B2Gold Corp (BTG) 2014 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the B2Gold third-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.

Thank you, operator. Welcome to the B2Gold third-quarter quarterly conference call. We are here today of course primarily to talk about another very successful quarter of operations for the Company and also update you on the progress we are making in various other areas of the Company. So, Mark is going to walk us through the financial results and then we will have a quick update on the other projects.

Highlights for the quarter included some record production which Mark will go into, another very solid financial quarter of operations. And in terms of other project updates, we will talk about the significant advances we are making in other areas, including the previously announced intent to merge with CGA Mining. That deal is moving along very well. We will update you on that. We will also update you on some positive developments at Jabali, Ojtikoto, and the further advancement of Gramalote and we will talk a bit about what you can expect to see from us before the end of the year in terms of exploration updates.

So, with that, I will pass it over to Mark to go through the financial highlights from the quarter.

Thanks, Clive. B2Gold had another strong quarter. Our operating mines continued to exceed our budget and projections. We had record gold production in the quarter of 42,156 ounces of gold and adjusted net earnings of $19.6 million and for the year-to-date $61.5 million.

On the gold revenue side, we also had record revenues of $67.1 million for the quarter. That was 33% higher than the comparable quarter in 2011 as we sold about 10,000 ounces more. On a year-to-date basis, our revenues came in at $188 million, about $30 million more than last year.

Production costs continued to come in a bit lower than our projections. The operating costs for the quarter were $571 million compared to last year at $529 million. Costs are higher this year on a per ounce basis due to higher power costs, wages, and also reagents, which is I think common for the industry, but our mines were able to mitigate these increases by continuing to improve their recoveries, and also grades have been slightly higher than budgeted.

For example, La Monde's grade in the third quarter was much better than last year. The average grade to the mill at Le Monde moment was 4.47 grams per ton gold versus 3.57 last year, so a 26% improvement. So Le Monde was actually able to keep its cash costs about on par with last year due to the improved production at that mine and Libertad continues to perform well.

On a year-to-date basis, our cash costs came in at $580 million, again below our projections versus $522 million last year.

Depreciation costs have increased from last year. That is mainly due to the increase in production as we depreciate our assets on a unit of production basis. The results are a bit higher based to depreciate off of as the improvements we have been making at the mines also gets appreciated.

Just one thing to note is on royalties and production package, you'll notice that, in the quarter, it was considerably less than last year's quarter despite the higher revenue number. The reason for that is -- and we talked about it in the second quarter -- was we had applied to the tax administration in Nicaragua to look at Libertad's royalty rate there in that the ad valorem tax, we were booking it as a royalty tax, but Libertad was still under the old mining law, which basically says you can take that as a prepayment of your income taxes or a minimum tax case. And so the tax administration did agree with us, so we changed our accounting procedures on how we record that, and that brings down our royalty taxes quite considerably.

There is still a royalty of 2% on Libertad that is paid to former miners. That is a property that is part of the coalition. And as you can see on a year-to-date basis, those taxes are $2.6 million lower than last year despite having $30 million more in revenue.

That left us with a gross profit for the quarter of $32.6 million, a 28% increase over the comparable quarter last year, $25.6 million. On a year-to-date basis, our gross profit is up 21% at $92.8 million.

G&A costs are slightly higher than last year in the quarter. That is due to basically additional employment costs and travel relating to the Auryx acquisition, as now we have I guess and other important project that we are developing, and that does increase our G&A costs.

On a year-to-date basis, the costs are only slightly higher, but just remind everybody that, in 2011, we actually paid out cash bonuses of $1.6 million. If you subtract that from the 2011 amount, it would show about a $2 million increase in our G&A for the reasons that I stated. What we did was, in 2011, we paid these cash bonuses but in 2012, rather than paying cash bonuses, we issued restricted stock units to management and some other employees that deserve bonuses. That has resulted in our share-based payments number increasing quite substantially from last year. But the biggest portion of that increase actually relates to 10.6 million stock options that we issued this year at $3.13 a share. And I just would like to point out that those stock options, none of those options went to senior management as senior management is taking an unusual position that, since we are founders of the Company, we have not taken any stock options since B2 started five years ago. Instead, we reserve stock options for hiring additional talent, and also we have the policy of having options to even people in our corporate offices located in like Nicaragua, Colombia and now in Namibia. So I think we are very good with sharing -- or motivating our employees to help see our gold price -- or to help our share price improve, as they are also rewarded for that. That resulted in net operating income of $23.8 million for the quarter, a 54% increase over last year and on a year-to-date basis. So we came in with $62 million of operating income, an 8% increase over the previous year.

