Timely acquisitions set B2Gold on growth path

VANCOUVER — B2Gold (TSX: BTO; NYSE-MKT: BTG) is a story of savvy gold acquisitions and operational reliability in challenging jurisdictions. The company avoided writedowns and executive turnover during the most recent downcycle in gold prices, and it now promises to grow production through a trio of West African gold assets.

B2Gold has ramped up its gold production from 150,000 oz. in 2012 to between 510,000 and 550,000 oz. this year. During the second quarter, the company produced 135,240 oz. gold at all-in sustaining costs of US$731 per oz. gold. Improved gold have helped double quarterly operating cash flows to nearly US$68 million.

Material piled at the Otjikoto gold mine, 70 km northwest of the town of Otjiwarongo within the province of Otjozondjupa in north-central Namibia. Credit: B2Gold.

The company expects to meet the upper end of its annual production guidance in 2016, and will likely hit the lower end of its all-in sustaining cost guidance of US$895 to US$925 per ounce.

Much of B2Gold’s success stems from two key acquisitions. In 2011, the company picked up Auryx Gold and built the Otjikoto gold mine in Namibia, which could produce between 160,000 and 170,000 oz. gold in 2016. In late 2012, B2Gold bought the Masbate gold mine in the Philippines via a US$1.1-billion deal for CGA Mining. The operation lies 360 km southeast of Manila, and is slated to produce between 175,000 and 185,000 oz. this year.

“We try to ignore the ups and downs of the market,” president and CEO Clive Johnson says during an interview in his Vancouver office. “When gold falls like it has over the past few years, we see opportunity. In that sense we’re contrarian, because we take the long-term view. Just last year we’d hear about how we had a good growth story, but nobody was paying for growth.

B2Gold president and CEO Clive Johnson in the company’s boardroom in Vancouver. Credit: B2Gold.

Masbate, he says is “a prime example of one of our business strategies in action,” noting that at the time of the deal there was “sentiment that we overpaid, but we completed intense due diligence and felt we could bring operating costs down.”

To that end, B2Gold improved mining methods, optimized cut-off variables and materially boosted recoveries.
Over the first half of 2016 Masbate produced 109,915 oz. gold, or 21% above budget and 26% higher than the same period last year.

In October 2014, the company wrapped up its fifth major acquisition in six years via a US$570-million all-stock deal for Papillon Resources, and its advanced-stage Fekola gold project in Mali.

With Fekola production coming on stream, B2Gold’s near-term goal is a 70% company-wide production increase over the next two years to between 900,000 and 950,000 ounces.

According to an optimized feasibility study filed in 2015, Fekola could produce an average 350,000 oz. gold in the first seven years of its mine life, at average cash operating costs of US$418 per oz. Reserves total 49.2 million tonnes of 2.35 grams gold for 3.72 million contained oz. gold.

The company says it is on budget and on schedule at the US$395-million mine site, and expects to pour first gold at Fekola in late 2017.

Trucks at the Fekola property in southwestern Mali’s Kayes region on the border with Senegal. Credit: B2Gold Corp.

“There are so few good deposits out there that you can’t limit yourself geographically, but we were never worried about working in Africa,” Johnson says. “What was contrarian about it was the timing. A lot of companies were scared after doing questionable deals when gold prices were really high.”

One of B2Gold’s principles, Johnson says, is the company will never buy something that requires higher gold prices or exploration success to justify the acquisition.

“That is a key part of our strategy, and when we looked at Fekola we kept wondering where the competing bids were,” he says. “But there was no competition, and that astounds me to this day.”

Recent exploration results at Fekola have been promising, and so in late June, B2Gold said it would scale up its mine design by 25%, which could increase initial throughput to 5 million tonnes per year.

The decision was based on “positive drill results to date” at new near-surface targets, and below the main Fekola pit.

The increase in mining scale would require US$18 million more capital expenses, but could boost early production 20% above initial projections of 350,000 oz. gold per year.

The company is also delineating “near-surface zone of saprolite-hosted gold mineralization” at its Anaconda target in Mali, which has been intersected within an area 1,300 metres long by 600 metres wide, across an average drill length of 23 metres.

Bulldozing at the Fekola gold mine site in Mali. Credit: B2Gold.

“Anaconda is a zone of heavily weathered saprolite literally sticking out of the ground,” Johnson says. “There’s probably no crushing or grinding, and you could have a small-scale stand-alone producing mine, or ship it to Fekola.
That’s something we’re drilling in a major way right now, and we think it could add serious ounces. There are over 5 km of saprolite, so the major question is: Where is the source? That definitely has our team intrigued, because we could have another major discovery.”

B2Gold has raised its annual exploration budget in Mali from US$6.9 million to US$11.4 million.

The final pillar in B2Gold’s West African expansion strategy is the earlier-stage Kiaka gold project, 140 km southeast of Ouagadougou, Burkina Faso. The company acquired the asset in a US$63-million, all-share deal for Volta Resources in late 2013, and could release an updated feasibility study later this year.

“Kiaka was a bit unusual for us, since it needed a bit of help from the gold price or the discovery of higher grade,” Johnson says. “We liked the exploration upside and the key was the entry point, because the price was reasonable. Sure enough, we’ve identified the Toega zone, which could be double the grade and looks to have size potential. “We’re doing a lot of drilling there and working on the project economics.”

Kiaka contains measured resources of 27.3 million tonnes at 1.09 grams gold for 953,000 oz., indicated resources of 96.8 million tonnes at 0.96 gram gold for 3 million oz., and inferred resources of 27.3 million tonnes at 0.93 gram gold for 815,000 ounces.

B2Gold released results from Kiaka’s Toega zone earlier this year, which were highlighted by 106 metres grading 2.21 grams gold from 75 metres deep in hole 47. Reconnaissance drilling east of known mineralization at the target also cut 6 metres of 9.9 grams gold associated with quartz veining hosted in siltstone in hole 12.

“Our ability to make acquisitions in the down market and execute development with limited equity dilution has put us in a great place,” Johnson says. “We stuck to that strategy, and now suddenly over [the past six months] people are looking around and asking: ‘Well, who is growing and who is going to be a low-cost producer?’ We’re the fastest-growing gold producer in the world, and our costs are going to drop even further with these new mines.”

The company’s shares have traded in a 52-week range of 86¢ to $4.74 per share, and closed at $3.45 at press time. B2Gold has 934 million shares outstanding for a $3.4-billion market capitalization, and reported a US$99-million cash position at the end of the second quarter.

On Aug. 12, the company announced an at-market equity distribution agreement that could see it raise another US$100 million.