- B2Gold reported its FY-2019 results last week, beating guidance across the board after another record year from the company's Fekola Mine.
- Annual earnings per share grew by 43% year-over-year to a new high, solidifying the uptrend following a breakout year for earnings per share in FY-2018.
- B2Gold continues to be arguably the most attractive gold producer in Africa, with Endeavour Mining coming in a close second.
- Based on continued strong performance operationally, and robust earnings estimates for FY-2020, I would view any 25% pullbacks as buying opportunities.
It's been a decent start to the Q4 earnings season for the gold miners (GOAU), but some turbulence in gold (GLD) last week sent many miners plunging to multi-month lows, despite satisfactory FY-2019 results. Fortunately, B2Gold (NYSE:BTG) came out relatively unscathed last week on a relative basis, as the stock only returned to January levels, while other names like Kirkland Lake Gold (KL) and Agnico Eagle Mines (AEM) made new lows.
The robust relative performance was thanks to an exceptional Q4 earnings report released Thursday for B2Gold, with outstanding results both operationally and financially. Not only did the company beat guidance across the board, but they're set for further production growth in FY-2020 outlined in their forward guidance of 1.03 million ounces of annual gold production. Based on B2Gold's continued operational excellence and strong project pipeline, I continue to believe the stock is the most attractive African gold producer. Therefore, I would view 25% pullbacks in the stock as buying opportunities.
B2Gold is the most recent name to report its FY-2019 results, and the company enjoyed a blow-out year, with annual gold production of 980,200 ounces, more than 2.5% above the 955,000-ounce production guidance midpoint provided in January 2019. The star performer in the company's project portfolio was their 80%-owned Fekola Mine in Mali, where the company saw annual gold production of 455,800 ounces, and this was 6% above the production guidance mid-point of 420,000 ounces to 430,000 ounces.
At Otjikoto in Namibia, the company also beat guidance, with 178,000 ounces of gold production, more than 8,000 ounces above the mid-point, or 4% above guidance. Finally, the company's Masbate Mine in the Philippines had a solid year, with 217,000 ounces of gold production, more than 3% above the upper end of guidance. Overall, it was an exceptional year for the company, but I would argue that the best is still yet to come.
(Source: Company News Release, B2Gold FY-2019 Guidance)
B2Gold is guiding for increased production at lower costs in FY-2020, with production guidance set at 1.03 million ounces for FY-2020, at all-in sustaining costs of $800/oz. These cost projections are more than 6% below last year's all-in sustaining costs of $862/oz and are nearly 15% below the industry average of $950/oz. Following the sale of the company's Nicaraguan mines to Calibre Mining (OTCQX:CXBMF), B2Gold's costs are likely to drop dramatically, which is reflected in the FY-2020 guidance.
This is because La Libertad and El Limon were the two massive cost laggards in B2Gold's portfolio, diluting the industry-leading all-in sustaining costs from Fekola on a consolidated basis. As the table below shows, all-in sustaining costs at La Libertad were projected at $1,170/oz at the mid-point for FY-2019, while El Limon all-in costs were expected to come in at $1,025/oz. With these two mines out of the way, Fekola will be able to shine in the portfolio, and not worry about being dragged down on a company-wide cost basis by these two sub-par mines.
(Source: Company News Release)
If we look at the table below, we can see that B2Gold has managed to grow annual gold production for seven years in a row, while also seeing a dramatic trend lower in all-in costs. For FY-2020, the company's output is expected to grow even further. This would mark the eighth year in a row of robust production growth, and the first year for the company as a senior gold producer (1 million ounces of gold production). It's important to note that while FY-2020 is set to be a strong year with the Fekola expansion underway, the company could eventually see long-term gold production of over 1.2 million ounces per year with the addition of the Snakes deposits north of Fekola, or the addition of Gramalote, where we should get a production decision by year-end.
