B2Gold Corp at Canaccord Genuity Global Resource Conference
Oct 17, 2013 AM EDT
BTO.TO - B2Gold Corp
B2Gold Corp at Canaccord Genuity Global Resource Conference
Oct 17, 2013 / 05:30PM GMT
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Corporate Participants
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* Ian MacLean
B2Gold Corp. - VP, IR
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Conference Call Participants
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* Rahul Paul
Canaccord Genuity - Analyst
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Presentation
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Rahul Paul, Canaccord Genuity - Analyst [1]
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We'll get started with the next presentation. Up next we have Ian MacLean, VP Investor Relations at B2Gold. This is a company, as many of you know, with assets in several geographies, including Nicaragua and Namibia, Philippines, Colombia. The Company is run by a proven management team, previously ran Bema Gold, a company that was eventually sold to Kinross a few years ago. In the last few years, the team's performance has been outstanding on all fronts -- exploration, development, operations and also on the acquisition front. So not surprising, this has been one of the best performing growth stocks on the TSX in the last few years.
With that, I will let Ian take us through the B2Gold story.
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Ian MacLean, B2Gold Corp. - VP, IR [2]
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Good afternoon. Thanks for the kind words, Rahul, and thanks to Canaccord Genuity for putting on this conference in such a beautiful location. We've seen some challenges in the gold price, but it's nice to see that there is still some interest in the sector. We've had a good series of meetings ourselves and, I think, a good turnout here.
So without further ado, this is the cautionary statement I'm sure you've seen a number of times.
About B2Gold, as Rahul mentioned, we are the former management of Bema Gold, who started B2 back in 2007 as a private company and subsequently IPO'd in later 2007. We have three producing mines, all of which were acquired through acquisitions, and the fourth mine that we are building also was an acquisition. I'll discuss that a little bit. Our cash position at the end of the second quarter was just under $100 million, and we have good access to capital as evidenced by the convertible debenture that we recently closed, and we'll talk a little bit about that.
When we say a hybrid company at the bottom of this slide, what that really means is we have a team that has been together for a long time in all aspects of the mining business, going from geology, feasibility, mine building, finance ability, all legal aspects of the mining business. That is one of the things that has been a trump card for B2Gold, especially when it comes to assessing projects on an M&A front. We don't use consultants; it's all internal work. And that is often quite a bit of a better method in the sense that everyone has to take ownership of any acquisition that we do. So that's why we like to call ourselves a hybrid company of sorts.
This projected production growth slide is a good place to start this presentation. We have the two mines in Nicaragua, Libertad and Limon. If you look at the 2013 guidance, they will be producing 147,000 and 58,000 ounces, respectively. A recent acquisition, the Masbate project, is scheduled to produce 185,000 ounces this year and we are well on our way to meeting that guidance.
If you look to 2015, you see a dramatic growth component of that. That's the Ojtikoto project coming on stream, and that's when we expect to start to see substantial free cash flow. I will discuss that a little bit more.
And then the final aspect of this particular growth chart is the Gramalote project. Of these assets, that's the only one that is somewhat out of our control. It's a joint venture with Anglo Gold Ashanti. We are 49%, they are 51%, although it's a strong JV. And what we really like about this with the exception of Gramalote is this is fully funded. So all of our exploration, CapEx and construction work at Ojtikoto doesn't require any additional financing to achieve these goals into 2015 and beyond.
Share capital is pretty straightforward -- only a couple things I'd point out on this slide. Management owns about -- just under 6% of B2Gold, and the founding group has elected right from the beginning not to take stock options. The reason for that is we all have substantial shares and we are all large shareholders. We use stock options for nonexecutive directors, attraction and retention of talent and all the way down the chain within our Company so people have some stock options and it gives them some concept of ownership in the Company.
We have a very low turnover rate, both at our project around the world and in our head office.
So a little bit on the recent financing. We did a $258 million commercial debenture, pretty attractive piece of paper at 3.25% interest, conversion price of $3.93 a share. Many people thought that we did this to do an acquisition. That wasn't actually the case. We have felt that with Ojtikoto coming on stream and that being our largest development project and something that really propels us into a very low cost, all-in sustaining costs company, we wanted to make sure this was locked in. We also like to maintain a strong cash balance of at least $100 million.
So that was the main purpose of doing the convertible debenture. Between this and our line of credit with Macquarie Bank and our cash and cash flow, we can do everything that we plan on doing over the next couple of years without having to go to the capital markets in any way. It's not an easy place to be, especially if you are forced to have to do a financing at this particular juncture in the market.
