B2Gold Corp (BTG) 2012 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the B2Gold first 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, Dave. Welcome, everyone, to our quarterly conference call. Today, we're going to discuss the first quarter of 2012, and with me in Vancouver, I've got Mark Corra, Roger Richer, and Ian MacLean; and on the phone, Dale Craig, who is our Country Manager for Nicaragua, and recently just assumed the position of Vice President of B2Gold, as well. So in terms of, we're going to not take much of your time today. We're going to give you an overview of the quarter, and then answer some questions, and give you a bit of an idea of what we see going forward. We did have another very strong quarter for the first quarter of 2012. I think there's a bit of a disconnect, here, in the sense of between what I've been reading from some of the analysts who follow us, versus our news release that went out this morning, and I think that we need to, probably, we need to do a better job of breaking down our projections for the year, and possibly do that on a quarterly basis, because I think what happened, here, is that we were anticipating this quarter to be lower grade and less production, and seeing higher grade coming from Santa Maria, and better results increasing through the rest of the year with better grade, et cetera.

So this quarter, as it says in our news release, is dramatically -- well significantly lower in operating cash costs at La Libertad Mine, being actually $107 per ounce less than we had projected. So when I look at some of the reports that came, out I realize that, understandably, some analysts have been taking the year and dividing by four, and as I said, we'll look to guide better on that going forward. So this, in our view, corporately, is a very strong quarter, beating our forecasts significantly, or our budget significantly.

I'm going to turn it over to Mark Corra, now, our CFO, to take you through some of the highlights of the news that we put out, and then we'll have Dale talk about operations, and then I'll talk about some of the other projects. The rest of our team that's often on the calls are either traveling, or are already in the field, being George, and Tom, and Dennis. So I'll pass it over to you Mark.

Thanks, Clive. Our adjusted net income for the first quarter was $20.7 million, $0.05 a share. That's about a $3.4 million improvement over the comparable quarter in 2011, when we had adjusted income of $17.3 million, also $0.05 per share. Gold revenue was up significantly, 19%, and that's all due because of a higher gold price in the first quarter of 2011. Our average price received was about $300 more per ounce than what we received in the first quarter of 2011. Sales were slightly less than 2011, but was more than offset by the higher gold price. On production, as Clive mentioned, our production costs came in significantly less than budget. Our budget cash costs for the first quarter were $659, and we came in at $587. The biggest factor for that improvement was mainly the La Libertad Mine, which we had a pleasant surprise there, in that our silver production during that quarter was significantly higher than what we had in the budget. It was about 80% more silver was produced.

We also realized a bit higher silver price, and that made a big difference to our cash costs. We've seen that higher silver recoveries -- actually we're not sure whether it's recoveries or grade, but we are seeing higher silver production in April, and continuing through May, as well. We'll be looking into that in the next couple months to get a better understanding of whether that will continue for the rest of the year or not, but certainly, so far it has. As Clive mentioned, we do expect both production to increase each quarter, and cash costs to continue to drop over the rest of the year. It should be remembered that at La Libertad we have several different pits that we mine from, and the grades are different within those pits, as well as within different areas of those pits. So it depends on scheduling, and the grade, the additional product at La Libertad of about 2,000 ounces over budget was due to grades being higher than what was scheduled in the geological model. So it was another pleasant surprise, and we do expect that we'll see higher production each quarter going forward.

For depreciation and depletion, that number is a bit higher than last year, even though production was basically the same, and that's due to a higher depreciation per ounce cost from the improvements that we've been making at the operations. We could see that adjust somewhat downward when we start mining from the Jabali deposit. Royalty and production taxes are also higher than the first quarter of 2011, and that's because they are calculated directly from your revenue number as a percentage of the revenue, so that is as we would expect with higher gold prices. Gross profit came in at $31.7 million, 30% higher than the $24.2 million of last year, a significant improvement. G&A costs were down from last year, about $1.25 million less than the first quarter of 2011.

