, executive]

Thank you, operator. Welcome, everyone, to the conference call to discuss the results -- Q2 results or fast results for B2Gold. We had some very positive results from the quarter in financial results. Mike Cinnamond, our CFO, is going to walk us through that. We're also going to talk about some of the other issues that we cover in the news release. We're going to get an update from Bill on operational update from both the situation in Mali in terms of production, we'll talk about an update on those.



Just a couple of points maybe to start us off. We have had an excellent track record, as everyone, I think is aware of operational performance for many years now and we did have an excavator triple downside, which is very unusual that happened. And then Bill will talk in more detail about that. That was unfortunate. That's caused us to reguide production for this year, down about 50,000 ounces that has not gone away as you move into next year. So, that's why we guided and you will hear more about that. Bill will tell you what happened in excavator and how we've taken steps to ensure that, that very unusual occurrence cannot happen again. We'll talk about that to get back to our actual operational performance. We'll talk about how we're already starting to see tonnages come back with the replacement excavators, et cetera. So, just a quick update on Mali and we'll get a chance to talk about this with answering your questions, I'm sure.



We are in the relief to be in the final stages. We believe of discussions with the government of Mali to understand the full implementation of the 2023 mining code. So we are, as I said, final stages and not those discussions and hope very shortly to be able to come out and announce. What that will do is that will trigger the -- we hope the rapid receipt of a permanent expectation for the regional areas where we want to begin trucking more down. As you've heard before, we've already built the roads, we're ready to go in terms of trucking or down and that can add 80,000 to 100,000 ounces a year. Reaching an agreement with the government, that will trigger that permitting process to governors that they want to see this happen, but they very much want to see Fekola expanded. So, we're looking to get hopefully a rapid response to getting an exportation permit -- but were actually tracking the separation Hallan20-calometes or less down to the Fekola mill.



The other thing to make sure people are still aware of us, there's tremendous exploration upside in the Fekola complex. With the agreement with the government, we will immediately go back to an aggressive drilling program around $7 million of exploration drilling up and down the complex there's a big strain right now at dealers on the Fekola license. So, tremendous exploration upside, and we did take an impairment charge and Michael will talk about that. But it's very important to note that the ultimate final value of the Fekola complex is very open with further exploration success is then we're not talking about brand new. There probably will be some new discoveries but also expansions of normalization that we got so far. So, the full story, the ultimate life of mine, we'll continue hopefully to add the reserves in the ultimate life of mine and the ultimate value therefore of the Fekola complex, we see to growing value from that asset.



I think with that, I'll turn it over to Mike to give us a review of the financial results. But maybe before I do that, I'll just talk a little bit about on the positive side, we've had a great track record of this company for a long time, including from being before that as being operators, good construction, exploration and they're managing things like political risk, et cetera. So, we've had a great track record. And one thing we're very good at is taking all challenges. So yes, we have some challenges in front of us. This year, we've always said this will be a transitional year. We knew production would be lower. We have a lot of capital expenditures, as we talked about before, including, of course, the Goose construction. But this is very much still a transitional year. We remain in a very strong financial position. And as we look forward, we're looking forward to continuing to grow this company based on developing our existing assets such as the expansion of coal through trucking.



The Goose mine coming on, Bill will talk about how well construction is going -- coming on mid next year. We're producing on an annualized basis, about 320,000 ounces a year. And then when you look at the growth will fall a little bit more. We've had a positive PEA. We're doing the feasibility sanely which should be done by the middle of next year. We are getting quite encouraged by that project. I mean, it's not turned into over the next line, and it fits in nicely after Goose potentially. And the feasibility is as positive as we're hoping as the PEA was to not ultimately could add another 240,000 ounces a year. So, there's about 650,000 ounces of growth in this company from existing assets. We don't have to go and do buy another mine. We don't have to go to make the discoveries. And that's a great growth profile, and we'll continue -- as we get through the challenges of this year, we'll continue very much to focus on the opportunity to continue to grow the company through existing assets and putting that into production. And with that, I'll turn it over to Mike to do some financial earnings results, and then Bill can give us an update as I mentioned.

