B2Gold Corp Conference Call to discuss the Acquisition of Volta Resources Inc
Oct 28, 2013 AM EDT
BTO.TO - B2Gold Corp
B2Gold Corp Conference Call to discuss the Acquisition of Volta Resources Inc
Oct 28, 2013 / 03:30PM GMT
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Corporate Participants
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* Clive Johnson
B2Gold Corp - President, CEO
* Kevin Bullock
Volta - President, CEO
* Tom Garagan
B2Gold Corp - SVP of Exploration
* George Johnson
B2Gold Corp - SVP of Ops
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Conference Call Participants
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* Paolo Lostritto
National Bank Financial - Analyst
* Sachin Shah
Albert Fried - Analyst
* Dan Hrushewsky
Jennings Capital - Analyst
* Michael Gray
Macquarie Capital Securities - Analyst
* Rahul Paul
Canaccord Genuity - Analyst
* Jeff Killeen
CIBC - Analyst
* Richard Gray
Cormark Securities - Analyst
* Ovais Habib
Scotiabank - Analyst
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Presentation
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Operator [1]
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Good morning, ladies and gentlemen. Welcome to the B2Gold and Volta resources conference call. I would you now like to turn the meeting over to Mr. Clive Johnson, President and CEO. Please go ahead.
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Clive Johnson, B2Gold Corp - President, CEO [2]
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Thank you, Operator. Good morning. Welcome to our conference call this morning. As the operator said, this is a B2Gold and Volta resource conference call. And we're here to talk to you about the news that we announced today, which is a friendly merger of B2Gold and Volta Resources, and I'm going to talk on behalf of B2Gold. We have a lot of our executive team here with us, and then I'm going to pass it over to Kevin Bullock, the President and CEO of Volta Resources, and Kevin's going to talk about the deal from the Volta perspective.
The news release that's come out is I think a really good description of the deal. I'm not going to go through the whole news release, but we are -- we have introduced the deal here today and signed a binding letter of agreement by way of B2Gold is offering to purchase all of the outstanding shares of Volta in exchange for 0.15 of the B2Gold share. This values Volta at approximately CAD0.42 based on that calculation and is an acquisition cost to B2Gold of approximately $63 million.
From our perspective, we're very attracted to the project, the Kiaka project that Volta has put a lot of work into. We're attracted to it because it's a very large, credible resource. It is a -- the potential to be a significant gold producer. There's a very good amount of work that's been done here by Volta. Excellent job of exploration and completing a Pre-Feasibility Study that shows this to be a very large and attractive project. We believe it's an important addition to the potential pipeline for B2Gold going forward with the completion of this deal and are excited to work with a very strong group at Volta. This will be -- the companies will be working very closely together in the coming rest of this year and in next year on completing a final feasibility study.
I think it's important to emphasize that this project has a lot of potential not only in the sense of its ultimate size but also in the sense of having some alternatives that we'll be looking closely at in the feasibility study such as are there higher grade cases that we could be looking at with various tonnages? So, we'll be looking hard to say at what gold environment does to the Kiaka project and move forward economically, so that will be a big focus. So, a very good project, a very good team. We're looking forward to working with the Volta team as we address this project going forward.
There's been a lot of talk about acquisitions and the kind of things people are looking at these days and I think this fits very well into what we were looking for in our objectives. A good entry point for B2Gold to get into, a big project in a jurisdiction that we're comfortable in and Kevin's more of an expert on Burkina Faso than I am to date, but we are comfortable with that jurisdiction. There's been a lot of successful stories in Burkina Faso of mines being built and we think that Kiaka is an excellent candidate to be another one. So, I think with that from my perspective, I'll pass it over to Kevin to give you his thoughts on this deal from the Volta perspective.
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Kevin Bullock, Volta - President, CEO [3]
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Great. Thanks very much, Clive. What we are able to provide our shareholders at this time with this deal is in a very difficult market what we can provide is a premium at the high end of precedence, recent precedence, with an opportunity still to play in the upside going forward and limit the down side of the scenario we would have had with a one asset development project to now being -- having several assets globally that are profitable. This has provided liquidity to our shareholders while preserving the upside participation with B2Gold paper and our Board and management is fully supportive of this transaction and looking forward and pleased to have the opportunity to work with a very strong team that has a fantastic record and proves itself time and time again. So, I think it's a good deal for both companies and certainly we're excited about moving forward with this transaction.
