Q4 2013 B2Gold Corp Earnings Conference Call
Mar 14, 2014 AM EDT
BTO.TO - B2Gold Corp
Q4 2013 B2Gold Corp Earnings Conference Call
Mar 14, 2014 / 05:00PM GMT
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Corporate Participants
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* Clive Johnson
B2Gold Corporation - President & CEO
* Mark Corra
B2Gold Corporation - CFO
* Dale Craig
B2Gold Corporation - VP of Operations
* Tom Garagan
B2Gold Corporation - SVP of Exploration
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Conference Call Participants
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* Rahul Paul
Canaccord Genuity - Analyst
* Sam Crittenden
RBC Capital Markets - Analyst
* Ovais Habib
Scotiabank - Analyst
* Jeff Killeen
CIBC World Markets - Analyst
* Geordie Mark
Haywood Securities - Analyst
* Michael Gray
Macquarie Capital Securities - Analyst
* Chris Thompson
Raymond James & Associates - 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 fourth-quarter 2013 and year-end results conference call.
I would now like to turn the meeting over to Mr. Clive Johnson, President and Chief Executive Officer. Please go ahead, Mr. Johnson.
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Clive Johnson, B2Gold Corporation - President & CEO [2]
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Thanks, Donna. Good morning, everyone, and welcome to our conference call. My voice isn't quite what it normally is. I've had a bit of a bug lately, so that may be good news in the sense the call might not last as long as it might otherwise. But we are here to talk primarily about the good fourth-quarter results we had, and also the year-end results for 2013.
Mark Corra is going to cover our financials. We also have with us here Ian MacLean, Tom Garagan, Dennis Stansbury, Mike Cinnamond and Dale Craig; so, most of the team is here with us.
Obviously, we are very pleased with the progress we made in 2013. There was a number of records in terms of production and revenue, et cetera. Part of that, of course, is because of the addition of the Masbate gold production.
But the bottom line is: The Company is in very strong shape going forward. We're fully funded for our growth in Otjikoto, and fully funded to carry out all of the other things we are looking to do in 2014 and the year. We have a very strong cash position.
With that, I'm going to hand it over to Mark, and then he is going to run through the financials. And then Dale Craig will give us a rundown on operations. And then I'll talk a little bit more about some of the other things that we're doing.
So, Mark, over to you.
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Mark Corra, B2Gold Corporation - CFO [3]
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Thank you, Clive. I am actually just going to start off with talking about valuations that, with the dramatic drop in gold, and more so in gold stocks at year end, it is, under accounting rules, an impairment indicator. So, our auditors were very keen to see us do evaluations on each one of our projects to show that the carrying values were adequate, and that there was no impairment despite this drop in prices.
So, I'm not going to go through each one of the mines, but I'll give you the parameters that we used. And we used a long-term gold price of $1,350. We used a discount rate of 5% for, basically, measured and indicated, and a 7% discount for resources that we believe would be converted to mineable ounces in the future. Based on those parameters, the carrying value of all our properties were well within the limits required, so no write-downs were needed.
Going forward, if you look at our gold revenue in the quarter, it was substantially higher than the comparative quarter of 2012, at $138 million. And average price received was about $1,300 compared to $1,700 in 2012; quite a change in gold price, of course. And gold sales for the quarter were a record of 106,000 ounces, and gold production was also a record in the quarter.
On a year-to-date basis, $544 million in revenue, average realized price of $1,429, compared to 2012 of $259 million in revenue at $1,671. Total gold sales were 381,000 ounces compared to 155,000 in 2012.
Just for interest's sake, I was curious myself as to -- if the gold price had averaged the same in 2013 as it did in 2012, what kind of difference that might have made to our reported numbers. And it would have actually increased our revenue number by $85 million and our bottom line by $70 million. So, our actual net income for the period would have been basically double of what we reported. I showed you how leveraged we are to the gold price. And certainly the higher prices we've been seeing to start 2014 are very welcome, and will dramatically improve our results as the year goes on.
Under production costs, all three mines beat their budgets. Very impressive, as our operators continue to do a very good job.
In the fourth quarter, average cash cost was $638 compared to $604 last year -- a small increase. The biggest reason for that increase actually is the addition of the Masbate mine in 2014, as they do have higher cash costs than our Nicaraguan mines. On a year-to-date basis, cash costs came in at $681 versus $587 last year.
All-in sustaining cash costs -- something that a lot of people are interested in these days -- we beat our projections in the fourth quarter, and came in at $986 per ounce for all-in sustaining. And year-to-date for all of 2013, it was $1,064. For 2014, we are expecting to remain around those same numbers -- around $1,025 to $1,125 for all-in sustaining for this year. We, of course, will see that go down once Otjikoto starts up in 2015.
Under depreciation and depletion -- the number is quite a bit higher than last year, of course, because of the additional ounces sold and because of the addition of Masbate. But if you compare it to our third quarter, depreciation was actually about $9 million higher than our third-quarter numbers. And just explain that is that we did sell more ounces and had more production in the fourth quarter than the third quarter. And that makes up about $3 million of the $9-million increase in depreciation on a quarter-to-quarter basis.
The other $6 million can be basically split in half, where $3 million of that is due to the amortization of deferred stripping costs, mainly at La Libertad mine where they were active processing ore from the pits that had a higher strip ratio in the past that have been deferred. So, that was amortized in the quarter.
And we also had some year-end adjustments, mainly relating to the finalization of the purchase price allocation of the Masbate acquisition, where more of the value was attributed to the current known reserves. And that increased the depreciation rate. And along with some other minor adjustments at the other two operations, accounts for the remaining $3 million of the increase.
That left us with gross profit of $36 million in the quarter compared to $34 million last year, and $147 million year-to-date number compared to $127 million last year. So, even though the average gold price for the year was $250 per ounce lower, we still managed to increase our gross profit.