In 2011, there was cash bonuses that were paid to a lot of the Senior Executives for the performance of the Company in previous years, and it was the first time that we had paid a bonus to Senior Management. Share-based payments, you'll notice, is quite a bit higher in the first quarter of this year than last year. We issued about 10 million options in the quarter, and I'll just point out that none of that went to Senior Management who are the Founders of the Company. We've taken the position that, since we've got a lot of skin in the game with our share holdings, we don't need to get any stock options. Those options all went to employees and other Senior People within the Organization that were not Founders of the Company. That brings us down to operating income of $23.1 million, up about $4 million from last year. If you go down to income taxes, you'll notice a significant change in our current income tax, that it was $5.1 million in the quarter, compared to $900,000 last year.

Last year, we were able to offset a lot of our taxable income with loss carry-forwards from previous years. So we've used all those loss carry-forwards up, and now we're quite pleased to see that we'll now be paying income taxes in Nicaragua, which we think is a great thing. One thing I should point out is that we've paid a lot of VAT that is refundable, and so we'll be able to offset some of these taxes payable with the VAT credit that we have built up. So it shouldn't hurt us too bad on a cash-flow basis, but will significantly improve Nicaragua's position, as they won't have to refund us the VAT credits, because they will be getting a lot of income tax. Net income on a GAAP basis was $14.5 million, up from $11.4 million in the previous year. If you turn to the statement of cash flows, cash from operations was $27.1 million, an improvement over $24.8 million of last year. That was somewhat impacted by the fact that we now have current taxes payable, which cuts back a bit on our cash from operations. If you look under financing activities, you'll see that there was about $3.6 million coming in from common shares that were issued. Some of that relates to Auryx warrants that were exercised in the quarter, and also the stock options that were exercised in the quarter.

Under investing activities, our spend for this year in the first quarter was significantly higher than last year, and that's due to a number of programs that we're working on, including the new Otjikoto project that we acquired at the end of last year. We spent $7 million on that project. Everything is going well there, and our budget is $43.5 million for that project throughout the year. Even with the high expenditures for the quarter, though, we still ended up with a significantly strong cash balance of $97.7 million going forward, an increase over the first quarter of last year, and only down slightly from our year-end balance. On the consolidated balance sheet, just point out a couple of small changes, one being accounts payable. It was $18.8 million at the end of March, compared to $22.6 at the end of December. That change relates to a land purchase in Auryx, where we've acquired all the surface rights for the Otjikoto project. You'll also see that our deferred income taxes are increasing slightly, and we expect that to continue. That's all I was going to point out for today, Clive.

Okay, we'll wait until we've done a little more updating, in fact, before we open it up for questions. We'll leave that to the end. So I'd like to pass it over to Dale Craig, and Dale is going to give us a brief info, a bit of a detail of the two mines, and then I'll give an update on some of the other projects. Over to you, Dale.

Hi, thank you, Clive. Can you hear me all right?

Yes, we can.

Okay, great. As Mark was saying, we had a strong quarter, and we anticipate those quarters will get stronger as the year advances. Both La Libertad and El Limon experienced good, stable labor relations through the quarter. La Libertad, by virtue of slightly more accounts processed, better grade, 1.64 grams per tonne against 1.52 grams per tonne in the budget, and better recovery. It had a surplus production of 2,023 ounces, and the overall result was a reduction in our cash costs of $498 against the budget of $605. So the reasons, basically, more grade, better silver credit, and a slightly lower strip ratio of less waste move. As we look towards progress through the year, against our budget of $605, we see our long term costs within the year decreasing. We're projecting in the year $550 to $575, and we're still maintaining our forecast of 102,000 to 110,000 ounces.

In El Limon, we had a solid quarter. We picked up 2,900 additional tonnes process, roughly three days production. Grade was slightly less than budget, and recovery was better. So in summary, processed more tonnes and improved recovery offset slightly by lower grades. That was as we closed up one of our pits this quarter. We anticipate that, that grade will come on-line with our budget forecast over the subsequent two to three months. 2012, we're anticipating 48,000 to 50,000 ounces to be produced. Cash costs, $796 per ounce against budget of $808 per ounce, and that $808 budget against our annual cash cost forecast of $700 to $725 per ounce, similar to 2011. So good quarter, strong quarter for us, and we're expecting this to continue throughout the year. Clive, would you like me to touch on HSES?

Sure. Yes, please.