So this project map -- pretty self-explanatory. It shows our projects around the world. One thing I would comment on this is we do hear sometimes that we are in very -- many different jurisdictions. We can credibly say that we are one of the companies that has built and operated mines all around the world. For example, the group that's -- the main guys who are constructing Ojtikoto is the same group that built the Julieta mine for Bema back in the early 2000s. They built the Kuppel mine for Bema and subsequently with Kinross when they took us over. That group came back to B2 and built the Libertad mine, and now that group is building the Ojtikoto project. So that level of consistency on a construction team basis is somewhat unprecedented in our business. That combined with very good country managers enabled us to credibly say we can build projects pretty much anywhere.
So these are our first Q2 and first six months of production. As I said, we're well on track to meet guidance this year. We produced 161,000 ounces at cash operating costs of about $732 an ounce. Our all-in sustaining costs right now are about $1060 to about $1100 this year. We see that increasing slightly next year and then coming way down in 2015.
First six months financials -- also, this has been published. The numbers are fairly self-explanatory, but I would say that we have been able to produce or to meet or exceed guidance for something along the lines of the last 12 to 14 quarters. That's something that we're very proud of, and I think it's somewhat different than many of the companies in our business, being able to consistently do that. We don't see any reason why that's going to change in the near future.
We will be reporting our third-quarter in mid-November. In all likelihood, we will come out with our production guidance at the end of October or the first part of November.
So 2013 guidance, as I mentioned, is well on track -- relatively low operating costs, as you see at a projected range of $675 to $690. I mentioned our all-in sustaining costs, and that profile is on its way down, given the fact that Ojtikoto will be our lowest cost producer of our existing three mines. We intend to maintain the strong cash position of somewhere in the range of $100 million.
2014 -- similarly, like every year since we started B2, we have been able to increase our guidance and increase production somewhat through acquisition, somewhat through optimization of our various projects. Everything that we've bought we have been able to optimize, whether it be proved recoveries, better throughput, better grade. That has been a really successful component of our growth because, of course, the CapEx required to make those changes has been very minimal. And so we don't see any reason why that's going to change. In fact, the Ojtikoto project, as you see in the bottom bullet point there, is scheduled, on schedule, on budget to be in production at the end of 2014 with the assumption that we will have a full-year production in 2015.
So this slide actually just gives a little snapshot of how we have been able to execute. Our guidance has met or exceeded production each of the years that we've been operating these projects, and it compares very favorably on an operating cost basis to many of the other companies in our sector and in our peer group. There's a lot of detail in many of these things and there are handouts out front if you wanted to take a closer look and time doesn't allow me to go into it. But in an environment where it's an increasing cost situation, we have been able to at least maintain cost or even lower cost, especially in the case of the Limon mine. That's something that's atypical of the business in the last several years.
So mining in Nicaragua -- not a lot of people are familiar with the jurisdiction. Nor were we, frankly, when we first went there in 2008. It has been one of the better places we've ever done business. In terms of the tax situation, it's very favorable -- 30% net profits tax, 3% NSR. That's a stable number. We have a great relationship with the government. On an FX basis, it's extremely favorable in the sense that the Nicaraguan Cordero is pegged to the US dollar and depreciates at 5% or so a year. So there is no FX risk here in Nicaragua. Repatriation of our cash flow has been very seamless, one of the easier jurisdictions we have ever done business.
This slide just breaks down the gold production by mine. You see the Libertad remains a very low cost producer with guidance this year of around 131,000 to 137,000 ounces, increasing to about 150,000 ounces next year, operating cash costs of $555 to $570.
Similarly, Limon has been a real surprise to many, not so much to us. But when we took over Central Sun to acquire these two projects, it was considered a pretty tired old mine. In fact, it had only produced about 37,000 ounces that year. We are guiding 154,000 to 158,000 ounces this year and slightly higher next year, and costs are coming down. Both of these projects -- and this map just illustrates this, but it applies to both -- they were undercapitalized for the longest time, both in terms of operation, equipment, manpower to some extent, mining expertise to some extent. What we have been able to do is change the scope of both projects quite considerably.
This slide illustrates one of the expiration successes. If you look at the Jabali deposit -- you see that on the right of the screen here -- it shows the reserve and resource. It's considerably higher reserves and resources than what we are currently mining. We are currently mining somewhere in the range of 1.8 grams to 1.9 grams per ton. The central zone, which is coming on stream and starting to have some more run down to the project right now, is approximately 2.6 grams per ton, considerably higher than what we are mining.
This isn't something that we paid for when we acquired Central Sun. These are some of optimization opportunities that we look at when we do our due diligence on M&A, and that goes all the way back to the team I mentioned earlier. You know, you are able to take a different look at these projects. So we are not going to pay for these types of opportunities; we are going to pay a premium of sorts based on what's there in the public domain. This is just a good example of how that optimization can turn a good acquisition into a great acquisition.
