B2Gold Corp (BTG) 2011 Q2 法說會逐字稿

Good morning, ladies and gentlemen, welcome to the B2Gold second-quarter results conference call. I would now like to turn the meeting over to Mr. Clive Johnson, President and CEO. Please go ahead, Mr. Johnson.

Thanks, Patrick. Welcome, everyone, to the quarterly conference call for the second quarter of 2011.

We had another strong quarter, and most of you have now seen the results, and very pleased with the performance of our operations. And based on the results made in the year, we've increased our guidance for production for the year to between 135,000 and 145,000 ounces. You've seen that we actually significantly came in below our projected operating cash costs of $565 and came in at $507. So just a great job by the operations team. And they continue to optimize production at both mines, and that puts us in a very strong position, obviously from a cash point of view, and then cash on hand and cash from operations. And that allows us to progressively go out and explore existing assets. And as many of you know, that's our criteria for growth.

We don't want to go out at $1800 gold and start buying ounces in the ground. So we're fortunate enough to be one of the few companies that cannot only build these mines and run them well, but also find gold. We have a very progressive program at both the Gramalote, with our joint venture partner AngloGold Ashanti, in Colombia that's moving along very well and rapidly. And also, of course, the new Jabali discovery 10 kilometers east of La Libertad mill is shaping up very well. We're aggressively not only exploring it, but have entered into [ring] and doing a feasibility. And our concept there, of course, is to deliver significantly higher grade to the Libertad mill. So in addition to that, we have obviously Tom and his great expedition team. We have exploration going on on numerous projects and continue to pursue other opportunities.

So with that I'll hand it over to CFO Mark Corra, who is just dying to tell you about these great numbers.

Clive is right. It's a very exciting quarter for us, and we had record gold revenue in the first -- or in the 3-month period ended June 30 for 2011.

Gold revenue was about 2.3 times what it was last year -- in last year's June quarter, and on a year-to-date basis, we are $108 million of revenue, which was about a 170% increase from the 6 months of 2010. The increase in revenue is attributable to 2 things. One of them, of course, being higher gold prices. We averaged $1,513 in the first -- in the second quarter, compared to $1204 last year, which is a $300 improvement. We also increased our production, and that was due to the start up of La Libertad February 1, 2010. As it's ramped up and now in full production this year, we're seeing this dramatic increase in revenue numbers. Gold sold was about 86% higher and the rest of the increase was due to the higher gold price. It's basically about the same story for the year-to-date number. Gold price was almost $300 higher than it was last year on average, and we also slightly more than doubled our gold sales because of the startup of La Libertad and the continued strong performance of Limon; also running very well for the past year, and we expect that to continue.

On the sales, cost of sales were, as Clive mentioned, much lower for the quarter than what we had budgeted. It was about 10% lower, at $507, and much lower than last year, when it averaged $648. Again, the difference is due to the La Libertad startup, but also due to increased performance at Limon. On a year-to-date basis, our cash costs came in at $519, again about 10% lower than our budget of $577 and much lower than last year's cash cost number of $697.

Production for the 3-month period was 36,800 ounces, about a 50% improvement from the 24,000 ounces we produced the previous year in that same quarter. On a year-to-date basis, we produced 71,500 ounces, versus about 41,200 ounces the previous year.

Depreciation and depletion is higher than last year, both on a quarter and year-to-date basis. Again, that's a reflection of the startup of La Libertad. On a per ounce basis, though, it increased from $20 an ounce in the quarter, and that's due to the amortization of some of our pre strip cost as [Limon] was one of the main pits that we produced from along with [Crimea]. There was also higher tailing ponds amortization costs in the quarter. Gross production taxes are also higher and that's a direct reflection of the increased revenue numbers, as it's a revenue-based tax. The country of Nicaragua has a 3% tax and then we pay third parties 2% for La Libertad production and 3% for Limon production.

That left us with gross profit of close to $27 million in the second quarter, which was a record. Much higher than the $4.6 million last year. And on a year-to-date basis, we're up $51 million in gross profit versus (inaudible-technical difficulties) -- second quarter was $26.7 million versus $4.6 million last year. On a year-to-date basis, it was $51.1 million versus $5.7 million. For profit from operations the quarter and the year to date are both record numbers for B2Gold, and reflect mainly the startup of La Libertad and the continued steady state production at Limon.