Under general and administrative costs -- there's quite a large increase from last year -- close to $8 million in the fourth quarter compared to $4.5 million in 2012. And on a year-to-date basis, we came at just under $32 million compared to $17.6 million in 2012.
The major changes to G&A is: There's about $5 million more in there because of the CGA acquisition; it relates to the Makati office in the Philippines. We expect that G&A in 2014 will be similar to what it has been in 2013.
Also part of that increase is: We have increased local staff from [our] Vancouver base, so a lot of these people do travel -- to 58 people from 49. That's, of course, given the increased activity that we have here, because 2013 saw a lot of changes with the acquisition of CGA and the construction started at Otjikoto -- part of our growth plan.
Salary was up about $2 million because of the increase in staffing, and also because of raises. There was also about a $3-million cash bonus paid early last year, or 2013, while in 2012 there were no cash bonuses paid because of our financial position. And then consulting expenses were up about $1 million. A lot of that has to do with the valuation work and the acquisitions we've done.
We've seen increases, as well -- our increased costs as we are now listed in New York, as well as the TSX. That increased our listing fees by about $400,000. We are also seeing increased costs from auditing and legal, having to do with SOX compliance. So, we do think that we'll see similar numbers going forward in 2014.
I wasn't going to talk much about the other numbers. I think they are all quite similar to prior years. Don't need an explanation, other than a couple of under gain on the fair value of convertible notes. You'll see a $14.2-million positive adjustment there and $22.8 million for the year.
We do take that out when we talk about adjusted earnings. That really looks at the value of the convertible debentures we issued -- the market value from when we issued them in August to what the value was at December 31. Because of the drop in our share price, it actually made those debentures trade at a lower price. We have to value them at the market value, and that's the explanation for that change.
Of course, if the gold price holds where it is right now, we'll see that gain turn back into a loss. But, again, it's just a paper number, so it really doesn't have any effect on your cash flows.
Interest and financing expense was basically nil last year in 2012 in the fourth quarter. And in the fourth-quarter 2013 was just over $1 million, and $3 million for the year. Most of that relates to the convertible note debenture that we issued that carry a coupon of 3.25%, which we think is very attractive, and is what enticed us to do a convertible note over high-yield debt, which would have carried probably about a 5% higher coupon. Part of the interest expense was capitalized through the Otjikoto project; about $2 million was capitalized there relating to the construction.
Current income taxes is $6.5 million for the quarter compared to $7 million last year, and close to $23 million on a year-to-date basis compared to $17.8 million last year. Almost all of that relates to taxes in Nicaragua where operations are going very well. About $1 million of the number does relate to the Philippines. That left us with net income in the period of $26 million compared to $11 million in the fourth quarter of 2012.
On an adjusted basis, though, the net income was $3.7 million compared to $18 million last year. On a year-to-date basis, the net income and the adjusted income are very similar -- [about] $0.10 a share compared to a higher number for adjusted income last year of about $0.21 per share of $79 million. The reason the per-share amount was higher in 2012 was, again, the issue of shares for the CGA acquisition. If you look at that, we had an average shares outstanding of about 385 million in 2012, and 636 million in 2013.
I will now jump over to the statement of cash flows. As I've mentioned in previous calls, I think that cash flows are the most accurate indicator of how a company is performing, and how the operations are performing. You'll see that, despite the $400 ground-floor gold price in the fourth-quarter 2013 compared to 2012, we still managed to increase our cash flow from operations. They finished at $35.7 million for the quarter, $0.05 per share compared to $31.1 million in the comparative quarter of 2012.
On a year-to-date basis, again, we were able to increase our cash flow. It reached $144 million or $0.23 a share compared to $114 million in 2012, which was about $0.30 per share.
The other thing I'd like to point out: We did complete the CAT loan agreement in the fourth quarter. And we've got available drawdowns of $40 million there. Even though we spent about $46 million in equipment during the year, we only drew down about $9.1 million of the financing for CAT in that fourth quarter. We will be drawing down more in the first quarter.
It's a matter of -- due to Namibian security rules, we had to move the equipment into a separate subsidiary in order to satisfy our lenders. And that's taken a bit of paperwork, and that'll be completed in the first quarter.
The other thing I'd like to point out is we've now -- if you look under our investing activities, our other exploration and development numbers are just one number. We used to show it by each project. It is disclosed in detail in the financial statements, once we file these either later today -- the audited financial statements, once we file them on SEDAR later today or on Monday.
Just to go over, though, the major expenditures of $28 million in exploration in 2013; $20 million of that related to brownfields exploration around the project, $8.4 million at Masbate, $6.3 million at Otjikoto, which, of course, has led to the Wolfshag resource of 700,000 ounces at 3.2 grams. So, obviously, very successful there. And about $4 million each at Libertad and Limon.
That left us, at the end of the year, with a very strong cash position of $253 million. Total available liquidity is around $380 million, as we do have $100 million available under our revolving credit facility, which actually is being increased from $150 million to $200 million. We just have signed that with the lenders, and trying to get the paperwork finished on that. That would add another $50 million of liquidity to the year-end number.
On the balance sheet, I think most of the numbers there are pretty straightforward. The big change, of course, being total assets, where, at the end of 2012 we had $676 million in total assets; now we're at $2.3 billion. I think that's probably one of the best indicators of the dramatic growth that B2Gold has had over the past year. And I think explains a lot of why the G&A costs have gone up. So, I think things are going in the right direction.
The only change really from the third quarter to the fourth quarter is the goodwill number has gone up by about $50 million. And the deferred income tax number on the liabilities section has gone down about $40 million. And those adjustments mainly relate to finalizing the Masbate purchase price allocation numbers.
So, with that, I'll turn it back to Clive. Thank you.
