B2Gold: Look At The Price Of Gold For Direction

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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 third-quarter results on November 5, 2020.

BTG announced third-quarter 2020 adjusted earnings per share of $0.15 per share. The results were in line with analysts’ expectations. The company’s financial profile is now imposing, with long-term debt nearly gone.

The only concern remaining that could be a problem down the road is the assets’ location, especially the Fekola mine in Mali, the main mine for the company with 57.8% of the total output produced there as of 3Q’20. On August 19, 2020, the company announced that:

“…the Company continues to monitor the evolving political situation in Mali. B2Gold’s mining operations at its Fekola Mine have not been affected in any way and the Company continues mining and milling operations as normal. The Fekola Mine has sufficient supplies on hand to maintain its budgeted activities through the end of the third quarter and beyond if needed.”

Note: Mabaste mine in the Philippines had to shut down for six days after a strong earthquake occurred on August 18, 2020.

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-digit rate and is now up 49.38% since January 2020, despite some recent weakness.

ChartData by YCharts

The investment thesis is more complicated now for BTG and the gold industry in general.

The company is an excellent gold producer and should deserve an investor’s long-term attention. However, with a gold price showing some signs of fatigue lately and a potential retest of $1,750 per ounce midterm, we should be extra careful and protect the profit made either by using options or take some profit off the table.

Valuation is now a problem because it is directly tied to the gold price. If the gold price turns bearish, I would argue that B2Gold may be considered overvalued and can correct significantly.

Again, the solution is to trade your long-term position and take a good profit off the table at a key moment and wait for a retracement as an opportunity to add again for the next leg up. 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:

“Another very strong quarter, putting us on target to the lower end of our guidance for 2020 for the year.”

Note: B2Gold holds 93.332 million shares in Calibre Mining (OTCQX: CXBMF), representing a 30.08% stake approximately. The company received 15,030 Au Oz from Calibre mine in the third quarter of 2020.

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

ChartData by YCharts

B2Gold – 3Q ’20 Balance Sheet and Trend – The Raw Numbers

B2Gold 3Q ’19 4Q ’19 1Q ’20 2Q ’20 3Q’20
Total Revenues in $ Million 310.79 313.66 380.30 441.94 487.17
Net Income in $ Million 55.77 177.41 72.29 124.45 262.87
EBITDA $ Million 111.41 309.70 235.02 215.96 504.36
EPS diluted in $/share 0.05 0.17 0.07 0.12 0.25
Cash from Operations in $ Million 167.83 144.91 216.21 238.09 300.76
Capital Expenditure in $ Million 31.85 152.25 103.3 68.24 60.81
Free Cash Flow in $ Million 135.99 -7.34

112.91

169.85 239.95
Total cash $ Million 146.41 140.60 207.94 627.67 365.46
Total Long-term Debt in $ Million 366.19 261.85 225.01 471.09 40.87
Dividend $/share 0.01 0.02 0.04 0.04
Shares outstanding (diluted) in Billion 1.03 1.039 1.048 1.058 1.064
Production 3Q ’19 4Q ’19 1Q ’20 2Q ’20 3Q’20
Total Production gold 258,200 245,140 264,832 241,593 263,813
AISC from continuing operations/consolidated 807 869/882 689/721 714 766
Gold Price 1,488 1,483 1,588 1,719 1,924

Data Source: Company filing

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

1 – Quarterly revenues were $487.17 million for 3Q ’20

The company announced consolidated gold revenues of $487.17 million in the third quarter of 2020, up 56.8% from the year-ago period and up 10.2% sequentially.

Operating cash flow was a record $300.8 million for the third quarter of 2020 compared with the $167.8 million in the prior-year quarter.

The gold price progression since 2019 has been outstanding. The gold price for Q3 averaged $1,924 per ounce.

2 – Free cash flow and net debt

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

B2Gold had a record quarterly free cash flow of $239.95 million in 3Q ’20 and a yearly FCF (“TTM”) of $515.37 million.

B2Gold’s board pays a quarterly dividend of $0.04 per share or a yield of 2.82%. CFO Mike Cinnamond said in the conference call:

“We’re paying dividends right now at the rate of $0.04 per share quarterly that would be $0.16 annualized U.S., which equates about $170 million a year. That’s the yield right now about 2.4%, which I think puts us right up near the top of the dividend paying gold companies.”

B2Gold has no more net debt. The company’s long-term debt was $40.87 million (including short-term debt) as of September 30, 2020, compared with $261.9 million as of Dec. 31, 2019.

The company has reduced its long-term debt to nearly nothing and is now net debt-free. It has been a priority from management, and they delivered. The debt profile is a big plus from a long-term perspective.

CFO Mike Cinnamond said in the conference call:

“In the quarter, we paid that down $425 million, which was the total outstanding now on our revolver. So we have no amount drawn under the revolver. We just have a little bit of debt under the finance leases related to mainly to Fekola, about $50 million, but other than that there’s no other debt. And what we have left on the revolver is $600 million undrawn capacity plus another $200 million accordion so we really have $800 million of firepower [ph] there where the revolver as it stands.”

3 – Quarterly production analysis

B2Gold produced 263,813 Au oz in the third quarter of 2020 (please see charts below). It includes the Calibre Mining stake, with a total amount produced for BTG of 15,080 Au Oz (please see details in the charts below).

Below is the detail per mine from Q2 to Q3.

Gold price realized was $1,924 per ounce during 3Q ’20, including Calibre, and AISC was $766 for the three mines excluding Calibre. With Calibre, the AISC was $785 per ounce.

The company reported consolidated cash operating costs of $411 per ounce in the third quarter, down 7% from the same quarter last year.

B2Gold’s consolidated gold production was up 9.2% sequentially. On a year-over-year basis, gold production increased by 2.2%.

Gold production from the Fekola, Masbate, and Calibre was better than expected. Only Otjikoto mine performed less sequentially.

Guidance in 2020

Source: BTG Presentation

Conclusion and Technical analysis

B2Gold is a solid gold miner with a pristine balance sheet and good growth potential. A price of gold above $1,900 per ounce this quarter helped the bottom line tremendously.

However, this quarter’s most important element is the price of gold starting to show some signs of fatigue after reaching a record at $2,070 per ounce on August 9, 2020.

Again, if we look at the 10-year chart and adjust for inflation, we can see a perfect cup & handle forming. We are now in the handle part with a potential retracement that I estimate at about 15%, representing $1,750 per ounce.

It is not an exact science, but we should prepare for more downside for gold and consequently more downside for BTG, which is directly correlated. It is simple logic.

Thus, you must be prepared to trade more frequently and assume a lower high trend situation.

Technical Analysis

BTG formed a descending channel pattern with resistance at $6.90 and support at $5.90. A few days ago, the stock experienced a breakdown and reached the secondary support at $5.67 (200 MA).

The first conclusion is that the old support is now a resistance at $5.90, and we could eventually imagine a new pattern in progress called a descending triangle with new low support at $5.00.

The trading strategy now is to accumulate slowly with a potential retest of the $5 support (hoping it holds). I recommend selling now at or above $5.90.

Assuming that the gold price continues to weaken and trade in the $1,750 area, we may eventually go lower, potentially below $4.50. At this point, it would be an excellent opportunity to add again.

Author’s note: If you find value in this article and would like to encourage such continued efforts, please click the “Like” button below as a vote of support. Thanks!

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within 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 trade short term BTG, but I do not have a long term position at the moment.