B2Gold: Disappointing Q3 Production At Fekola (NYSE:BTG) -LSB

Part I: Introduction

Vancouver-based gold miner B2Gold Corp. (NYSE:BTG) released its second-quarter 2023 results on August 2, 2023. I have followed BTG quarterly since July 2019, and this new article is a quarterly update of my article published on September 11, 2023.

As I have indicated in my previous article,

BTG owns three producing mines, one production mine in a 50/50 JV, one development project, the Goose Project in Northern Canada, and two exploration projects in Finland and the Ivory Coast.

1-3Q23 results snapshot and commentary

B2Gold posted a net loss attributable to the shareholders of $43.07 million, or $0.03 per diluted share, compared with a loss of $23.41 million, or $0.02 per share, in 3Q22. The results missed the analysts’ expectations.

Revenues for 3Q23 were $477.89 million, up 1.5% sequentially and up 21.7% compared to the same quarter a year ago. The company’s flagship Fekola Mine generated $292 million in gold revenue in the third quarter of 2023 from the sale of 152,239 ounces in 3Q23 but produced only 128,942 ounces.

Operating activities provided cash flow before changes in non-cash working capital of $110.20 million, up from $93.12 million made in 3Q22. The capital expenses were at an all-time high at $225.59 million in 3Q23, compared with $76.50 million in 3Q22.

Total gold production in the third quarter of 2023 was 242,838 ounces (including 17,786 Au ounces for its ~24% stake in Calibre Mine) and sales of 248,889 ounces.

In the reported quarter, the company’s total consolidated cash operating costs were $755 per ounce, a decrease of 7.4% from the previous year. At $1,272 per ounce (including Calibre), total consolidated all-in sustaining costs (AISC) were 8.8% higher than the same period last year.

2023 was reaffirmed in 3Q23. The company’s total gold production for the year 2023 is estimated to be between 1 million and 1.08 million ounces (with 60k to 70k ounces attributed to Calibre).

Total consolidated all-in sustaining costs (including Calibre) are anticipated to be at the low end of the original guidance range of between $1,195 and $1,255 per ounce.

The company’s total consolidated cash operating costs for the year (including Calibre) will likely be slightly below the original guidance range of $670 and $730 per ounce.

Finally, the construction activities at the Goose Project cost $88 million in the third quarter of 2023 and $157 million from the date of Sabrina’s acquisition to September 30, 2023. First gold production in 1Q25

President, CEO, and Director Clive Johnson said in the conference call:

Obviously, the focus now going forward on the development side is the Goose, which you’ll hear more about going extremely well the construction at Goose and we’re on schedule, on track, expecting first gold production in the first quarter of 2025

2: Stock performance

B2Gold is down 16% on a one-year basis, and it looks like the stock has underperformed its peers so far.

Despite showing fundamental financial strength, the stock price faced downward pressure, most likely due to the political upheaval in Mali, West Africa, home of the company’s flagship Fekola Mine. The recent decline in the price of gold has made it worse.

3: Investment thesis

BTG is a robust mid-tier gold miner with a promising future for growth with the fully-owned Goose Project in Nunavut, Canada, expected to produce gold in 1Q25.

In addition, B2Gold has accelerated the pace of its Goose underground mining plan, which intends to increase average annual gold production to around 300,000 ounces during the initial five years.

Finally, the company owns four well-diversified worldwide producing assets (including the ~24% stake the company owns in the Calibre Mine).

Note: The company and AngloGold signed a purchase agreement on September 14, 2023, to purchase AngloGold’s 50% interest in the Gramalote Project. Following the conclusion of the Gramalote Transaction on October 5, 2023, B2Gold currently holds a 100% ownership stake in the Gramalote Project.

BTG appears undervalued despite all of its apparent intrinsic strengths due to the risk associated with its Fekola mine, which is located in the unstable West African nation of Mali.

This undervaluation will not go away quickly because there is still a high chance of a production disruption even if the mine is not operating in a danger zone and is operating close to the Senegalese border.

Stockholders will have to accept this unfortunate fact, drastically lowering the stock trading range. On the other hand, when the Goose mine starts to produce in 2025, shareholders who can consistently accumulate using weaknesses will most likely be rewarded.

As a result, I often advise hanging onto a core long-term position and trading between 50% and 60% LIFO of your BTG investment in anticipation of a future increase in stock price. I’m bullish on gold for 2024, so the stock looks attractive below $3.