You'll notice too that our current income taxes have increased dramatically from the previous quarter last year to $6.1 million this year compared to $1.4 million last year. And on a year-to-date basis at $10.7 million versus $3.3 million last year. That's mainly relates to La Libertad as we have used up all of our loss carryforwards from -- since we started operations. And we are now in a profitable position and so, as the mine continues to perform well, we will be rewarding the Nicaraguan tax authorities as well. And we are quite pleased to do that as we think it is important to share the wealth with the country you operate in, which is probably why we actually spend a lot of money in community relations as well.

Net income came in at $14.5 million, a 60% increase over last year's quarter. And on a year-to-date basis, net income was $41 million, a 15% increase over last year.

Have a look at our statement of cash flows. Again, an excellent quarter for B2. Operating cash flows came in at $28.4 million through the third quarter of 2012, a 42% increase over last year's operating cash flows. And on a year-to-date basis, our cash from operations on a consolidated basis was $83.3 million, an increase from $73.6 million last year.

Under investing activities, you will see that we continue to invest a lot of money in our two development projects and feasibility projects, being Gramalote and Ojtikoto. We also have invested a lot of money in continuing to explore around our two operating lines as well as some other exploration projects we have. We think our money is being well spent, and we should be having updates in the next couple of months on the progress we have made on the exploration side as well as on the development side for our projects.

Total cash invested in our operations was $33.5 million in the quarter, an increase of $25 million last year and $107 million on a year-to-date basis.

I'd also like to point out that a couple of our projects have spent significantly less than what we budgeted for the year, but they are on -- we haven't changed our guidance. Like at Ojtikoto, we think they will come in about $10 million under budget this year compared to what we originally forecast. But they are completing everything as scheduled and we do expect them to start production in 2015 as we have been stating.

The difference there is really just a timing issue on an expenditure. The funds, we have seen a lot of long lead time items. The lead times have actually come down, for example on a lot of the mobile equipment that we are -- a long wait list, up to two years, on some equipment. Now we have seen that come down to seven months. Some of it even the equipment is available currently for certain things. So we haven't had to put down as big a down payment as we were expecting and have been able to delay some of the equipment orders because of that, but we remain on schedule.

Similarly, Jabali will probably come in about $10 million under budget this year. Again, though, we are not changing our expected production from Libertad. We do expect it to increase to 135,000 ounces next year with the delivery of Auryx and Jabali. So everything remains as previously, just expenditure timeline was changed a bit. So maybe we were a bit too aggressive in our assumptions on expenditures. But everything is as forecast.

That left us with a very strong cash position at the end of the year, $73.2 million. So, our cash flow from operations continued to fund our --

Sorry, end of the quarter or end of the year?

End of the quarter, end of the quarter, same, yes -- sorry, end of the quarter, yes.

So our cash from operations continued to finance our aggressive investment activities.

Just one other thing I want to point out on the balance sheet. People may have noticed that our inventories are quite a bit higher than last year end and last quarter's end. And that mainly has to do with the mines really had a good last three weeks of September in production. They were both running quite a bit higher grades than the average for the quarter and also throughput was very good. So we ended up with about 2700 -- or, sorry, 7100 ounces of gold pored but not shipped or available for sale at the end of the quarter. That is an unusually high number, and of course will go to benefit our fourth-quarter numbers.

We have also seen a bit of an increase in our inventory as we have built up our cyanide inventory a bit more than normal. Just to warrant in case we have a cyanide crunch like we did about eight months ago when DuPont had some flooding at their plant. So now we are well-positioned should there be any hiccups there.

That was the major items I wanted to point out, Clive.

Okay, thanks, Mark. I'm going to turn it over now to Dale Craig, who is our Vice President and Nicaragua Country Manager, to give us the highlights of anything Mark didn't cover in terms of and operations update. And, Dale, can you also speak to the -- update us on the status of Jabali as well?

