B2Gold - Q2 2024

Transcript

Operator (participant)

Thank you for standing by. This is the conference operator. Welcome to B2Gold Corporation Second 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 (President, CEO, and Director)

Thank you, operator. Welcome everyone to the conference call to discuss the results, Q2 results or financial results for B2Gold. We had some very positive results from the quarter, financial results. Mike Cinnamond, our CFO, is going to walk us through that. We're also going to talk about some of the other issues that we cover in the news release. We're going to get an update from Bill on the operational update from both the situation in Mali in terms of production, and we'll talk about an update on Goose. Just a couple of points maybe to start us off. We have had an excellent track record, as everyone, I think, is aware of, of operational performance for many years now. We did have an excavator tip over on site, which is very unusual.

That happened, and it was. Bill will talk in more detail about that. That was unfortunate. That's caused us to reguide production for this year, down about 50,000 ounces. But it's not gone away, it's simply moved into next year. So that's why we've reguided, and you will hear more about that. And Bill will tell you what happened and the excavator, and how we've taken steps to ensure that that very unusual occurrence cannot happen again. We'll talk about that. To get back to our excellent operational performance, we'll talk about how we're already starting to see tonnages come back with the replacement excavators, et cetera. In terms of just a quick update on Mali, and we'll get a chance to talk about this with answering your questions, I'm sure.

We are in the believed to be in the final stages, we believe, of discussions with the government of Mali, to understand the full implementation of the 2023 Mining Code. So we are, as I said, final stages of that, those discussions, and hope very shortly to be able to come out and announce. What that will do is that will trigger the, we hope, the rapid receipt of a permit, an Exploitation Permit for the regional areas where we want to truck, begin trucking ore down. As you've heard before, we've already built the roads. We're ready to go in terms of trucking ore down, and that could add 80-100,000 ounces a year. That would be to reaching an agreement with the government, that will trigger that permitting process.

The government assured us that they want to see this happen, they very much want to see Fekola expanded. So we're looking to get hopefully a rapid response to getting an exploitation permit. No blasting, no trucking, we'll slowly be cycling material to trucks and haul it 20 km or less down to the Fekola mill. The other thing to make sure people are still aware of this, there's tremendous exploration upside in the Fekola Complex. With the agreement with the government, we will immediately go back to an aggressive drilling program, around $7 million of exploration, drilling up and down the complex. There's a rig turning right now on the Fekola license. So tremendous exploration upside, and, you know, we did take an impairment charge, and Mike will talk about that.

But it's very important to note that the ultimate final value of the Fekola Complex is very open with further exploration successes. And we're not talking about brand new. There probably will be some new discoveries, but also expansions of known sources of mineralization that we've hit so far. So the full story, the life, the ultimate life of mine, will continue hopefully to add to the reserves and the ultimate life of mine and the ultimate value, therefore, of the Fekola Complex. We see the growing value from that asset. I think with that, I'll turn it over to Mike to give us a review of the financial results.

But maybe before I do that, I'll just talk a little bit about on the positive side, you know, we've had a great track record in this company for a long time, including from B2Gold. Before that, as being good operators, good construction exploration, and then managing things like political risk, et cetera. We've had a great track record, and one thing we're very good at is taking on challenges. Yes, we have some challenges in front of us. This year, we've always said this would be a transitional year. We knew production would be lower. We have a lot of capital expenditures, as we've talked about before, including, of course, the Goose construction. This is very much still a transitional year. We remain in a very strong financial position.

And as we look forward, we're looking forward to continuing to grow this company based on developing our existing assets, such as the expansion of Fekola through trucking. The Goose mine coming on in mid, and Bill will talk about how well construction is going, coming on mid next year, producing on an annualized basis about 320,000 ounces a year. And then you look at the growth profile a little bit more. We've had a positive PEA. We're doing a feasibility study in Gramalote, which will be done by the middle of next year. We're, we are getting quite encouraged by that project. And if that turns into the next mine, it fits in nicely after Goose, potentially.

And if the feasibility is as positive as we're hoping, as the PEA was, then that ultimately could add another 240,000 ounces a year. So there's about 650,000 ounces of growth in this company from existing assets. We don't have to go and do, buy another mine. We don't have to go and make, make big discoveries. So that's a great growth profile, and we'll continue. As we get through the challenges this year, we'll continue very much to focus on the opportunity to continue to grow the company through existing assets and to putting them into production. And with that, I'll turn over the mic to do some financial review of financial results, and, and then Bill's gonna give us a, an update on, as I mentioned.

