B2Gold - Q3 2024

Transcript

Operator (participant)

Thank you for standing by. This is the conference operator, and welcome to B2Gold Corporation's Third Quarter 2024 Financial Results Conference Call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity for analysts to ask questions. To join the question queue, you may press star, then one, on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star, then zero. I would now like to turn the conference over to Clive Johnson, President and CEO of B2Gold. Please go ahead.

Clive Johnson (CEO)

Thank you, Operator. Welcome to the call. We're here in Vancouver with the B2Gold executive team, and I'm going to pass it over to Mike Cinnamond to talk about the financial results for the third quarter, and then Bill Lytle is going to give us an update on Mali operations and also on the Goose Project construction progress. So over to you, Mike.

Mike Cinnamond (CFO)

Thanks, Clive. Start on the operating side, I think similar story to what we saw for the first two quarters of the year. Masbate and Otjikoto results continued to meet our budget. But as we previously guided towards, the Fekola had a weaker quarter as a result of the delay in receiving a replacement excavator after an existing one was damaged beyond repair in the first half of 2024. But as we look to 2025, we expect to see significant production growth at Fekola, driven by better grades being mined at the Fekola pit, combined with the contribution of trucked ore from Fekola Regional and the commencement of Fekola Underground production. When you put it all together, so beat Masbate and Otjikoto, Fekola slightly behind.

But where we stand with that overall for the year, we still think we're on track to come in now at the low end of our revised production guidance range. And with that lower production, we expect to come in towards the upper end of our revised cash costs and all-in sustaining cost guidance. Other significant event in the quarter, we completed the MOU with the state of Mali on the future economic and governance parameters of the Fekola complex, including the Fekola mine and Fekola Regional. And that's a significant event for B2Gold. It lets us move forward and realize the value that we see and the upside we see in those projects. Financially, it's a strong quarter.

Adjusting for one-time items, the company generated $0.02 per share of adjusted earnings, benefiting from a very strong average gold sales price and continuing to see gold do what it's doing. Those adjusted earnings were negatively impacted by a one-time $30 million tax accrual to record the charges related to the MOU with the state of Mali I just described that we announced in September. If you remove that accrual, the adjusted EPS would have been closer to $0.05 per share. Basic earnings per share was impacted by the non-cash write-down of the Back River Gold District, and mainly as a result of the two initial capital cost increases that we previously announced in 2024. But moving forward, as Bill will describe shortly, we feel confident in the timeline and budget that we put out a couple of months ago in September.

Operating cash flow beforer working capital adjustments for the quarter was $118 million, which is a strong result given the challenges of Fekola during Q3. Spending in the Goose Project is tracking well versus their latest budget during the quarter, which we saw carry on into October as well. Construction and mine development activity spent CAD 165 million during Q3, and the working capital buildup was $150 million during the quarter. Remember, that's kind of reflecting the results of the sealift as it came in and the material got to site. Working capital buildup was elevated predominantly as a result of the purchase of diesel that will be brought to site on the 2025 Winter Ice Road. Financial-wise, we continue to remain a strong financial position with cash and cash equivalents of $431 million at the end of the third quarter.

During the quarter, we did draw $200 million on our line, and that leaves us with $500 million of additional credit facility capacity going forward, as well as $100 million in the near future of that line. So we've got good financial flexibility to be able to complete the Goose construction by Q2 2025, complete the other sustaining growth initiatives across the portfolio, and to continue to fund a healthy exploration program to extend mine lives. And that's the end of my remarks. Over to you, Bill.

Bill Lytle (COO)

Okay. From an operational perspective, I guess what people are most interested in is the Goose Project. So at Goose Project construction, progress was significant throughout the summer months and into the fall season. Everything remains on track to deliver first gold production in Q2 2025. In support of that, the 2024 sea lift was successfully completed in the third quarter. We had 10 ships and one barge unloading 123,000 cubic meters of dry cargo, more than 84 million liters of Arctic-grade diesel fuel, and the 58 additional trucks for the 2025 Winter Ice Road, which will significantly de-risk the movement of cargo down the ice road. On the construction side, progress was significant in the third quarter. We completed the vast majority of concrete placement, all the E-Houses on the mill pad.