Sure, will do. First of all, can you hear me okay there, Clive?

We can hear you here, yes.

Okay, great. The La Libertad open pit mine continued to perform well in the third quarter of this year. The mine, the mill produced 29,441 ounces of gold at an operating cost cash cost of $513 per ounce compared to a budget of 27,347 ounces at an operating cash cost of $510 per ounce.

Mill throughput was good as well, 517,656 tons of ore against a budget of 501,953 tons for the quarter. And the average mill rate was 5626 tons per day against a budget of 5456.

Grade was better as well. The average grade was 1.91 grams per ton compared to flying grade of 1.88 grams per ton for the quarter. Recovery was excellent at 92.3% against a 90.4% recovery value indicated in our budget.

La Libertad mine operating cash costs were about $3 an ounce more than budget as the operation increased waste movement compared to what we saw in Q2. And we also saw increased consumption of reagents, mill balls and explosives. Total cash costs for La Libertad mine were $547 per ounce compared to the budget of $589 per ounce.

So in summary, for Q3, La Libertad experienced better throughput, slightly better grade and better recovery than the budget for the quarter. The improved recovery is the result of ore management as we saw in Q2 and also continued work to optimize the leach process in our plant.

Going forward, gold production from La Libertad continues to improve with a very strong management team dedicated to finding ways to improve operating efficiencies. We forecast that La Libertad mine will produce approximately 105,000 to 110,000 ounces of gold in 2012 at an operating cash cost of approximately $550 to $575 per ounce.

Dale, Dale, you are starting to fade a little bit. Can you just keep your voice up a little louder? Thanks.

Sure, can do. Thanks.

CapEx costs at La Libertad in 2012 totaling approximately $27.7 million are mostly for pre-stripping in the Santa Maria Pit. Development of access related for future pit expansions and completion of the tailings pond expansion and that tailings pond expansion is now done.

Jabali central pit area will commence mine development in Q4. The mine permit has been received and we have upgraded all roads available to us right now. The construction permit for a twin private road has been received and construction on that road has just commenced. To date, we have completed about 2 kilometers at the Santo Domingo lane with some prior work. The road will be completed near the end of Q1 in 2013. And the road is about 15 kilometers in total.

For Jabali, the 2012 budget for the development of the deposit associated infrastructure is approximately $21 million, which includes construction of the private haul road for transporting the Jabali ore to the La Libertad mill for engineering and metallurgical and socioeconomic programs. The addition of Jabali ore to mill feed in 2013 will result in an increase in production to 135,000 ounces with long-term production benefits.

For El Limon, in summary, the El Limon mine has had an excellent quarter. It is tracking to its budget productions. Production was 12,715 ounces compared to 12,170 ounces budgeted and that puts us back on target for the year. Recovery was 91% against 90.34% in budget. Processed tons were 97,385 against a budget of 105,140 tons. Plant maintenance and the installation of a new crusher took four days from our plant operations this quarter.

Operating cash cost was $704 per ounce compared to the budget of $717 per ounce for the quarter. So production continues to improve.

We received a permit for our new pit, Veta Nueva, and that is now coming on stream to contribute to the mill feed for the current quarter, Q4. The Company maintains its projection of 48,000 to 50,000 ounces in 2012 with an operating cash cost of $700 to $725 per ounce.

CapEx at El Limon mine will total approximately $21.3 million this year. CapEx includes expansion of the tailings pond facility, which is now complete, development of deeper ore in Santa Pancha, including improvements in ventilation and water control infrastructure. The ventilation phase of that project is now completed. Temperatures in the mine have declined about 5 degrees centigrade, which significantly improves the operating environment.

Thank you, Clive.

Thank you. Thanks very much. Great job. I think we will pass -- just while I think about it, we are going to come out with, by the end of the year, we will have guidance for next year's production from the -- on the two Nicaraguan mines, so we will be coming out with that before the end of the year.

I think we will now go to Ojtikoto and ask Bill Lytle, who is our Country Manager and Vice President, to take us through the recent developments. And we are making great progress towards advancing Ojtikoto. Over to you, Bill.