Mike Cinnamond (SVP of Finance and CFO)

Thank you, Clive. First thing, so I'd say financially, it was a strong quarter. On the earnings side, after adjusting for one-time items, the company generated $0.06 per share of adjusted earnings, and definitely, as you can see, benefited from stronger average gold prices in the period. Operating cash flow bottom line was $62 million, after changes in working capital, or $192 million before changes in working capital. Again, very strong results for the operations. As Clive mentioned or alluded to, we did lower production guidance at Fekola due to equipment availability issues in the pit. And so with that, we guide in production for the second half and for full year 2024. We also looked at the cash costs and all-in sustaining costs for each of our operations.

Overall, at a consolidated level, we ended up with no change to our consolidated cash cost operating guidance. We maintained that range of between $835 and $895 per ounce, and that has benefited, for one thing for sure, through the year with lower fuel prices than we budgeted. Then for consolidated All-in Sustaining Costs, the reduction in overall production, plus higher royalties through the year as we, as we enjoy a higher gold price, resulted in a re-guide upwards for the consolidated All-in Sustaining Cost range, up to between $1,420 and $1,480 per ounce.

Clive did mention that we did take a non-cash impairment charge on the Fekola operations, and that that's based on our best estimate of how we think the 2023 Mining Code will ultimately be applied to the Fekola Complex, as we got more clarity on that through the intervening period with the issuance of some Implementation Decree approved by the state and some ongoing discussions with the state. Then, as expected, spending in the Goose Project picked up with the completion of the 2024 winter ice road and transport of all the required materials to site to complete construction. And balance sheet-wise, we continue to remain in very strong financial position with cash and cash equivalents of $467 million at the end of the second quarter. Just a very small amount of debt related mainly to equipment leases.

We do have the full amount, $700 million, amount for the available on our revolving credit facility line. As previously indicated, we will be drawing some of that line as we roll into the final stages of completion of this year's CapEx program across all our sites, and then completion of the Goose Project. So we, we feel we've got lots of good amount of financial flexibility to do that and maintain our other growth initiatives that are in our portfolio and continue to fund healthy exploration programs to extend our mine lives at all sites. That's what I was gonna say on the financial side. With that, I guess I'll pass it over to Bill.

Clive Johnson (President, CEO, and Director)

Sure. Thanks, Mike.

Bill Lytle (SVP and COO)

All right, thanks. Thanks, Mike. Yeah, so on the operational side, I'll do the easy stuff first. So looking at Masbate, Masbate continues to perform at a world-class level. I think everyone's aware, still, more than 2,000 days without an LTI, and very strong cash flows. Otjikoto continues to also perform very well. Probably the excitement there is that we are preparing a PEA study that would come out in kind of the middle of next year, which has the potential to expand the ounce profile through the existing life of mine through the early 2030s, and add ounces to the existing stockpiles. At Fekola, let's see here. So Fekola is down, as you heard Mike say, and Mike and Clive talk about.

One of the things we do need to point out is Fekola has historically had an excellent track record for producing ounces. In this particular case, there was, as Clive mentioned, an operator error, where an operator tipped over an excavator, which cracked the frame for the excavator. That is something that has been rectified. Certainly, we've given extensive training, retraining, to all the employees on use of equipment. We see that as a one-off, an unlikely event. That, with the confluence of not really being able to get into some of the regional stuff, really is the cause for the delay. As Clive indicated, we haven't lost any ounces. They've just been pushed back.

We're gonna see currently, we've mined out the high-grade ounces in phase six, and we're gonna see the high-grade ounces from phase seven starting to show up in Q4 of next year, so you or Q4 of this year. So you'll see most of those ounces transferred into next year. Just the mine plan shifts for Fekola by about a quarter. Let's see, at Goose. So at Goose, we are having operationally a very good run there. Last time we talked, we were working on the winter ice road. The 2024 winter ice road was successfully completed. We brought down all of the materials necessary to complete the project. We expanded the camp to more than 600 people, which allows us to really get on top of making sure we bring this in on time.

