B2Gold

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 preliminary Q3 2021 production figures: The company's total gold production in Q3 2021 has been 310,261 ounces, with consolidated gold production of 295,723 ounces from its three operating mines, as well as consolidated gold revenue is of USD 511 million on sales of 286,650 ounces at an average realized price of USD 1,782 per ounce in the third quarter of 2021.
• 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.
• Industry beating margins: The management’s solid determination helped them leap the industry median margins on many fronts in Q2 2021, which is a key positive. The chart below gives a glimpse of this.

• Dividend distribution:Based on the Company's stable net cash position, robust operating results and the current higher gold price environment, the group recently paid a dividend of USD 0.04 per share (USD 0.16 per share on an annualized basis) for Q3 2021. Notably, the stock carries a dividend yield of ~3.86%, which looks impressive considering the current interest rate scenario.
  

Financial overview of Q2 2021

Source: Company

• Consolidated gold revenue for the second quarter of 2021 was USD 363 million against USD 442 million. The decrease in gold revenue of 18% was attributable to the decrease in gold ounces sold mainly due to the lower gold production and timing of gold shipments.
• Gross profit in the reported period stood at USD 128.2 million against USD 238.1 million in pcp.
• On the back of lower revenue and higher cost of sales and higher operating expenses, the operating income came in at USD 108.5 million compared to USD 211.4 million in pcp.
• Primarily due to above discussed rationale, the net income for the period stood at 73.9 million against USD 137.9 million in pcp.

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.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock recommendation

For full-year 2021, based on strong production performance in the first nine months of 2021, the company has increased its total gold production guidance to between 1,015,000 - 1,055,000 ounces, which is admirable. Furthermore, it shared its preliminary Q3 production and revenue figures which boosts our confidence in the stock. Moreover, the company leaps the industry median margins on many fronts in Q2 2021, which is a key positive. Therefore, based on the above rationale and valuation, we recommend a “Hold” rating on the stock at the closing price of CAD 5.25 on October 21, 2021. We have considered Kinross Gold Corp, SSR Mining Inc, Wesdome Gold Mines Ltd, etc as the peer group for the comparison.

One-Year Technical Price Chart (as on October 21, 2021). Source: REFINITIV, Analysis by Kalkine Group

Wesdome Gold Mines Ltd.

Wesdome Gold Mines Ltd (TSX: WDO) is a gold producer engaged in mining-related activities, which includes exploration, processing, and reclamation.

Key Updates:

• Encouraging Q3FY21 production: For Q3FY21, the company reported total production of 29,344 oz, reflecting a surge of 47% on y-o-y basis. The increase was supported by additional production from the Kiena mine during the quarter. For 9MFY21, the company reported a 17% y-o-y jump in its production at 82,284 oz.
• Drilling activity update: Recently, the company reported underground exploration drilling results and an update from initial surface exploration from the Kiena Deep Zone. The group announced the discovery of a new high grade gold zone in the footwall of the A Zone and conducting in-fill drilling since March 2021. Additionally, the company also reported two drills on barges and the continuity of some gold anomalies across the Jacola Formation in the Kiena mine.
• Rise in cash balance: At the end of Q2FY21, the company reported a cash balance of CAD 67.799 million, which is higher than CAD 63.480 million in Q4FY20. A higher cash balance denoted higher liquidity, which is a key positive.

Q2FY21 Financial Highlights:

• WDO declared its quarterly result, wherein the company posted revenues of CAD 63.881 million, jumped from CAD 54.772 million in Q2FY20. The increase was primarily attributable to higher gold sales of 28,500 ounces v/s 23,140 ounces in pcp.
• Gross profit stood higher at CAD 34.107 million as compared to CAD 27.946 million in the previous corresponding period (pcp), primarily attributable to higher revenue, partially offset by a higher cost of sales (CAD 29.774 million v/s CAD 26.826 million in pcp).
• Operating income soared to CAD 85.513 million, from CAD 24.801 million in pcp, primarily due to inclusion of reversal of impairment charges amounting to CAD 58.563 million coupled with lower stock-based compensation expenses, partially offset by higher corporate & general expenses.
• The corporation reported a net income of CAD 35.957 million, jumped from CAD 8.164 million in Q2FY21.

Q2FY21 Income Statement highlights (Source: Company Report)

Risks: The performance of the company is correlated with the gold prices, and volatility in the gold price would negatively impact the company’s realization and sales and might lead to lower margins.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation:

The company commands higher profit margins than its peers, which indicates improved operational efficiencies. Notably, gross margin and EBITDA margin stood at 54% and 59.1%, respectively, in Q2FY21, higher than the industry median of 49.2% and 40.1%, respectively. We have valued the stock using the Price to CF-based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered peers like Jaguar Mining Inc, K92 Mining Inc etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 11.07 on October 21, 2021.

One-Year Technical Price Chart (as on October 21, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

Disclaimer

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