The electricians were finishing up connecting power to various components and the construction of additional fuel storage tanks at Goose. On the mining side, we did quite well with the Echo Open Pit. The underground development at Umwelt is consistently hitting new highs. Now turning to the operations in Mali, we're on track to get both the Fekola Regional and the Fekola Underground into development or into production in 2025. That'll obviously benefit the operations for years to come. At Masbate, once again, the little mine that could continues to perform at world-class levels. The operation has delivered All-in sustaining Costs in 2024 materially lower than our guidance range. At Otjikoto, the team is preparing a PEA study on mining for the Antelope Zone, which will be able to mine through the early 2030s. This would extend the life of mine through the years of stockpiling processing.

At Gramalote, we're working through a feasibility study which is ready to be released in mid-2025. With that, I'll turn it back over to you, Clive.

Clive Johnson (CEO)

Thanks, Bill. I think with that, we'll open up for questions.

Operator (participant)

We will now begin the analyst question and answer session. To join the question queue, you may press star, then one on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then two. We will pause just for a moment as callers join the queue. Our first question comes from Anita Soni with CIBC World Markets. Please go ahead.

Anita Soni (Analyst)

Hi. Good morning, Clive, Bill, and team. I just wanted to ask a quick question on Fekola. I think you guys mentioned that the issues that you've had with the equipment and the shovel and then also some inclement weather is impacting Q4. Could you give us an idea of what kind of grades you'll be pulling in Q4 and the expected tonnage? I'm unsure whether or not this is kind of within the original guidance revision of like 800-870 for this year, or are we gearing even more towards the low end of that number?

Bill Lytle (COO)

So basically, what had happened is, as you know, when we lost the excavator, it slowed down the development into the phases. We had to get into phase seven of the open pit. We are now just getting ready to enter phase seven now, so you will see grades increasing somewhat. But with that being said, you're not going to see all of that come through in Q4.

Anita Soni (Analyst)

Okay. So a little bit more of a push-out than you had originally when you originally revised guidance in August, a little bit more of a delay in accessing that ore than originally thought?

Bill Lytle (COO)

Yeah. I would say a little bit more, but we're still within the revised guidance range that we've just put out.

Anita Soni (Analyst)

Okay. That's it for my questions. Thanks.

Clive Johnson (CEO)

Thanks, Anita.

Operator (participant)

The next question comes from Don DeMarco with National Bank. Please go ahead.

Don DeMarco (Analyst for National Bank Financial,)

Thank you, Operator, and good morning, Clive and team. Hope all is well. The first question, Bill, you just talked about Masbate and Otjikoto. Some outperformance in Q3 provided some offsets for Fekola. Was this just a one-off quarter for both these mines, or can we expect the trend of outperformance to extend into Q4?

Bill Lytle (COO)

So you know Masbate, right? Masbate is highly dependent on kind of which material ends up from the pits as far as the recoveries and the hardness. We've always kind of outperformed there. So you could see an outperform in Masbate, but right now, in our models, we're calling for exactly what we had projected for Masbate for Q4. And Otjikoto is kind of the same way. We're kind of gearing towards what we had originally projected for Q4, knowing that we could potentially see higher grades at Masbate.

Okay. Thank you for that. And my next question, on Mali, there's been some discussion about outstanding payments. Can you remind us how much of that was paid in Q3 and how much is still remaining to be paid in Q4?

Clive Johnson (CEO)

Yeah, I can answer that, Don. So on signing, we paid the first tranche payment of $16 million. And then in October, we paid second tranche payment, which is part of the tax assessment of $42 million. So those payments have been made. What remains is the dividend payment. That's the most significant one. We expect to make that in probably this month, I think. And as disclosed in the financials, that's about $114 million. And then there's a residual payment, final settlement payment of $30 million that we expect to make by the end of the year.

Okay. Thank you. So we're all looking forward to Goose ramping up in first quarter and Q2 and so on. But beyond ramp-up with higher free cash flow, can you talk about your capital allocation strategy? Of course, we have Gramalote. It's under review right now. That might be one option. The dividends there, of course, very strong. But how do you see yourselves deploying the higher cash flow once Goose has been ramped up?

