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B2Gold Bets on Fekola Mine, Unrest in Nicaragua a Worry

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On Sep 6, we issued an updated research report on B2Gold Corp. (BTG - Free Report) . In 2018, the better-than-expected production from the new mine, Fekola is expected to help offset the negative impact of the political strife in Nicaragua on the La Libertad and El Limon Mines. The company is likely to remain focused on continuing its impressive operational and financial performance from existing mines, paying down debt, pursuing expansion opportunities at existing operations, and continuing with exploration and development programs.
Sound Q2 - Earnings, Revenues Up, Record Production
B2Gold reported adjusted net income of $46 million or 5 cents per share in second-quarter 2018 compared with $13 million or 1 cent recorded a year ago. Revenues were at $285 million, up 73% from the year-ago quarter. Consolidated gold production was a record 240,093 ounces in the reported quarter, marking a significant increase of 98% over the same period last year and 7% above budget. This was driven by continued strong performance by the Fekola Mine in Mali, Masbate Mine in the Philippines and Otjikoto Mine in Namibia.
Fekola Mine Performing Better Than Expected
The new Fekola mine's rapid and successful ramp-up has surpassed the company's expectations. On Sep 25, 2017, the construction was completed within budget and the company commenced ore processing at the Fekola Mine, more than three months ahead of the original schedule. Gold production from the mine in 2017 was 111,450 ounces — more than double the upper end of its original 2017 guidance range (of 55,000 ounces) due to its early start-up, high-quality construction and faster-than-expected ramp-up.
The mine, which is in its second full quarter of commercial operations, produced 112,644 ounces of gold in the second quarter or 11% above budget. Backed by its strong year-to-date performance, B2Gold hiked Fekola’s annual production guidance to 420,000-430,000 ounces of gold from the previous 400,000-410,000 ounces.
Unrest in Nicaragua to Affect Production
Political strife in Nicaragua has led the company to lower production guidance for both the La Libertad Mine and El Limon Mine. Roadblocks related to the current national political unrest restricted the supply of key consumables (fuel and lime) during the month of June. During this time, the higher grade open-pit ore was replaced with lower-grade spent ore to reduce lime and fuel consumption. The company is now projecting to produce between 110,000 and 115,000 ounces in 2018 from the mine, down from the previous expectation of 115,000 and 120,000 ounces.
The El Limon mine is now expected to produce between 50,000 ounces and 55,000 ounces of gold in 2018, down from the previous guidance of 55,000-60,000 ounces. Given that the timing of a resolution of political tensions is uncertain, it will affect the production for the time being.
Guidance Still Upbeat
Despite disruptions in Nicaragua, the company projects gold production guidance between 920,000 ounces and 960,000 ounces for 2018, higher than its previous expectation of 910,000 ounces and 950,000 ounces in 2018. The guidance also reflects an increase in annual consolidated gold production of approximately 300,000 ounces from the prior-year level.
With the new Fekola Mine contributing to the production, the increase in production levels, along with low costs, is likely to boost B2Gold's production, revenues, cash from operations and cash flow in the years ahead. On an average, over the next three years, beginning in 2018, the company projects per annum gold revenues of approximately $1.2 billion, cash flow from operations of approximately $0.5 billion and a significant increase in free cash flow.
Lower Costs to Sustain Margins
Consolidated cash operating costs were at $474 per ounce in the second quarter, which was 15% below the budget and 25% lower than the prior-year quarter. Consolidated all-in sustaining costs (AISC) of $721 per ounce was significantly below the budget by $146 per ounce (17%) and $253 per ounce (26%) lower than the prior-year quarter.
Consolidated cash operating costs are expected to remain low in 2018. It is anticipated to be between $505 and $550 per ounce for the year. All-in sustaining costs are expected to be between $780 and $830 per ounce, reflecting a decrease of approximately 6% from 2017.
Growth Drivers in Place
B2Gold continues to focus on organic growth, unlocking potential value through the possible expansion of its existing mines, and development of opportunities at current projects along with further brownfields and grassroots exploration around the mines and existing properties.  As part of its strategy to pursue organic growth, the company has created a budget of $56 million for exploration in 2018. Brownfields exploration will make up approximately 80% of this budget, focusing on drilling campaigns on existing projects.
It also strives to maintain outstanding health and safety record and attain a strong financial position by reducing debt level. B2Gold will continue its long-term commitment to exploration as the cheapest source of growth by acquiring and funding exploration opportunities directly. It also considers potential exploration growth through joint-ventures as well as investing in junior companies with high-quality exploration projects.
Over the past year, B2Gold has outperformed the industry it belongs to. The stock has dipped 19% compared with the industry’s decline of 33%.
Zacks Rank & Stocks to Consider
B2 Gold currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the same sector are KapStone Paper and Packaging Corporation , Celanese Corporation (CE - Free Report) and Ingevity Corporation (NGVT - Free Report) . All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
KapStone Paper has a long-term earnings growth rate of 10%. The stock has rallied 54% in a year’s time.
Celanese has a long-term earnings growth rate of 10%. The stock has gained 19% in a year’s time.
Ingevity has a long-term earnings growth rate of 10%. The stock has appreciated 61% in a year’s time.
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