Thursday, April 28, 2016

B2 Gold - At Today's Gold Prices This Company Should Perform Well In 2016

Today B2 Gold released its 1Q 2016 production report. Apart from presenting production results, the company made a statement that 1Q 2016 production was better than budget. To be precise, in 1Q 2016 B2 Gold produced more gold than in 1Q 2015 but less than in 4Q 2015. 

Well, let me leave the issue what comparison is better: to the previous quarter or to the same quarter one year ago. In my opinion, it is the trend in production that counts. And this trend is as follows:

In this post I want to discuss the economics of B2 Gold mines. 1Q 2016 report delivers nearly all data needed to measure the effectiveness of the all four mines, operated by the company. 

In my calculations I assume today's price of gold of $1,260 per ounce. Let me start from the Masbate mine, located in Philippines.


In 1Q 2016 the ore, processed at Masbate, was grading 1.26 grams per ton. The recovery rate of the Masbate mill was standing at 72.9% (this rate is quite low because Masbate processes the oxide / sulphide ore, of which the sulphide one is harder to mill). It means that one ton of ore contained 0.0295 ounces of gold. Assuming the price of gold of $1,260 per ounce, each ton of the ore milled contained gold of market value of $37.2. 

Now, taking another assumption that the cost of mining and processing the ore at Masbate stands at the average costs reported in 2015 ($18.9 per ton of ore) I may calculate how much the company could make on one ton of ore. The table below shows the entire calculation:

So, each ton of ore sold should have delivered a margin of $18.3.

Now, let me show the other mines:

According to my estimates (based on the company 2016 guidance), this year each mine should process the following amounts of material:

It looks that the most important mine is Otjikoto - this year it should process 3.8 million tons of ore. Due to the fact that each ton of ore should deliver a margin of $35.4, it means that this mine is going to show profit from mining operations of $134.8 million. The other mines should deliver the following profits:

  • Masbate: $111.5 million
  • La Libertad: $65.6 million
  • El Limon: $20.2 million

Totally: $332.1 million

Is it much? Well, in 2015 the company reported profit from mining operations of $254.3 million so, due to higher prices of gold and full production at Otjikoto, B2 Gold should increase its profit from mining operations by 30.6%.

Of course, this profit should go up if gold prices continue their rally. On the other hand, lower prices of gold will reduce this result very quickly.

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