B2Gold (TSX: BTO), is a Canada based low-cost international senior gold producer. The company has three operating gold mines and numerous exploration and development projects in various countries including the Philippines, Namibia, Mali and Colombia.

Key Highlights of Q3 2020

• Bullish stance of management: For FY 2020, the Company has forecasted consolidated gold production to be the range of between 1,000,000 and 1,055,000 ounces, with total consolidated cash operating costs to be between USD 415 and USD 455 per ounce.

• Expectation of higher cash flows: Based on forecasted total gold production assumptions, including a gold price of USD 1,900 per ounce for the balance of 2020, the Company expects to generate cash flows from operating activities of more than USD 900 million in 2020.

• Strong financial position: The company is virtually debt-free, as it has a total long-term debt of USD 25.8 million while the cash balance stood at USD 365 million. Recently, the group repaid an outstanding Revolving Credit Facility balance of USD 425 million, and now it has the full amount of USD 600 million in RCF, along with an additional accordion feature of USD 200 million.

• Dividend distribution: Based on the Company's stable net cash position, robust operating results and the current higher gold price environment, the group declared a dividend of USD 0.04 per share (USD 0.16 per share on an annualized basis) for fourth quarter of FY 2020, payable on 18^th December 2020, with a record date of 8^th December 2020. 

Financial Overview of Q3 2020

(Expressed in thousands of United States dollars, except per share amounts)

Source: company

• Consolidated gold production in Q3 2020 was of 248,733 ounces from three operating mines, reflected a significant increase of 17% (35,455 ounces) over the Q3 2019.

• The Company recorded consolidated gold revenue of USD 487 million in Q3 2020, a significant increase of USD 176 million over USD 310.7 million in the previous corresponding period.

• The Company’s net income attributable to the shareholders stood at USD 263 million in Q3 2020 as against USD 56 million in pcp, on the back of higher revenues and reversal of impairment of assets. 

Risk associated with investment

The company’s financial performance is mostly dependent on the price of gold, which directly affects the company’s profitability, margins and cash flows. The price of gold is subject to volatility. It is affected by various factors, such as the strength of the US dollar, Interest rates, Inflation rates, demand and supply, all of which are beyond the company’s control. 

Valuation Methodology (Illustrative): Price to Cash Flow

Note: All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

We expect the gold price to remain elevated despite a little pullback. Gold, as an asset class would continue to remain in the limelight as uncertainty over the global economic growth is still prevailing. We believe that average realized gold prices per ounce would continue to expand, which would lead to margin expansions. With a strong financial position, the company expects to generate cash flows from operating activities of more than USD 900 million in FY 2020. Therefore, based on the above rationale and valuation done using the above methodology, we have given a “Hold” rating at the closing price of CAD 7.13 on December 9, 2020. We have considered Kirkland Lake Gold Ltd, Yamana Gold Inc etc. as the peer group for the comparison.

Source: Refinitiv (Thomson Reuters)

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