(Source: Company Presentation)
Beginning with the Fekola expansion, we can see below that the company has already managed to increase production by over 60% from the original life of mine plan, which called for 276,000 ounces of annual gold production. However, based on the increase to 7.5 million tonnes per annum, gold production has the potential to nearly double from the 2015 mine plan, with gold production of 550,000 plus ounces per year from 2020 through to 2024. The expansion's completion is scheduled for Q3 2020, with the Fekola Solar Plant also on budget thus far, and on schedule with a similar timeline. The Fekola Solar Plant will be one of the largest off-grid hybrid solar/Heavy Fuel Oil plants in the world when complete and is expected to reduce processing costs by over 7%.
(Source: Company Presentation)
Moving over to the company's Gramalote Project in Colombia, the company's recently released Preliminary Economic Assessment [PEA] envisions average annual gold production of 283,800 ounces at industry-leading all-in sustaining costs of $648/oz. Not only would this allow B2Gold's annual production to increase by more than 10%, but it would have a positive impact on all-in sustaining costs on a consolidated basis, as more than 50% of the company's production would be coming in at below $700/oz (Fekola and Gramalote).
It's too early for a production decision yet, but the $900 million pre-production capital cost is more than manageable long term for B2Gold as the company is generating significant cash flow, with estimates for $700 million in operating cash flow in 2020 alone at a $1,500/oz gold price. In terms of catalysts going forward for B2Gold, this will be a key one to watch in the latter half of 2020 as a Feasibility Study is commissioned.
(Source: Company Presentation)
If we move over to the company's financial growth metrics, B2Gold had an exceptional year, with 43% growth in annual earnings share [EPS]. As we can see in the chart below, annual earnings per share finally had a breakout year in FY-2018, with $0.16 in EPS, pushing above the prior peaks of $0.11 in FY-2012 and FY-2013. Since FY-2018, the trend has clearly continued, and we are likely to see new all-time highs for FY-2020 as well.
FY-2019 annual earnings per share came in at $0.23, and current FY-2020 projections are for $0.34. Based on this, B2Gold is trading at a very reasonable valuation of only 11.8x forward earnings, using a current share price of $4.00. From a valuation standpoint, this is more than reasonable for a company putting up consistent double-digit annual EPS growth.
(Source: YCharts.com, Author's Chart)
If we look at the company's quarterly revenue growth, we also see a solid uptrend, with Q4 2019 revenue coming in at $313.7 million, up 36% year-over-year. This was the strongest quarter of growth in over a year for the company, and the two-quarter average revenue growth rate (white line) continues to trend higher. While the trend below shows that we are expected to taper off and more or less flat-line following Q4 2019, I would argue that these revenue estimates are conservative if the strength in the gold price continues.
Current revenue estimates for Q1 2020 are for $344.5 million, but I believe these are a little on the conservative side, as well as the forecasts for Q2 2020 of $357.1 million. Therefore, I do not think this flat-lining in revenue is a huge issue, especially considering that B2Gold has one of the highest quarterly revenue growth rates in the industry. Currently, the industry average for Q4 2019 is 27%, and B2Gold is tracking 900 basis points higher at 36%.
(Source: YCharts.com, Author's Chart)
(Source: Author's Chart)
B2Gold had an exceptional year in FY-2019, and the momentum is expected to continue into FY-2020. Based on the potential for long-term production growth from the Snakes deposits in Mali, or the addition of Gramalote, there is a path to B2Gold solidifying itself as a 1.2 million ounce gold producer by FY-2023, reflecting another 20% growth in production.
Based on this, annual earnings per share of $0.48 or higher seems easily attainable for FY-2023, meaning that the company is a steal long term below $3.83 per share, or at less than 8.0x FY-2023 earnings based on my estimates. Therefore, I would view any 25% pullbacks to this level as buying opportunities, and I continue to see the stock as the most attractive African gold producer. At current levels just above $4.00, I see the stock as a Hold.
This article was written by
Analyst’s Disclosure: I am/we are long GLD. 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.
Disclaimer: Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.
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