Philippines -- still fairly new to us. We just recently have come out with our version of guidance at the Philippines, at Masbate mine. We took about six months to digest the asset. We completed the transaction in January of this year. It's a great opportunity, big reserve, big resources. That transaction was accretive on all matrix when we took it over, reserves/resources, of course, production numbers. Then the optimization component here is huge. We think that, first of all, it has been underexplored. We have already been able to redo the reserve calculation based on their work. The important thing there is a couple fold. One, we reassess the oxide versus transitional versus sulfide relationship to what their interpretation of the resource was. What we were able to determine is there was more oxide. That's really important because it recovers considerably better than the other two types of ore.
Furthermore, we increased the number of ounces by about 250,000 ounces and we increased the grade from 0.82 grams per ton to 0.97 grams per ton just on the reassessment. We have also done a lot of extra drilling that hasn't been released, which we will get to a little bit later in the year. We are doing a substantial metallurgical program right now to get -- to assess the possibility of an expansion here. CGA had talked quite a bit about expansion during the time that they owned this project, and we are taking a hard look at it. Certainly, the reserve and resources are large enough to justify it. We just need to determine whether or not the economics justify it. We think that there's probably a pretty good chance that this can happen. We will give some guidance on that early part of next year.
The mine itself is scheduled to produce 175,000 to 185,000 ounces this year, on average around 200,000 ounces going forward. Again, we are doing a lot of work now on optimization, metallurgy, and we will continue to have more guidance on this as we go forward. But currently, we sit at a 15-year mine life with 3,225,000-ounce reserve and about a 5 million-ounce resource, not to mention a wide-open 20-kilometer belt that hasn't been explored very well or very much. And we intend to -- well, we're working on that now. We had about an $11 million expiration budget this year and we are doing a $2 million metallurgical program that I mentioned.
Onto Namibia -- again, another country that not a lot of people are familiar with. It doesn't feel like Africa when you are in Namibia, frankly. It's got terrific infrastructure, road access all the way right to the property. We were able to come in there after acquiring or Orex Gold. They had done a good job of delineating the main Ojtikoto pit of about 1.3 million ounces at 1.4 grams per ton gold. Based on that, we completed a feasibility study. Obviously, this is a little too detailed to go through, but the general premise is we expect in the first five years to produce 141,000 ounces of gold per year, based on the current pit. After that first five years, the number of ounces per year tends to die off -- not die off, but down considerably. But we don't think that that's actually realistic within our expansion and our optimization ideas.
Two things that we are working on -- one is, within that feasibility study, we had already scaled the project to increase throughput by about 20%, going from 2.5 million tons a year to about 3 million tons a year. So already our larger conveyors, larger piping -- it would require a pebble crusher and some tanks and part of some new ground equipment to get us to that 30% or 20% expansion. So that maintains that 141,000 ounces, at very least, across the 12-year mine life as it stands now.
On top of that we have a substantial new discovery called Wolfshag. If you look at the main pit outlined in blue, that's Ojtikoto. That red line to the right of that represents the Wolfshag vein. This long section shows you a sense of what we are seeing here. Again, the resource is 1.4 million -- 1.3 million ounces at 1.4 grams. Most of the holes you see here in this long section are considerably higher grade than that. We intend to have a reserve out by the end of this year, and we are doing our studies on how quickly this can get in the mine plan, how that expansion will look and what areas we can do a little bit sooner. But suffice to say, we are very confident that not only will this produce 141,000 ounces for many more years than the current feasibility shows, but actually it can produce considerably more than that, given the expansion and the potential with the higher grade here at the Wolfshag zone.
Then again, I will just reiterate it. With the convertible debenture that we recently did, this project is now fully funded. It locks in that growth for B2Gold, which is a nice place to be in this environment.
This is just a couple shots of the construction. We have, like I mentioned, the same team has worked with us for years. That also includes the ability to be a lot more creative with construction in the sense that they have done some of these things before. If you look at the bottom right, that's a leech tank that's actually rolled up like a roll of paper. That becomes expanded; you only have to weld one seam. That's something that we used in the construction of Kuppel. So it's effectively prefabbed and, as of, I think, last week we had the Russian guys who did the Kuppel tanks down in Namibia. I don't think many teams can have the ability to be able to do some of those creative things. That helps control costs and be sure of the mining expertise and the construction expertise that goes into these types of things.
Colombia is the final asset, main asset that we have. It's a joint venture with Anglo Gold Ashanti. We are 49%; they are 51%. It's really more like a 50-50 deal in the sense that no budget can be approved without 100% approval of both parties. The important thing there is that we can't be diluted out if the larger Company wants to spend a bunch of money and we are not comfortable with that.