Part II: B2Gold: Historical balance sheet until 3Q23: The Raw Numbers

All numbers are in USD.

Click to enlarge

Data Source: Company press release.

Warning: Shares outstanding increased significantly after the completion of the Sabrina acquisition.

Analysis: Revenues And Gold Production

1: Quarterly revenues were $477.89 million for 3Q23

2: The third quarter’s free cash flow was negative $115.39 million

B2Gold’s quarterly free cash flow was negative at $115.39 million in 3Q23, compared to a trailing 12-month free cash flow of $174.70 million. The Goose Project’s capital expenditure is what accounts for the negative free cash flow observed in 3Q23.

More negative free cash flow is what I anticipate for FY24 and 4Q23. Given that BTG has a strong balance sheet, investors shouldn’t be concerned about the current situation.B2Gold pays out quarterly dividends of $0.04 per share, or 5.35%, which is among the greatest yields in the gold sector. But the dividend is high, and there’s a good chance that the company will cut it in 2024.

In the press release:

For the third quarter of 2023, capital expenditures totalled $226 million. The most significant capital expenditures were on the Fekola Mine with capital expenditures of $83 million, the Masbate Mine had capital expenditures of $6 million, the Otjikoto Mine had capital expenditures of $13 million, the Goose Project had capital expenditures of $88 million, the Gramalote Project had capital expenditures of $1 million and the Fekola Regional properties had capital expenditures of $17 million.

3: B2Gold is net debt-free and will have $297.65 million in total cash at the end of September 2023.

4: 3Q23 Gold Production Snapshot

In the third quarter of 2023, B2Gold reported producing 242,838 ounces of gold, which included 17,786 ounces for its Calibre Mine ~24% interest. The annual production guidance ranges are expected to be met or surpassed by all B2Gold-producing assets. In 3Q23, BTG sold 266,616 Au Oz.

4.1 Production detail: Production comparison: 3Q22 versus 3Q23 per mine

4.1.1 The company’s flagship Fekola Mine in Mali

Gold production was 128,942 ounces in the third quarter of 2023.

The Fekola Mine in Mali, which is 20% owned by the State of Mali and 80% by the company, had a challenging third quarter in 2023, producing 9% less than anticipated. Reduced mill feed grade and marginally lower gold recovery were the causes of the budgetary deficit.

4.1.2: The Masbate Mine in the Philippines:

Thanks to better ore grades and increased mill throughput, the Masbate Mine in the Philippines produced 51,170 ounces of gold in the third quarter of 2023, or 10% more than planned. The increased mill throughput was the primary reason for the 3% increase in gold production during the third quarter of 2023 over the same period in 2022.

4.1.3 The Otjikoto Mine in Namibia:

The Otjikoto Mine in Namibia, in which the company owns a 90% interest, produced 44,940 ounces of gold in the third quarter of 2023, 5% more than anticipated due to the mill feed grade being higher than anticipated.

The third quarter of 2023 saw a 28% increase in gold production over the same period in 2022, mostly due to higher processed grade from high-grade ore extracted from the Wolfshag underground mine.

4.2 All-in Sustaining Costs AISC and Gold Price History

The AISC for 3Q23 was $1,272/oz, a substantial increase from $1,169/oz in 3Q22.

Part III: Technical Analysis And Commentary

BTG forms an ascending channel pattern with resistance at $3.48 and support at $2.96. The RSI is 39 descending, which indicates more downside with potential support between $3 and $2.75 depending on the gold price.

Although the ascending channel pattern is thought to be bullish, it usually ends in a breakdown. In this instance, we must wait and see if BTG can hold its $2.96 level of support before rising to $3.35-$3.50. If not, BTG might fall to $2.75.

The most common approach is to have a core long-term position and use the remaining 50-60% to trade LIFO while holding onto your core position until the final price objective is achieved. As previously said, this approach is well-suited to BTG, allowing you to trade short-term volatility while earning a respectable income for your long-term investment.

Note: The dividend yield has surpassed 5.53%, one of the gold industry’s best yields.

TA conclusion:

I recommend selling BTG in part between $3.35 and $3.55, with $3.75 as the highest potential resistance. However, buying again on any weakness between $3 and $2.90 makes sense, with a potential lower support level at $2.75.

Warning: The TA chart must be updated frequently to be relevant. The chart above has a possible validity of about a week or two. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.