B2Gold (TSX: BTO) operates as a gold producer based out of Canada, with three operating mines in Mali, the Philippines, and Namibia. It operates the Fekola Mine in Mali, the Masbate Mine in the Philippines, and the Otjikoto Mine in Namibia. 

Key highlights

• Exploration permit:On February 2, 2022, the company announced that it was granted permission of exploration from the Government of Mali for the Bantako North and Anaconda area, near the Fekola Mine. For this activity, the company has kept aside a sum of USD 33 million in 2022 to execute the operations of Phase 1 for the Anaconda area.
  

• Shared preliminary production numbers:The company reported its gold production along with guidance on January 19, 2022, stating for the fourth quarter gold production reached 304,897 ounces. The striking point is that the revenues of USD 526 million on the total sales of 292,350 ounces were from the average selling price of USD 1,800 per ounce, which is almost on the higher side of the gold prices off late.

• Improving margins: In Q3FY21, the company performed well and reported higher Gross Margins of 46.0% as compared to the Q2FY21 Gross margins of 35.3%. further, on the Net Margin front for a similar period Q3FY21, an increase to 26.4% was recorded from the Q2FY21 Net margins of 20.4% and the company maintained to beat the industry median of Net margins of 12.9%.
  

  Source: REFINITIV, Analysis by Kalkine Group 

• Strengthening of liquidity in its books: The company outpaced on the current ratio (Current Assets/ Current Liabilities) by clocking at 3.54x as compared to the industry median of 1.51x. Further, its debt-to-equity ratio in a capital intense sector stood at 0.03x as compared to the industry median of 0.24x. These improving figures state that the company is taking care of its current assets and liabilities management along with the debt aspect on a very serious note.

Risks associated with an investment: The company carried the un-diversified risk related to the gold prices and any major accidents happening in any of its mines. Such risks are already priced in its borrowing costs, cash flows projections, etc. whereas the undiversified risks constituted of supply chain disruptions, mining costs, workforce, etc can be very well managed as the company showed in its results by managing its costs as per the budgeted amount. 

Financial overview of Q3 FY 2021 (Expressed in 000’s of USD)

Source: Company Filing 

• For Q3FY21, the company posted revenue of USD 511 million over the sales of 286,650 ounces of gold which was realized at an average price of USD 1,782 per ounce, which is higher than the revenues of USD 487 million on sale of 253,200 ounces at an average price of USD 1,924 per ounce. The inching up of the 5% in gold revenues is accounted for the 13% rise in sales of the quantity of gold.

• The dip in the operating income for the three months ended Q3FY21 to USD 218.47 million from the operating income of similar period Q3FY20 of USD 426.93 million is because of the one reversal of the impairment of the log lived assets included in Q3FY20. Leaving this one-time accounting gain, the results were on track.
• Net Income for the period stood at USD 123.11 million to its shareholders compared to USD 262.86 million in Q3FY2020.
  

Valuation Methodology (Illustrative): Price / Earnings per share

Analysis by Kalkine Group 

Stock recommendation

The company reported a strong set of numbers in terms of gold production of 304,897 ounces, reaping the revenues of USD 526 million at an average rate of USD 1,800 per ounce. This will be reflected in the coming results, giving a boost to its number, while keeping the other operational costs under check. Further, the lower debt ratio of the company gives a relief from the debt and interest repayment and especially in the rising interest rates world, which could further dampen its financials.  Therefore, based on the above rationale and valuation, we recommend a “Buy” rating at the closing price of CAD 4.70 on February 10, 2022. We have considered Yamana Gold Inc., Endeavour Mining Plc., Kinross Gold Corp., SSR Mining Inc., etc as the peer group for the comparison.

One-Year Technical Price Chart (as on February 10, 2022). Source: REFINITIV, Analysis by Kalkine Group 

 Technical Analysis Summary:

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