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Clive Johnson, B2Gold Corporation - President & CEO [4]
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Thanks, Mark. I'm going to turn it over to Dale Craig to give us a rundown on operations.
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Dale Craig, B2Gold Corporation - VP of Operations [5]
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Thank you, Clive. We had a good quarter and a good year at B2Gold for safety, production costs and labor relations.
Quarterly consolidated gold production was 105,577 ounces compared to 44,324 ounces in the same period of 2012. Consolidated cash costs were $638 per ounce compared to a budget of $686 per ounce, and compared to $604 an ounce in the fourth quarter of 2012. So, compared to last year -- last quarter of last year -- production in the fourth quarter increased 138%. Of this, 32% was from Nicaragua and 106% from the Philippines.
For the year, B2Gold reports attributable production of 366,313 ounces, and a full-year production of 373,400 ounces, which compares favorably to our guidance of 360,000 to 380,000 ounces. Consolidated cash operating cost was $681 per ounce, which was at the low end of our guidance, which was $675 to $690 per ounce.
At the Masbate Mine: For the fourth quarter, the Masbate mine produced 46,963 ounces at a cash operating cost of $779 per ounce, compared to a budget of 46,280 ounces at $883 per ounce. Full-year production, including non-attributable pre-acquisition production, was just over 176,000 ounces, which falls within our guidance, which was 175,000 to 185,000 ounces. So, in summary, we achieved our full-year guidance in spite of work during June to replace a process line which interrupted our production for 17 days.
And compared to budget, lower costs were found across mining, processing and administration. In the mining department, costs were about $2.8 million less, related to less material moved, and additional savings were found in load and hauling, and explosive lower powder factor and lower fuel price. Billing costs were about $3 million less related to lower power use, some 344,000 fewer tons processed, and lower cyanide costs. Administration area showed lower costs in the areas of salary and insurance. So, in all, we had a good year for production and costs.
In the project areas, metallurgical sampling program continued. Once reserves are updated and the metallurgical analysis is done, we will be able to establish the best options for future plant expansion. Likely that will be in Q3 of this year.
We also completed a major development for river alignment in the Guinobatan River, which, in turn, opens up waste dump room for development. We relocated our heavy-duty equipment shop. We continued work with the tailings pond, and initiated works for a water treatment plant. That plant will enable us to draw down water levels in our tailings pond, which will reduce our capital spend for tailings dam construction, which typically runs about $7 million per year.
We are well on track for replacement of the SAG mill in the second quarter of this year. Masbate: We completed a year with an excellent safety performance, recording only one LTI for the year. And our EEC, which is employment engagement committees, appear to be advancing positively as a forum for identifying and responding to employee concerns. And this has been a positive development in maintaining good labor relations.
For the Nicaraguan operations, La Libertad gold mine, better grade and recovery contributed to improved performance for both the quarter and the year compared to 2012. Quarterly production was 42,709 ounces compared to a budget of 40,759 ounces on mill feed of 522,800 tons, at 2.7 grams per ton, and that compares to the budget of 2.48 grams per ton. So, grade from all pit sources was better than forecast.
Throughput was a little less than budget, as we worked through the learning curve on pit expansion. But by December we were operating in the 5,900-ton-per-day range. And if we look through this year -- January, February and March -- we are running at 5,995, 6,062, March month at 6,114 tons. So, we've gone through that learning curve.
For last year, La Libertad produced 138,726 ounces, some 3,100, 3,200 ounces better than budget. Grade for the year was slightly better -- 2.29 against 2.19 grams per ton. And recovery was better at 93.8% against 92%.
Cash operating cost was $563 per ounce, which was less than the budget at $575 per ounce. And those gains were principally through higher ounce production, lower energy costs compared to budget, and lower fuel cost.
CapEx for the year was $32 million compared to our budget of $42.7 million. Major items were $11.3 million for Jabali road construction, $9.4 million for deferred stripping, $3.2 million for Jabali central infrastructure, $4.2 million for mine equipment, and $2.2 million for plant expansion, which came in about $1 million under budget.
For safety, we finished the year with a frequency of 1.3. In this coming year, we have a number of initiatives involving best practices from all our operations. La Libertad concluded its collective agreement, which will be in effect to the end of 2015. So, in all, a great year, with all the indicators moving in the right directions, and our CapEx program complete, with reductions there, as well.
At El Limon, we completed a successful quarter and the best year in the mine since 2001. It produced 15,905 ounces of gold at a cash operating cost of $608 per ounce, from 119,487 tons of ore. Delivered grade was slightly better than forecast. And throughput has continued to improve as a result of improved SAG performance and downstream mill improvements. Recovery was slightly less than budget -- 91.37% against 92.68% -- because our plant expansion completed at the end of the quarter, a little later than planned.
Cash operating costs were $608 per ounce compared to $750 per ounce in our budget. Increased production, lower energy use in the mine and the mill, and lower energy price compared to budget resulted in reduced cash operating costs. Savings in general services were achieved by a reduction in outside contracting and services. Annual production, 59,191 ounces at a cash operating cost of $652 per ounce, compared to a budget of 55,031 ounces and a cash operating cost of $727.
El Limon completed the year with an accident frequency of 1.8, no labor disputes, and our negotiations for a new collective agreement well advanced. CapEx for the year totaled $17 million, consisting of underground development of $4.3 million, deferred strip of $2.8 million, plant improvements of $2.1 million, mine equipment purchases of $2 million, and other plant improvements of $2.7 million.
In all, we had a successful year, developing towards our new operating underground mine, Santa Pancha 2. We expanded plant tankage and capacity. We improved throughput, and implemented technology to advance deep de-watering wells in Santa Pancha 1, which is essential for our longer-term mine development in that area.
Thank you.
