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Source: Mining – Fekola Mine located near Mali’s border with Senegal. Courtesy: Africa mining Market

Investment Thesis

Vancouver-based gold miner B2Gold Corp. (BTG) released its second-quarter results on August 7, 2020. Good quarter overall, with record revenues of $442 million pushed by an increase of 31% in the average realized gold price.

The price of gold has been extremely beneficial for the company, and we should expect another record in revenues for the third quarter as well. The gold price has corrected a little recently, but it is still above $1,900 per ounce after reaching a record over $2,070 in early August.

B2Gold outperformed the VanEck Vectors Gold Miners ETF (NYSEARCA: GDX) by a large margin. If we look at the chart below, BTG increased at a double rate and is now up 87.71% yearly. It is double the rate of GDX.

ChartData by YCharts

The investment thesis starts to be tricky for BTG. It is an excellent gold producer and should deserve an investor’s long-term attention.

The company owns good mines with potential growth, which is enough to adopt a long-term position.

However, the valuation has been stretched considerably, and I do not recommend investing in the long term at those hefty prices. Yes, we can always imagine higher highs, but the old saying “what goes up must go down eventually” is particularly apt here.

The conclusion is that the gold price is not far away for a temporary peak, and trading short-term gold miners should be wise. The top may eventually be extended a little, but it is not what will create the boom the gold price requires to cross the resistance. Hence, I recommend reducing your long-term position and use any uptick to sell about 40% of your position.

CEO Clive Johnson said in the conference call:

“We had a record for both revenue and operating cash flow, both quarterly records. And we had a good lead in the – for budget on our operating cash cost per ounce and our all-in sustaining costs per ounce, and we are announcing as well that we are doubling our dividend again from $0.02 to $0.04 a share.”

B2Gold holds 93.332 million shares in Calibre Mining (OTCQX:CXBMF), representing a 30.08% stake approximately. The company received 2,019 Au Oz from Calibre mine in the second quarter of 2020.

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So far, BTG has slightly outperformed the VanEck Vectors Gold Miners ETF.

Chart

B2Gold – 2Q ’20 Balance Sheet and Trend – The Raw Numbers

B2Gold 2Q ’19 3Q ’19 4Q ’19 1Q ’20 2Q ’20
Total Revenues in $ Million 267.21 310.79 313.66 380.30 441.94
Net Income in $ Million 37.90 55.77 177.41 72.29 124.45
EBITDA $ Million 132.20 111.41 309.70 235.02 215.96
EPS diluted in $/share 0.04 0.05 0.17 0.07 0.12
Cash from Operations in $ Million 92.82 167.83 144.91 216.21 238.09
Capital Expenditure in $ Million 38.18 31.85 152.25 103.3 68.24
Free Cash Flow in $ Million 54.63 135.99 -7.34

112.91

169.85
Total cash $ Million 113.52 146.41 140.60 207.94 627.67
Total Long-term Debt in $ Million 447.09 366.19 261.85 225.01 471.09
Dividend $/share 0.01 0.02 0.04
Shares outstanding (diluted) in Billion 1.02 1.03 1.039 1.048 1.058
Production 2Q ’19 3Q ’19 4Q ’19 1Q ’20 2Q ’20
Total Production gold 246,020 258,200 245,140 264,832 241,593
AISC from continuing operations/consolidated 807 807 869/882 689/721 714
Gold Price 1,313 1,488 1,483 1,588 1,719

Data Source: Company filing and Morningstar

Analysis: Revenues, Free Cash Flow, Net Debt, and Gold Production

1 – Quarterly revenues were $441.94 million for 2Q ’20

The company announced consolidated gold revenues of $441.94 million in the second quarter of 2020, up 65.4% from the year-ago period and up 16.2% sequentially.

Operating cash flow was a record $238 million for second quarter 2020 compared with the $83 million in the prior-year quarter.

Source: July Presentation

The gold price progression since 2019 has been exceptional.

2 – Free cash flow and net debt

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

B2Gold had a quarterly free cash flow of $103.55 million in 1Q ’20 and a yearly FCF (“TTM”) of $252.29 million. It is quite impressive.

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B2Gold’s board increased the quarterly dividend to $0.04 per share. A 100% increase.

B2Gold has no more net debt. The company’s long-term debt was $448.75 million as of Jun 30, 2020, compared with $261.9 million as of Dec. 31, 2019.

The company is reducing the debt, and it is the number one priority. CEO John Clive said in the conference call:

“We’re announcing that we intend to fully repay our revolving corporate facility in the third quarter of the year. We’re in a net positive cash position today. It’s a great place to be in. Given our projected — remarkable projected total cash operations this year we’re expecting, we thought it was very appropriate to increase the dividend to $0.04 per share.”

Note: On April 8, 2020, BTG drew down $250 million from its revolver as a precautionary measure.

3 – Quarterly production analysis

From Presentation

B2Gold produced 241,593 Au oz in the second quarter of 2020 (please see charts below). It includes the Calibre Mining stake, with a total amount produced for BTG of 2,019 Au Oz (please see details in the charts below).

Gold price realized was $1,719 per ounce during 2Q ’20, including Calibre.

B2Gold’s consolidated gold production was down 8.8% sequentially. On a year-over-year basis, gold production decreased by 1.8%.

Gold production from the Fekola, Masbate, Otjikoto, and Calibre was better than expected. Fekola mine has done particularly well sequentially.

Guidance in 2020

Source: BTG Presentation

Conclusion and Technical analysis

As I said in my precedent article, the company’s flagship Fekola Mine in Mali is not without its problems due to extremists’ activity, government corruption, and other inefficiencies, which are standard practice in Africa. It is a risk that should be assessed quarterly to balance your trading account with your long-term position.

One exciting element put on hold recently due to the COVID-19 pandemic is the solar forecasting system being built at Fekola. For the ones who are interested, here is a recent article about the $38 million projected costs.

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Technical Analysis

BTG was forming an ascending channel pattern with line resistance at $7.75. The short-term strategy is to take partial profit at or above $7.50 and wait for a retracement.

I see lower support at the 50MA around $6.00, at which point I recommend buying and accumulating again. The drop will depend on the price of gold.

Any substantial drop in the next few weeks should be considered as an opportunity because of the potential boost that will come with the Q3 ’20. It is not a guarantee, but it is likely with healthy production and gold price averaging $1,900 per ounce or more.

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Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in BTG over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am trading BTG short term but will be willing to start a long term position at or below 6-6.50.



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