Thursday, July 14, 2016

B2 Gold - Decent Operating Results

A few days ago B2 Gold published its 2Q 2016 operating results. As usual, I would like to drop a short comment.

Let me start with the overall effectiveness, measured by gross margins delivered by each mine.

To remind my readers, B2 Gold currently operates four mines:

  • Masbate in Phillipines
  • El Limon and La Libertad in Nicaragua
  • Otjikoto in Namibia

The chart below shows gross margins delivered by each mine (excluding Otjikoto - due to its short history there is not enough data). 

Note that these margins (defined as revenue from metals sold less direct costs of mining and processing) are calculated using the following assumptions:

  • revenue is calculated using the price of gold realized by the company in 1Q 2016 (using different wording - for example, revenue delivered in 2013 was calculated using the prices realized in 1Q 2016)
  • direct costs are reported as in financial statements (i.e. they are actual costs incured in each period)
What is more, I call these margins "potential". It means that they are calculated taking an assumption that all gold produced in each period is then sold at the market. Usually it is not the case - any mining company sometimes sells more gold than it produced in a specific period (this additional gold decreases the gold stocks) and sometimes it sells less gold (part of gold produced in a specific period increases the gold stocks)

source: Simple Digressions

The chart shows that since 2015 Masbate and La Libertad have been improving their operating economics (remember that the price of gold in any period does have no impact on the mine economics - it is fixed). The third mine, El Limon, has been delivering fluctuating results (in 2Q 2016 it delivered nice results but it is not the rule). 

Now, let me show my 2Q 2016 margin's forecast (this time these margins were calculated using actual figures, not fixed):

The forecast was prepared using the average gold price recorded in 2Q 2016, i.e. US$1,258.7 per ounce (B2 Gold did not report at what prices it was selling its gold last quarter).

The table shows that B2 Gold financial results depend mainly on two mines: Masbate and Otjikoto. In 2Q 2016 these mines should have delivered US$82 million in gross margin (74.5% of total margin). 

Note that in 1Q 2016 B2 Gold delivered gross margin of US$82.6 million so, if I am right, the 2Q 2016 gross margin should be 33.2% higher than in 1Q 2016.

Simply put - B2 Gold is heading in the right direction...

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