I will start out with permitting. The permitting remains on track to meet our 2015 goals. environmental impact assessment for the project was approved in August. The feasibility remains on track for an end-of-year completion. Currently we have construction activities on-site to include the debushing, the devegetation of the site. We are commencing placement of security fencing and we are ordering a construction camp. We will be increasing site activities in the first quarter of 2013 to maintain our schedule of full production in Q1 2015. As Mark indicated already, we are under budget due to the current shorter leadtime requirements for the long lead items, but we expect to start making orders in the fourth quarter of this year. And as I stated earlier, we continue to remain on schedule for a Q1 2015 full production schedule.

That is all I have.

Bill, I think we put on the news links that we are expecting the final mining license from the government of Namibia by the end of the year.

Okay. That is absolutely the case. We have had discussions with the Minister of Mines and we absolutely believe we will receive license by the end of this year.

Okay, so on schedule with that as well.

That's correct.

Great. Okay. The other thing we are going to come out with too by -- over the next number of weeks, before the end of the year, will be an exploration update on the various projects that Tom and his team are working on. We have done lots of drilling and we will have updates on our next separate exploration news release before the end of the year updating on what we consider to be exciting targets such as Ojtikoto and other things that we are working on.

I guess the next thing to talk about is Gramalote. We put in the news release that we are continuing obviously with AngloGold Ashanti, our joint venture partner, on a very aggressive program that now totals $54 million for 2012 of further exploration work, infill drilling, and a lot of metallurgical test work, land, land purchases, and all the other things that go into completing a prefeasibility study and fast tracking the project going forward.

We are working with Anglo now to agree a three-month budget and interim budgets that will take us through November of this year, actually December 1 this year to the end of February of next year. And that interim budget is to complete work on looking at various cases in the prefeasibility stage and looking at various cases in terms of scale and mining, the opportunity for the project. And by the end of February, we should be in a position to come out and talk about where we sit on the project. I am looking forward to -- we expect the decision to go forward to a final feasibility study.

So the key thing now is to -- there's been a ton of work done, very good quality work done, pulling it all together and coming out with a view of the project forward. We are looking to make a decision by the end of February. Hopefully, the positive decision to go from a prefeasibility study into a final feasibility study. So we are looking at a pond feasibility study being completed around in the first quarter of 2014. And that is our current schedule. So, we will confirm that budget announcement soon. I expect, with Anglo, to confirm this interim budget as we go through into the next three months.

The other, of course, major initiative on our plate, our undertaking, is the completion of the merger between B2Gold and CGA. As everyone remembers, we announced the deal a while ago, which is a friendly merger of the two companies. And that deal is going very well through the regulatory process. It is subject to shareholder approvals of both B2Gold and CGA. The response has been I would say very strong from both sets of shareholders, very positive towards the new B2Gold, which will be a company that, with the closing of the deal, will add almost another 200,000 ounces immediately of annual gold production and a project in Masbate that we are very excited about the value it adds today, but also the potential going forward.

We spent a lot of time with the project over the last few months as we are moving towards the process of closing the deal. I must say that we continue to be impressed with the work CGA did in building Masbate and running the mine and the great people they have involved on-site. We are working very well together to get to know the project better, and just very impressed with everything we are seeing, impressed with the Philippines, impressed with the people on-site.

One of the great advantages to our shareholders of this deal is it is a largely de-risked project in the sense that of course it has been in operation for two and a half years and it is well-run and has a great team of people and great contacts with the government in the Philippines. And these guys have done an excellent job on something that is very dear to our heart, which is social programs in the Philippines that are very similar to the types of things that we pride ourselves in doing in Nicaragua and elsewhere.

So for the CGA shareholders, they have responded very well to the idea of becoming part of a bigger company. And they have retained the B2Gold shares that they get in the transaction. They will become part of a company that, based on our current projections and current assets, we believe can grow from almost 400,000 ounces of gold production next year to potentially 700,000 ounces a year over a three or four year period based on the development of our existing assets, including Jabali, Ojtikoto, and ultimately Gramalote.

So we are excited to get the deal done. There's a lot of legal work going on and the teams are working well together. And we are on track to have shareholder meetings in the third week of December for both B2Gold and CGA. And as I said, very strong support for the deal, and we'd be looking for the final legal court order closing the deal before the end of January. So that continues to progress very well.

