GDX - B2Gold: A Good Bet At A Reasonable Price

2023-05-10 12:45:35 ET

Summary

• B2Gold Corp. announced consolidated gold revenues of $473.56 million in the first quarter of 2023, up from $365.58 million in the year-ago period and down 20% sequentially.
• B2Gold posted a solid gold production of 266,856 Au ounces (including 16,137 Au ounces for its interests in Calibre Mine) in the first quarter of 2023.
• I recommend buying B2Gold Corp. between $4 and $3.85, with possible lower support at $3.75.

Part I - Introduction

Vancouver-based gold miner B2Gold Corp. (BTG) released its first-quarter 2023 results on May 9, 2023.

Note: I have followed BTG quarterly since July 2019. This new article is a quarterly update of my article published on February 26, 2023. BTG owns three producing mines, one production mine in a 50/50 JV, and two exploration projects, notably the Goose Project in Canada.

Note:

• The flagship asset for the company is the Fekola Mine in Mali, West Africa.
• Also, Gramalote JV in Colombia, a joint venture between B2Gold and AngloGold Ashanti Limited ( AU ), is for sale.

1 - 1Q23 results snapshot

B2Gold posted a net income attributable to the shareholders of $85.97 million, or $0.08 per diluted share, compared with $80.72 million, or $0.08 per share, in 1Q22.

Revenues for 1Q23 were $473.56 million, down 20% sequentially and up 29.5% compared to the same quarter a year ago. Operating activities provided cash flow before changes in non-cash working capital was $203.82 million, up from $107.31 million made in 1Q22.

Total gold production in the first quarter of 2023 was 266,856 ounces (including 16,137 Au ounces for its 25% Calibre Mine plus 1.5% NSR).

On April 19, 2023, B2Gold completed the acquisition of Sabina Gold & Silver Corp in a deal valued at C$1.1 billion ($820 million in an all-share deal). Sabina owns the Back River Gold District project located in Nunavut, Canada (emphasis added below):

Under the terms of the Arrangement, Sabina shareholders received 0.3867 B2Gold common shares (" B2Gold Share ") per Sabina common share. In aggregate, B2Gold will issue approximately 216 million B2Gold Shares under the Arrangement.

2 - Stock performance

B2Gold has slightly outperformed the VanEck Vectors Gold Miners ETF ( GDX ) and is down 3% on a one-year basis. BTG has dropped significantly since April-May this year in correlation with the Fed's actions against rampant inflation.

The stock progression seems to be hindered by the Fekola Mine in Mali, a great mine in a risky part of West Africa. Investors should always apply a discount to fair value based on this knowledge.

3 - Investment thesis

BTG is a strong mid-tier gold miner with well-diversified assets and a good growth prospect, with the Goose project expected to produce commercially in early 2025.

I am very impressed with the company, even if the Fekola mine presents an additional risk due to the political instability in Mali, West Africa. This situation explains why the stock has not been able to trade above $5 already, even if BTG has no net debt and net cash of $624.43 million.

Moreover, it pays a quarterly dividend of $0.04 per share or a yield of 3.8%.

Thus, one winning strategy I often recommend in the gold sector in my marketplace, "The Gold and Oil Corner," is trading about 50%-60% LIFO of your BTG position and keeping a core long-term position for an eventual higher stock price.

I believe it is the best strategy (the centerpiece of my marketplace) that will protect you from "surprises" and rewards you with a sizeable profit.

Part II - B2Gold - Historical balance sheet until 4Q22 - The Raw Numbers

Data Source: Company press release .

* Warning: Shares outstanding are expected to increase to 1,296 million shares in 2Q23 after the completion of the Sabrina acquisition.

Analysis: Revenues, And Gold Production

1 - Quarterly revenues were $473.56 million for 1Q23

2 - The first quarter's free cash flow was $92.45 million

Note: Generic free cash flow is cash from operating activities minus CapEx.

