B2Gold to sell Burkina Faso project to West African Resources

B2Gold (TSX: BTO; NYSE-AM: BTG) is selling its 81% stake in the Kiaka gold project in Burkina Faso to Australia’s West African Resources (ASX: WAF) for cash and shares.

Kiaka is 48 km south of West African Resources’ Sanbrado gold mine, which poured its first gold in March 2020. The project, about 110 km southeast of the capital of Ouagadougou, is also about 50 km south of Orezone Gold‘s (TSXV: ORE) Bombore gold project.

“West Africa continues to be a hot bed of M&A,” Craig Stanley of Raymond James commented in a research note. “In less than three years, we count eight producers/mines and ten pre-production companies/projects that have been acquired in the region.”

Under the sales agreement for Kiaka, B2Gold will receive US$450,000 in cash, and once the transaction closes, a further US$45 million—50% in cash and 50% in shares of West African Resources.

Employees at the Kiaka gold project, 110 km southeast of Ouagadougou, Burkina Faso. Credit: Volta Resources

Another US$45 million will be due in cash or shares on either the commencement of project construction or the completion of a feasibility study. In addition, a 2.7% net smelter return (NSR) royalty will due on the first 2.5 million oz. gold produced from Kiaka, and a 0.45% NSR on the next 1.5 million ounces produced.

The company has also completed an amended purchase agreement with West African Resources for its 90% stake in the Toega project, also in Burkina Faso, and about 14 km west of the Sanbrado mine.

In that deal, B2Gold will receive US$18 million (it has already received US$9 million of that sum), and a 2.7% NSR on the first 1.5 million oz. gold produced at Toega until it has received US$22.5 million. After that, B2Gold will receive a 0.45% NSR interest on the project. (B2Gold reached an agreement to sell Toega in the second quarter of last year.)

The Kiaka project in Burkina Faso. Credit: B2Gold.

In an interview, Clive Johnson, B2Gold’s president and CEO, noted that West African Resources, which has a solid reputation of operating in Burkina Faso, was in a good position to develop the Kiaka project, and that B2Gold would retain an interest in the company.

“For West African Resources there are some synergies that they’ve got and they’ve got a good track record of success,” Johnson said in a call from Vancouver. “I think Kiaka was for us, with the kind of size and mines we build these days, we thought it would be better developed by a company that had synergies. ”

The sale, he said, would also allow B2Gold to focus on its other exploration and development opportunities like its Gramalote project in Colombia, and growing its Fekola mine in Mali.

“It wasn’t a reflection of what we think of Burkina Faso, it was just a decision based on what we’re doing in Mali, looking at Fekola, and we think it’s going to continue to get bigger … and the opportunity in Colombia with Gramalote,” he said.  “We’re going to get going on that one [Gramalote] … it could be developed quite quickly and we could make a decision next year. And we’re spending a lot of money on other interesting projects and Kiaka is just, it didn’t meet all of our development criteria. So this is an opportunity to keep an interest in the project and see it advance, and become a shareholder.”

Kiaka contains indicated resources of 200.4 million tonnes grading 0.84 gram gold per tonne for 5.38 million oz. contained gold and inferred resources of 57.1 million tonnes grading 0.69 gram gold per tonne for 1.26 million ounces. The December 2020 resource estimate used a cut-off grade of 0.35 gram gold per tonne and a gold price of US$1,800 per ounce.

The project is situated on a 5,402-hectare exploitation licence issued in July 2016. The initial licence included a condition that mine construction was to be completed by July 2018.  An initial two-year suspension of the condition was approved in June 2018. The company applied for a second two-year suspension, but the Minister of Mines rejected the application.  Kiaka now has until July 2022 to start construction.

In a research note, BMO mining analyst Brian Quast estimates that B2Gold’s cash balance “will grow to more than US$600 million by FYE 2021,” which he expects will “support ongoing strong capital returns and provide ample liquidity to pursue growth.”

“We expect B2Gold to continue its strong track record of returning capital to shareholders; however, we will be looking for commentary from management regarding how it plans to use its excess liquidity.”

As for Kiaka, Quast said he “previously ascribed a US$120 million value to Kiaka on an in-situ basis. We value the royalty at US$62 million; however, we think the asset could fetch a higher price if sold while the gold price is above our current estimates, possibly to a royalty company that is looking to grow their own portfolio. Overall, we value the Kiaka sale as being value neutral.”

B2Gold has exploration and development projects in Mali, Colombia, Finland, Uzbekista, Namibia and the Philippines. Its producing mines are in Mali, Namibia and the Philippines.

At presstime in Toronto B2Gold was trading at $5.44 per share within a 52-week trading range of $4.21 and $9.23.