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Clive Johnson, B2Gold Corp - President, CEO [4]
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Thanks, Kevin. Just a couple of things that I neglected to add. I think typical of a B2 acquisition we've done a tremendous amount of due diligence here, focusing on all aspects of the project, the technical basis, and we've been very impressed with what we've seen so far. So, we've gone through a lot. This deal is subject to a typical period of due diligence, a short period of due diligence, and that's really confirmatory due diligence in areas of [legal, pilot], et cetera, those sorts of formal things that you do in an agreement of this nature. With that, I think we'll open it up for questions and see if we can answer any questions for any of you. Operator.
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Questions and Answers
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Operator [1]
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Thank you. We will now take questions from the telephone lines.
(Operator Instructions)
Our first question is from Paolo Lostritto from National Bank Financial.
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Paolo Lostritto, National Bank Financial - Analyst [2]
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Kevin, maybe for the first question, with regards to the feasibility time line, are you still proceeding and hoping to get something out before year end or early next year?
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Kevin Bullock, Volta - President, CEO [3]
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We're going through the process of looking at different throughput rates because of the inherent optionality of the deposit.
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Paolo Lostritto, National Bank Financial - Analyst [4]
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Right.
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Kevin Bullock, Volta - President, CEO [5]
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I think we as a group now with B2Gold are going to continue with that same scenario and looking at different throughputs and opportunities in this current environment. And we can't give a definite time line of when that feasibility will be ready because first we have to choose which throughput is the right throughput and then finalize with a third party. So, what we can tell you is that we plan to finish a feasibility some time next year.
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Paolo Lostritto, National Bank Financial - Analyst [6]
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Okay. And then, Clive, maybe a question for you. And I recognize this is probably part and parcel with the answer that Kevin just gave. But in terms of the big picture scope, what's your thinking in terms of timelines for developing this asset? Based on what I'm hearing right now, you're thinking of this thing coming on -- all things being equal, this thing coming on-stream basically 2016 sometime, around that time line, right?
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Clive Johnson, B2Gold Corp - President, CEO [7]
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I don't think we're prepared at this time to get tied down to specific dates and years. I think just to echo what Kevin said, we're going to work very, very hard together here on a real quality feasibility you study for next year. If you look in our projects in our world today we're building Otjikoto and that's going extremely well, on budget and on schedule. In Namibia, and we're due to have completed construction there by the fourth quarter of next year. So, you clearly have a construction team and one of the ideas of looking at the future is to have another project for that construction team to be looking forward to. So, that obviously -- that could be the way forward in terms of moving that construction team on to the next project and it could very well be Kiaka.
So, we need to get the feasibility done. We need to look at the best case there and the economics of the feasibility study, but then we obviously we'll be looking to aggressively grow the Company. And if we have the economics in Kiaka that allow us to finance and go forward, then we'll be doing that in our normal fashion.
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Paolo Lostritto, National Bank Financial - Analyst [8]
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Okay. One last question before I shut up. Kevin, the last press release you guys put out you identified a new geochem anomaly to the north. Are we going to see drilling from that area before this deal gets consummated?
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Kevin Bullock, Volta - President, CEO [9]
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Paolo, I'm going to turn that answer -- or that question over to Clive. Because we haven't sat down and planned out where we're going to do exploration and what we're going to do on the regional deposits. But you're right, there's an anomaly that's developed -- a geochem anomaly that's developed that's similar to size in nature to what the anomaly at Kiaka was before we drilled it. It's quite exciting. There will be an exploration strategy along with this whole transaction. I'll let Clive comment.
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Clive Johnson, B2Gold Corp - President, CEO [10]
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Yes, we've got Tom Garagan who is sitting here, our Senior VP Exploration. We have -- once again, this is all new and we've got to sit down with Kevin and talk about the exploration targets, prioritizing exploration. Once again, you know us, we'll be out there aggressively exploring Kiaka and Kevin's other opportunities in the near term. So, we'll come out with that in a subsequent release. We'll talk about exploration, but there will be an aggressive program. May Tom just talk to you, you've done a lot of diligence with your group. What do you guys think about the exploration potential here?