[Michael Cinnamond, executive]

Thank you, Clive. Firstly, I'd say financially, it was a strong quarter on the earnings side after adjusting for onetime items, the company generated $0.06 per share of adjusted earnings. And definitely, as you can see, benefited from stronger average coal prices in the period. Operating cash flow bottom line was $62 million after changes in working capital were $192 million before changes in working cap. Again, very strong results for the operations. As Clive mentioned, to alluded to the -- we did lower production guidance at Fekola due to equipment availability issues in the pit. And so, with that, we guide in production for the second half and for full year '24.



We also looked at the cash cost and all-in-sustaining costs for each of our operations. And overall, at a consolidated level, we ended up with no change to our consolidated cash cost. Operating guidance. We maintained that range of between $835 and $895 per ounce, and that has benefited for one thing for sure through the year with lower fuel prices than we budgeted. And then for consolidated all-in sustaining costs, the reduction in overall production plus higher royalties through the year as we enjoy a higher gold price, resulted in a reguide upwards for the consolidated all-in sustaining cost range up to between $14.20 and $14.80 per ounce.



Clive did mention that we did take a noncash impairment charge on the Fekola operations. And that's based on our best estimate of how we think the 2023 mining code will ultimately be applied to the Fekola complex as we got more clarity on that through the intervening period, but the issue of some implementation agrees by the state and some ongoing discussions with the state. And then as expected, spending in the Goose project picked up with the completion of the 2024 winter ice road and transport all of required materials to site to complete construction. On the balance sheet. We continue to remain a very strong financial position with cash and cash equivalents of $467 million at the end of the second quarter, just a very small amount of debt related mainly to equipment leases. We do have the full amount, $700 million amount for the -- available on our revolving credit facility line. And as previously indicated, we will be drawing some of that line as we roll into the final stages of completion of this year's CapEx program across all our sites and then completion the Goose project.



And so, we feel we've got lots of good amount of financial flexibility to do that and maintain our other growth initiatives around our portfolio and continue to fund healthy exploration programs to extend our mine lives at all sites. And that's what I was going to say on the financial side. So, with that, I guess I'll pass it over to Bill.

[William Lytle, executive]

All right. Thanks, Mike. So, on the operational side, I'll do the easy stuff first. So, looking at Masbate. Masbate continues to perform at a world-class level. I think everyone is aware, still more than 2,000 days without an LTI and very strong cash flows. Otjikoto. Otjikoto continues to also perform very well. Probably the excitement there is that we are preparing a PEA study that would be -- come out in kind of the middle of next year, which has the potential to expand the ounce profile through the existing life of mine through the early 2030s and add ounces to the existing stockpiles. At Fekola, let's see here. So, Fekola is down, as you heard Mike say and Mike and Clive talked about. One of the things we do need to point out is Fekola has historically had an excellent track record for producing ounces. In this particular case, there was, as Clive mentioned, an operator error, where an operator tipped over an excavator, which crack the frame for the excavator.



That is something that has been rectified. Certainly, we've given extensive training -- retraining to all the employees on use of equipment. We see that as a one-off and unlikely event. That, with the confluence of not really being able to get into some of the regional stuff really is the cause for the delay. As Clive indicated, we haven't lost any ounces, that just been pushed back. We're going to see -- currently, we've mined out the high-grade ounces in Phase 6, and we're going to see the high-grade ounces from Phase 7 starting to show up in Q4 of next year -- Q4 of this year. So, you'll see most of those ounces transferred into next year. Just the mine plan shifts for Fekola about a quarter.



