For the second quarter of 2014, the Company generated a (GAAP) loss of $11.5 million (negative $0.02 per share) compared to (GAAP) net income of $33.1 million ($0.05 per share) in the equivalent period of 2013. (GAAP) net income was higher in the second quarter of 2013, as it included a $44.5 million gain on the sale of the Company's Brucejack royalty on May 13, 2013.
For the six months ended June 30, 2014, the Company generated a (GAAP) loss of $35.5 million (negative $0.05 per share) compared to (GAAP) net income of $33.1 million ($0.05 per share) in the comparable period of 2013. Year-to-date, adjusted net income was $19.3 million ($0.03 per share) compared to $46.2 million ($0.07 per share) in the same period of 2013. The most significant adjustment made to adjusted net income in the 2014 period was the exclusion of the non-cash fair value adjustment of $42.7 million relating to the change in fair value of the convertible notes. The 2013 adjusted earnings figure included a reversal of $32.9 million of costs related to the acquisition of the Masbate Mine's bullion inventory, as well as the $44.5 million gain realized from the sale of the Company's Brucejack royalty.
Liquidity and Capital Resources
At June 30, 2014, the Company remained in a strong financial position with cash and cash equivalents of $134.8 million and working capital of $195.9 million. In the first-half of 2014, resource property expenditures totaled $182.7 million which included Otjikoto Mine construction and mobile equipment expenditures of $103.7 million. The Company expects that it will be able to complete the Otjikoto Mine construction along with its other planned 2014 capital and exploration expenditures, by using its strong mine operating cash flows, existing cash position and its available credit facilities. In 2015, the Company's cash from operations is expected to increase significantly due to gold production from the Otjikoto Mine.
At June 30, 2014, the Company had available a $200 million Senior Credit Facility of which $75 million had been utilized. On February 19, 2014, the Company entered into an amending agreement pursuant to which the facility amount of the Senior Credit Facility was increased by $50 million to a total amount of $200 million, subject to updating security documents to reflect the increased amount of the facility. The Company also has a $35.7 million Otjikoto equipment loan facility available (based on current foreign exchange rates), of which $30.5 million had been drawn down by June 30, 2014.
Operations
Masbate Gold Mine - Philippines
At the Masbate Mine in the Philippines, second quarter production was 36,901 ounces of gold, 2,920 ounces below budget, and approximately 4% lower than in the same quarter last year. As expected, gold production was affected in the quarter as the SAG mill was shut down during change-out from May 29th to June 28th, reducing mill throughput by approximately 54% (slightly more than originally anticipated) during this period. The new SAG mill is now in operation and is performing its function well after a short period of commissioning. The project was completed on time with no safety incidents.
Masbate's cash operating costs for the second quarter of 2014 were $844 per ounce, $35 per ounce higher than in the prior-year quarter (as a result of lower gold production due to the SAG mill change-out), and approximately 3% higher than budget.
Year-to-date, gold production was 79,477 ounces compared to budget of 91,713 ounces, and to 81,877 ounces in the first half of 2013 (including 7,087 non-attributable ounces for the pre-acquisition period from January 1, 2013 to January 15, 2013). Masbate's production guidance for the year remains unchanged. Gold production was lower than budget, due to a number of factors. At the end of 2013, mine development at the Colorado Pit had advanced more slowly than planned. As a result, mill feed in the first-half of 2014 contained transitional and primary ore from the HMBE and Main Vein Pits not anticipated in the budget, which have a lower predicted recovery than the oxide ore from the Colorado Pit. As the Colorado Pit development is expected to catch up to budget in the second half of 2014, the high grade oxide ore from Colorado which had been scheduled to be processed will be mined and processed throughout the second half of the year. In addition, throughput in the second quarter was lower than budget due to lower ball mill feed in June when the SAG mill was being replaced resulting in lower than budgeted production.
