B2Gold locks up funding for Fekola mine in Mali

VANCOUVER — Mid-tier gold producer B2Gold (TSX: BTO; NYSE-MKT: BTG) has nailed down financing for its next expansion at the multimillion-ounce Fekola gold project in Mali.

B2Gold picked up the Fekola concessions in mid-2014 in an all-share deal for Australia-based Papillon Resources that valued it at US$570 million. The property sits 400 km west of the Malian capital of Bamako along the border with Senegal.

Fekola is an orogenic gold deposit hosted by a moderate to steeply west-dipping folded sequence of marine metasediments of the Kofi group. Most gold mineralization is found in unweathered rock and associated with stringers of pyrite parallel to foliation, and in fine, disseminated pyrite.

Based on an optimized 2015 feasibility study, Fekola would process 4 million tonnes of material per year at an average 2.5-gram-gold head grade. The mine would produce 276,000 oz. annually over a 12.5-year life at total cash costs of US$552 per oz. The project would generate a 34% internal rate of return, and a US$615-million net present value at a 10% discount rate (or a US$1 billion NPV at 5%). All economic outcomes assume a US$1,300 per oz. gold price.

Fekola project location map. Credit: B2Gold

On March 15, B2Gold announced it has fully funded Fekola’s US$395-million capital expense with prepaid gold sales and an equipment financing facility. Initial contracts outline 43,100 oz. gold delivered in 2017 and 2018, with the company’s total gross proceeds pegged at US$100 million. B2Gold has sealed more agreements for another US$20 million in forward-sold gold.

The company also closed a US$81-million equipment agreement with Caterpillar Financial. The US$205-million influx in capital adds to a US$85-million cash position and US$125 million in undrawn credit facilities.

“I don’t think we’ve seen many financings of this type done by gold companies, but it is a relatively straightforward structure in concept, wherein we sell forward and are paid up front,” senior vice-president of finance and chief financial officer Michael Cinnamond said during a conference call.

“At the end of the day we’ve now locked in a material part of the capital requirements in exchange for equal monthly installments of gold over two years. It’s effective financing for us, since it gets Fekola up and built without any equity dilution. Also, it’s not a significant component of our overall consolidated production over that period,” he added.

Fekola is scheduled to hit production in late 2017, and the mine would propel the company to within striking distance of being the next mid-tier producer to break past 1 million oz. gold per year.

Early mine development at B2Gold’s Fekola gold project in Mali. Credit: B2Gold

Early mine development at B2Gold’s Fekola gold project in Mali. Credit: B2Gold

B2Gold reported its annual results on March 16, which were headlined by record production of 493,265 oz. It should be noted, however, that the production number misses the lower bracket of the company’s production guidance due to under-performance at its legacy El Limon and La Libertad operations in Nicaragua.

Company-wide, all-in sustaining costs were pegged at US$947 per oz., which marks a 14% drop compared to 2014. Fekola would become the company’s flagship asset in terms of gold production. In 2015, the Masbate operation in the Phillipines cranked out 175,803 oz. gold, while the newly commissioned Otjikoto mine in Namibia added 145,723 oz.

Otjikoto was a big contributor to B2Gold’s record cash flow from operations, which jumped 50% year-on-year to US$175 million, or 19¢ per share, in 2015. The company expanded the mill at site from 2.5 million tonnes to 3 million tonnes per year, and intends to pursue the same strategy with its next project.

“We decided to develop Fekola in a lower gold environment because it’s never a bad time to build a low-cost mine,” president and CEO Clive Johnson said. “That’s why we acquired the project when everyone else lacked the support, or courage, to do a deal.

“And we don’t want to look back five years down the road and regret the mill we built because we should have something bigger. More conservative gold producers might say: ‘You don’t get to do exploration until you pay back the capital on the mine.’ But that’s a naive strategy. We always build with expansion in mind, and that means spending a little bit more upfront,” he continued, noting that the company could boost Fekola’s annual throughput to 5 million tonnes with a US$20-million investment.

BMO Capital Markets analyst Brian Quast lifted his price target on B2Gold by 25¢ to $3 per share after the annual results, and added that consolidated all-in sustaining costs were lower than expected in the fourth quarter owing to a strong performance at Otjitoko and a good end to the year at Masbate. BMO Research expects B2Gold will produce 526,000 oz. in 2016 at all-in sustaining costs of US$895 per oz.

The company’s shares have traded in a 52-week range of 86¢ to $2.22 per share, and rose 19% after its annual report en route to a $2.08-per-share close at press time. B2Gold has 927 million shares outstanding for a $2.1-billion market capitalization.