B2Gold brings its operational prowess to Masbate

VANCOUVER — The Philippines may not top any list of mining-friendly jurisdictions, but that hasn’t deterred geographically diversified Canadian miner B2Gold (TSX: BTO; NYSE-MKT: BTG) at its recently acquired Masbate gold mine, located on Masbate Island 350 km south from Manila. In fact, despite a two-week mill shutdown in early June, B2Gold is on track to meet the upper end of its production guidance at Masbate, even as its average cash costs decline.

The company added Masbate to its stable of gold assets in January when it picked up Australia’s CGA Mining in an all-stock deal worth $1.1 billion.

Working in challenging mining jurisdictions isn’t anything new for B2Gold. The company operates its La Libertad and Limon gold mines in Nicaragua while developing the Otjikoto gold asset in Namibia, and Masbate fits nicely into a growth profile that could see B2Gold producing 700,000 oz. gold annually by 2016.

The project covers 116 sq. km in the municipality of Aroroy. Masbate has a history of mining, with gold production having been traced back to the seventeenth century. Historic operations were both open-pit and underground, with the more modern ones using conventional carbon-in-leach recovery.

Masbate hosts a series of volcanic rocks of andesitic composition and clastic sediments, predominantly conglomerate. Gold mineralization occurs in quartz reefs developed in a fault-structure network and deposited from hydrothermal fluids.

B2Gold’s first step in taking control of Masbate was to cut 2013 guidance by 25,000 oz. gold. CGA had experienced problems in 2012 with an aging semi-autogenous grinding mill, and B2Gold opted to shut down briefly to carry out an upgrade.

Masbate cranked out 81,877 oz. gold in the first half of 2013 at average cash costs of US$809 per oz. Year-to-date, the mine generated  revenue of US$150 million from the selling of 95,644 oz. gold at an average realized price of US$1,564 per oz.

Another break in operations was needed in late June when minor leaks were discovered in the tailings line-servicing processing circuit. Despite the delays, B2Gold is still on track to meet its annual guidance of between 175,000 and 185,000 oz. gold, at cash costs ranging from US$770 to US$790 per oz.

During a second-quarter conference call, president and CEO Clive Johnson said that the delay was “handled well. It was really quick and safe, and we’re rapidly recovering . . . the quarter was surprisingly good for us, especially in terms of our operating costs, which we’re really happy about. I think you’re starting to see why we feel as good about the [Masbate] acquisition as we do. We’ve been on the ground for around six months now, and we’re putting our stamp on the operation.”

Vice-president of operations Dale Craig explained that B2Gold had recovered “more than a third” of its June shortfall by July, noting adjustments to the mine sequence at Masbate’s Colorado pit will allow the company to manage costs and improve the mine’s recovery rate. Craig pointed out that the updated guidance costs were around US$95 less per oz. than B2Gold had budgeted at the beginning of the year.

Even as B2Gold optimizes production at Masbate, the company is eyeing the exploration potential across its sizable land package. B2Gold has budgeted US$10.5 million for drilling this year, with eight rigs mobilized at the site.

This program will include infill drilling on mine veins — namely Main Vein, Colorado, Panique and Montana — as well as exploration drilling on near-mine veins outside of existing resource and reserve boundaries, such as Pajo and the high-grade Montana North vein.

In August B2Gold updated the resources and reserves at Masbate, with a jump in grades. CGA’s previous estimates had pegged reserves at 113 million tonnes grading 0.82 gram gold for 3 million contained oz., while B2Gold’s update tallies 104 million tonnes grading 0.97 gram gold for 3.23 million contained oz. The reserves are calculated under current operating costs, revised metallurgical recoveries and a US$1,350 per oz. gold price.

BMO Capital Markets analyst Brian Quast, who maintains an “outperform” rating on B2Gold and a $3.75-per-share price target, notes that under current models Masbate could run for another 19 years, with annual production of 206,000 oz. gold at cash costs of US$770 per oz. Quast does, however, factor in a mill expansion in 2016 that could bring Masbate up to 27,000 tonnes per day at a development cost of US$180 million.

B2Gold’s company-wide gold revenues over the first half of 2013 jumped 129% year-on-year to US$278 million, with the improvement mostly driven by Masbate’s contribution to the company’s production. B2Gold’s net earnings over the period totalled US$33 million, or 5¢ per share, and the company reported US$96 million in cash and equivalents at the end of the second quarter.

B2Gold also completed a US$258-million convertible senior note offering in late August.

Shares have traded between $1.87 and $4.38 in the last 52 weeks, and closed at $2.60 at press time. B2Gold has 651 million shares outstanding for a $1.7-billion market capitalization, and trades an average of 4.7 million shares daily.