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Clive Johnson, B2Gold Corporation - President & CEO [6]
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Great, Dale. Thanks for the good update. We're going to update you on a couple of the other projects quickly, and then I'm going to open it up to questions.
We did put an update in the news release on Otjikoto. Things are going well in terms of construction. A little more than halfway through, and then we're more than halfway through the expenditures. Which, if you add up the cash required to get into production, it actually comes out around $300 million.
We remain on budget and on schedule, looking for a completion of construction. And [pouring] our first gold later this year in the fourth quarter, and then looking for commercial production early in 2015.
We've been doing a lot of stripping -- pre-production stripping -- was budgeted for a total of $33 million of that $300 million. As I mentioned, that's gone very well. We're now getting into ore. We will be stockpiling ore, so that when we start up the mill, we'll be looking for a good start [and a] significant amount of ore stockpiled.
Just to remind everyone that Otjikoto is projected to produce gold -- 140,000 ounces a year for the first five years. And with cash operating costs at $524 an ounce, all-in sustaining costs probably just under $700 an ounce. So, it's an attractive project.
The big development there recently has been the discovery by the exploration team of the Wolfshag zone, just to the northeast, very near the planned pit. And the excitement there is the fact that Otjikoto obviously -- [and sorry], Wolfshag shows that we can extend the life of the Otjikoto mine. But perhaps more significantly, it's significantly higher grade than the 1.4 grams [gold] per ton and we're starting mining in the Otjikoto. Wolfshag, so far, has a 700,000-ounce resource, 3.2 grams per ton, significantly higher grade.
A portion of the Wolfshag will be open pit, although we're not sure how much yet. Definitely, with the kind of [wins] we're seeing, it looks like something we would definitely after open pitting. It would be shipped over to where the economics of underground surpass the economics of open pitting. So, by the end of the year, we will have a sense of that.
We're aggressively drilling -- doing infill drilling right now. Turn, hopefully, the improved resource, or a vast majority of it, into measured and indicated. And we'll know that later in the year, as well.
The potential impact -- I mentioned that Wolfshag increases the mine life, as a minimum. But it also might mean that if we can go after some of the higher-grade Wolfshag ore the next number of years, we could see a significant increase in annual production. So, all that will come out by the end of the year.
Because of the success of Wolfshag, we have decided to increase the throughput of the Otjikoto mine starting in early 2015 by adding a gravel crusher and a couple of tanks, and a bit more equipment for a cost of about $15 million. For that low cost, we can increase production from about 2.5 million tons a year to 3 million tons a year. But also, of course, increase our gold production from 140,000 ounces a year to about 170,000 ounces a year in 2016.
Now, that's no Wolfshag [production]; that's just mining the main Otjikoto ore body faster. So, things are going great there. It's great to have an exploration success.
It's not the first time it's happened here. But it's great to do these accretive acquisitions where you [feel pay per] ounces might be there, and then we have this great exploration team that's gone out time and time again and found additional ounces, sometimes better grade. That's a great way to grow a company, with that sort of discipline.
On the Kiaka project, we, as everyone knows, completed that acquisition late in the year. We think it's a good country to be in. [In the past], there's been lots of successes -- some of them Canadian success stories there. We're comfortable with the jurisdiction.
But with that acquisition, we also inherited a very strong technical team. Kevin Bullock and Vic King put together a very strong team in-country. And those two gentlemen and all the people that were working with them are very excited about staying with this project. So, we're going to combine our technical expertise with theirs, and work very closely together to advance Kiaka.
Some people look at it as (inaudible) gold because the stability study that Volta had released was a study that showed a mine that probably would need some help from the gold price to get funded. It was an aggressive case of 12 million tons a year producing some 340,000 ounces a year. And then the capital costs would be roughly somewhere around the over $700-million range -- somewhere in that range.
We looked at [Adam then] and we felt that maybe it's a good entry point for optionality on gold because we spent $65 million worth of our shares, a 3.3% dilution, to acquire Volta. So, we felt it was a good entry point for a significant deposit of [5 million] ounces in a good country.
There was also another side to the story, and that is: Within the 5 million ounces, grams -- 2.5 million ounces of 1.5 grams. So, we're now looking at a smaller scale, which is where Volta was starting to go before they got to the point where they couldn't fund any further at reasonable levels.
So, we are now looking at feasibility study by the end of the year that will contemplate 6 million tons a year, producing over 200,000 ounces a year. Obviously, the capital costs would be much reduced by doing it on that basis. And we're going to focus on attempt to get some of that higher grade that we stockpiled, some is lower-grade, and get to that higher grade, and do that without sterilizing the whole deposit, and can we do that without too high a strip ratio. So, we're curious to see what the economics might be of Kiaka in that light.
We are also applying for the mining permit this week. We are putting our report to the government. And so, by the end of this year we believe we could be in a position of having the final feasibility study and the permit being ready to go towards construction at Kiaka if the economics work. Like everything we do, it will be driven by the economics.
But we're curious to see what the smaller, albeit still pretty healthy 200,000 ounces (inaudible) of production -- what that smaller case looks like with lower capital and things. So, we're looking forward to finding that out.
In terms of exploration, the highlights for the year would be, obviously, Otjikoto with the Wolfshag is a big highlight. And as Tom can tell you, we're starting to understand the geology a bit more of what is an intriguing country in the sense that the potential for additional zones like this.
Otjikoto was found accidentally. One of the prior companies, many years ago, was drilling geophysical targets, looking for base metals mine. So, this whole area and most of Namibia is covered by a calcrete layer that prevents some normal [cones of exploration]. So, it's quite intriguing to see the potential there.
Additional highlights from exploration would be Masbate. The extension of the Montana zone, which is very [good] grade. We put out news on that recently. And we'll be doing more exploration drilling.
