B2Gold Corp. (TSX: BTO) is a is an international, low-cost, senior gold mining company. It has three operating open-pit gold mines in Mali, Namibia, and the Philippines and numerous exploration projects across four continents. 

Key Highlights:

• Increased gold production: During Q1FY22 the company reported an increase in the gold production of a total 209,365 ounces, which is 5% (9,760 ounces) higher than the budgeted production for the same period. Further, the group's consolidated gold production for a similar period (Q1FY22) from its three mines was 196,473 ounces, which is 4% (8,431 ounces) higher than the budgeted production.

Source: Company presentation

• Lower than estimated costs: The company managed its operation across the mines with great efficiency, which resulted in the total consolidated cash operating costs of USD 699/oz (ounce) produced, lower than the budgeted costs by USD 94/oz (12%). To add more, the total consolidated all-in-sustaining costs (AISC) was USD 1,036/oz sold in Q1FY22, which is also lower than the budged costs by USD 318/oz (23%) sold.

• Strong outlook: For FY22,  the management forecasted the total gold production in the range from 990,000 oz to 1,050,000 oz. The total consolidated cash operating costs is estimated to be between USD 620/oz - USD 660/oz, whereas the total consolidated AISC is forecasted to be between USD 1,010/oz - USD 1,050/oz. Below is the pictorial presentation of the production guidance for FY22 with the breakdown as per each mine.

Source: Company presentation

• Industry beating profitability margins: During Q1FY22, the company reported increased revenues which were supported by the higher average realized gold price, which helped the company to attain higher profit margins as compared to the industry median.

Source: Refinitiv, Analysis by Kalkine Group    

Risks associated with investment

The group is majorly exposed to volatility in the gold prices and any sustained decline in the gold prices can hamper the revenues. Few other risks such as currency volatility, safety hazards in the mines, the decline in demand for gold, etc. are lingering on the business. 

Financial overview of Q1FY22 (Expressed in thousands of USD)

Source: Company Filing 

• During Q1FY22, the group reported an increase in total revenues to USD 365.58 million as compared to USD 362.30 million in Q1FY21. Though the gold sold in Q1FY22 was lower than the gold sold in Q1FY21, but on account of higher average gold realized prices in the reported quarter the company was able to report an increase in revenue.

• The gross profit was reduced to USD 139.67 million in Q1FY22 vs the gross profit of USD 157.41 million in Q1FY21. The total cost of sales surged to USD 225.91 million during Q1FY22 as compared to USD 204.88 million in Q1FY21, which resulted in a lower gross profit in Q1FY22.

• The group reported net income of USD 90.80 million in Q1FY22 which is lower than the net income of USD 98.83 million in Q1FY21.

Valuation Methodology (Illustrative): Price to Cash flow-based

Analysis by Kalkine Group

Stock Recommendation:

The company reported an increase in the revenue to USD 365.58 million during Q1FY22 against USD 362.30 million in Q1FY21, which was primarily driven by the higher average realized gold prices in Q1FY22. Further, the group also managed to keep its total consolidated cash operating costs and total consolidated all-in-sustaining costs (AISC), well below the budgeted levels in Q1FY22, which is a key positive. The optimistic outlook in terms of total annual gold production for FY22 to be between  990,000 oz and 1,050,000 oz and the total consolidates AISC in the range from USD 1,010/oz to USD 1,050/oz. On the valuation front, the stock is measured on the EV/ Sales based multiple and the stock is currently trading at 1.8x as compared to the industry (basic materials) mean of 2.4x, suggesting the stock is still undervalued. We have considered Endeavour Mining PLC, Yamana Gold Inc., etc as the peer group for the comparison.

Therefore, based on the above rationale and valuation, we recommend a “Hold” rating on the stock of BTO at the last closing price of CAD 5.32  on May 19, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as of May 19, 2022). Analysis by Kalkine Group

Note- The reference data has been partly sourced from REFINITV

Disclaimer

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