B2Gold Stock: A Hidden Gem Amidst Rising Gold Prices And Expansion Projects (NYSE:BTG)

Thomas Demarczyk Introduction As gold prices have risen this year, reaching record highs surpassing $2,500, investors in gold miners have been rewarded, with the VanEck Gold Miners ETF (GDX) up over 18% year to date. However, not every miner has performed so well. B2Gold (NYSE:BTG), headquartered in Vancouver, and with three operational mines in Namibia, Mali, and the Philippines, has underperformed, with the shares flat year to date. Operations this year have been impacted by a delay in getting an exploration license in Mali, resulting in gold production set to be lower year-on-year. However, with a record high gold price supported by rising geopolitical tensions, increased central bank buying, and the prospect of interest rate cuts, I believe B2Gold is in a strong position. Combined with the Goose Bay project in Canada, with 3.6 million ounces of reserves and set to come online in 2025, and a recent agreement for expansion of the Fekola mine in Mali, I believe B2Gold is a buy. Data by YCharts Q2 Results and Mines Overview On August 9th, G2Gold released its earnings for Q2 2024. Production came in at 212,508 ounces, down 20% year-on-year. However, with a realized gold price up 19% from a year earlier, revenues actually increased 4.6% year-over-year, coming in at $492.57 million, beating expectations by $15.72 million. This translated into an adjusted net income of $78.4 million, resulting in an adjusted net income per share of $0.06, beating consensus estimates by $0.01. Operating cash flow before working capital adjustments was $192 million. Overall, AISC came in at $1,267, up 4% from the previous year, but below the annual guidance range for 2024. Fekola The Fekola mine has 3.39 million ounces of reserves, supporting mining into 2030, and is the largest of the company’s mines. Production in 2024 is guided at 435,000 ounces of gold, significantly lower than last year, at an AISC of $1510 to $1570. This reduction in production is due to the delay in receiving an exploration mining license from the Mali government, delaying 80,000 to 100,000 ounces that were due to be mined. Like many of B2Gold’s other mines, there is potential for output to continue for longer than planned, provided by regional sources such as the Anaconda and Dandoko areas. Additional exploration aims to further increase reserves to extend the mine’s life. B2Gold Corporate Presentation August 2024 After much uncertainty, B2Gold has finalized an agreement with the Mali government, expediting exploitation permits for Fekola Regional and underground projects. Production from Fekola Regional, including the Anaconda pit, is expected in early 2025, adding 80,000 to 100,000 ounces of gold annually. Underground production will begin in mid-2025. The Fekola Mine will continue under the 2012 mining code, while Fekola Regional falls under the 2023 code. Mali retains a 20% stake in the Fekola Complex, with B2Gold holding 80%. To offset fuel import taxes, the government agreed to reduce revenue-based taxes and royalties by 2%, balancing the additional tax costs. Overall, Fekola’s growth strategy remains strong, with further potential for exploration and expansion, helping extend the mine’s life. Masbate B2Gold’s Masbate Gold mine in the Philippines has forecast annual production of 175,000 – 195,000 ounces of gold at an AISC of $1260 to $1320 an ounce. With 1.61 million ounces in reserves at the end of 2023 at 0.76 g/t, processing is expected to continue until 2033. While reserves have been decreasing as mining occurs, the company hopes to extend the mine’s life, with a current project to target new regional projects in closer areas and convert inferred resources from areas below the existing design pit. As with many other mines, the higher gold price may also make mining economically viable for a larger pit, increasing reserves and mine life. Otjikoto The Otjikoto mine in Namibia is one of B2Gold’s lowest-cost assets with a predicted AISC of $960 to $1020 per ounce for 2024, with estimated production at 185,000-205,000 ounces. Despite a short reserve life of 220,000 ounces, the mine will continue producing until 2026 through open pit and underground operations. Afterwards, stockpiled ore will continue to be processed at a rate of around 50,000 ounces a year. There is however potential for mining to continue for longer, with the Antelope deposit, located 3 km from the current pit, showing potential for underground mining to extend production into 2030. With the current price of gold above the reserve price assumption, there is also the prospect that reserve estimates increase, and production occurs for longer than currently planned. Goose Project A mining company needs to replenish its mineral reserves, else it risks running out of resources to mine. Over the past few years, B2Gold’s reserves have been decreasing. However, they increased significantly over the past year, driven by the acquisition of Sabina Gold, which gave B2Gold ownership of the Goose project in Canada. The Goose project has 1.4 million ounces of proven mineral reserves at 5.54 g/t and 2.2 million ounces of probable mineral reserves at 6.29 g/t. Total resources exceed 9.2 million ounces, suggesting significant potential future upside. It ranks amongst one of the world’s largest undeveloped gold projects at a high grade. When operational, production is expected to exceed 310,000 ounces annually from 2026 to 2030, with further exploration giving the mine the potential to produce into the 2040s. B2Gold Corporate Presentation August 2024 B2Gold has allocated a $28.0 million exploration budget for 2024, focused on expanding resources at Goose and regional targets. Recent drilling results from Llama and Umwelt confirm the continuity of high-grade gold at depth, with intercepts such as 22.0 meters at 7.79 g/t Au. The nearby George deposit adds another 2.3 million ounces to the district, making this a potential