For the first half of 2014, Masbate's cash operating costs were $779 per ounce, a reduction of $48 per ounce over the same period last year, and $3 per ounce below budget. Overall, Masbate's operating costs for the year-to-date period remained on budget.
Total capital expenditures during the three and six months ended June 30, 2014 totaled $16.4 million and $25.9 million, respectively, consisting mainly of the SAG mill change-out ($11 million including purchase, installation and upgrades), a tailings dam expansion ($5 million), the construction of a water treatment plant and additions to mining equipment.
Transition from contract mining to self-mining is currently proceeding smoothly at Masbate with mining equipment transferred at the end of the second quarter. Remaining changes include employee movements in the third quarter and transfer of maintenance functions at year-end.
The Masbate Mine is projected to produce approximately 190,000 to 200,000 ounces of gold in 2014, at an operating cash cost of approximately $765 to $800 per ounce. The Company expects that based on current forecasts, the Masbate Mine will meet the lower end of its production guidance range.
Last year, the Company began a metallurgical sampling and analysis program in order to assess the potential for a mill expansion at the Masbate Mine. That preliminary work continues, with conclusions expected in the fourth quarter of 2014. A proposed mill expansion would allow the Company to take advantage of opportunities to process additional ore, allow for the full utilization of the new SAG mill and optimize process plant gold recoveries.
La Libertad Gold Mine - Nicaragua
La Libertad Mine continues its strong operational performance. Gold production was 37,681 ounces in the second quarter of 2014, exceeding budget by 2,026 ounces, and approximately 27% higher than in the same quarter last year. Higher grade than budgeted (2.26 g/t processed versus 2.13 g/t budget) from the Mojon, Crimea and Jabali pit sources contributed to the surplus production, as well as higher gold recoveries (94.7% recovery versus 94.0% budget), as a result of the addition of lead nitrate and higher residence time in the leach tanks.
In the 2014 second quarter, La Libertad's cash operating costs were $553 per ounce, a decrease of $106 per ounce compared to the prior-year quarter, and $30 per ounce below budget. Cash operating costs were better than budget, due to higher gold production arising from better gold grades and higher gold recoveries.
For the first-half of the year, La Libertad produced 76,277 ounces, exceeding budget by 4,456 ounces, and approximately 30% higher than in the same period in 2013. Year-to-date, La Libertad's cash operating costs were $547 per ounce, a decrease of $77 per ounce over the corresponding period last year, and $36 per ounce below budget.
Total capital expenditures during the three and six months ended June 30, 2014 totaled $9.5 million and $15.9 million, respectively, consisting mainly of deferred stripping costs at the Mojon pit and Jabali ($8 million), equipment purchases ($3 million) and the La Esperanza tailings dam construction costs ($5.9 million). The tailings dam construction is complete.
La Libertad Mine is projected to produce approximately 143,000 to 150,000 ounces of gold in 2014 at a cash operating cost of approximately $545 to $565 per ounce.
El Limon Gold Mine - Nicaragua
The Limon open pit and underground mine produced 11,122 ounces of gold in the 2014 second quarter, 3,670 ounces below budget, and approximately 22% lower than in the same quarter last year. Gold production in the quarter was affected by underground mine development at Santa Pancha 1 advancing more slowly than planned, due to delays in the installation of a water pump well (designed to remove underground water). As a result of the delays, access to higher grade zones at Santa Pancha 1 was affected. Mill feed (which had been budgeted to be 52% high grade material from Santa Pancha 1) was achieved in the quarter with ore coming from lower grade zones and surface sources. However, the necessary activities to complete the dewatering of Santa Pancha 1 will be completed in the second half of the year. In addition, Santa Pancha 2 development and dewatering has been accelerated to add alternative high grade sources. Gold grades at Santa Pancha 2 are expected to be in the 5 grams per tonne range. Overall, production guidance for the year remains unchanged. The Company expects that based on current forecasts, the Limon Mine will meet the lower end of its production guidance.