Let's see. At Goose. So, at Goose, we are having operationally a very good run there. Last time we talked, we were working on the winter ice road. The 2024 winter ice road was successfully completed. We brought down all of the materials necessary to complete the project. We expanded the camp to more than 600 people, which allows us to really get on top of making sure we can bring this in on time. The tanks which are necessary at the MLA are complete. We'll be starting to fill them up this month. The tanks on site will be done in kind of Q3, Q4. We don't see an issue there. The concrete, which is critical to get poured during the summer season. We've got currently more than 75% of the concrete done. And certainly, by Q3, we'll be well over 90% on the concrete.



All the steel is going up very well. We're currently working on electrical. And really, the takeaway is for most disciplines, we are either at where we need to be or ahead of schedule, which allows us really to produce gold in Q2 2025. So, related to the cost estimate, I know that we had talked about putting it out in June of this year. Maybe that was a bit ambitious probably on my side. When you think about what the actual schedule was for seeing what had come down the road. So, as you know, the road ended -- the winter ice road ended in May. We've now got everything opened up, and we're taking a look at what the previous owner had actually purchased.



I think everyone is aware that they were cash-strapped. And what we're doing now is just making sure that what has been ordered meets what we need to run kind of a B2Gold world-class project. Typically, this is not our standard fair. What we like to do is take over a project during either pre-feasibility or at feasibility level, have a look at it and redesign it and go ahead and make sure that we've ordered everything initially to the B2 standard. So, we certainly see -- we've got our head around what is there. We're working on what that means financially, and there's a lot of moving parts, but we certainly see by. The first part of September, we'll be able to deliver a concrete number into the market. And then I guess maybe the last thing is Gramalote. We are continuing to work on a feasibility, which will come out in the middle of next year. We are currently staffing up all of our teams and beginning to work on that. Clive, I don't know if there's anything else you'd like me to talk about?

[Clive Johnson, executive]

Maybe just a quick update. It's initially about where we are right now in terms of shipping the stuff or getting everything on site for next year.

[William Lytle, executive]

Yes, that's actually a very valid point. So, right now, we are in the middle of commencing the sealift for 2024. Currently, with 11 ships, will be sent to the MLA. That includes more than 85 million liters of fuel and enough cargo to basically get us through the 2025 season. So, everything remains on track. The B2Gold logistics team is performing beautifully, and we don't see any issues with the sealift. We'll start receiving cargo in about 10 days.

[Clive Johnson, executive]

And people want to get a visual view of all this on our website, there's a link to go to, to look at some great job footage you're showing the progress of construction. It's been essentially the mark at which our construction team can build things. So, that's going extremely well. Thanks, Bill. I think with that, and I'm sure you have lots of questions for us, so we'll open up -- operator, we'll open up to questions.

[Operator]

We will now begin the analyst question and answer session. [Operator Instructions]. We'll pause for a moment as callers join the queue. The first question comes from Wayne Lam with RBC. Please go ahead.

[Wayne Lam, analyst]

Just wondering, just on the impairment charge taken this quarter. This is the second impairment taken now in relation to Fekola over the past year for almost the same amount. Outside of the increase in the discount rate, can you just talk about some of the factors involved in taking those 2 impairments in succession and the additional concessions being made in the negotiations? And then just with the implementation decree having been finalized now, are you guys pretty confident that the deal is imminent? And are you able to provide a more definitive timeline now for completion?

[Clive Johnson, executive]

Well, I would say we're very confident in the near-term here of reaching the agreement to satisfaction all stakeholders. We, of course, and should probably understand we can't go into details about negotiations, et cetera, that wouldn't be appropriate or useful. So, in terms of the impairment, Mike, do you want to talk a little bit about that?

[Michael Cinnamond, executive]

Yes. I think we'll really keep it to the level that we're required to look at whether we have impairment indicators and then use our best estimate at each reporting period. So, we did put out some new clarification and the implementation decrees and we've had ongoing discussions. So, I think we're close. We think we've reflected those items that we believe would impact the carrying validity and what we booked this time around. But we don't want to discuss in detail, I think until we finalized our discussions.