B2Gold had a quarterly free cash flow of $92.45 million in 1Q23 and a trailing 12-month FCF of $284.84 million.

B2Gold pays a quarterly dividend of $0.04 per share or a yield of 3.8%, one of the best in the gold industry.

3 - B2Gold is net debt-free and has $673.74 million in total cash at the end of March 2023.

On March 31, 2023, the company had cash and cash equivalents of $673.74 million.

In addition, the company's $600 million Revolving Credit Facility ("RCF") remains fully undrawn and available. The liquidity is estimated at $1,274 million in 1Q23.

4 - 1Q23 Gold Production Snapshot

B2Gold posted a solid gold production of 266,856 Au ounces (including 16,137 Au ounces for its interests in Calibre Mine) in the first quarter of 2023.

All B2Gold operations are on track to meet or exceed annual production guidance ranges. However, it was a significant drop in production sequentially due to the sale of inventory, as shown below:

Note: B2Gold is considered a related party by its equity interest in Calibre, as they own approximately 25% of the company. Under an agreement with B2Gold in November 2016, B2Gold retains a 1.5% NSR on production from certain concessions.

4.1.1 - The Fekola Mine In Mali:

Gold production was 165,864 ounces in the first quarter of 2023.

Phase 6 of the Fekola pit provided high-grade ore to the process plant in 1Q23. The mine has excellent potential for growth in the Anaconda Area. In 2023, the company expects 580K-610K Au ounces of production at an AISC between $1,085 and $1,145 per ounce.

4.1.2 - The Masbate Mine In The Philippines:

Gold production from the Masbate Mine was 46,364 ounces in the first quarter of 2023. In 2023, the company expects 170K-190K Au ounces of production at an AISC between $1,370 and $1,430 per ounce. AISC was relatively high here.

4.1.3 - The Otjikoto Mine In Namibia:

Gold production from the Otjikoto Mine was 38,491 ounces in the first quarter of 2023. In 2023, the company expects 190K-210K Au ounces of production at an AISC between $1,080 and $1,140 per ounce.

4.2 - All-in Sustaining Costs AISC and gold price history

In 1Q23, the AISC increased slightly from $1,030 in 4Q22 to $1,060 in 1Q23 despite inflationary pressures.

The gold price for 1Q23 averaged $1,901 per ounce, above the $1,746 per ounce realized the previous quarter.

4.3 - 2023 Outlook (Unchanged)

B2Gold expects to continue its strong operational performance in 2023, with total gold production forecast to be between 1 Moz and 1.08 Moz (including 60K to 70K attributable ounces from Calibre).

The Company's total consolidated cash operating costs for the year (including estimated attributable results for Calibre) are expected to be between $670 and $730 per ounce , and total consolidated AISC (including estimated attributable results for Calibre) will be between $1,195 and $1,255 per ounce .

4.4 - The Goose Project (100% acquired from Sabrina Gold )

The Goose Project is located in the Back River Gold District in Nunavut, Canada, with completion expected in 1Q25. It is a tremendous open pit project in a very safe jurisdiction.

Part III - Technical Analysis And Commentary

BTG forms an Ascending Wedge pattern with resistance at $4.45 and support at $3.95.

A rising wedge is a bearish stock pattern that begins wide at the bottom and contracts as trading range narrows and the prices move higher. This indicates slowing momentum and it usually precedes a reversal to the downside, meaning that traders can identify potential selling opportunities.

The dominant strategy I usually promote in my marketplace, "The Gold and Oil Corner," is to keep a core long-term position and use about 50%-60% to trade LIFO while waiting for a higher final price target to sell your core position. This strategy is perfectly adapted to BTG, letting you trade the short-term volatility and get a good dividend for your long-term position.

I recommend selling B2Gold Corp. partially between $4.40 and $4.50, with higher possible resistance at $4.75. Conversely, it is reasonable to buy back on any weakness between $4 and $3.85, with possible lower support at $3.75.

Watch gold like a hawk.

Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.

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