The tanks, which are necessary at the MLA, are complete. We'll be starting to fill them up this month. The tanks on site will be done in kind of Q3, Q4. We don't see an issue there. The concrete, which is critical to get poured during the summer season. We've got currently more than 75% of the concrete done, and certainly by Q3, we'll be well over 90% on the concrete. All the steel's going up very well. We're currently working on electrical, and really the takeaway is, for most disciplines, we are either at where we need to be or ahead of schedule, which allows us really to produce gold in Q2 2025.

So relating to the cost estimate, I know that we had talked about putting it out in June of this year. Maybe that was a bit ambitious, probably on my side. When you think about what the actual schedule was for seeing what had come down the road. So as you know, the winter ice road ended in May. We've now got everything opened up, and we're taking a look at what the previous owner had actually purchased. I think everyone's aware that they were cash strapped, and what we're doing now is just making sure that what has been ordered meets what we need to run kind of a B2Gold world-class project. You know, typically this is not our standard fare.

What we like to do is take over a project during either pre-feasibility or at feasibility level, have a look at it, redesign it, and go ahead and make sure that we've ordered everything initially to the B2 standard. So we certainly see we've got our head around what is there. We're working on what that means financially, and there's a lot of moving parts, but we certainly see by the first part of September, we'll be able to deliver a concrete number into the market. And then I guess maybe the last thing is Gramalote. We are continuing to work on a feasibility, which will come out in the middle of next year. We're currently staffing up all of our teams and beginning to work on that.

Clive, I don't know if there's anything else you'd like me to talk about?

Clive Johnson (President, CEO, and Director)

Well, maybe just a quick update. It's in the news release, but about where we are right now in terms of shipping and stuff for getting everything on site, for next year, so.

Bill Lytle (SVP and COO)

Yeah, that, that's actually a very valid point. So right now, we're in the middle of commencing the sealift for 2024. Currently with 11 ships will be sent to the MLA. That includes more than 85 million liters of fuel and enough cargo to basically get us through the 2025 season. So everything remains on track. The B2Gold logistics team is performing beautifully, and we don't see any issues with the sealift. We'll start receiving cargo in about 10 days.

Clive Johnson (President, CEO, and Director)

If people want to get a visual view of all this, on our website, there's some links to go to, to look at some great drone footage showing the progress of construction. It's been essentially remarkable, the pace at which our construction team can build things, so that's going extremely well. Thanks, Bill. I think with that, we're sure you have lots of questions for us, so we'll open up, operator will open up to questions.

Operator (participant)

We will now begin the analyst question and session. Sorry, question and answer session. To join the question queue, you may press star then one on your telephone keypad. You'll 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'll pause for a moment as callers join the queue. The first question comes from Wayne Lam with RBC. Please go ahead.

Wayne Lam (Director of Mining Research)

Yeah, thanks, guys. Just wondering, just on the impairment charge taken this quarter, this is the second impairment taken now in relation to Fekola, over the past year, for almost the same amount. Outside of the increase in the discount rate, can you just talk about some of the factors involved in taking those two impairments in succession and the additional concessions being made in the negotiations? And then just with the Implementation Decree having been finalized now, are you guys pretty, pretty confident that a deal is imminent, and are you able to provide a more definitive timeline now for completion?

Clive Johnson (President, CEO, and Director)

Well, I would say we're very confident in the near term here of reaching an agreement that's satisfactory to all stakeholders. We, of course, as you probably understand, we can't go into details about negotiations, et cetera. That wouldn't be appropriate or useful. So, in terms of the impairment, Mike, do you want to talk a little bit about that?

Mike Cinnamond (SVP of Finance and CFO)

Yeah, well, I think we'll really keep it to the level that we're required to look at, whether we have impairment indicators and then use our best estimates at each reporting period. So they did put out some new clarification in their implementation decrees, and we've had ongoing discussions. So I think we're close. We think we've reflected those items that we believe would impact carrying amount and book what we booked this time around. But we don't want to discuss in detail, I think, until we finalize our discussions.

Clive Johnson (President, CEO, and Director)

But I think you, I think it's probably maybe quite clear that the fact that we've actually looked at it and took the impairment charge would suggest to you how close we are to reach, we think, or how close we are to reaching a final agreement.

Wayne Lam (Director of Mining Research)

Okay. Got it. Fair enough. And then maybe just wondering, on the update AISC guidance at Fekola, does that include stripping planned for the regional ounces next year, or, or is that going to fall under non-sustaining CapEx? And then do you still anticipate costs coming down next year as per the 2024 mine plan? Or should we be thinking about something in the similar range, to this year, given the amount of capitalized stripping, and underground development need to be done?

