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

• Robust production figures: In the reported period of Q3 2021, the business produced 310,261 ounces of gold, with consolidated gold production of 295,723 ounces from its three active mines, and consolidated gold revenue of USD 511 million from sales of 286,650 ounces at an average realized price of USD 1,782 per ounce. The 5% rise in gold revenue was owing to a 13% increase in gold ounces sold, mostly due to increased gold output and shipment timing.

• Elevated cash flows: The company’s operating activities generated USD 320 million in cash flow in Q3 2021, compared to USD 300 million in the previous similar period. In the reported period, the rise was mostly due to increasing inflows of value added tax receivables. Also, higher than expected gold output and sales volumes helped the group to record a growth in cash flows.

• Industry beating margins: The management’s solid determination helped them leap the industry median margins on many fronts in Q3 2021, which is a key positive and exhibits the competitive advantage of the company within the industry. The chart below gives a glimpse of this.

Source: REFINITIV, Analysis by Kalkine Group

• Healthy guidance: The company has raised its overall gold production forecast range for the full year of 2021 to between 1,015,000 and 1,055,000 ounces, including 50,000–60,000 attributable ounces expected from Calibre. The original guidance was between 970,000 and 1,030,000 ounces. Hence the higher guidance is a key positive.

• Dividend distribution:Based on the Company's stable net cash position, robust operating results and the current higher gold price environment, the group recently declared a dividend of USD 0.04 per common share (USD 0.16 per share on an annualized basis) for Q4 2021. Notably, the stock carries a dividend yield of ~4.55%, which looks impressive considering the current interest rate scenario.

Risks associated with investment 

The Company’s financial performance is mostly dependent on the price of gold, which directly affects their profitability and cash flow. Any drawdown in the gold prices would impact the group’s performance.

Financial overview of Q3 2021 (Expressed in thousands of USD)

Source: Company Filing

• Consolidated gold revenue for the third quarter of 2021 was of USD 510.9 million against USD 487.1 million. An increase in gold revenue of 5% was attributable to the increase in gold ounces sold by 13%.
• On the back of higher production cost and higher depreciation cost, the company’s gross profit in the reported period declined to USD 235.1 million against USD 271.6 million in pcp.
• Operating income stood at USD 218.5 million compared to USD 426.9 million in pcp. The decline was due to the reversal of impairment of assets the company clocked in previous corresponding quarter.
• Primarily due to above discussed rationales the net income for the period was of USD 134.9 million against USD 277.0 million in pcp.
  

Valuation Methodology (Illustrative): Price to Cash Flow

Analysis by Kalkine Group 

Stock recommendation 

We believe the Company is delighted with its third quarter and first nine months of 2021 gold production results, as it has increased its overall gold production guidance to between 1,015,000 and 1,055,000 ounces, which is commendable, based on solid production performance to date. Furthermore, it is advancing its development initiatives while also assessing its portfolio and divesting non-core assets that do not match the Company's investment standards in order to maintain a healthy level of liquidity. Furthermore, the company outperforms the industry median margins on several fronts in Q3 2021, which, combined with a healthy dividend yield, is a big plus for investors. Therefore, based on the above rationale and valuation, we recommend a “Buy” rating on the stock at the closing price of CAD 4.47 on January 14, 2022. We have considered Endeavour Mining PLC, SSR Mining Inc, Yamana Gold Inc, etc. as the peer group for the comparison.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary

One-Year Technical Price Chart (as on January 14, 2022). Source: REFINITIV, Analysis by Kalkine Group

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

Disclaimer

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