B2Gold’s Fekola on brink of commercial production this year

B2Gold (TSX: BTO; NYSE: BTG) says it has started processing ore at its Fekola gold mine in southwestern Mali, and will reach commercial production before year-end.

The mid-tier miner already operates four gold mines — two in Nicaragua, one in the Philippines and another in Namibia — and says production of between 50,000 and 55,000 oz. gold from its new mine in West Africa will bring the company’s 2017 metal production to between 530,000 and 570,000 oz. gold.

Next year, B2Gold forecasts that its five operating mines will produce between 925,000 and 975,000 oz. gold.

“Fekola is a game changer for B2Gold, with about 400,000 oz. of low-cost gold production planned for 2018,” Cosmos Chiu of CIBC said in a research note to clients, adding that with Fekola, B2Gold transitions “towards the largest producing mid-cap gold company” that he covers.

B2Gold completed construction of its mill three months ahead of schedule and on budget, and expanded it to 5 million tonnes per year from the original pre-construction mine plan of 4 million tonnes per year.

“We looked at it and said, ‘Well, we know there’s an extension of mineralization to the north — it’s not in reserves yet — but let’s expand the mill now rather than waiting a year,” Clive Johnson, B2Gold’s president and CEO, says in an interview.

By expanding the mill to 5 million tonnes per year, Fekola’s mine life is trimmed from 12.5 years to 10 years. But gold production during the first three years rises to 400,000 oz. from 333,000 oz., while all-in sustaining costs (AISCs) during the same period fall from US$717 per oz. to US$604 per oz. gold.

Under the new mine plan, operating costs per ounce over the life-of-mine fall 22.5%, from US$552 per oz. to US$428 per oz., and AISCs drop by 11.8% to US$664 per oz., compared with US$752 per oz. in the previous mine plan.

In 2018, B2Gold expects that Fekola will produce between 400,000 and 410,000 oz. gold at an operating cost of US$354 per oz. and AISCs of US$609 per oz. gold.

The US$18-million price tag to expand the mill to 5 million tonnes a year brings total construction costs to $480 million. Of that, $41 million were pre-construction sunk costs, $462 million were the construction costs detailed in the feasibility study and $18 million was for the mill expansion. The company says it will spend another US$20 million to relocate a nearby village.

Early mine development at B2Gold’s Fekola gold project in Mali. Credit: B2Gold.

Projected life-of-mine production remains the same at 3.45 million oz. gold. Reserves remain unchanged at 3.34 million ounces contained in 43.8 million tonnes at an average grade of 2.37 grams gold per tonne.

B2Gold says the Fekola property, near Mali’s border with Senegal, and 520 km from Mali’s capital, Bamako, has the potential to host more Fekola-style gold deposits, and surface exploration, regional drilling and geophysics have identified a number of targets.

In June, the company reported an initial resource estimate for its Anaconda prospect, 20 km from the Fekola mill.

The saprolite-hosted gold deposit has an inferred resource of 21.6 million tonnes grading 1.11 grams gold per tonne for 767,000 contained oz. gold at a 0.35 gram gold cut-off grade.

“It’s a 4 km long zone, so far, up to a kilometre wide, and is mineralized,” Johnson says. ‘The heavily weatherized material should be very cheap to mine, so that’s nice to have, but it’s only an average of 40 metres deep, so the key is what lies below it. What we’re looking for is bedrock mineralization similar to Fekola, and we have intersected some Fekola-type grades below the saprolite material.”

Meanwhile, drilling to the north of Fekola’s reserve pit boundary has found gold mineralization near surface and in some deeper holes, the company says.

Drilling is underway at the Kiwi zone, which is north and along strike of the Fekola deposit boundary. Kiwi sits above the Fekola Deeps zone, where drilling has intersected wide mineralization zones.

Drilling in the Fekola Deeps zone has intercepted Fekola-type gold grades over large intervals.

B2Gold notes that the Fekola Deeps zone remains open to the  north and down-dip, which raises the possibility of an underground mining scenario.

Ore-processing facilities at B2Gold’s Fekola gold mine, under construction in southwest Mali. Credit: B2Gold.

“There’s great potential to extend to the north and significantly increase resources and reserves at Fekola that can be exploited by a large open pit, and potentially underground in the future,” Johnson says. “The mine life in the new mine plan has gone down from 12.5 years to 10 years, but we don’t think that’s going to be the reality because of the exploration we’ve had, and we think the mine life will be beyond what was in the original mine plan.”

This year the company increased its budget for the Fekola mine and regional exploration to $15.8 million, up from its previous budget of $11.6 million.

Next year the company expects to spend $15 million on exploration at Fekola, which will include both infill and exploration drilling.

Drilling is ongoing with two rigs at Fekola and two rigs at Anaconda. The company will add two rigs at each site over the next few months.

B2Gold’s shares jumped 8.9% — or 29¢ — to $3.56 per share, on news of completing a larger mill and the drop-in operating costs.

At press time its shares were trading at $3.50 apiece, within a 52-week trading range of $2.69 (December 2016) to $4.64 (February 2017). The company has 977 million shares outstanding.

CIBC’s Chiu has a 12- to 18-month target price on the stock of $5 per share.

Johnson predicts a re-rating of B2Gold’s stock, as Fekola increases the company’s total gold production by 70% and “significantly” reduces costs.

“During its first three years of production, Fekola dramatically increases the company’s total cash flow from operations from approximately US$200 million to US$500 million per year starting in 2018,” Johnson says. “So we will have a re-rating of our company that is not reflected in the share price today.”