Where Gramalote is at right now is Anglo is completing a prefeasibility study and they have done a very good job at a number of things in this prefeasibility study. Frankly, it reads more like a feasibility study, given some of the level of metallurgy and other things that they have completed. The only thing that we have differed on really is the run rate and the size of the project. We always have wanted to see the data showing what is the best run rate, what is the best economics in terms of size. So with this prefeasibility study that's being completed this quarter, should be fairly soon, we will have a better sense of what the future of Gramalote is in the near term.
There's a bunch of different scenarios that involves they buying us out, we buying them out, perhaps, putting it on hold depending on the economics. Suffice it to say we think that at some point, at some run rate and at some gold price, this is a mine. But what's in the best interest of our shareholders at this particular time is what has to be determined, and we should have quite a bit more information when we see the results of this prefeasibility study that Anglo is working on now.
CSR -- it's important to make a commentary here. Especially when you are in emerging markets, these types of activities are very, very important. We are one of the biggest participators of CSR activities in all of Nicaragua. Similarly, in Namibia, we've done a lot of work in that regard.
In the Philippines, the CGA guys had put together a very good team who already had this kind of infrastructure in place, and that fit really nicely with B2Gold's corporate culture. So we maintained that and are continuing that. It goes a long way towards not only just ingratiating yourself with the communities you are working in, but also it shows that you can be an entrepreneur in a mining company and give something back to some of these jurisdictions that are extremely poor. A little bit of money ends up going a really long way. So it will -- it maintains a large part of what we do in the areas that we operate.
So growth strategy -- optimization. Obviously, that's been the theme of this presentation and we will continue to do that. We have a couple of advanced development projects. The big thing is M&A. Rahul asked the CEO of [Arrico] about M&A. We take a slightly different tack. Our shares have outperformed. It doesn't feel like it in this market, in some ways, but they have outperformed and there are lots of opportunities. We see value right now mainly in late-stage exploration projects and/or prefeasibility style projects. In a lot of cases, there are some good assets out there that, through no fault of management or the jurisdiction or the deposit, they are unable to finance them. So we could probably play a role there by bringing in some capital, certainly some expertise. It might scale in nicely with their feasibility team who has completed, obviously, the Ojtikoto, looking at the Masbate expansion, could roll into that. Then, in theory, if it was sequenced properly, our expertise in construction, that group could roll into a development project. So that's something that we are looking at.
Obviously, we have been and always are very, very picky when it comes to these things. But we can -- just because the market is frowning on acquisitions, for the most part, across the board, we see this as an opportunity as long as it's the right project and the right price.
With that, I guess we still have a minute and a half for questions.
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Questions and Answers
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Unidentified Audience Member [1]
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This $91 million that you spent in Colombia on that project (inaudible)?
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Ian MacLean, B2Gold Corp. - VP, IR [2]
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As of this year, we spent -- our budget there for exploration was around, our share, about $4 million. A lot of that was required payments that had already been agreed to that had to do with some land purchases. One of the good things Anglo really did in Colombia was they did deals with all the small miners. So that's not something you typically do at prefeasibility. So that has been one of the big expenditures. Also, all the trade-off studies and all the work to understand the full value of the project has been fairly expensive. Next year's budget is proposed to be quite a bit smaller, but that's subject to change, depending on the results of the prefeas.
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Unidentified Audience Member [3]
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(inaudible - microphone inaccessible).
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Ian MacLean, B2Gold Corp. - VP, IR [4]
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Yes, yes. I should have brought that up. Yes, we have -- thanks for reminding me. With the CGA transaction, we inherited the remaining portion of their tax holiday. They were given a tax holiday to come back into Masbate to rebuild. Some of you may recall the Atlas mine asset. It had shut down. That island is really the only -- it represents something like 80% of the GDP for the island. So that was the incentive CGA had.
So we are grandfathered to June 2015. Some of our people were just down there looking at the possibility of an extension. There's a few criteria you have to me to have the extension out to 2017. So we are working on that now to get a better sense of it. But it looks somewhat possible.
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Rahul Paul, Canaccord Genuity - Analyst [5]
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(inaudible) I'm sure you get asked this all the time. Have you considered looking for (inaudible)?
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Ian MacLean, B2Gold Corp. - VP, IR [6]
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Well, it will depend on the metal prices, I think. We started to really explore it at $1600 gold. Obviously, that changed. So we are not particularly considering it as we speak right now, but it's not something that we shy away from. But again, it depends on the economics of the day, in terms of gold price. We right now don't have any large capital expenditures because we haven't made a decision on Masbate. So 2015 we should be generating substantial free cash flow. I should mention that our all-in sustaining costs in 2015 will be just under or right at around $1000 for Masbate. For Ojtikoto itself, they are in the mid-$700s. So, if anything, that would be the time when we would be in a better position to do that.
Okay, well, thanks for your time.
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