El Limon's cash operating costs were $872 per ounce in the second quarter, approximately 29% higher than in the prior-year quarter, and 16% above budget of $750 per ounce. Per ounce cash operating costs are expected to decline in the second half of the year, as access to the planned Santa Pancha 1 higher grade ore body is restored.
For the first half of 2014, El Limon produced 26,253 ounces of gold compared to 28,248 ounces in the first six months of 2013, and to budget of 30,499 ounces. Year-to-date, El Limon's cash operating costs were $729 per ounce, approximately 8% higher compared to the same period last year, and 3% above budget of $707 per ounce.
Total capital expenditures during the three and six months ended June 30, 2014 totaled $5.3 million and $10.2 million, respectively, consisting mainly of development costs for Santa Pancha ($2.5 million), deferred stripping costs ($2.5 million) and equipment purchases, including underground production equipment and pumps ($5 million).
El Limon is projected to produce approximately 62,000 to 70,000 ounces of gold in 2014 at a cash operating cost of approximately $650 to $675 per ounce. The Company expects that based on current forecasts, the Limon Mine will meet the lower end of its production guidance.
Development Projects
Otjikoto Development Project, Namibia
Construction at the Company's open pit Otjikoto Mine in Namibia remains on time and on budget. Construction is expected to be completed and production is scheduled to commence in the fourth quarter of 2014.
Construction commenced January 2013 and will continue into the fourth quarter of 2014. Construction is being managed by B2Gold's experienced team. The mill and mining offices have been completed by a local Otavi contractor, and construction of all the other administration buildings is 100% complete. Mill construction activities continue to progress, the majority of concrete has been poured in this area and all Leach and Carbon in Pulp tanks have been erected. The diesel and water reservoir tanks have been erected. Construction of the Primary Crusher is complete. The shells of both the SAG mill and ball mills have been assembled in the milling area. Erection of the pre-leach thickener and the tailings thickener are in progress. Project-to-date, a total of 18,500 cubic metres of concrete has been poured. The tailings facility is materially complete encompassing 1.5 million cubic meters of earth movement, and including the placement of an impermeable liner to protect the environment. A construction camp about two kilometres northeast of the mine is operational and able to accommodate construction workers at the Otjikoto site, although a large percentage of the workforce comes from Otavi and Otjiwarongo and are bussed to the site on a daily basis. At present, it houses 300 construction workers. Surface mine development has progressed well. Project-to-date production stands at 8.4 million tonnes mined (waste and ore) against a budget of 8.6 million tonnes. Ore mining commenced in June 2014 and activities are focused on building the ore stockpiles in preparation for planned commissioning.
Pre-production expenditures for the six months ended June 30, 2014 totaled $103.7 million (on a cash basis), including mobile equipment purchases of $7 million, power plant costs of $3.1 million and pre-stripping costs of $4.6 million. Total construction and development costs remain in-line with the Otjikoto feasibility study released in February 2013, including pre-development costs of $244 million and deferred stripping estimates of $33 million. The Otjikoto feasibility study also assumed that a further $60 million in mobile mining fleet and power plant costs would be lease financed. Leasing arrangements finalized in the fourth quarter of 2013 will finance $36 million of mobile mining fleet costs, based on current foreign exchange rates. The balance of the fleet and power plant costs has been funded from the Company's existing cash flows and credit facilities.
The current mine plan is based on probable mineral reserves of 29.4 million tonnes at a grade of 1.42 g/t containing 1.341 million ounces of gold at a stripping ratio of 5.59:1 to be mined over an initial 12 year period. The current average annual production for the first five years is estimated to be approximately 141,000 ounces of gold per year at an average cash operating cost of $524 per ounce and for the life of mine approximately 112,000 ounces of gold per year at an average cash operating cost of $689 per ounce. However, based on the positive drill results from the Wolfshag zone to date, on January 21, 2014 the Company announced plans to expand the Otjikoto mine in 2015, increasing ore throughput from 2.5 million tonnes per year to 3 million tonnes. The increased throughput will be achieved through the installation of a pebble crusher, additional leach tanks and mining equipment at a total cost of approximately $15 million. Once the expansion is completed at the end of 2015, the Company expects that the annual gold production from the main Otjikoto pit would increase to approximately 170,000 ounces per year.