So, for this year, if we [rate] a little bit on exploration, because cash is king and the gold price was struggling and remains a question mark. So, we've just really focused on being a little more conservative than normal.
But now, as we get into next year, we are going to tell Tom to release the hounds, as it were, and go on and look for more mineralization. Obviously, we're doing (inaudible) exploration of mines, but looking further field. We still believe that the cheapest ounces are the ones that you find, and Tom's team has a great reputation of finding them. So, as we get into 2015, we'll be looking to do a little more grassroots exploration. I think an intriguing opportunity to grow a company today, as we're doing it, is through accretive acquisitions and exploration.
But also, perhaps, joint ventures in exploration. And we've done a few of them where we can move our expertise, spend dollars for these very -- these [companies who are in dire straights]. And we are looking at targeting some of the better (inaudible) in the world, and talking to the juniors involved to see if they would like to come and spend all their risk dollars and maintain a decent fund minority interest in what could be something significant. So, will get back to that.
Finally, in terms of milestones going forward, you will see updated reserves and resources from those by -- what is it, Tom, month end?
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Tom Garagan, B2Gold Corporation - SVP of Exploration [7]
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Yes, it would be the end of the month.
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Clive Johnson, B2Gold Corporation - President & CEO [8]
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End of the month, okay.
We are expecting to see continued strong performance at the mines. We'll be coming out with an expansion report on Masbate a little later in the year. Once again, that will be driven purely by economics. We don't need to expand it, but we'll have a look at that.
And we will be doing further rounds of exploration where we've have good success at Limon and Libertad and Masbate, as we said. The big news: Later in the year, we'll be commencing the production of Otjikoto. And that will give us a significant increase in our cash flow from mining operations looking into 2015, which will make this (inaudible) in a very strong position financially. It will increase our financial strength going forward.
The feasibility study at Kiaka I mentioned by year end. Gramalote: We put our news release yesterday that actually showed some pretty good numbers. Frankly, they're a little bit better that I anticipated in the preliminary (inaudible) assessment.
Anglo has done an internal pre-feasibility study, but because they have included inferred in the pit, we can't use it because of 42-101 regulations. A lot of work has gone into this. Our guys have played a very important role working with Anglo, and we think it's actually a pretty good study.
The next stages there would be infill drilling and looking to get a permit. So, we're going -- we're not going to go ahead -- at this point [we're not going to file] a feasibility study. We're going to move to get the permit in place, do some further drilling, and look at some other ways to cut the capital costs and other things. At the end of the day, the two companies are in agreement that this thing -- in today's environment, we would like to look at this at a higher gold price. But we will continue to advance the project because the permit, of course, is critical.
Once we make a decision to go to final feasibility, it'll be a year or hopefully less to complete a final feasibility study. So, that's what's going on in terms of Gramalote.
That's most of what we wanted to cover. Before turning it over for questions, I'll just mention our thoughts on M&A in today's market. There are some attractive opportunities now. Gold price recovery -- maybe it's tempered, maybe it's not. But with gold price recovering, perhaps some people will once again think they can survive this, and not [do the vesting by the shareholders] in terms of looking for potential deals. But hopefully that's not the case.
We are looking at lots of things. But I think, if anything, we are being more selective than ever. Because we feel that we are going to get (inaudible) in this company when Otjikoto starts production later this year.
So, anything we're looking at today, it not only has to be accretive today, but it has to be accretive in six or nine months from now when Otjikoto is in production and we get a re-rating in the market. I'm not talking about -- it doesn't matter what the rest of gold stocks are doing, and it doesn't matter what gold is doing. Within our sector, the analysts tell me that we will get a re-rating once that mine proves itself, which is pretty normal [at rating].
So, we are looking hard at M&A, but finding that we are getting more picky over time and looking -- it's got to be a pretty stellar acquisition for us to do something today. If you look at the Company and our production profile, obviously a dramatic increase with Otjikoto coming onstream, giving us about [550,000] ounces for 2015 with our operating costs coming down because of Otjikoto's lower cost.
But if you do wager on us a little bit and assume that Kiaka -- maybe with help from the gold price, maybe not -- becomes a mine in the not-too-distant future, that would add another 200,000 ounces to our account for long term. And then if you think -- wave your arms a little more and look at: Does Gramalote become a mine? Gramalote in production would add another approximately 170,000 ounces a year to B2Gold. So, we have some excellent built-in growth.
Now, we need to find what metal prices those mines make sense at. And maybe it's higher. In the case of Kiaka, maybe not. It will all be driven by economics.
We do have access to capital for good projects, and we're going to move into an area -- into a time where we're generating much more in terms of cash from operations. [Truly] to building additional mines, as well. So, we think we're very well positioned.
And then, why is this? Mark mentioned a very good point, I think, about the lack of write-downs. When you look at this sector, the gold sector, and look at all what has happened, one of the best measures of the quality of your acquisitions is whether you need to write something down when the gold price goes down. And that clearly shows that despite -- we're a fairly aggressive group and looking to grow the Company, there is definitely a strong [element] of conservatism in this Company about the way we value things.
And I think that's a very important point in not having to write down anything when the gold price plunged, ultimately $600 an ounce. I think that shows we're on the right track.
So, why is that possible? The key to our performance and the key to our acquisitions is our team. Geology through engineering through mining through finance through all those things.
We do our own due diligence. We use some consultants for our direction, but we do our own due diligence. It's about accountability; so, we are accountable to each other and to our shareholders. And at the end of the day, it's the same thing in construction.
The team that's [built] Otjikoto today, a lot of the supervisors of that construction are the same guys who built the Libertad mine, the [Puta] mine in Russia, some of them built the [Juviana] mine in Russia, and (inaudible) gold back in the day. So, that's one of the keys to our success. I think the way we pursue acquisitions, the strong technical team, and the work we do on due diligence, and ultimately the work we do in building the mines.