Okay, the reason we wanted to mention this is that one of the ways that we're able to do business in Nicaragua is to strongly participate in contributing to the development of Nicaragua in a variety of aspects, and we focus on public health, education, and development of small business. Last year, our HSE, or our social support for Nicaragua was in the range of $4 million. This year, we've greatly amplified that, and as you know, we're expanding into Jabali. So more locations equals more support, although we do provide a lot of support at the national level, as well. We're anticipating that our budget for B2Gold in 2012 will be in the range of $8.6 million, and that will cover a variety of community programs in support of Nicaragua. Thank you.

Good, Dale. Thanks a lot. Stay on the line, of course, in case of any questions a bit later on. I'll give you just a little bit of an update on the development projects, and then we'll talk a little bit about exploration, as well. The Jabali zone, of course, continues to make significant strides as we go along, and for those that are relatively new to the story, this is a new, significant discovery over the last couple of years of a significantly higher grade resource, about 12 kilometers, a short truck haul, from La Libertad Mill. So we've been working very hard on that with infill drilling, and have seen the new resource, which was announced a while ago. Basically we have an indicated mineral resource of 4.19 million tonnes of grade of 3.39 grams per tonne, containing 456,000 and change ounces of gold, and inferred is 1.89 million tonnes of a grade of 3.06 grams per tonne of gold, containing 186.000 ounces. So a significant bump-up since our last resource came out, and it remains open in a couple of directions, and at depth and more drilling is continuing. So Jabali is a great example of the value add that exploration around existing projects can bring, or in general can bring.

There's no more valuable ounces in our business than the ones from better grade ore near a mill. So what that allows us to do, we're expecting a permit in the third quarter for Jabali. We don't have to do anything to the mill. We need to build a road, and it looks like we are going to build a road adjacent to the existing road, build a separate road for trucking, and it actually looks like it will save money from the budget that we put out before, the total capital budget of about $23 million for Jabali, which includes re-stripping, et cetera. So the consequence of that is that we're projecting, basically, a significant better grade through the same 5,500 tonne a day mill, and the benefit of that, of course, is for greater than capital costs, to increase your annual gold production on a per-ounce basis, and your operating costs should decline. So that's why we're projecting an increase in the gold production over the next few years, starting next year, going to 135,000 ounces, and then up to 150,000 ounces the following year from La Libertad.

We haven't come out with a lot of detailed projections on the costs, and exactly those production numbers. We will do that late, probably, around the third quarter, I would suggest, when we have the new mine plan. So the engineers are now working on a new bench-by-bench mine plan based on the new resource at Jabali. So that should come out around the third quarter. But it's going very well. Our guys have done a great job on site, and of course we have a lot of credibility in the local community, with what we've done down the road at La Libertad, and also at Limon, and we have a significant, similar type of community projects that we are doing in Santo Domingo, the nearby town to Jabali, and we are getting very good response from that community. In terms of Otjikoto, we've had some significant progress there, as well. We came out with a new update, and a good resource there, as well, and that was based on drilling done last year by Auryx.

Auryx has done a good job, here, of exploration, and putting this project together, and we are very much looking forward to getting on with further exploration drilling, starting in the second half of the year. All the drills, now, all four rigs right now at Otjikoto are focused on combination drilling, and a bit of metallurgical drilling. So I know the geologists are very keen to go out and test some other targets on the property, and potential extensions. We think the exploration upside, here, is significant, and we're looking forward to exploring that. We are still maintaining our -- we are going to produce a feasibility study by the end of the year that will outline the details of building a mine that can produce somewhere around 100,000 ounces of gold for a period of 10 years.

We are going to build the mine with the idea of the expansion in mind, and we are looking to that possibility, and we'll see how we do in exploration. We think, with the benefit of time, the Auryx acquisition could look quite a lot like the Central Sun acquisition, which is how we got into Nicaragua. In other words you acquire, on an accretive basis, a project based on what's in the ground, and then if you have exploration success that is additional, makes a good deal potentially a great deal. So we feel very good about the exploration potential, here, but we will leave it to others in our industry to pay for ounces that might be there. Sometimes, recently, that hasn't gone very well. So that's kind of our approach, and will continue to be our approach, in terms of looking at other opportunities as well. So a lot of work happening at Otjikoto. Mark, you mentioned $43 million, I think, as a --

$42.5 million.