I think for us, for sure, is to get Goose up and running. And then remember, then we'll be delivering into some of the prepaids that we've got as well over the course of the next year. So we'll be managing that process. And then beyond that, that timeline kind of falls in nicely for when if Gramalote is a positive feasibility study and we want to start progressing it, then we sort of fall into that timeline where there will be those significant strong cash flows that are freely available to us that we could use to advance development there. Yeah, Gramalote slots in quite nicely if the feasibility study is positive. And we decide to go ahead after Goose construction, we could slot it quite nicely in terms of additional growth.

And just to remind everyone, we're talking about in terms of production growth and the potential additional production, the 100,000 ounces from Fekola from trucking ore down to the regional, obviously Goose coming on at an annualized rate of 310,000 ounces a year starting mid-year of next year, and then if we ramp a little bit and assume we go into Gramalote, that's potential additional 240,000 ounces of new gold production from Gramalote, which we now own 100% of, so we always talked about this as a transitional year, and those are the kind of opportunities going forward to continue to grow gold production.

Okay. Thanks, Clive. And can you just remind us then on Gramalote when the feasibility is expected and when a go-forward decision might be made?

Middle of next year?

Bill Lytle (COO)

Yeah. The PEA's due in Q2. Sorry. Excuse me. The feasibility study in Q2 2025.

Okay. We'll look forward to that. Well, that's all from me. Thanks a lot, guys. Good luck with Q4.

Clive Johnson (CEO)

Thanks.

Operator (participant)

Next question comes from Ralph Profiti with 8 Capital. Please go ahead.

Thanks, Operator. So Clive, I just want to maybe get a little bit more detail on Fekola Regional and sort of the timelines on how things get mobilized in terms of workforce, in terms of stripping, and sort of maybe sort of a little bit of a walkthrough of how the early part of 2025 is going to look like in terms of some of these milestones.

Clive Johnson (CEO)

Sure. Bill, it would be best to answer that.

Bill Lytle (COO)

Yeah. So let's start with reminding everybody that because they had given us previously a permit to build out all the infrastructure, that everything is there already. So the haul road is there. All of the buildings, those have already been built. And so what we're really talking about is once we get the permit, right, and once we get all the government approvals to start mining, you've got a quarter of pre-stripping. So we've been talking about trying to get this permit by the end of this year. I think that still seems feasible as far as I can tell. At the end of Q3, we did submit what was the requirement as far as ESIA. They are saying that they'd need just like six to eight weeks to turn that around, and then they actually get into the physical part of the permitting process.

So let's assume that everything happens as we thought it would by the end of the year. And then in Q1, we have to do pre-stripping. What's happening physically on the ground now, as part of our local content initiative, we are talking about potentially going to contract mining. And what that will do is that'll allow us to fulfill some of the modeling requirements. And so we are issuing contract for that right now. So we anticipate that if, in fact, we do get the permit by the end of the year and everything's in place, we could, in fact, start pre-stripping in Q1 of 2025.

Just to add to that, as Mike talked about, we've reached an important agreement with the government with the relevant understanding and have undertaken to take the steps we need to take, and the government has undertaken the steps. So you have two partners now aligned, very much very keen on seeing our trucking down on additional production from Fekola. So the government's on the same page as us. It was a fairly difficult negotiation over the last year or so. We reached an agreement. The government's owned 30% of the regional gold production, and they're very keen to increase gold production in the country and taxes, etc. So we're very much on the same page and aligned to look to fast-track this process of permitting and get going with it. So we're on the same page.

Okay. Great. Yeah, that's helpful. Mike, this impairment at Back River, it looks like the amount is sort of in line with sort of the two successive CapEx increases, right? And just wondering, is that the way to think about it? And that there has been no change in the proportion of the carrying value that is net present value related, right? That could have been offset by their gold prices, for example.

Clive Johnson (CEO)

Yeah. I think big picture, that's the way to think about it. I mean, there obviously were some changes in the gold price as we looked from when we first bought it to where we are now. But really, the triggering factors were the increase in the costs. And we updated, say, fuel prices, things like that in there as well. And that was the net result. But I think, yeah, the capital costs have increased, especially the latest one really triggered the need to revisit that.