The 2014 Otjikoto exploration program is budgeted at $8 million. The exploration drilling program will focus primarily on infill drilling on the northern portion of the Wolfshag zone and will further test the extension of the Wolfshag zone to the South. The Company anticipates being in a position to upgrade the mineral resource classification to the indicated category by the end of 2014. The 2014 program will also include metallurgical and geotechnical test work for the Wolfshag zone.
Kiaka Development Project, Burkina Faso
The Company owns an 81% interest in the Kiaka project following its acquisition of Volta Resources Inc. in December 2013. The property is located in south central Burkina Faso in the regional province of Boulgou and Zoundweogo, approximately 140 kilometres southeast of the capital Ouagadougou.
A permitting study to advance the Kiaka Project to an exploitation licence was completed and submitted to the Ministry of Mines and Energy in Burkina Faso on March 13, 2014. The permitting study is based on processing 6 million tonnes per annum of higher grade ore at the plant while the lower grade ore is stockpiled, and uses a smaller pit that resulted in an improved ore to waste ratio. The Company is progressing on public consultation and other requirements to have an exploitation permit approved by year end.
The 2014 development budget for Kiaka and West Africa is $8.7 million, mainly for completing the permitting study and advancing the Kiaka exploration licence to an exploitation licence, keeping the tenements in good standing, overhead and administration and for initiating a feasibility level study for Kiaka based on an optimized throughput rate (including additional metallurgical programs). The Company expects to complete the updated feasibility study in the first quarter of 2015.
In 2014, the $3.6 million exploration program at Kiaka will focus on drilling of the inferred resource to upgrade areas of inferred to indicated, complete a geological interpretation of the deposit and continue to evaluate some of the regional targets within the claim area.
Gramalote Development Project, Colombia
On March 12, 2014, the Company announced positive results from the Preliminary Economic Assessment for the Gramalote gold project in Colombia. The Gramalote property is a 51% AngloGold Ashanti Ltd. ("AngloGold Ashanti") and 49% B2Gold joint venture with AngloGold Ashanti as the project manager. Gramalote is located 230 kilometres northwest of Bogota and 80 kilometres northeast of Medellin in central Colombia.
At current gold price levels, the Gramalote Project economics are positive but at this time do not move the project to the top of the Company's priority list for continued development towards a Final Feasibility. The joint venture partners have agreed on a work program for 2014 that advances the Environmental Impact Study so it can be formally submitted to the Colombian regulators during 2014 which is key to advancing the permitting process. Focus will also be given on addressing other project risk issues such as infill drilling of Inferred Mineral Resources, social programs, environmental monitoring and government relations. Gramalote owns two diamond drills and will utilize those two machines to target 8,000 to 10,000 meters of infill drilling in 2014. The approved budget for 2014 (100% basis) is $27.8 million. Both joint venture partners continue to fund their share of the project costs.
Proposed Merger with Papillon Resources Ltd.
On June 3, 2014, B2Gold announced that it has entered into a Merger Implementation Agreement ("Merger Agreement") with Papillon Resources Ltd. ("Papillon"), pursuant to which B2Gold agreed to acquire all of the outstanding shares of Papillon based on an exchange ratio of 0.661 B2Gold common shares for each Papillon ordinary share held ("Merger Consideration"). At the time of announcement, the Merger Consideration represented a purchase price of approximately AUS$1.72 per Papillon share and valued the transaction at approximately $570 million.
The merger will be implemented by way of a Scheme of Arrangement under the Australian Corporations Act 2001 ("Scheme"). Upon completion of the Scheme, existing B2Gold shareholders and former Papillon shareholders will own approximately 74% and 26%, respectively, of the issued common shares of B2Gold following the completion of the transaction.