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Tom Garagan, B2Gold Corp - SVP of Exploration [11]
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Just in general, I think the exploration potential in the project's really good based on what we've seen. To answer your question about whether we would be pushing ahead with an exploration program before the deal closed, the answer would be no. That's really up to Volta until the deal closes.
In terms of potential next year, we haven't put forward a budget or a program for next year, but we do see some very good potential immediately adjacent to the deposit and then going on these other targets that the news release identified one of them, but there are other targets within their licenses and nearby that we think are worth further work. So, yes, we'll be coming forward with a program and budget once this deal closes.
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Paolo Lostritto, National Bank Financial - Analyst [12]
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Okay. Thank you and congratulations, guys.
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Operator [13]
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The following question is from Sachin Shah from Albert Fried.
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Sachin Shah, Albert Fried - Analyst [14]
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Good morning. Congratulations on the deal. Could you just maybe talk about the merger consideration? Obviously it's a significant premium, but just wanted to see how you guys arrived at that.
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Clive Johnson, B2Gold Corp - President, CEO [15]
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Well, we've been talking for a while, obviously we signed a confidentiality agreement a while ago and, first of all, the thing was to get to understand the project and our emphasis was on doing our due diligence technically and then starting to get together with Kevin and his group. We started talking seriously not very long ago now and this deal all came together quite quickly when we realized I think that the potential for a win-win deal here. Where we could give a significant premium to the Volta shareholders yet offering a value that we felt was accretive to B2Gold. And this deal is obviously accretive on a resource basis and we think ultimately will be in many other ways as well. So, it was negotiation looking for a deal that we felt both sides could take to the shareholders and feel it was a win-win. Kevin?
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Sachin Shah, Albert Fried - Analyst [16]
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Okay. How long ago have you started to talk to them and then just on the specifics of the deal closing, is it -- because of the size of the transaction, is it just the shareholder vote and TSX that's required? Is there any antitrust that we should expect that are required for the deal to close?
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Kevin Bullock, Volta - President, CEO [17]
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I can let Clive answer the second part of that question. As far as the first part, leading up to the announcement of this agreement, that's not something we can really talk about at this time but you definitely will be able to read about the background when the circular's sent out to shareholders in due course.
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Sachin Shah, Albert Fried - Analyst [18]
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Okay.
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Clive Johnson, B2Gold Corp - President, CEO [19]
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In terms of from the obviously shareholder approval and regulatory approval of the deal from the Volta side, it doesn't go to B2Gold shareholder approval.
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Sachin Shah, Albert Fried - Analyst [20]
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Okay. But is there any competition or anything? The size is fairly small, so I think it's probably below that threshold, so is it just TSX and the shareholder vote that's required here?
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Clive Johnson, B2Gold Corp - President, CEO [21]
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That's right.
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Sachin Shah, Albert Fried - Analyst [22]
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And any reason why you couldn't close the deal by the end of the year? It seems if everything gets held in accordance.
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Clive Johnson, B2Gold Corp - President, CEO [23]
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We'll close it as quickly as we can. There's certain regulatory requirements of time. So, we'll be -- obviously incentive for both companies is to get it closed.
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Sachin Shah, Albert Fried - Analyst [24]
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Okay, but no antitrust, just TSX?
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Clive Johnson, B2Gold Corp - President, CEO [25]
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Right. Normal regulatory approval, Canadian regulatory approval of the deal with the Volta shareholder approval.
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Sachin Shah, Albert Fried - Analyst [26]
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Okay. Thank you.
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Operator [27]
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The following question is from Dan Hrushewsky from Jennings Capital.
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Dan Hrushewsky, Jennings Capital - Analyst [28]
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Hello, some of my questions have been answered already but one I have for Clive. Do you see this as providing you with a platform for a larger African strategy of acquisition consolidation, et cetera?