It's about accountability, and I think we haven't had enough of that lately in the gold sector. So, we think we're very well positioned to continue to grow profitable, sustainable, well-funded, cash flowing, (inaudible) gold producer.
A final note: You heard from Mark Corra today going through the financials. Mark is retiring from B2Gold over the next few weeks. Mark will still be involved with us and help us look at (inaudible) acquisitions and other things to tap into his extensive expertise. Mark has done an incredible job not only at B2Gold but also back in the (inaudible) days.
Mark has decided he wants to spend some time, more time, with his young family. He's not young, but his kids are. And he seems to think that for some reason if he plays more golf, he'll get better. But I think that a lot of people can attest to the fact that that normally doesn't happen. But, Mark, we wish you all the best. I think you need a couple of lessons, especially on your grip, I noticed.
Anyway, at the end of the day, thanks for all your efforts, Mark. I know I speak on behalf of a lot of the sector out there that have enjoyed working with Mark -- he's very professional, done an excellent job, and he's been a (inaudible) representative of the Company. Thank you, Mark.
So, with that, I think I covered most of what I wanted to cover. Let's pass it over for questions.
==============================
Questions and Answers
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Operator [1]
------------------------------
(Operator Instructions)
Rahul Paul, Canaccord Genuity.
------------------------------
Rahul Paul, Canaccord Genuity - Analyst [2]
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Hi, everyone. Congratulations on the strong Q4 and 2013. A question for Dale. Dale, at La Libertad, you mentioned that you have reached a collective agreement. And that comes into effect by the end of 2015. Any significant changes to your cost profile there that we should be expecting?
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Dale Craig, B2Gold Corporation - VP of Operations [3]
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The only significant change in the collective agreement is that we raised our threshold for the payment of bonus to our workforce. For our workforce (technical difficulty) their bonuses. (technical difficulty)
------------------------------
Rahul Paul, Canaccord Genuity - Analyst [4]
------------------------------
Okay. Thanks. A question for Mark. Mark, you mentioned that you've increased the credit facility by $50 million to $200 million. Any changes expected to the terms under the credit facility, covenants, hedging requirements, that sort of thing?
------------------------------
Mark Corra, B2Gold Corporation - CFO [5]
------------------------------
We are doing some, have done, actually, some additional hedging in the first part of this year for Otjikoto. We have added about 70,000 ounces at today's exchange rate, it would equate to just over $1,500 per ounce. Our total hedging there over the first four years at Otjikoto amounts to only about 10% of our global production. So it's a pretty small amount.
But, as we've mentioned before, we think that when you're building a new project it's prudent to hedge some of that production to guarantee strong cash flows from start up onwards so that you can not only possibly pay any outstanding debt that you have but also get a decent return on your investment.
------------------------------
Rahul Paul, Canaccord Genuity - Analyst [6]
------------------------------
Okay. Thanks, Mark. And I wish you all the best in your retirement.
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Operator [7]
------------------------------
Sam Crittenden, RBC Capital Markets.
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Sam Crittenden, RBC Capital Markets - Analyst [8]
------------------------------
Yes, thanks. Hi, everyone. A special a couple questions on Otjikoto. Just wondering if you're able to tell us how many tonnes have been stockpiled there, and how the grade reconciliations have been. Have you opened up the deposit enough to get comfortable with the geologic model, is what I'm after?
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Clive Johnson, B2Gold Corporation - President & CEO [9]
------------------------------
I think Bill is on the phone. Bill has joined us. But I think it's very little right now, right, Tom? Why don't you --.
------------------------------
Tom Garagan, B2Gold Corporation - SVP of Exploration [10]
------------------------------
Yes. We just had our first ore blast last week so I would say it's minimal and it's too early to tell.
------------------------------
Clive Johnson, B2Gold Corporation - President & CEO [11]
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Three or four months from now we'll have a better idea.
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Sam Crittenden, RBC Capital Markets - Analyst [12]
------------------------------
Okay. And then just the quarterly CapEx spend there, is it lumpy in one particular quarter or spread throughout the year?
------------------------------
Mark Corra, B2Gold Corporation - CFO [13]
------------------------------
I would expect it's probably more in the first quarter than other quarters, as they are bringing in a lot of the steel and all that. And then later when they are doing the erection, costs would drop down. So I would expect the first half of this year will see most of the capital spend happen.
------------------------------
Sam Crittenden, RBC Capital Markets - Analyst [14]
------------------------------
Okay. And then I suppose it's too early to get a sense for blasting and fragmentation and those sorts of things? Are you seeing any early indicators of how the mine is going to perform?
------------------------------
Clive Johnson, B2Gold Corporation - President & CEO [15]
------------------------------
It's too early. We've been pre-stripping, so I don't think -- is that a known yet?
------------------------------
Tom Garagan, B2Gold Corporation - SVP of Exploration [16]
------------------------------
I don't know if any of the guys from Otjikoto are on, but basically they've been blasting through calcrete and the calcrete cover. And that behaves quite a bit different from the rock. And so until we get into the rock I don't think we're going to know a whole lot. We just started the rock now. I think it's way too early to come to any conclusions.
------------------------------
Sam Crittenden, RBC Capital Markets - Analyst [17]
------------------------------
Okay. Thanks, guys. I'll ask the same question next quarter.
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Operator [18]
------------------------------
Ovais Habib, Scotiabank.
------------------------------
Ovais Habib, Scotiabank - Analyst [19]
------------------------------
Hi, everyone. Just a very quick question on Libertad. We've seen a recovery slightly come down in Q4 of 2013. Are we expecting recoveries to creep back up throughout the year or are you seeing recoveries back at that 93.5%, 94% level?