I think we have touched on most of the main things that we wanted to cover. I think we will open it up for questions. Just to remind you, as I think I alluded to, news flow for the rest of the year. We will be coming out with the confirmation as we receive things like the Ojtikoto mining license and feasibility study, those sorts of things. And also we will have a significant update on all of the exploration programs that Tom and his team have been working on before the end of the year.

So I think, with that, I will pass it over. Audrey, back to you for any questions.

(Operator Instructions). Shawn Campbell, Macquarie.

A question for Masbate. With the timeline laid out for the transition in terms of having B2Gold people on the ground and moving into being the operator, what is the timeline for that?

Well, for now, of course it is, with the deal not being closed, it is their mine. They are running it well in their project. They are keeping us very well informed and we have access to the site. It has been very cooperative in that regard.

I think, as we get into the deal closing in the new year, we will have a series of meetings down there. We have -- there's a great team down there. We are not looking at coming into Masbate and making major changes. There's a very impressive group of Filipinos and some ex-pats that have done an excellent job in the project. So, we are looking forward to working with a very strong technical group and seeing what things we can do to add to that expertise. So, we will, over the first quarter, be looking at spending time down there and working with the group. We are very impressed with the talent that is there and we expect -- we want them to and expect them the talent, technical talent, to be staying, to want to stay with the project. We've been down there to discuss it with them, and I think people are very excited about this opportunity to continue with the project and become part of a bigger company.

Okay, that's good. The next question I had was for Limon. The Santa Pancha underground development so that -- I'm sorry, the vein that is expected to add to the production life, is that at consistent grades with what is being mined today?

Tom, do you want to go ahead?

I assume you are talking about the new area we have been drilling. It is actually at the north end of the Santa Pancha vein in an area called Pozo 5. And we don't have a resource done on it, so I can't tell you what the grade is relative to the mine, but the drill hole intersections seem to be consistent with or slightly better than the areas that we are mining right now.

Okay. And just one last question related to Jabali. Once that is part of the mill feed, do you expect any changes in the recovery coming through the plant?

Dale, do you want to cover that? Dale?

Yes, we have been doing metallurgical pass over some recent months, about three or four months, and the recovery that we see on most passes indicates that it is slightly better than what we are experiencing in the current operation.

Okay. And can you remind me of the current recovery on the spent ore, what that was relative to the overall operation?

Yes. Estimated recovery on spent ore was originally 80%. (multiple speakers)

Okay. Thank you. That was all I had.

(Operator Instructions). [Don Calhoun], private investor.

I have one comment. Several years ago, I hired you guys to make me some money by becoming a shareholder and you have not let me down. I am impressed with your options policy of the management. You guys have done what you said you would do. You have made that concept that so many struggle with of mine to build work. And I am just tickled to death to have found you, and thank you for all of the good things that you have done and will do.

Well, thank you very much. It is always nice to hear from a happy shareholder. We appreciate your support. Thank you very much.

Thank you.

Thank you. There are no further questions registered at this time. I would like to turn the meeting back over to Mr. Johnson.

Thank you all. One, we are all available obviously to answer questions if you think of some subsequently. Just talk to Ian or Kerry and they will put you in the right -- or to the right person.

One thing we didn't really talk about was financing alternatives going forward. That is a bit of a procedure, a bit of an issue in the industry. How do you finance your projects, et cetera? We've talked about it before, but just so everyone is aware, we are in a very strong cash position and we are looking at a very strong cash from mining operations going forward here. Before we did the Masbate deal, with the Masbate deal, of course, even strengthening the cash we will be generating from mining operations. So that can find a lot of our activity.

But also there are numerous alternatives out there for us to look at financing projects. We have the opportunity to look at corporate facilities. There's high-yield bonds that are becoming very attractive these days and numerous sources. I think the key to financing the gold-mining industry today is cash flow and credibility. If you have those two things, then you won't struggle to finance good projects and we believe we are in a great position with our strong cash and cash from operations to fund a lot of our development. And as need be, we will tap into the financial markets with a view to minimizing dilution. And we are looking, Mark and I have been looking at a number of alternatives. We are getting pitched every week on different forms of financing. So the money is out there if you have the credibility and the cash flow.

I think that is all from us. Thanks for your time and we will talk to you soon. Take care.

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