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Clive Johnson, B2Gold Corp - President, CEO [29]
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Well, definitely there's obviously a lot happening in West Africa. We are continuing to be looking at various acquisition opportunities. We've got as Otjikoto, as you know, in construction now and looking forward with this project. We want to be cognizant of the fact of not taking on too much too quickly. Having said that, obviously we'll be continuing to look at getting to know this area better and be looking at other potential opportunities as in our normal course of looking for accretive acquisitions.
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Dan Hrushewsky, Jennings Capital - Analyst [30]
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Great. Thanks.
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Operator [31]
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The following question is from Michael Gray from Macquarie.
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Michael Gray, Macquarie Capital Securities - Analyst [32]
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First, Kevin, can you tell us what the Volta cash balance is at the time of the transaction?
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Kevin Bullock, Volta - President, CEO [33]
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Volta cash balance at the time of the transaction was $6.7 million.
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Michael Gray, Macquarie Capital Securities - Analyst [34]
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Okay. Great. Thanks. And, Clive, can you give us an idea -- given the strong Treasury, was it an option to pay a portion of this cash or all? Or was it really the liquidity and the upside from the Volta perspective that was required?
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Clive Johnson, B2Gold Corp - President, CEO [35]
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Well, I should really pass that to Kevin, but we could have had the alternative cash. It was my expectation, understanding that this is a group that -- of shareholders that wanted to perhaps keep their upside in the project in Gold. Kevin, do you want to address that?
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Kevin Bullock, Volta - President, CEO [36]
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Yes, I think the answer to that from our side -- from the Volta side, the Board of Directors and Management of Volta, we didn't not want to do a cash deal. We believe in this project 100% which is why we're continuing forward with it. With this transaction we would not have wanted a cash deal. We think that there's so much upside left and it's going to be the upside that we get and that the shareholders get through the B2Gold paper.
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Michael Gray, Macquarie Capital Securities - Analyst [37]
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Okay. And, Tom, any comment on the assets in Ghana in terms of interest in the transaction?
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Tom Garagan, B2Gold Corp - SVP of Exploration [38]
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Michael, to be fair, we really focused on Kiaka. That was the driving point behind the acquisition and that was the only thing that we focused on. We looked at little bit at the other licenses, but all the data we evaluated, all the site visits was specific to Kiaka.
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Michael Gray, Macquarie Capital Securities - Analyst [39]
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Okay. Thanks. That's all I have. Thanks.
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Operator [40]
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The following question is from Rahul Paul from Canaccord Genuity.
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Rahul Paul, Canaccord Genuity - Analyst [41]
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I'm wondering if you could speak about the mining code and the tax regimen and Burkina Faso. Earlier this month I understand that the country adopted a draft of a new mining code. It's not surprising the government has for some time indicated that the code is being revised. Are you comfortable with what you've seen so far in terms of what has been proposed?
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Clive Johnson, B2Gold Corp - President, CEO [42]
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We're comfortable. I'm going to pass it on to Kevin to answer that from his perspective.
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Kevin Bullock, Volta - President, CEO [43]
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Yes, we're comfortable with it. There's nothing in there that's shocking or surprising. It's some of the changes they've been talking about for a while. What's really positive about it is they've listened to the miners and explorers in-country and not made some of the recommendations that they started with due to the pushback. So, they really do work with the people. They know that mining's a very important part of the economy in Burkina Faso.
And I should also add too that the draft that's been approved still has a long way to go to pass through and come into play. It's still months away before it's even reviewed by the next step. So, there is a draft that's out there that you can get your hands on and look at, but it's draft form. It's going to take a while before that gets put into practice, but there's nothing surprising in there from the previous code.
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Clive Johnson, B2Gold Corp - President, CEO [44]
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Everything we've seen is that the government continues to see mining as an important part of the economy and, as we said earlier, there's been a lot of activity in terms of successful projects getting built in Burkina Faso.
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Rahul Paul, Canaccord Genuity - Analyst [45]
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Okay. Thanks. In terms of the project ownership structure, 81% ownership, could you talk a little bit about the remaining 19%?