------------------------------
Mark Corra, B2Gold Corporation - CFO [20]
------------------------------
Yes, recoveries are coming back up. We ran some [spinthor] in the final quarter in the last month of 2013. And that's the effect that you see on the recovery there.
------------------------------
Ovais Habib, Scotiabank - Analyst [21]
------------------------------
So maintaining around that 94% level for the full year is that okay in terms of our modeling?
------------------------------
Mark Corra, B2Gold Corporation - CFO [22]
------------------------------
Yes. It is.
------------------------------
Ovais Habib, Scotiabank - Analyst [23]
------------------------------
Okay. Thank you. That's it for me. Thanks.
------------------------------
Operator [24]
------------------------------
Jeff Killeen, CIBC.
------------------------------
Jeff Killeen, CIBC World Markets - Analyst [25]
------------------------------
Hi. Good afternoon and thanks for taking the question. First of all, just looking at that increase in the borrowing capacity of $50 million, just looking at your cash position and what you had available on the balance sheet at this point, it seemed like you were fairly well capitalized to complete all the work you had planned in the next year. Just wondering what the logic was around wanting to increase that borrowing capacity.
------------------------------
Mark Corra, B2Gold Corporation - CFO [26]
------------------------------
It was just at the time, when we started talking to the banks, they asked us if we had any interest in increasing the amount of the line. And we thought that line is good for another three years so who knows what happens over the next three years as far as future needs or future expansions at Masbate or do we start building Kiaka?
So there was nothing -- there is no requirement for the money but we thought what the heck, why not just tack it on. We don't have to redo any of the documentation really.
------------------------------
Clive Johnson, B2Gold Corporation - President & CEO [27]
------------------------------
Yes. It was just about building banking relationships, Jeff. But I really want to underline the point it was not necessary to achieve what we want to achieve this year. It was something that was offered as an add-on and just to strengthen our access to capital. So definitely not done in any reaction to expecting anything that would suggest that we would need more money.
------------------------------
Jeff Killeen, CIBC World Markets - Analyst [28]
------------------------------
Okay. Great. And then on the theme of CapEx, it seems like there was a decent savings in the CapEx spend at Libertad last year. Is any of that savings from last year deferred into this year or was it just really an overall savings?
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Mark Corra, B2Gold Corporation - CFO [29]
------------------------------
There was about $6 million capital carryover.
------------------------------
Jeff Killeen, CIBC World Markets - Analyst [30]
------------------------------
$6 million carryover? Okay, great. And then maybe just lastly, looking at the $300 million, I think you quoted, Clive, for the CapEx at Otjikoto, sounding like you are online there. Does that include all of the costs for the power plant?
------------------------------
Clive Johnson, B2Gold Corporation - President & CEO [31]
------------------------------
Yes. I was trying to summarize, so I used that number just as a general number. It's all -- if you look at the detail -- in the news release and as I've said before it's always stayed the same. The numbers are -- I'm just trying to find them here -- Mark help me -- $244 million is the actual.
------------------------------
Mark Corra, B2Gold Corporation - CFO [32]
------------------------------
Yes. And it does include the power plant that originally we were going to lease. And so that's one change to that number. But it's offset by that we increased -- originally, the original RCF we were looking at was going to be $75 million and we decided to go for $150 million. And so it was never an issue that it was not going to be leased anymore. And it was mainly again because of being able to get security over the assets and then maybe a --.
------------------------------
Clive Johnson, B2Gold Corporation - President & CEO [33]
------------------------------
Yes. If you look at page 7 of the news release, the second paragraph under Otjikoto development, this is the same as we outlined for a long time now. We are not seeing any increases to the $300 million. It's just me trying to summarize the money that we needed to put out to get going, which includes $244 million of pre-development costs and then $33 million in the pre-strip and, because we couldn't lease the generators, the -- what's the last one, Mark?
------------------------------
Mark Corra, B2Gold Corporation - CFO [34]
------------------------------
The $60 million includes all the -- including the amount of the mobile fleet that were not leased, that we have to put a down payment for.
------------------------------
Clive Johnson, B2Gold Corporation - President & CEO [35]
------------------------------
Right. So, the numbers are the same. I just used $300 million and after this I probably won't anymore. But at the end of the day, the numbers are the same as they were before.
------------------------------
Jeff Killeen, CIBC World Markets - Analyst [36]
------------------------------
Okay, great. Thanks for clarifying that. And congratulations on a good quarter. And congratulations, Mark. All the best to you.
------------------------------
Operator [37]
------------------------------
Geordie Mark, Haywood Securities.
------------------------------
Geordie Mark, Haywood Securities - Analyst [38]
------------------------------
Yes. Good morning gentlemen. I'd just like to start with Masbate, if I can. Can you remind me what the recoveries were in Q4 there and how you see that projecting into your 2014 guidance?
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Clive Johnson, B2Gold Corporation - President & CEO [39]
------------------------------
Momentarily stumped the panel. I see guys digging around.
------------------------------
Mark Corra, B2Gold Corporation - CFO [40]
------------------------------
Recovery on last quarter, Q4, 82.8% and for the year it was 83.2%. It will take me a minute to look at the grade profile for 2014. Give me just a minute, I have to pull it up. I can get back to you on this.
------------------------------
Geordie Mark, Haywood Securities - Analyst [41]
------------------------------
Sure. And a follow-up question there, full-year guidance for next year, it's around 6.4 million tonnes processed from Masbate. What downtime does that assume for integration of the new SAG mill?
------------------------------
Clive Johnson, B2Gold Corporation - President & CEO [42]
------------------------------
Sorry. Can you repeat that? I missed that.
------------------------------
Geordie Mark, Haywood Securities - Analyst [43]
------------------------------
I'm just wondering how much downtime you have assumed for integration of the new SAG mill in May.