[Clive Johnson, executive]

But I think it's probably maybe quite clear that the fact that we actually looked at it and took the impairment charge which suggests to you how close we are to reach. We think we're kind of close regard to reaching that file agreement.

[Wayne Lam, analyst]

Okay. Got it. Fair enough. And then maybe just wondering on the updated ASIC guidance at Fekola, does that include stripping planned for the regional ounces next year? Or is that going to fall under non-sustaining CapEx? And then do you still anticipate costs coming down next year as per the 2024 mine plan? Or should we be thinking about something in the similar range to this year given the amount of capitalized stripping and underground development need to be done.

[Michael Cinnamond, executive]

Well, I can comment certainly for starters on the stripping for regional. There is no regional production included in these numbers nor any costs related to them for this year. So that the reguide number doesn't assume the stripping campaign. And then as we look forward, I don't -- Bill wants to talk about the mine plan for Fekola. We haven't put out any guidance for next year yet on the cost side.

[William Lytle, executive]

We haven't put out any guidance for costs, but I certainly think that we've been very open that the underground will come in, in Q2 of 2025, and we are expecting regional ounces next year. As Clive said, it looks like an agreement is imminent. So, we are ramping up. As we've been very open, all of the work necessary to develop that regional project is already done. The road is in, the infrastructure is in. All we need to do is we'll have a quarter pre-stripping we'll go into production.

[Wayne Lam, analyst]

Okay. Got it. And then maybe at Back River, can you just talk about what the remaining large CapEx items are outstanding that's been driving the delay in the review? And is it still the case that most of the large capital items have already been spent and most of the increase with the update is going to be driven by labor and logistics? Or are there still equipment items that need to be replaced in relation to Bill's comment on sorting through some of the historic Sabina stuff?

[William Lytle, executive]

Yes. So, the answer is it's tough really to say. I don't want to come out and say really kind of where the numbers are exactly because I don't want to lie. I don't want to mislead anybody. We're in the middle of checking through that right now. What I will tell you is that most of the major things are purchased and on-site, right? So, it is really a question of kind of picking around the edges. Don't forget we've got that extra quarter now, which does have an impact. And we're just working through that. So, you got to give me like 30 days.

[Wayne Lam, analyst]

Okay. Got it. Looking forward to the update.

[Operator]

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

[Don DeMarco, analyst]

Thank you, operator. First question, Bill, can you give a little more color on the guidance increase or rather the 2025 outlook. Of the 90,000 that's added, how much is from Fekola deferrals from '24, the truck deep regional ore? And also, the Fekola underground, those 3 different buckets, how did that move the needle on 2025?

[William Lytle, executive]

Yes. I think Peter, you're in the room, right, it's probably better for you to answer this question.

[Unknown Executive]

Yes. Thanks, Bill. Yes, as far as 2025 goes with the deferral of the ounces. Basically, it's just sliding the high-grade zone from Phase 7 back. So, we're still revising those mine plans now to see exactly what it is, but we're looking more at a replacement, not really an upshift in 2025.

[Don DeMarco, analyst]

Okay. I see. So, you're just kind of replacing with higher grades. But what you have for the Fekola regional or for Fekola underground, as Bill mentioned, starting in Q2, that just remains unchanged?

[Unknown Executive]

That's right. Yes. We're not changing anything as far as those goes on a development basis, those projects remain unscathed.

[Don DeMarco, analyst]

Okay. Perfect. And there was no regional truck door in 2024 guidance. Is that correct?

[Unknown Executive]

Correct.

[Clive Johnson, executive]

That's correct.

[Don DeMarco, analyst]

Then just to this equipment availability issue -- it's good to hear this being addressed, but when do you expect it to fully be addressed? And is there any risk to that time line? We saw an improve in Q2. So, I guess the read-through here is probably going to take a few weeks to get addressed. Maybe we're going to see higher costs at Fekola in Q3. Is that fair to say?