Okay. That's helpful. Thanks to the team.

Thanks, Ralph.

Operator (participant)

The next question comes from Oveis Habib with Scotiabank. Please go ahead.

Hi, Clive, Mike, and Bill. Sorry, I came in late into this call juggling through a bunch of conference calls. A lot of my questions have been answered, but in terms of the fact that now things are moving forward in Mali, you guys are kind of getting your bearings kind of settled down in terms of Goose as well. How should we be looking at exploration in Mali and exploration around Goose as well? Is that going to ramp up going into 2025? Where do we stand on the exploration side?

Clive Johnson (CEO)

Sure. I'll pass a little bit, but suffice to say, as Oveis said, aggressive exploration budgets now with Mali. There was no point in going out and doing more exploration drilling in the region if we hadn't reached an agreement with the government about going forward with that. So we're back to drilling there. Vic can talk about that. And Goose, we're going to come out with a new resource in the next week or so with a Goose exploration update. Some pretty exciting results when we're seeing an exploration. Vic, do you want to talk about the programs?

Sure. Yeah. Moving forward, there's certainly a full plate of exploration going into the back end of the year and then certainly next year as well. We see budgets increased maybe slightly at Goose. The big change is that we've had a very successful summer program, and we've identified numerous targets both on the Goose Project itself and also in our large land package there. We've got five other projects, regional projects around there where we've had some positive results, and we will be drilling some of those next year. So there's definitely a switch or a pivot in the exploration, putting in quite a chunk of money on our regional projects up at Back River. So that's full steam ahead for sure. In Mali, there's probably about the similar budget as we had this year is the view for next year.

The focus will be on open-pittable higher-grade sulfide targets on the Fekola Regional. And that's simply because we have a lot of our oxide resource at Fekola Regional is pretty impressive already. What helps the mill down south at Fekola itself is these high-grade sulfide resources. And we have targets to tackle next year: Tai Pan, Cobra, and so on. So yeah, strong exploration commitment at both those projects next year.

Yeah. And I think, as you've seen historically, we're not shy about adding something to the budgets if we get exploration success, increasing the budget. In the case of Goose, there's always that in terms of financing. If you wanted to do a small flow-through financing for Goose, it's obviously a perfect candidate for that potentially. So both of them excited with the programs we have coming up, and we'll prepare to look at increasing those budgets if appropriate based on successful exploration results.

Perfect. Thanks, Clive and Vic. Just in terms of Goose, when we were there at site in September, the infill program on the Goose Underground was going fairly well. Confidence level was definitely increasing significantly. Where do things stand right now? I mean, in terms of just confidence going into this new resource update and then into the new mine plan coming up in Q1? We're basically wrapping up the modeling on the resource work. The idea is that that will come out with our AIF next year. But the models themselves are being turned over to the engineers. And I guess between now and the end of the year, that will be incorporated in the planning. What we can say is we have the infill work that we've done has certainly improved our geological understanding of the deposits, the geometry, the extents, and so on.

And we have a much improved model. The trend is towards higher grades and lower tonnages, which is kind of what we expected when we acquired the project. Perfect. Thanks for that, Color. And that's it for me, guys. Thanks for taking my questions.

Thanks, Oveis.

Operator (participant)

concludes the question and answer session. I would like to turn the conference back over to Clive Johnson for any closing remarks.

Clive Johnson (CEO)

Okay. Thanks, Clifford. We know you've had a busy day out there with a lot of companies reporting today, but thanks for taking the time to join the call. One final comment I'll make is you can continue to see us invest in junior companies looking to broaden our exploration exposure, and that strategy will continue looking at new projects in our own right and exploration around the world, and also looking at investing in high-quality junior companies that have good projects around the world. I think that's a great strategy for the market today, given the fact that junior exploration companies, despite a higher, more robust gold price, have benefited from that. So we see a great opportunity there to help the juniors along in their exploration programs, but also ultimately be a shareholder for them.

And maybe that'll turn into some joint ventures or acquisition opportunities down the road. So once again, thank you for joining the call.

Operator (participant)

The brings are closed to today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.