------------------------------
Dale Craig, B2Gold Corporation - VP of Operations [44]
------------------------------
That change-out will take about a week of anticipated downtime. And we scheduled actually -- we run the plant continuously through that time, and work around it at a reduced rate.
------------------------------
Geordie Mark, Haywood Securities - Analyst [45]
------------------------------
Right. Okay, thanks. And the last question, you were talking about Nicaragua about energy cost savings during Q4. Is that going to come into 2014? And do you think it is sustainable and have you built that into your current cost assumptions?
------------------------------
Mark Corra, B2Gold Corporation - CFO [46]
------------------------------
Fuel costs will be variable. Energy costs we anticipate would rise to $0.204 per kilowatt hour. That's about $0.01 or $0.012 per kilowatt hour more than we experienced last year. Actually finished off the year at, I think it was $0.184 per kilowatt hour in La Libertad.
------------------------------
Geordie Mark, Haywood Securities - Analyst [47]
------------------------------
Okay. Thanks.
------------------------------
Operator [48]
------------------------------
(Operator Instructions)
Michael Gray, Macquarie Capital.
------------------------------
Michael Gray, Macquarie Capital Securities - Analyst [49]
------------------------------
Most of my questions have been answered. But maybe a follow-up to the cash costs. With the savings at Masbate versus budget, La Libertad and El Limon, can you comment on what percentage of the savings was the lower fuel price, and how sustainable some of these savings are going forward into 2014?
------------------------------
Mark Corra, B2Gold Corporation - CFO [50]
------------------------------
Fuel price will vary as per market. Typically our fuel estimates have been slightly on the conservative side. Really, that's a fuel forecast that I can't really hone in on too much. Energy at all three operations has remained stable within $0.01 or $0.02.
At El Limon specifically, we have had energy savings. We'll see that energy cost rise slightly in our underground operation as we get into deepwater well pumping there. That was one of the savings specifically on our underground operations there.
The other area that we do see savings across the board is cyanide. We've seen reductions from $3,400 per tonne down as low as $2,050 per tonne. So we anticipate some significant savings there, as well.
So, fuel, as market. Energy, stable, in Nicaragua specifically reflecting as market. And as you know we run HFO in Masbate as well. Consumable costs down slightly. And cyanide costs down significantly. Those translate into about a $3 million savings in Masbate, and probably better than $1 million savings in Nicaragua operations.
------------------------------
Michael Gray, Macquarie Capital Securities - Analyst [51]
------------------------------
Okay. And as a percentage of the energy and fuel cost savings, can you give us an idea of what percentage that was, say, from Masbate in particular?
------------------------------
Mark Corra, B2Gold Corporation - CFO [52]
------------------------------
Masbate in particular, on the diesel we saved about $0.05 per litre. HFO, I would have to review as percent of total spend. I'll have to get back to you on that.
------------------------------
Michael Gray, Macquarie Capital Securities - Analyst [53]
------------------------------
Okay. Thanks. And congratulations, Mark.
------------------------------
Mark Corra, B2Gold Corporation - CFO [54]
------------------------------
Just one follow-up to an earlier question on our recovery for Masbate. Pretty similar for the coming year, remembering that we are running a number of months a little later in the year of oxide, primarily oxide material.
------------------------------
Operator [55]
------------------------------
Chris Thompson, Raymond James.
------------------------------
Chris Thompson, Raymond James & Associates - Analyst [56]
------------------------------
Hello, guys. Just a quick question, just going to Libertad here. How many tonnes, what's the tonnage that's coming from Jabali at the moment? And then where do you see that going tracking forward this year?
------------------------------
Dale Craig, B2Gold Corporation - VP of Operations [57]
------------------------------
Yes, we are looking for about 300,000 -- just over 300,000 tonnes to be hauled from Jabali this year. So, nominally we're looking for a little less than 1,000 tonnes per day coming from that operation. February has tracked well for that. A short gap in March. Remembering we're still only about 4 benches down in the Jabali Central pit so some of the release will be a little sporadic. But in general terms, about 300,000 tonnes coming from Jabali this year.
------------------------------
Chris Thompson, Raymond James & Associates - Analyst [58]
------------------------------
Great. Dale, what sort of grade are you pulling from Jabali at the moment?
------------------------------
Dale Craig, B2Gold Corporation - VP of Operations [59]
------------------------------
2.58 grams per tonne current grade, which is slightly better than our forecast.
------------------------------
Chris Thompson, Raymond James & Associates - Analyst [60]
------------------------------
Great. Thanks. I couldn't leave without saying, Mark, all the best for the future.
------------------------------
Clive Johnson, B2Gold Corporation - President & CEO [61]
------------------------------
Just before anyone panics about Mark leaving, I think we should mentioned that his capable replacement, Mike Cinnamond, will be taking over as CFO. He's been with us for a while as Senior VP Admin. He'll be taking over as CFO. Mike has had extensive expense with PricewaterhouseCoopers. In fact, was our auditor 14 years from the [Bema] and B2, was senior member here in Vancouver. So we really welcome Mike.
And Mark has also built a great team here and with Mike, has been adding, as well, very qualified people with a good history with the Company. We've got very good financial people in various operations. So we welcome Mike in that role. And, of course, Mark will always be available to help us through things and help us in the future.
Mike, actually, has a golf game much better than Mark's. So I think probably what we will see here is a meeting in the middle somewhere, where Mike is just going to get worse now for sure, with the amount of work we've had him doing, and Mark's might improve marginally. So maybe they will meet somewhere in the middle. So welcome, Mike.
And thanks to all of you on the call. And we look forward to report, talking to you again soon or a few months from now. Thanks.
------------------------------
Operator [62]
------------------------------
Thank you. The conference has now ended. Please disconnect your lines at this time. And thank you for your participation.
------------------------------
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