B2Gold makes Nicaragua its platform for growth

Many companies aspire to be a mid-tier gold producer, but few actually become one. There’s the small matter of finding a deposit that will yield good profit margins, and then there are financing issues, political risks and operational issues to contend with.

B2Gold (BTO-T) is one of the few that is following through. 

Born as a spin-out of Bema Gold — which was taken out in 2007 by Kinross Gold for $3.5 billion —  B2Gold, with its many former Bema execs on board, has grown its market capitalization by a multiple of 12 times since its shares began trading at the end of 2007. 

The company’s growing equity value has coincided with its acquisition of two producing gold mines that turned out nearly 150,000 oz. gold last year. This also reflects the market’s optimism that the firm may well reach its goal of producing 450,000 oz.  gold by 2016. 

While there are a myriad of factors that go into any company’s market success, there is no denying that geography has played a crucial role in B2Gold’s climb. 

With its recent socialist past and crippling poverty, many mining investors have shied or been chased away from Nicaragua over the last few decades. 

Low enthusiasm for the country and the astute timing of an acquisition just before equity markets rebounded in the first half of 2009 has rewarded B2Gold with two operating gold mines on the cheap. 

B2Gold acquired the assets as part of its takeover of Central Sun Mining in all-share deal that valued the target company at $66 million. Considering that B2Gold  now has a market capitalization of $1.42 billion — and much of that wealth has been built on the back of the assets acquired from Central Sun — it’s safe to call the merger a shrewd move by B2Gold’s management. 

But the company didn’t start out with a Nicaraguan focus. After finding success in Russia with the Kupol high-grade gold-silver mine, which was the key driver behind Kinross’s bid, B2Gold’s management team, headed by president and chief executive Clive Johnson, began looking for their next big find in Colombia.

And while the company still has gold assets in the country — chief amongst them is a joint venture with AngloGold Ashanti (AU-N) on the Gramalote gold project — the Nicaraguan assets of La Libertad and Limon have been the company makers to date. 

As for the country itself, Nicaragua is perhaps still most known to North American investors as the home of the Sandinista revolution and the ensuing contra war, which reached peak media coverage during the Iran-contra affair of 1986. 

Since that time the country has witnessed the defeat of the socialist Sandinistas in a 1990 election and the return of the party’s leader, Daniel Ortega, who won the presidential election in 2007. And while Ortega still offers kind words to the heads of such anti-U.S. countries like Venezuela and Iran, he has at the same time been consistent in broadly promoting an investor-friendly environment.

Ortega has reasoned that foreign direct investment has a role to play if the country means to lift itself out of poverty. That vision is evidenced by B2Gold’s relatively smooth operations to date and its fair tax regime, which comprises a 3% net smelter return royalty and a 30% tax on net profits, which are hardly company-breaking numbers. 

B2Gold has done its part to build a solid reputation in a country that is sensitive to what many would call the ills of American imperialist policy cloaked in capitalist rhetoric. The company is one of the country’s biggest employers with 2,000 employees and contractors, and doubles as the largest gold exporter and largest individual exporting company.

Beyond that, B2Gold is partnered with the unionized mine workers at its Limon mine. The unionized workers own 5% of the mine, while B2Gold holds the remaining 95%.

But not everything has been smooth sailing. In 2009 operations froze during a workers’ strike, but the company negotiated with workers and the government supported B2Gold — labelling the strike “illegal” — which showed it could handle some of the major hurdles in a mine’s operation.

Since resolving the dispute in November 2009, the company has not reported any stoppages at the mine owing to worker angst. The mine was, however, closed mid-2011 owing to heavy rains, which resulted in one underground miner losing his life.

But while Limon may exemplify how B2Gold has made strides to integrate itself into Nicaraguan culture, it is La Libertad, an open-pit mine located 178 km east of the capital of Managua, that perhaps best exemplifies the company’s economic success in the country. 

Indeed La Libertad, which was then known as the Orosi mine, was the key driver behind the Central Sun acquisition. 

The mine had been operating as a heap-leach mine since 1996, but operations were halted in 2007 after studies showed that gold recovery could be boosted to 90% from just 40% by making a switch from the heap-leach pad to a conventional milling operation.

At the time of the acquisition Central Sun was converting the mine into a milling operation, which required US$70 million for a new semi-autogenous grinding and ball mill grinding circuit, carbon-in-pulp recovery tanks and a tailings storage facility.

Gold and silver production at the revamped mine began in January 2010. 

With an initial seven-year mine life, La Libertad mine was initially slated to produce up to 90,000 oz. per year, but 2011 saw the company beating that guidance. 

In its most recent reporting period during the third quarter of 2011, B2Gold said it was on track to beat its production guidance by 5,000 oz. and that the year’s total production could reach 99,000 oz., at operating cash costs of US$40 oz. to US$460 per oz. 

With metrics like that, it is little wonder La Libertad generated the lion’s share of company sales — the mine accounted for 67% of its $158.4 million in gold revenue for the first nine months of last year. 

And the economics could improve in the near future, because the company has outlined a new deposit 9 km east of the mine. The new Jabali deposit is an east- to west-trending, low sulphidation, epithermal quartz vein system which was mined for its high-grade ore from 1862 to 1956, and has been traced over a distance of 6.2 km.

B2 recently released a resource estimate for Jabali that tallied 3.6 million tonnes grading 4.58 grams gold for 522,000 oz. gold.

The company says the deposit will increase Libertad’s seven-year mine life, and that the higher-grade ore delivered to the mill from Jabali should boost production, while lowering operating costs.