B2Gold eyes 35% production growth in 2015

B2Gold (TSX: BTO; NYSE-MKT: BTG) expects another record production year in 2015, building upon the solid output it had in 2014.

The Vancouver-based producer, which operates four gold mines — La Libertad and Limon in Nicaragua, Masbate in the Philippines and Otjikoto in Namibia — reported record fourth quarter and full-year output. Quarterly production totalled 111,804 oz., not including the 7,159 pre-commercial oz. from the new Otjikoto mine. 

The star performer in the quarter was Masbate, producing 62,972 oz., up 34% from the year-ago period. This helped offset the weaker-than-anticipated results from La Libertad and Limon, Raymond James analyst Chris Thompson writes. While B2Gold met its 2014 target for La Libertad, it missed its recently lowered target at Limon due to installation delays for a dewatering system, he says.

Of note, the firm finished building Otjikoto on budget and a week ahead of schedule. The mine poured its first gold on Dec. 11, and could achieve commercial production before April.

Consolidated 2014 production came in at 384,003 oz., or 391,162 oz., with Otjikoto’s output reflecting a 7% improvement from a year ago.

The Masbate mine was also the top annual producer, delivering 48% of the gold ounces, followed by La Libertad, which contributed 38% of the output.

Despite higher production, fourth-quarter revenue slid to US$122.4 million from US$138.1 million a year ago, largely due to weaker average realized gold prices.

 Similarly, full-year revenue fell 11% to US$486.6 million from US$544.3 million in 2013. Annual sales were relatively flat at 386,219 oz., while the average realized price slid 12% year-over-year to US$1,260 per oz.

For 2015, B2Gold is guiding output of between 500,000 and 540,000 oz., up 35% from 2014. It has lowered its operating cash costs to US$630 to US$660 per oz., from US$667 to US$695 per oz. last year. 

The improvements in the guidance have resulted from the addition of the Otjikoto mine, projected to deliver the second most ounces this year, after Masbate, and at the lowest costs. Otjikoto should produce 140,000 to 150,000 oz. (including pre-commercial ounces) at cash costs of US$500 to US$525 per oz.

Masbate is set to deliver 170,000 to 180,000 oz. in 2015, while La Libertad should contribute between 135,000 and 145,000 oz., and Limon between 55,000 and 65,000 oz.

Commenting on the firm’s 2015 consolidated guidance, Raymond James’ Thompson says it is in-line with his previous estimate of 530,000 oz. gold at a cash operating cost of US$644 per oz. While BMO analyst Brain Quast agrees, he says that the costs in 2015, particularly for capital expenditures, were higher than anticipated.

Quast had projected cash costs of US$586 per oz. and he points to La Libertad as the culprit. The company expects higher operating costs at the mine due to the longer haul distance from the new Jabali Antena pit and the start of underground mining at the Mojon Central pit.

Quast says the miner is guiding a total 2015 capex and exploration budget of US$144 million, compared to his US$85-million estimate. He says that major differences include higher-than-expected capex at Otjikoto for the mill expansion and more capital at Masbate, which helps the new leach tanks optimize gold recoveries.

The mill expansion, slated for completion in the third quarter, should increase Otjikoto’s throughput from 2.5 million tonnes a year to 3 million tonnes. Once completed, annual mine production should jump to 200,000 oz. in 2016 and 2017. 

B2Gold has budgeted US$30 million in non-sustaining and development capital costs for the mine, including US$15 million for the mill expansion and $7.6 million for the second phase of pre-stripping at the Otjikoto pit. It expects to spend another US$5.7 million on exploration, including on drilling the Wolfshag zone.

A recent resource update at Wolfshag shows the zone hosts 675,000 oz. gold within 2.6 million inferred tonnes grading 8.14 grams gold per tonne. This compares to a 2013 estimate of 703,000 oz. from 6.8 million inferred tonnes at 3.2 grams gold.

“The conceptual plan has changed whereby Wolfshag is now expected to be mined predominately by underground methods, while the original resource was thought to support open-pit mining,” Quast notes, adding the 93,000 oz. indicated resource is expected to be mined as an open pit. A new mine plan for Otjikoto is due out by year-end.

B2Gold also intends to move most of its Otjikoto development team to its Mali-based Fekola gold project, with early construction activity slated to begin in February, followed by an updated resource estimate and final feasibility study in the second quarter. The project, acquired last October from Papillon Resources, could increase B2Gold’s annual production to 300,000 oz. “[But] with a US$375-million capex estimate, additional financing is required,” Thompson cautions. 

“We continue to view BTO as an aggressive growth story supported by a robust development pipeline of low-cost production,” he writes. Thompson has a $3.25 target and an “outperform” rating on the stock. 

On Jan. 21, Quast increased his target to $3.50 from $3.25 a share, largely due to the increase in the gold spot price since his last update.

B2Gold shares closed Jan. 23 at $2.52, up 32% since the start of the year. The spot gold price ended the day at US$1,294 per oz., up 9% from its 2014 close of US$1,182.90.