For general and administrative costs for the quarter, they were about $350,000 lower than last year's quarter, and that difference is mainly attributable to the inauguration of La Libertad. On a year-to-date basis, admin costs are higher by about $2 million, and that relates mainly to the executive bonuses that were paid and other senior staff in the first quarter of 2011. Then skip right down to net income for the quarter being $22.2 million before taxes, and on a year-to-date basis, $40.7 million. Of course, dramatic improvements from last year's number of a loss of $7.6 million, and a year-to-date loss last year of $11.7 million.

We had deferred income tax expense which reduced our earnings by $6.3 million for the quarter and $12.4 million on a year-to-date basis. I just want to point out that that's a non-cash tax. It's really an accounting entry that's made and it relates to, I guess, loss carry-fowards that we've accumulated at the 2 mines from previous years. We're now using those loss carry-fowards and actually not having to pay any income tax at the 2 mines currently. Although we do project that by the end of the year, given the current gold prices and the strong performance of the mines, that we will have some current income taxes payable. The withholding tax number and other taxes of about $1 million in the quarter and close to $2 million for the year-to-date relates to a 1% revenue tax that can be applied against any income taxes, as well as some withholding taxes on payments that we make.

That left us with earnings of $15 million for the quarter, or $0.05 per share. On an adjusted basis, taking out the deferred income tax expense and stock-based compensation, we earned $22 million a share for the quarter, $0.07 a share, compared to an adjusted loss of $3.4 million last year, or $0.01 per share, and an unadjusted loss of $8 million for the quarter. On a year-to-date basis, our adjusted earnings were $40.1 million, or $ $0.12 per share; and on an unadjusted basis, $26.4 million, or $0.08 per share, compared to losses last year.

I'll now -- if I could focus your attention on our consolidated statement of cash flows, just point out that our cash flows from operations before changes in working capital were almost $29 million, or $0.09 per share for the quarter, a huge improvement from $1 million in the comparable quarter last year. On a year-to-date basis, our cash flow was $54.6 million, or $0.16 per share, compared to $1.2 million in the comparable year-to-date numbers of last year.

The other thing I'll just point out, under financing activities, we did have -- we did issue some common shares for cash of about $4 million in the quarter. $2 million of that related to some warrants that we had outstanding. And also in the quarter, we had AngloGold's warrants, which there were about 21 million of them, expired unexercised; so B2 no longer has any warrants outstanding. On the year-to-date number, it also includes the remaining 2 million warrants that were exercised for $2 million, and the remaining $3 million on a year-to-date basis relates to employee stock options that were exercised.

Under investing activities, we invested quite a bit into the mines during the quarter. At La Libertad, we had expenditures of $10.1 million, $5 million of that for stripping costs, $3 million related to adding [the lift] at the tailings pond facility; the remainder was for improvements at the processing plant. On a year-to-date basis, we spent $7.8 million on stripping costs, mainly related to the Crimea pit, a new area of the pit that is being pushed back, and also $6.1 million for tailings ponds facility left, which was completed on time and on budget. Now exploration activity picked up at La Libertad. The expenditure for $2.8 million for the quarter that relates mainly to the drilling at Jabili for infill and exploration. I think Tom will give a brief update on that later.

At Limon, we spent $7 million in the quarter, $4.7 million for tailings and then we spent about $1.7 million for additional underground equipment. We are a bit behind on our capital expenditures on Limon, but we do think we'll catch up some of that during the quarter -- or in the coming quarter. Gramalote exploration was $2.8 million for the quarter and $6.2 million year-to-date. We are a bit behind on expenditures down there, but we do expect to catch up by the end of the year. And that's the main highlights I wanted to point out.

Our cash position was close to $79 million at the end of quarter, a marked improvement from $14.1 million last June. And we have no debt outstanding, although we do have a credit facility for $25 million that's available to us, and we have no hedging. Thank you.

Thanks, Mark. I'll pass it over to George Johnson, VP of Operations, to talk a little bit about the operations.

Okay. Thanks, Clive.