Mike Cinnamond (SVP of Finance and CFO)

Well, I can comment certainly for starters on the stripping. For regional, there is no regional production included in these numbers, nor any costs related to them for this year. So that the re-guidance number doesn't assume the stripping campaign. And then, you know, as we look forward, I don't know, Bill wants to talk about the mine plan for Fekola. We haven't put out any guidance for next year yet on the cost side.

Bill Lytle (SVP and COO)

Yeah, yeah, we haven't put out any guidance for cost, but I certainly think that we've been very open that the underground will come in in Q2 of 2025, and we are expecting regional ounces next year. You know, as Clive said, it looks like an agreement is imminent. So we are ramping up. As we've been very open, all of the work necessary to develop that regional project is already done. The road's in, the infrastructure's in, all we need to do is we'll have a quarter of pre-stripping, we'll go into production.

Wayne Lam (Director of Mining Research)

Okay, got it. And then, maybe at Back River, can you just talk about what the remaining large CapEx items are outstanding that's been driving the delay in the review? And is it still the case that most of the large capital items have already been spent, and most of the increase with the update is gonna be driven by labor and logistics? Or are there still equipment items that need to be replaced in relation to Bill's comment on sorting through some of the historic Sabina stuff?

Bill Lytle (SVP and COO)

Yeah. So, the answer is, it's tough really to say. I don't want to come out and say really kind of where the numbers are exactly, because I don't wanna lie. I don't wanna mislead anybody. We're in the middle of checking through that right now. What I will tell you is that most of the major things are purchased and on site, right? So it is really a question of kind of picking around the edges. Don't forget, we've got that extra quarter now, which does have an impact, and we're just working through that. So I... You gotta give me, like, 30 days.

Wayne Lam (Director of Mining Research)

Okay, got it. Looking forward to the update. Thanks for answering my questions.

Bill Lytle (SVP and COO)

Thanks.

Operator (participant)

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

Don DeMarco (Director and Equity Research Analyst of Metals and Mining)

Thank you, operator, and good morning, Clive and team. First question. Bill, can you give a little more color on the guidance increase or rather the 2025 outlook? Of the 90K that's added, how much is from Fekola deferrals from 2024, the trucking regional ore, and also the Fekola Underground, those three different buckets. How did that move the needle on 2025?

Bill Lytle (SVP and COO)

Yeah, I think Peter, you're in the room, right? It's probably better for you to answer this question.

Peter Montano (VP of Projects)

Yeah, thanks, Bill. Yeah, as far as 2025 goes with, you know, with the deferral of the ounces, basically, it's just sliding the the high grade zone from phase seven back. So, you know, we're still revising those mine plans now to see exactly what it is, but we're looking more at a replacement, not really, an upshift in 2025.

Don DeMarco (Director and Equity Research Analyst of Metals and Mining)

Okay, I see. So you're just kind of replacing with higher grades. But what you have for the Fekola Regional or for Fekola Underground, as Bill mentioned, starting in Q2, that just remains unchanged?

Peter Montano (VP of Projects)

That's right. Yeah. That's, yeah, we're not changing anything as far as those goes. On a development basis, those projects remain on scale.

Don DeMarco (Director and Equity Research Analyst of Metals and Mining)

Okay, perfect. There was no regional trucked ore in 2024 guidance, is that correct?

Peter Montano (VP of Projects)

That's correct.

Bill Lytle (SVP and COO)

Correct.

Don DeMarco (Director and Equity Research Analyst of Metals and Mining)

Okay.

Peter Montano (VP of Projects)

That's correct.

Don DeMarco (Director and Equity Research Analyst of Metals and Mining)

Thank you. Then, just to this equipment availability issue, it's good to hear this being addressed, but when do you expect it to fully be addressed? And is there any risk to that timeline? You know, we saw Fekola costs actually improve in Q2, so I guess the read-through here is it's probably gonna take a few weeks to get addressed. Maybe we're gonna see higher costs at Fekola in Q3. Is that fair to say?

Bill Lytle (SVP and COO)

Right. So the first part of the question is, it already has been addressed. Basically, we brought forward, we replaced the excavator. Of course, it took time to get it in, and we brought forth another excavator from 2025. So what we've seen kind of in Q3 so far is we have met or exceeded our production targets for both the months so far. And so it already has been addressed. Now it's just a question of how quickly we can catch up. And so, you know, I'll let Mike talk about the cause.

