B2Gold Corporation

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Fekola Poised For Take-off

Our Conclusion

Fekola is a game changer for B2Gold with ~400koz of low-cost gold production planned for 2018. With this, we expect BTO to produce >900koz of gold next year, generating ~US$300M in free cash (OCFCapex). As a result, BTO transitions towards the largest producing mid-cap gold company in our coverage universe and we anticipate BTO shares will re-rate higher accordingly, as Fekola becomes derisked by reaching full production. Reiterate Outperformer rating.

Implications
BTO announced that Fekola construction is complete and ore processing has now commenced with the first gold pour imminent. The company also released an updated mine plan for Fekola that includes expansion of the mine/process plant from 4Mtpa to 5Mtpa. We had incorporated the higher throughput in our model as it had been previously signaled, however today’s release clarifies improved parameters vs. the company’s previous feasibility study:
– Gold production of ~400koz over the first three years vs. 333koz,
– Mine life reduced to 10 years from 12.5 years,
– AISC of $604/oz for the first three years vs. $717/oz,
– LOM AISC down ~11% to $664/oz vs. $752/oz.

BTO is also hinting at potential for the Fekola mine life to be extended through expansion of the deposit on the north end (Kiwi/Fekola Deep zones). Kiwi and Fekola Deep could represent significant organic growth potential, not including the Anaconda and Adder deposits in the area, which may represent additional upside
for future Fekola mill feed or prove to be standalone operations.

Valuation
BTO currently trades at ~1.1x on a P/NAV (5%) basis and ~5x on 2018E P/CF. With the ~65% increase in production next year, BTO is the largest mid-cap in our universe and we anticipate BTO shares should re-rate towards larger-cap peer multiples. Large-caps in the CIBC universe currently trade ~1.7x on P/NAV and ~9x 2018E P/CF.

All figures in US dollars, unless otherwise stated.(C$1.233:US$1)