We had a good quarter at both operations at this time. For Libertad, mill through-put was on target at 498,000 tonnes milled versus a budget of 488,000 tonnes of a variance of about 10,000 tonnes. The mill grade of 1.71 was slightly better than the planned grade of 1.61, and mill recoveries were excellent, (inaudible- technical difficulties) Mill recoveries were excellent, averaging 90%, versus our planned recovery of 87%. Gold production at Libertad was 24,568 ounces, at a cash cost of $451 per ounce, favorable to the budget of 21,927 ounces at a cash cost of $477 per ounce. The positive variance was mostly due to improved recovery at plant, coupled with positive variances in tonnes and grade. For the year, we now expect to produce between 93,000 ounces to 99,000 ounces, at a cash cost of between $440 to $460 per ounce, and that's an increase of about (inaudible-technical difficulty), with cost guidance remaining the same.

For Limon for the second quarter, tonnes, grade and recovery met our expectations. Gold production for the second quarter was 12,192 ounces at a cash cost of $622 per ounce, versus our budget of 11,908 ounces at a cash cost of $730 per ounce. We were able to resource more of the mill feed from our Number 2 open pit than what we planned on, the primary reason for the lower operating costs.

As previously announced, near the end of the second quarter we had a [unforeseen] mine flooding event at Limon, where one miner tragically lost his life. Since that time, production has been suspended on both the underground and pit Number 2. Mitigation work to prevent a similar mine flooding event is ongoing, and we expect to have the Number 2 pit back in operation by the end of August and the underground back in production by the end of September. During that time, we will be milling at our normal rate with more sourcing from our lower grade open pit sources. So we expect the third quarter for Limon to have (inaudible),but should have everything back to normal in the fourth quarter and be able to catch up to our original budget by the end of the year, or very close.

For the year, we maintain our guidance that the gold production will be between 42,000 and 46,000 ounces at a cash cost between $720 to $740 an ounce. That's my operations update.

Okay. Thanks, George.

Just (inaudible) need to be done and have a response and pre stripping and other things -- but we expect the capital expenditures for next year to drop significantly from the $48 million we're spending on the 2 mines this year. Thanks for that, George.

Tom, we're not -- as you can see in this news release, we didn't get into exploration. We wanted to focus on the quarter and that's not for lack of enthusiasm. We are doing very well in our various projects and there's a ton of work going on, and we'll come out in September with [completion] dates on all of our projects, including mines and also various other projects. Can you give us a summary on where we're doing?

Thanks. (inaudible) Right now we're in the middle of a 75,000-meter drill ramp covering up all our projects. At Libertad, we're halfway through a program that largely involves infill drilling (inaudible), but also to somewhat of a lesser extent, exploration drilling expanding and also between (inaudible). At Limon, we continue operating 10,000 drill program, part of which is for near line purposes i.e, you know, infill drilling on some potential pit targets, but also exploration on other targets on the property. At Limon, we finished the first round of drilling announced results (inaudible), and continue to yield on the project with the idea continuing drilling after the rainy season, probably in November.

And on Gramalote, I guess you're partly aware, we do continuing a 25,000-meter or so drill program involves infill drilling and (inaudible) drilling for the Crimea deposit, but also exploration drilling in and around the Gramalote region area. At Cebollati in Uruguay, we're continuing to drill. We have one drill going on one of several targets we have on the property. And with Cebollati and other projects, we expect to start coming up with further results within the next month or so.

Thanks, Tom.

So the focus going forward, we talked about organic growth, so obviously Jabali is a very important part of what we're doing, and we're moving along rapidly and the opportunity there is to deliver significantly higher grade to the mill. At that time, we should be able to come up in a year with our projections of what we think that would look like; how much ore we could bring from Jabali we obviously the end result there could be twofold or will be twofold. One will be increase in production of the same tonnage, and secondly there should be potentially seems to be a profit in the operating cost as well. So with the growth indicators, we should grow bringing higher (inaudible).

As Tom mentioned, Gramalote, we're, you know, working very well with Anglo who is the operator of the project. It's a joint venture. It's a relationship that both companies are on exactly the same page, which is drill it as simultaneously and see if we can get what we think it is -- the 2.4 million-ounce resource, and at the same time we're really fast tracking through the feasibility and simultaneously effective more feasibility level work we're doing right now. Metallurgy is all looking very good. We're all -- both parties are very excited about this project, and Anglo has been talking about the potential to produce 250,000 to 300,000 ounces a year from Gramalote as perhaps the first significant gold mine in Colombia. So that's gone very well, and obviously that's an important part of the growth profile as well.