A draft Scheme Booklet, including an Independent Expert's Report, was lodged by Papillon with the Australian Securities and Investments Commission on July 15, 2014. In addition, an originating process and supporting affidavits were also filed by Papillon with the Federal Court of Australia ("Court"). On August 8, 2014, the Court approved the mailing of the Scheme Booklet to Papillon shareholders. Papillon intends to mail the Scheme Booklet to Papillon shareholders on August 15, 2014 with the meeting of Papillon shareholders to consider the Scheme to follow on September 15, 2014.
B2Gold expects to hold a special meeting of its shareholders on September 12, 2014 to consider and, if deemed advisable, approve the issuance of B2Gold shares comprising the Merger Consideration to former Papillon shareholders.
Subject to receipt of all necessary Court, regulatory, shareholder and third party approvals, B2Gold expects the transaction to be completed on or about October 3, 2014.
Outlook
The Company is projecting another record year of gold production in 2014. Company-wide production in 2014 from the Masbate, Libertad and Limon Mines is expected to be in the range of 395,000 to 420,000 ounces of gold with consolidated cash operating costs of $667 to $695 per ounce (a similar range as in 2013). The Company expects that based on current forecasts, it will meet the lower end of its production guidance range. With the first full year of gold production from the Otjikoto gold project in Namibia scheduled for 2015, the Company is projecting 2015 gold production in the range of 525,000 to 550,000 ounces, based on current assumptions.
The recently announced acquisition of Papillon is scheduled to close in early October 2014. Upon closing of the transaction, the Company will focus on completing an updated feasibility study to confirm the optimal mine size and mill configuration of the Fekola Project. In conjunction, the Company will assess the additional funding that would be required for the construction of Fekola and expects that any additional financing requirements beyond existing facilities and operating cash flows could be met from a variety of financing sources, given the Company's strong balance sheet and historical operating performance. Pending completion of the acquisition, the Company is committed to advancing the Fekola Project and expects that a significant portion of its Otjikoto mine construction team will provide the core construction team for Fekola. Subject to completion of the Papillon acquisition, a positive feasibility study, financing and permitting (which are not assured), the Fekola project provides the potential to help the Company's annual gold production to grow to approximately 900,000 ounces.
Clearly, B2Gold's strategy of growth through accretive acquisitions and exploration success to date speaks for itself. Over the last six years, the acquisitions of Central Sun Mining Inc. (the Nicaraguan mines), Auryx Gold Corp. (the Otjikoto Project, Namibia) and CGA Mining Ltd. (the Masbate Mine, Philippines) have seen the Company grow annual production dramatically. The acquisition of Volta Resources Inc. (the Kiaka Project, Burkina Faso) and the proposed acquisition of Papillon, offers the potential for significant additional production growth.
Due to its strong cash position and cash flow from operations, the Company is fully funded to complete its mine site capital expenditures, exploration, and the construction of the Otjikoto mine, and finish 2014 with a strong cash balance. In 2015, the Company's cash from operations will increase significantly due to gold production from the Otjikoto mine.
Looking ahead, B2Gold is committed to continued growth through the development of its existing projects, exploration and the pursuit of additional accretive acquisitions. With a proven technical team, strong financial position and access to capital, the Company is well positioned to utilize its model of growth to continue building a profitable, growth oriented, sustainable intermediate gold producer.
Second Quarter 2014 Financial Results - Conference Call Details
B2Gold Corp. will release its second quarter results before the North American markets open on Thursday, August 14, 2014.
B2Gold executives will host a conference call to discuss the results on Thursday, August 14, 2014 at 10:00 am PST/1:00 pm EST. You may access the call by dialing the operator at 416-340-2216 or toll free 866-223-7781 prior to the scheduled start time or, you may listen to the call via webcast by clicking