And that's doing the feasibility study. It's doing extensive drilling, as I said, starting out with combination drilling, and we like the looks of the project. It's in a great area, great logistics, it's a great country to be in, in our view, and we're very, very pleased to be there. In terms of an update on Gramalote, once again, some developments, there, in the quarter, where we came out with a new resource with our partner, AngloGold Ashanti, and the resource has really changed the scope of the project, and that is primarily because of some success in drilling. But the real change, in the scope of Gramalote is actually because of metallurgy. So the flotation metallurgical test results over the last couple of years have -- last year and a half, I suppose, have come back with pretty dramatic results of getting 93% to 95% recovery from Gramalote ore by using the flotation, and for those not understanding what the difference between flotation of the hole, or leaches, in flotation, what you do is you end up producing a gold-rich concentrate, and that concentrate is all that you have to leach in cyanide extraction process.

So it's a small percentage of the whole ore body, probably around 9%. So that's significant in a lot of ways. It's significant, actually, from a Nicaragua point of view, in terms of lower capital and lower operating costs. So you can then play with -- and it's also, from an environmental standpoint, a good thing. So you can, now, that's caused the joint team to go back and look at the project and say, well, are we mining the right grades, do we have the right cut off grades? Let's let the economics drive the pit. So what you're seeing, now, is a significantly larger resource of a lower grade. There's still a good solid core of the project around 0.8 grams, as mentioned and indicated, the 2.5 million ounces, but then there's additional resource, some indicated and inferred. The bottom line is that, based on that, we were thinking of, both parties, of building a mine around 250,000 ounces a year a couple years ago, when we looked at this, and now it's looking more like 300,000, potentially 400,000 ounces a year range. So that's a significant increase, and partly due to that, the schedule for the pre-feasibility study has moved out a little bit.

It's actually going to be in July or August, and that's not because -- the real, primary driving force, there, has been the change of scope of the project. This is a much bigger project, so it's understandable that it takes a little bit of further time to get the pre-feasibility study concluded. But all that work is happening as we speak, and further exploration drilling is going on. I think there's several rigs in Gramalote right now, and some are doing combination drilling, some are doing exploration drilling, and looking to increase the size of a potentially increase the indicated and inferred resources to partly justify higher through-puts, and then maintain a good, solid mine life as well. In terms of other exploration projects, as I mentioned, Tom is not here. But I'll just, I think he left us with a few notes. So what we're doing right now, in each of the projects we have two drills on La Libertad. One of them is exploring up and down the belt on other targets. There's numerous other targets besides Jabali from the pits to 12 kilometers to 15 kilometers away, and it looks like there might be another potential parallel vein to Jabali, as well, one rig exploring Jabali, one on the rest of the belt.

Jabali remains open. The two drills on Limon, right now, and I know there's been excitement recently. It's early days. But on potentially a new, good grade underground zone that we seem to be identifying. I have word that we have got two rigs hitting that right now, and that could be a significant, potentially good development. For the project in mine life, also, which is now five years, also potentially in a little better grade, that would, of course, have a similar effect to what Jabali could do, or will be doing throughout Libertad. And it's early days, but Limon has a lot of gold production history, and a lot of potential, as we see it. Several rigs, as I mentioned, at Gramalote, and all four rigs right now at Otjikoto, and they will be moving to exploration. They are doing combination drilling. Getting some questions about Primavera, which is our joint venture with Calibre, and we came out with the first three holes, which were very good. We drilled seven more holes, some of them significant step-outs, and not surprisingly, they weren't all as good.

We feel it is an excellent exploration target in and of itself, the Primavera, and remains open to the East. And we have drilled an additional three holes beyond what we've released [in the waning processes,] and those should be around the next month. We are not drilling at the moment, simply because we're letting the geochem and trenching work catch up, and we are now identifying numerous additional targets on this large property. So we will be looking to test those, as well as to go along. We maintain our belief that it is our extraordinary target, or group of targets, and in previously unknown belts, potential belts, or cluster of porphyries in Nicaragua. I think evidenced by what we think of it by our investing of $5 million into Calibre shares. We really think this picture is going to unfold over the next 6 to 12 months, and we see excellent potential there. In addition, we're drilling in the Trebol property, starting shortly, and actually, we're drilling right now, sorry, in Trebol, and we are drilling in the East zone, which shows some promise.

