B2Gold Corporation (BTG) has recently announced Q1 2019 results. Consolidated gold production was 6% higher than budgeted whereas AISC was 14% lower than the budget. BTG has witnessed a decline in average realized gold prices during Q1 2019, on a Y/Y basis and gold prices have edged even lower. However, there are chances of gold recovery, and that could affect BTG’s revenues in the coming quarters. The FM (read: Fekola mine) is the star performer among BTG’s mining assets, and this mine will help increase production in H2 2019. FM’s expansion plan would significantly enhance the mine’s production capacity. Let’s get into the details.

Figure-1 (Source: Mining Review)

During Q1 2019, BTG produced 230,859 ounces of gold at an average AISC of ~$848/oz. For a senior gold producer like BTG, the cost metrics were favorable compared with Kinross Gold’s (KGC) AISC of ~$925/oz. and IamGold’s (IAG) AISC of ~$1,086/oz. The company’s average realized gold prices stood at ~$1,300/oz. declining from $1,325/oz. last year. In the current quarter, gold prices have declined further (within the range of ~$1,280/oz) and this could reflect negatively on BTG’s revenues in the coming quarters. Nevertheless, there is some room for improvement in gold prices particularly due to the increasing US-China trade tensions.

In my view, the fundamental strength of BTG supports the chances of share price appreciation. BTG’s key mining assets include Fekola, Masbate, and Otjikoto. These mines have depicted healthy quarterly performance in terms of output (Figure-2) and AISC (Figure-3).

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Figure-2 (News Release)

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Figure-3 (News Release)

While La Libertad and El Limon operations also contributed to the gold production, they were a burden on the company since mine-site AISC lies way above the average realized gold prices of ~$1,300/oz. (refer to Figure-3).

On the other hand, the FM is the single most important asset in BTG’s portfolio (in terms of both output and AISC) and has delivered excellent performance during Q1. The mill’s throughput was ~1.73 million tons, recording a hefty increase of 31% Y/Y. FM’s production is expected to ramp up in H2 as it delivers high-grade ore production from Phase-4. Further, the Fekola expansion project is currently being considered by BTG, and this has the potential to enhance Fekola mill’s throughput from 1.5 Mtpa to 7.5 Mtpa. Once completed, this would enable the FM to produce an average of ~550,000 gold ounces during the period 2020-2024. Throughout the mine’s life, BTG expects the FM to add NPV of ~$2.2 BB (in total).

On a separate note, BTG plans to incur ~$19 MM on the Fekola exploration project. This would help in confirming (and converting) some of the mine’s ‘Inferred’ resources into ‘Indicated’ reserves. BTG’s strong liquidity position supports the company’s planned mine CAPEX and OPEX. BTG generated operating cash flows of ~$86 MM during Q1 and had $142 MM in cash at the end of the quarter. Further, the company still has ~$200 MM in revolving credit that could be utilized when needed (Figure-4).

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Figure-4 (Source: May Presentation)

Moreover, the technical price chart shows that based on an extension of the trend lines connecting the bullish and bearish trends, a reasonable target price in the short-to-medium term could lie somewhere between $2.8-$3.0/share. Have a look at Figure-5.

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Figure-5 (Source: Finviz)

In short, BTG’s Q1 performance reports revealed gold production and related costs that surpassed the budget. Even though the quarter has started with depressed gold prices, but there are chances of recovery due to the macroeconomic factors in gold’s environment. This could impact favorably on BTG’s revenues. Also, BTG’s FM has the potential for expanding its production capacity and the company is working on expansion and exploration plans for the mine. BTG’s strong liquidity position facilitates such plans and the technical price chart shows the likelihood of improvement in share prices.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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