We are I think (inaudible-technical difficulties) and permittting, et cetera. So you can judge by the fact of -- taking the time to increase with both companies (inaudible) as I mentioned is our exploration results from basically everywhere in September.

And that's basically what we wanted to tell you today. So, Patrick, I think we'll open it up for questions.

Thank you very much. Due to sound issues, I would like to mention for participants you will be receiving a transcript of the call. However if you would like to ask a question on the phone line right now -- (Operator Instructions) Ron Paul, Canaccord Genuity.

Hello, guys. Can you hear me okay?

Yes.

So, just quick question on your guidance. So, when you increase your guidance by 5,000 ounces or so on July 28, am a right in assuming that it does not include the potential to process colluvial material from Jabali in Q4?

That's right. That doesn't include -- we're hoping to start trucking the colluvial material in November, so we're not sure timing. We left that out for now, because we don't yet have a sense of, yet of the grade we'll be delivering. We think it will be higher. But also, from a timing point of view, we're pretty comfortable with November, but we didn't include that.

Okay. And just on that issue again, just regarding what else would you need to do between now and then in order to be able to truck and process this material to the mill?

Road construction, finishing that, we're on the way.

Yes. We're upgrading the road, an existing road over there. We're upgrading it, so it can handle highway size dump trucks. That's the primary effort. We're doing a few other things, such as relocating the community garbage dump and drilling, relocating the community's water wells. That's been going right on now. So, we expect to have that done in the -- early in the fourth quarter.

We're fully permitted.

Absolutely, 100%.

We are fully permitted.

Okay, okay. That's good.

And then just quickly, moving on to Limon, I mean you spoke a little bit about the rehabilitation plan that you're in the process of reviewing with the Ministry of Labor. Just wondering, I mean are there any costs associated with that, or is that something you have to decide?

I'll let Bill Lytle answer that question. Bill?

The answer is this will be some nominal costs associated with that. Basically what we're looking at is a 3-pronged approach. We have to do some surface work related to managing surface water management, underground management of water, and then more documentation work as far as the emergency response plan. So, there will be some nominal amount of funds spent on, it but it's not a lot.

Okay, okay. That's helpful. Thanks.

And just last question for me, just so I'm clear, the development budget for the Jabali resource of $15.2 million, is that in addition to the $28.3 million allocated for Libertad in 2011?

Yes.

Okay. Thanks. That's it for me. Thanks, guys.

Thank you. Richard Gray, Cormark.

Hello, guys, just 1 question on Jabali. Do you think there's any significant spending needed in, say, the first half of 2012 to get up to the rate you want, or are you just not ready to say what that might be yet?

We have $16 million budgeted for the first half of 2012.

So, we have $16 million budgeted for that in the first half of 2012, which the objective is to commence open pit hard rock mining by the fourth quarter of next year.

Okay. So, $15 million this year, plus $16 million next year?

Yes.

And just, maybe, for Tom, just what can we expect over the next, call it 2 months, in terms of drill results? So, you're not drilling at Trebol yet, but Cebollati should be coming soon, the first -- the next batch?

In the next group of news releases, we'll have an update on Libertad drilling, mainly Jabali, but also some other targets. There will be an update on Limon. We hope to get an update out on Gramalote, all the Gramalote drilling that's been done to date, and possibly some of the engineering/metallurgical work. At Trebol, we hope to have an update on some of the field work that's been going on. At Cebollati we expect to have some more drill results out.

Great. I think the Gramalote one would be the most important. Thanks.

Okay. Thanks, Richard.

Thank you. (Operator Instructions) There are no questions at this time, so I would like to turn the meeting back over to Mr. Johnson.

Okay. Well, thank you all for joining us.

One thing we did forget to mention was that George has further beefed up his impressive operational team with John Rajala, who is a senior metallurgist, has rejoined our ranks. John is a very experienced metallurgist, was hugely instrumental in the feasibility and the implementation of the [Kupol] mill, which of course, we were two-thirds of the way through building when we were taken over by Kinross. John did a fantastic job there and has just joined B2Gold, and we're very excited to have him on board. He's one of the best in the world and really adds another important component to our operational team.

So that's all from us. Thanks for your time. And if you want to follow up with any other questions, feel free to give us a call. Thank you. Thanks, Patrick.

You're welcome. The conference has now ended. Please disconnect your lines at this time and we thank you for your participation.