gold mine both metaphorically and physically. With much of the infrastructure in place, including the completion of the 2024 winter ice road and two successful sealifts, the project is on track for the first gold production in Q2 2025. Canada’s stable mining environment and strong community support provide further confidence in the project’s long-term success and helps to de-risk the company’s production, which is often in riskier jurisdictions. Outlook Overall, B2Gold’s diverse portfolio of mines, and plans to increase and maintain production, place the company on a solid future footing. The recent agreement with the Mali government ensures expedited production from Fekola Regional and underground projects, potentially enhancing overall output starting in 2025 and extending the mine’s life. With other expansion projects, the upcoming start of mining at the Goose project, and the potential Gramalote project later this decade, B2Gold is on a solid future footing, and reserves per share have risen. Combined with a record gold price, I expect B2Gold to perform well in the future and existing mine’s life spans to be extended. Gold Price B2Gold is a gold miner, which, as to be expected, means its revenues and profits are heavily reliant on the price of gold. Since January, the price of gold has risen over 24%, reaching a record high of over $2500. The three main causes I believe causing this rise are central bank purchases, geopolitical tensions, and the prospect of falling interest rates. I covered these in more detail in my previous article on the VanEck Gold Miners ETF (GDX). Data by YCharts With none of these three factors showing signs of slowing down, and the Fed only just set to begin cutting US interest rates soon, the gold price has solid fundamentals supporting its current level, and I believe it has the potential to go even higher. This rise in gold price should feed through to B2Gold in the coming quarter, supporting revenues and profits, even if production falls as guided for this year. With the Goose project in Canada set to come online next year and production set to increase at the Fekola mine, B2Gold is set to make the most of these significantly higher gold prices, both now and in the future, with 2025 looking like a bumper year. Valuation Placing a valuation on a gold miner is hard, given their earnings reliance on the price of gold. In a rising gold market, all miners stand to benefit from a higher gold price, but miners have different valuations which may impact potential future returns. As such, I believe one way to value the company is in comparison to other large gold miners such as Agnico Eagle Mines (AEM) Barrick Gold (GOLD), Newmont (NEM), AngloGold Ashanti (AU), and Gold Fields (GFI). Given the large difference in cash and debt levels, a direct comparison of earnings multiples will not suffice, and I instead use an enterprise value to EBITDA multiple. Data by YCharts When compared to its peers, we see B2Gold trades at a significant discount with a forward EV/EBITDA multiple of 3.961, the lowest amongst its peers. Although B2Gold may warrant a slight discount due to its exposure to the higher-risk jurisdictions it mines in, the upcoming opening of the Canada Goose mine in a tier 1 mining jurisdiction helps reduce this risk, and the recent agreement on the Fekola project in Mali helps provide certainty for the company. As such, I believe on a comparison to peers’ basis, the company is undervalued. To determine a price value for the company, we employ a Net Asset Value (NAV) method. The company currently has 8.2 million ounces in attributable reserves. While I am bullish on gold in the long term, we assume a long-term gold price of $2,000/oz, resulting in forecast revenues of $16.42 billion. Assuming an AISC of $1150 per ounce, which is lower than the current forecast AISC for 2024 but in line with the company’s 2025 guidance, and considering the lower AISC forecast on the Canada Goose project, gives an operating profit of $6.97 billion. Using a 6.5% discount rate and an annual production rate of 1 million ounces, we assume reserves last 8 years, giving a present value of $4.65 billion. Assuming cash and debt remain constant at $466.8 million and $40.5 million respectively, gives a net asset value of $5.07 billion. With 1.31 billion shares in circulation, this gives a net asset value per share of $3.87. Being conservative, I believe the shares should trade for at least the net asset value, suggesting an upside of 21% to fair value. This is likely an undervaluation given the potential for AISC to be lower, a higher gold price, and for reserves to grow from both existing mines and the Gramalote project. Based on the comparison to peers and net asset value calculation, I believe B2Gold’s shares are a buy. Despite my positive view on the company, investing in B2Gold is not without its risks. I believe the primary risk is the company’s revenues and earnings dependence on the price of gold. Although I am bullish on the price of gold in the long term, changes in the price could impact the share price. Another risk is B2Gold’s large exposure to higher-risk mining jurisdictions in Mali and Namibia, which may be subject to political instability or regulatory changes that could negatively affect production and profitability. Conclusion B2Gold is a compelling buy for investors, particularly with the currently high gold price. Despite underperforming its peers so far this year, the company is well positioned to profit from the rising gold price, with the Goose Project in Canada, and the Fekola mine expansion supporting further upside. While the company does operate in higher risk jurisdictions such as Mali, recent agreements and upcoming potential in Canada, a tier one mining jurisdiction provide mitigation. With the stock trading at a discount to its peers and below its current net asset value, I believe B2Gold is undervalued, and the shares are a buy.

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