[William Lytle, executive]

Right. So, the first part of the question is it already has been addressed. Basically, we brought forward -- we replaced the excavator. Of course, it took time to get it in, and we brought forth another excavator from 2025. So, what we've seen kind of in Q3 so far is we have met or exceeded our production targets for both the month so far. And so, it already has been addressed. Now it's just a question of how quickly we can catch up. And so, I'll let Mike talk about the costs.

[Michael Cinnamond, executive]

Yes. I think the key thing on the cost side, Don, to remember, there's 2 key components. One was we moved less tonnes because we had less equipment capacity. So, we're going to see a catch-up you're right there as we -- as capacity comes back on, the higher gross cost. But we also enjoyed close to 25% lower fuel costs at Fekola, and we see that continuing right now. So, there are some offsetting factors starting to pick up some more of those tons. So, it will be a catch-up, but we definitely, the fuel reduction is a locked-in benefit versus what we originally budgeted.

[Don DeMarco, analyst]

Okay. Great. Well, that's all for me. Good luck with Q3. Thank you.

[Operator]

[Operator Instructions]. The next question comes from Francesco Costanzo with Scotiabank.

[Francesco Costanzo, analyst]

Just asking here on behalf of Ovais Habib. I think most of the pertinent questions have already been asked and answered. But if I could just ask one for Mike. Given the challenges in Mali leading to the lower guide, can you speak to the integrity of the dividend, given the review of the budget and maybe speak to the liquidity as well, how you plan to fund the project and the cadence of the boring on the liquidity and stuff like that?

[Michael Cinnamond, executive]

Well, I can certainly speak to liquidity. Like I said, we've got $700 million on the line there available, and we've got close to $0.5 billion in cash to the at the balance sheet date. So, we feel comfortable doing what we think we need to do on the capital project side. And it's certainly our goal to maintain a dividend. We will look at the components of our capital return from time to time as we look also at our capital outlay. So, I think it's something that we'll monitor as we have like some of the -- get to near close the end of some of our larger capital projects, but we certainly feel comfortable with our sort of level of liquidity that we have. I don't know if you want to add anything to that.

[Operator]

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

[Clive Johnson, executive]

Okay. Thanks, operator. Well, thank you, everyone, for joining us on the call. We always like to end these calls, I guess, with a bit of a discussion of what's coming up in terms of a reminder of the catalyst coming up, some of them, we expect in the near-term. So, we're looking forward to including our discussions with the government of Mali and reaching an agreement on the way forward, which will include, of course, receiving an exploitation license to start trucking ore down the Fekola mill from the regional targets.



In addition, that will trigger significant exploration starting up again and the regional to fully define the value of Fekola complex. We will have an updated detailed, updated budget for you on the Goose construction capital costs in September, and we continue to work away on Gramalote, as we mentioned, on the feasibility study. Goose exploration. We have been doing a significant exploration work and do some of it is pulling, but also starting to test some new targets, and we should have some new round of exploration results from some of these new targets that are done plunged for existing targets, et cetera, by sometime in November. Looking forward to putting up some more results.



So, in the meantime, I think we've explained. I hope, how we have recovered in Fekola from a rare event, the acceptable tipping over the conveyor, and how we're recovering from that, as Bill pointed out. The ounces there lost those are those 50,000 ounces to next year. Gas auto construction is going extremely well at Goose, logistics and construction expertise really kept and showing how well we do these types of projects. So, with that, a transitional year, a challenging year for B2Gold. As we've signaled before, he's got a few more challenges here at the end of the day, solving problems and dealing with challenges head-on. That's what we do, and I've done it for a long time.



So, I'm very confident that we're going to continue to perform well as we go through this year and we actually move excited about the future potential growth, as I pointed out earlier, by developing existing assets, including Fekola Trucking, Goose, and ultimately, potentially Gramalote as well and lots of exploration to happen in many areas throughout the company's portfolio. So, with that, I would thank you all for your time. If you have any follow-up questions, get in touch with us through Michael McDonald. And thanks for your time. And operator. Thank you.

[Operator]

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