We recently did a deal with Radius to increase our interest by giving them 5 million shares of B2Gold for two things, one to increase our interest to 100% from 60% in Trebol. We think that's a growing story, and it has very good potential to be another mine in Nicaragua. The target is an epithermal system similar to La Libertad. We also, in this deal, we increased our interest in Pavan to 100% interest in Pavan, and Pavan is a much higher grade small deposit that is -- we think it can feed El Limon. It's around 65,000 ounces, but it's much higher grade. So we thought that was some value in that, so that's the deal we did, and to increase our interest with Radius. Just a few other things. We've seen some issues in Latin America that have concerned people, understandably, in Argentina, and then there was the situation in Bolivia. But I just want to reiterate, I guess, for people that -- I think we need to look at country by country in each of the situations as they develop, and I just want to reiterate what we're seeing in Nicaragua, the great government support that we enjoy.

It's a very stable country, a very fair tax regime. It's a safe country, and there's very strong government support for gold mining. And as often happens when B2Gold or its predecessor, Bema Gold, go to a country and succeed, often there are other companies that follow, and there are several companies now in Nicaragua, a lot of them Canadian companies, that are wanting to be in Nicaragua. We're about the third largest exploring the country right now, and have a huge impact on Nicaragua and its economy, and also around the mines, of course, themselves. So we see that relationship with government just continuing to be very strong, very supportive. They get it. They went foreign investment, and we're kind of, right now, we're sort of looking at the gold started, as it were, for how to invest in the country. So we remain extremely positive, and don't see any change in that status in the government's commitment to foreign investment.

Looking forward, we know we've got another very busy year coming up with significant developments. Everyone has seen, I think, our famous bar chart that shows our production growth over the next number of years, and that production growth comes from basically -- what I liked about, it was a number of things. One, it's dramatic; two it comes from existing assets. We could potentially grow our production from 150,000 ounces to between 450,000 and 500,000 ounces by 2016, in our mind is a very realistic projection, based on our current assumptions. But the ability to do that is not based on any exploration successes. It is not based on any acquisitions, and both of those things, I think, recently, we've shown ourselves capable, as always, in exploration, and a good acquirer, and this is obviously, potentially, an acquirer's market at this time.

We're very focused on the growth from these projects, obviously the first is Jabali coming in at La Libertad, and then you've got projecting in 2015 for Otjikoto, and then ultimately in 2016, we'll be looking to get up and running on Gramalote with AngloGold Ashanti, so it will also be a very busy year in exploration. We have a significant exploration budget, I think it's in the news release for the year. We have an exploration combined budgets of $31.8 million, and that will be used to fund 61,000 units of drilling. I think the other thing that's really important these days is looking at the balance sheets and cash positions in a challenging time. We finished the quarter, as Mark said, in a very strong cash position, what was it?

$97.7 million.

$97.7 million in cash at the end of the first quarter, and we're projecting generating about $140 million in cash from operations between the two mines total, based on our current assumptions, and those assumptions include $1,550 in gold. And then as you look at Jabali growing, of course that number is projected to grow in cash from mining operations, and we're projecting that growing from Jabali alone to $180 million, and then to $200 million over the next two years, and then as we kick in Otjikoto, it will increase to we expect about $300 million, based on our current projections, and beyond that number significantly when we bring in Gramalote into production. So just in concluding all that, we're in very good shape.

Our excellent team, here, is doing a great job operationally, and George, and Dale, and Dennis, and their group are doing a great job. Bill Lytle at Otjikoto has jumped in there, and is doing a great job with very good people that were there when we got there, but building a very strong team to take them into production. And of course Tom's exploration team continues to deliver, and we're continuing to look at acquisitions, and there are some opportunities out there today because of our performance, which we had a recovery there, or at least we had a little correction in the market, I suppose, a couple weeks ago, but are still exceeding the performance of the vast majority of gold producers over the last year and a half, and a lot of companies are getting hammered in this market, which is a very strange disconnect between the price of gold and the value of gold companies. So it will be interesting to watch that in the future. But there is opportunity, but we don't need a deal. We will be very cautious in looking to do accretive deals that have growth potential, just as we've done so far, and in our history, as well. Anything major I missed?