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Clive Johnson, B2Gold Corp - President, CEO [46]
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Yes. When you acquire an exploration license in Burkina Faso, you have 100% of it. When you convert that exploration license into an exploitation license, the government retains a 10% free carried royalty. That's 10% of the 19% you're discussing. The other 9% is we do have a local partner which is actually a good thing in Burkina Faso, quality, local partner that owns a 10% interest at the exploration phase who has to obviously give up 10% of that to the government when we go to exploitation which is the other 9% out of 19%. So, local partner will have 9%, government, 10%, and B2Gold 81%.
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Rahul Paul, Canaccord Genuity - Analyst [47]
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So, is the 9% minority stake carried or do they have to come up with the CapEx?
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Clive Johnson, B2Gold Corp - President, CEO [48]
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It's a term that's an unusual term. It's a free participating interest which means it's carried to feasibility but then they have to contribute based on the operators providing project financing to be paid back out of cash flow.
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Rahul Paul, Canaccord Genuity - Analyst [49]
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Okay. Thanks, guys. That's it from me. Congratulations on the deal.
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Kevin Bullock, Volta - President, CEO [50]
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Thanks.
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Clive Johnson, B2Gold Corp - President, CEO [51]
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Thank you.
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Operator [52]
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The following question is from Jeff Killeen from CIBC.
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Jeff Killeen, CIBC - Analyst [53]
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Hello, good morning and thanks for taking my question. First off, just wondering now you had mentioned you were going to be looking at Kiaka and trying to look at different throughputs and design it according to current gold price environment. Just wondering if you could give us a sense of what hurdle rate you might have. And, if possible, what gold price you would be using in order to build into that piece?
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Clive Johnson, B2Gold Corp - President, CEO [54]
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Once again, it's pretty early in the piece. I think we'll be coming out with more of that. We've been looking at things from a $1,500 gold standpoint to do various cases on using $1,500 gold on a reasonable return. But, once again, we're just getting going here and I think we need some time to look at these various cases and come forward with what we think the economics that make sense for the project.
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Jeff Killeen, CIBC - Analyst [55]
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Okay. And as a follow-on to that, how do you see this project potentially impacting Gramalote and its development in the pipeline?
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Clive Johnson, B2Gold Corp - President, CEO [56]
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Well, Gramalote I think we're finally closing in I think on getting some understanding of the project economics for Gramalote. The last we heard from our joint venture partner, AngloGold Ashanti, was that we would be getting something by the middle of November. So, before the end of the year we should be in a position to come out and announce the results of the Pre-Feasibility Study and that will guide us going forward in Gramalote. So, we'll see. We'll be looking at Gramalote at these kind of metal prices and seeing if we think it's -- if it's attractive to go forward.
The next step would be a final feasibility study which would take probably about a year to complete. There's been a lot of quality work done in the Pre-Feasibility stage at Gramalote, but we'll have to wait and see if both partners agree to go forward to feasibility and ultimately look to develop it. So, we'll have to see how the pipeline looks when we get the information from Gramalote and see where we go from there.
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Jeff Killeen, CIBC - Analyst [57]
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Okay. Very well. And maybe final question. With this somewhat earlier stage project now potentially coming into the fold, how do you think that affects your M&A outlook going forward? Would that mean that you're less likely to look at earlier stage projects and if there was anything else on your plate it would be potentially closer to development or how do you see that going forward?
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Clive Johnson, B2Gold Corp - President, CEO [58]
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Well, I think you're always looking obviously. I think that right now we're looking at a number of alternatives. There's nothing that's on the front burner I would say. We're going to be very focused on this deal and what we have on our plate. I think that obviously in an environment today if you found an accretive existing production scenario that we could add accretively to what we're doing you'd look at that, but I think we're going to be very focused now on building Otjikoto and getting to understand Kiaka and moving that forward.
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Jeff Killeen, CIBC - Analyst [59]
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Great. Thanks very much for taking my questions and congrats.
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Operator [60]
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The following question is from Richard Gray from Cormark Securities.
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Richard Gray, Cormark Securities - Analyst [61]
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Most of my questions have been asked but I just have one follow-up to Jeff's question. Is there a gold price where you would consider the Volta PFS, the big tonnage one, again, like is that a good enough document or a good enough study that you guys would go back to that at a certain price or are you focusing just on lower tonnage, higher grade out of Kiaka?
