B2Gold Corp. (TSX: BTO) is a gold mining company, which operates in mines and numerous exploration projects and have a presence across four continents in various countries, like Nicaragua, the Philippines, Namibia, Mali, and Burkina Faso. 

Key Highlights:

• Attainable Full-year Production Guidance: In Q1FY22, the company reported its total gold production of 209,365 ounces, which stood 5% higher than the company’s budget. For FY22, the company expects its full year gold production in between 990,000 to 1,050,000 ounces, which is in line with the previous year production of 1,047,414 ounces. The Fekola Mine is expected to report gold production of 5,70,000 to 6,00,000 ounces while 1,75,000 to 1,85,000 ounces of gold production is expected from the Otjikoto Mine. Cash flow from operating activities for FY22 is expected at ~USD 625 million and gold revenue is estimated at ~USD 1.76 billion.

 Source: Company Report 

• An increase in mineral reserve: Recently, the company reported a higher mineral reserve across the Anaconda area, which comprised of the Menankoto permit and the Bantako North permit and located nearly 20 kilometres from the Fekola Mine. This is including the initial estimates for oxide Indicated Mineral Resources and sulphide Inferred Mineral Resources. Below is the current indicated mineral reserve provided by the company.

Source: Company Report

• Industry beating margins: For Q1FY22, the company reported its EBITDA margin and operating margin of 53.4% and 32.3%, respectively, significantly higher than the industry median of 40% and 24.7%, respectively. Net margin was recorded at 24.8% in Q1FY22, as compared to the industry median of 13.1%. These indicates that the company has a better cost management when compared to the industry median.

Risk Associated with the Investment:

The company’s revenue is directly related to the international gold prices, and international price volatility would likely to impact the company’s revenue and cash flows. 

  Q1FY22 Financial Highlights:

 Q1FY22 Income Statement Highlights (Source: Company Report)

• In Q1FY22 result, wherein the company posted its gold revenue of USD 365.5 million, slightly higher than USD 362.3 million in pcp. The increase was primarily driven by an increase in average realized gold price of USD 1,874/oz v/s USD 1,791/oz in pcp. However, this was partially offset by lower sales volumes of 195,100 oz v/s 202,330 oz in pcp.
• The company reported its gross profit of USD 139.6 million, declined from USD 157.4 million in pcp, primarily due to a surge in cost of sales on account of higher production and depreciation costs.
• Operating income dipped to USD 118.1 million in Q1FY22 from USD 150.1 million in pcp, due to lower gross profit coupled with increase in share-based payments and higher general & administrative expenses.
• Net income stood lower at USD 90.8 million in Q1FY22, as compared to USD 98.8 million in pcp. This was primarily due to lower operating income, partially offset by lower interest & financing expense.
  

Valuation Methodology (Illustrative): Price to Cash Flow Based

Analysis By Kalkine Group

Stock Recommendation:

The company has retained its impressive profitability margins in Q1FY22, supported by strong cost management, which is encouraging. Notably, in Q1FY22, the company’s cash operating costs stood at USD 676/ ounce, which is well below the company’s budget of USD 760 to 800/ounce in H1FY22. Moreover, the stock of BTO carries a dividend yield of 3.668% on an annualized basis, which looks attractive considering the ongoing interest rate scenario. We have valued the stock using the Price to Cash Flow-based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered peers like Kinross Gold Corp, Endeavour Mining PLC etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of BTO at the last closing price of CAD 5.57 on May 05, 2022.

One-Year Technical Price Chart (as on May 05, 2022). Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV

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