Okay, so that's most of what we wanted to tell you, and I'll open it up, now, Dave for questions.

Thank you. Questions will now be taken from the telephone lines.

(Operator Instructions)

The first question is from Michael Gray with Macquarie capital.

Good morning. On Jabali, it's indicated that there would be production in the fourth quarter. I'm just wondering if there's any visibility on what you might have put into the budget, if anything, and what the grades might be, or if that's really a Q1 2013?

Well, maybe you guys -- I thought we didn't have any hard rock production in this year. It comes in next year from Jabali hard rock.

Yes, we think there may be some, but we didn't budget for it.

Dale is that consistent with what --

Yes, that's pretty consistent. We're anticipating that we'll get our permit by the end of the third quarter, so we'll be looking at fit preparation. While we do that, we'll probably see some colluvium come out to the mine, but no, we're looking at Q1 next year for hard rock.

Fair enough. And on Limon, I see the tonnage is up significantly, grades off a bit. Is Pavon ready to come in in 2012 or early 2013 as feet?

It's going to take a little while. Dale, what's your thought on that, and what do you see happening for grades for the rest of this year at Limon?

Grades should improve slightly, and I think that shows in our budget forecast. With regards to Pavon, yes, we have that in our scopes, and yes, we want to bring it into production as soon as possible. But equally, yes, we have to go carefully with the communities there, introduce ourselves correctly, as we have been doing in the last three months. The primary issue there is going to be to ensure that we're well accepted by the community and are able to operate. So 2013, probably.

Okay, and final question on Primavera. It sounds like, right now, the emphasis is to test the five kilometer area for blind porphyry deposits, 6 to 12 months. Clive, you said that picture would become fairly clear on the potential?

Yes, sorry. I probably didn't describe that very accurately. I said we took a break from drilling. I think I forgot to say when drilling would start again, which is later in May, which has been important, with the second rig joining. So two rigs drilling later in May, and as I said, Tom was showing us a map a while ago of the number of targets being defined by, call it, geophysics, and also geochem, so numerous targets. But yes, thanks for asking the question, because the drilling restarts at the end of May with two rigs.

Okay, that's it, thanks.

Thanks.

Thank you. The next question is from Chris Thompson with Haywood Securities. Please go ahead.

Good morning, guys. Congratulations on a solid quarter. Two quick questions. Just a little bit more detail, as far as the grades at Limon. Do you anticipate that, being more consistent with Q4 of last year, and then ramping up from there, or are we looking at sort of a steady state ramp up from what you achieved in Q1 to Q4 last year?

Dale?

Yes, we see the grades slightly improving throughout the year. This Q1 is by far our weakest quarter for grades, averaging 3.81 grams per tonne. If we look at that against the remainder of the year, where we're averaging about 4.36 grams per tonne, we see a significant improvement in the grade.

Fantastic.

Q1 was definitely our weak spot.

Excellent. Final question guys. Otjikoto, Clive, did you mention anything about the revised PA at the middle of the year there?

Well, what we're doing right now is we're -- part of the work in getting our final permit is to put a submittal in, which will happen in July to the government, final submittal about what we know about our plans, in terms of process, facilities, et cetera. So between that, and our plan for a final feasibility study by the end of the year, we might put together our first economic view, and [appeasement.] Frankly, we haven't written that in stone yet. We are going to be not far in that process. I don't want to hurt the final feasibility study by getting people working on the permitting around this assessment, so we may just roll out our final feasibility study. So that's yet to be decided.

Okay, guys. Thanks, Clive.

Thanks, Chris.

Thank you.

(Operator Instructions)

There are no further questions registered at this time. I'd now like to turn the meeting back over to Mr. Johnson.

Okay, thanks, Dave. Well, thank you all for your time, and we'll look forward to releasing more news as it becomes available, and talking to you after the second quarter. Not too long. Thank you. Thanks, Dave.

Thank you. The conference has now ended. Please disconnect your lines at this time. Thank you for your participation.