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Clive Johnson, B2Gold Corp - President, CEO [62]
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Well, I think the exercise will be all of that. We're obviously going to be looking at the Pre-Feasibility Study and we've been looking at that saying -- what gold price do we think that needs if it stayed like that to get funded. And also what are the other alternatives. So, it will be all of that. It will be looking at that to ascertain the level and obviously the market's telling you what's happened over the last while, but the Volta project at today's gold price would be difficult to finance and to move forward today. So, we need to look at understanding the Pre-Feasibility Study and also looking at the various alternatives and the optionality that we've been talking about here.
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Richard Gray, Cormark Securities - Analyst [63]
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Okay and maybe just more of a qualitative question just on your overall M&A exercise. What about this one separated from the huge list of other things you guys have been looking at for the last year or so? Was it just everything coming together, the price, the project or was there -- maybe talk about how you arrived at this decision?
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Clive Johnson, B2Gold Corp - President, CEO [64]
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I think first thing, Tom, would be high quality resource. You want to talk to that?
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Tom Garagan, B2Gold Corp - SVP of Exploration [65]
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Yes, we looked at a number of things. Number one thing that we saw with this ore body which was actually similar to Masbate was it holds together very well. It's a single ore body. It falls within one pit. There's good grade continuity and it's nice and wide. So, it's relatively easy to mine. So, generally speaking, it was a good ore body. That was the starting point.
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Clive Johnson, B2Gold Corp - President, CEO [66]
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And then you've got a jurisdiction we're comfortable with. You've got a tremendous team with the project. You've got a metallurgy [clean]. You've got many other factors we've looked at that made this one that we were very interested in. We thought it fit very well with what we're doing and another important thing was willing seller. You had an executive team and a Board of Directors who were realistic about doing the right thing for their shareholders which fortunately we're starting to see a little more of these days hopefully.
But I have to give credit to Kevin and his group and their Directors who were extremely professional in this whole process and the driving force for them has been to see their project advance and do the things necessary to make that happen and in this case we appreciate their support in supporting the deal.
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Richard Gray, Cormark Securities - Analyst [67]
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Thanks, guys.
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Operator [68]
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(Operator Instructions)
Our following question is from Ovais Habib from Scotiabank.
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Ovais Habib, Scotiabank - Analyst [69]
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Most of my questions have been answered but just, Kevin, just on the permitting process in Burkina Faso, how far advanced are you in terms of baseline studies and can you give us some color on the permitting process in Burkina?
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Kevin Bullock, Volta - President, CEO [70]
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Yes. Thanks, Ovais. There are two main documents that need to be filed to get permits to transfer from an exploration permit to an exploitation permit. One of them is a feasibility study and it does not have to be a bankable feasibility study. The other is, which is even more important, is the ESIA or the Environmental and Social Impact Assessment. That is a document that takes a lot of time to prepare and has a lot of sampling procedures over a long time for the surrounding area environment. That has been completed in draft form, so we're very well advanced with the items that we need in order to apply for permits.
The permitting process in Burkina, the precedent's been set, six mines built in 6 years all on schedule, all getting their permits quite quickly and easily. The government understands that the value to them of these deposits being built is immense and everything is done to quality standards by the companies that have built mines in Burkina so there's been no issues. It's usually anywhere from 3 to 6 months once these items are put into the government for review and generally what I've seen is they're much closer to 3 than 6 months to get the permits. So, globally it's probably one of the better places, the permitting process.
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Ovais Habib, Scotiabank - Analyst [71]
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That's great, guys. Thanks so much.
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Clive Johnson, B2Gold Corp - President, CEO [72]
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Thanks.
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Operator [73]
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(Operator Instructions)
There are no following questions registered at this time. I would like to return the meeting to Mr. Johnson.
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George Johnson, B2Gold Corp - SVP of Ops [74]
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Okay. Thanks very much, Operator. Thank you all for your participation and obviously you can contact Kevin and myself for further questions and we can pass on to the right person if there's more information as you require. Thank you all.
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Operator [75]
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Thank you. That concludes today's conference call. Please disconnect your lines at this time and we thank you for your participation.
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