Mike Cinnamond (SVP of Finance and CFO)

Yeah, I think the key thing on the cost side, Don, to remember, there's two key components. One was we moved less tons because we had less equipment capacity, so we're gonna see a catch-up, you're right there. As capacity comes back on, the higher gross cost. But we also enjoyed close to 25% lower fuel costs at Fekola, and we see that continuing right now. So there, you know, there are some offsetting factors to starting to pick up some more of those tons. So it'll be a catch-up, but we definitely the fuel reduction is a locked-in benefit versus what we originally budgeted.

Don DeMarco (Director and Equity Research Analyst of Metals and Mining)

Okay, great. Well, that's all for me. Thanks for taking my questions. Good luck with Q3. Thank you.

Clive Johnson (President, CEO, and Director)

Thanks.

Operator (participant)

Once again, if you have a question, please press star then one. The next question comes from Francesco Costanzo with Scotiabank. Please go ahead.

Francesco Costanzo (Associate Director of Equity Research)

Hi, Clive and team. Thanks for taking my question. Just asking here on behalf of Ovais Habib. I think most of the pertinent questions have already been asked and answered, but if I could just ask one for Mike. Given the challenges in Mali leading to the lower guide, can you speak to the integrity of the dividend, given the review of the budget? And, maybe speak to the liquidity as well, how you plan to fund the project and, you know, the cadence of the borrowing on the liquidity and stuff like that? Thanks.

Mike Cinnamond (SVP of Finance and CFO)

Well, I can certainly speak to liquidity. You know, like I said, we've got, we've got $700 million on the line there available, and we've got close to $500 million in cash sitting there at the balance sheet date. So we feel comfortable doing what we think we need to do on the capital project side. And, and, you know, it's certainly our goal to maintain a dividend. We will look at the components of our capital return from time to time as we look also at our capital outlay. So I think it's something that we'll monitor as we have, like, some of the get to near closer to the end of some of our larger capital projects. But we certainly feel comfortable with our sort of level of liquidity that we have. Clive, I don't know if you want to add anything to that?

Francesco Costanzo (Associate Director of Equity Research)

Okay, I think that's helpful. That's all for me.

Clive Johnson (President, CEO, and Director)

Okay.

Operator (participant)

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

Clive Johnson (President, CEO, and Director)

Okay, thanks, operator. Well, thank you everyone for joining us on the call. We always like to end these calls, I guess, with a bit of a discussion of what's coming up in terms of a reminder of the catalyst coming up, some of them in the we expect in the near term. So we're, we're looking forward to including our discussions with the government of Mali and reaching an agreement on the way forward, which will include, of course, receiving an exploitation license with to start trucking ore down the Fekola mill from the regional targets. In addition, that will trigger significant exploration starting up again in the regional to fully define the value of Fekola Complex.

We will have an updated, detailed updated budget for you on the Goose construction capital costs for the first week in September, and we continue to work away on Gramalote, as we mentioned, on the feasibility study. Goose exploration, we have been doing a significant exploration work on Goose, some of it in the field drilling, but also starting to test some new targets. And we should have a new round of exploration results from some of these new targets for down plunge on existing targets, et cetera, by sometime in November. To look forward to putting out some more results.

So in the meantime, we will, as I think we've explained, I hope, how we have recovered in Fekola from a rare event, the unacceptable tipping over of the conveyor and how we're recovering from that, as Bill pointed out. And those are not ounces that are lost. Those are ounces that move those 50,000 ounces in to next year. As Bill told you, construction is going extremely well in at Goose. Logistics and construction expertise are really key to me and showing how well we do these types of projects. So with that, a transitional year, a challenging year, for us to go on as we've signaled before, it's got a few more challenges here at the end of the day.

Solving problems and dealing with challenges head on is what we do, and have done for a long time. So I'm very confident that we're gonna continue to perform well as we go through this year. Actually, we're excited about the future potential growth, as I pointed out earlier, by developing existing assets, including Fekola, Otjikoto, Goose, and ultimately potentially Gramalote as well. Lots of exploration to happen in many, many areas throughout the company's portfolio. So with that, I would thank you all for your time. If you have any follow-up questions, get in touch with us through Michael McDonald. And thanks for your time, and operator, thank you.