B2Gold wrestles with operational issues at Masbate, Limon

VANCOUVER — Producer B2Gold (TSX: BTO; NYSE-MKT: BTG) has made a name for itself through its operational acumen in tough jurisdictions, but ongoing ramp-up issues caught up to the company during the third quarter.

On Oct. 28 B2Gold reported its quarterly results, which incorporated delays in upgrading equipment.

The company had third-quarter gold production of 90,200 oz., which is a 9% drop from the same period last year.

B2Gold’s aggregate production over the past nine months is up 4% year-on-year to 272,199 oz., but remains 27,000 oz. below annual guidance estimates.

Production was hit by recent semi-autogenous grinding (SAG) mill ramp-up problems at the Masbate gold mine, 50 km south of Manila, Philippines.

B2Gold also had installation delays involving a dewatering system at its Limon mine 100 km north of Managua, Nicaragua.

The company indicated that Masbate’s mill is running consistently, while Limon’s dewatering system is “progressing well and nearing completion.”

B2Gold expects access to higher grades at Limon during the fourth quarter.

During the third quarter B2Gold replaced Masbate’s old mill, which required alignment exercises and cooling system modifications that resulted in lower operating temperatures. Maintenance delays triggered a 4.7% drop in gold recoveries to 76.7%.

As a result third-quarter production at the mine totalled 43,750 oz. gold, which is 7,510 oz. below budget and 3,900 oz. less than in the same period last year.

Although the company expects Masbate will have a strong fourth quarter it has decreased its full-year production guidance at the operation to 180,000 oz.

Meanwhile, Limon’s open-pit and underground operations produced 9,822 oz. gold during the quarter, which is 6,830 oz. below budget and 4,220 oz. lower than in the same period last year.

B2Gold said that production at Limon was affected by underground development at its Santa Pancha 1 deposit, where the installation of a dewatering system designed to remove hot water from deeper areas is “advancing more slowly than planned.” As a result, the company reported delayed access to higher-grade zones.

On the development front, B2Gold remains on track to hit a full-year production target at its Otjikoto project in Namibia. The company is stockpiling ore in anticipation of first gold pour in December. The SAG and ball mills have been installed, as well as the gravity concentration circuit.  Project-to-date mining is in line with the company’s budget and stands at 12.7 million tonnes of total rock mined.

The current mine plan is based on probable reserves of 29.4 million tonnes grading 1.42 grams gold per tonne for 1.34 million contained oz. at a 5.6-to-1 stripping ratio. Otjikoto’s average production for the first five years is estimated to be 141,000 oz. gold annually at cash operating costs of US$524 per oz.

Due to exploration success at Otjikoto’s Wolfshag zone B2Gold is completing an updated mine plan that could see the operation increase its production rate to 170,000 oz. per year. The company has budgeted US$8 million at Wolfshag in 2014, and expects to release a resource update and mill expansion study in the first quarter of 2015.

BMO Capital Markets analyst Brian Quast — who has a stock “outperform” rating on B2Gold along with a $3-per-share price target — notes that the company’s production missed BMO research estimates by 15% during the third quarter.

“While the miss was large, BMO expects the operational issues at Masbate and Limon to be resolved in the near-term. Therefore, fundamental changes to the model only have a minimal negative impact on net present value (NPV), which has been offset by the increase in spot gold since the last update,” Quast writes in a research update.

B2Gold has traded within a 52-week window of $1.98 to $3.69, and dropped 7% after its third-quarter results en route to a $2.12-per-share close at press time. The company has 679 million shares outstanding for a $1.9-billion market capitalization.

B2Gold has decreased its full-year production guidance to between 380,000 and 385,000 oz. gold in 2014, with original guidance pegged between 395,000 and 420,000 oz. gold.