B2Gold (TSX: BTO; NYSE-MKT: BTG) has unveiled an initial resource estimate for the Wolfshag zone that’s near its 90%-held Otjikoto gold deposit in Namibia, indicating the zone could boost the economics of its newest mine.
Otjikoto, which is 10% owned by a Namibian empowerment group, is under construction and set to start production in the fourth quarter. It is slated to deliver 112,000 oz. gold a year over its estimated 12-year mine life based on 29.4 million tonnes in reserves at 1.42 grams gold per tonne for 1.34 million oz. gold. Output during its first five years should average 141,000 oz. gold at operating cash costs of US$524 per oz.
What’s exciting about Wolfshag — located east and northeast of the planned US$244-million open-pit mine — is the scale and grade of the initial resource estimate: 6.8 million inferred tonnes at 3.2 grams gold, or 703,000 contained oz. gold. The resource was reported within a US$1,550 per oz. pit shell above a cut-off grade of 0.5 gram gold. Wolfshag’s average resource grade is more than double the gold reserve grade at Otjikoto.
Desjardins analyst Adam Melnyk has a positive view of Wolfshag’s initial resource, but points out that the resource uses a gold price that is above the current spot price of US$1,240 per oz.
“Although we expect a lower gold-price assumption would decrease the resource base of Wolfshag, the grade would correspondingly increase. We would also expect the resource to remain larger than the additional 180,000 oz. gold included in our model,” he wrote.
B2Gold plans to launch a US$8-million exploration program this year at Otjikoto, where it would infill-drill the northern part of the Wolfshag zone and test extensions to the south. By year-end, it anticipates upgrading Wolfshag’s resource to the indicated level, as well as completing initial metallurgical and geotechnical test work.
Given the encouraging results from Wolfshag to date, the gold producer is set to expand the Otjikoto mine. It intends to increase throughput next year to 3 million tonnes a year from the initial design capacity of 2.5 million tonnes a year for US$15 million. The expansion should be completed at the end of 2015, after which annual gold production from the main Otjikoto pit should increase to 170,000 oz. starting in 2016.
B2Gold says its engineers will “develop conceptual mine plans to determine when Wolfshag material could be fed to the Otjikoto mills,” but it cautions that more drilling is needed before the initial resource can become economic.
“We now have greater confidence in our forecasts for Otjikoto and continue to expect strong production growth for B2Gold, as it brings the mine into production in 2015,” Melnyk said. He has a $3 price target on the stock.
Otjikoto is 300 km north of Windhoek, the capital of Namibia, and 3 km from a paved national highway.
A big finish to 2013
B2Gold ended last year on an upbeat note, posting record gold production in the fourth quarter of 105,577 oz. gold, up 138% over the same period in 2012.
Production from its recently acquired Masbate gold mine in the Philippines contributed to 106% of the increase, while gold output from its La Libertad and Limon mines in Nicaragua rose 32% from a year ago.
For 2013, consolidated attributable production grew 132% to 366,313 oz. gold, in line with the 360,000 to 380,000 oz. forecast. Operating cash costs are estimated to come in at the lower end of the US$675 to US$690 per oz. guidance.
Gold revenue for the December quarter soared 95% to US$138 million, on sales of 106,185 oz. averaging US$1,300 per oz. The revenue increased after the company sold more ounces following higher production from its three mines. For the year, consolidated revenue was US$544.3 million, up US$285.2 million over 2012, on sales of 380,895 oz.
The miner is forecasting another strong production year in 2014. It is guiding company-wide output of 395,000 to 420,000 oz. gold, up 8–15% over 2013 attributable ounces. The guidance doesn’t include Otjikoto. Total operating cash costs are estimated at US$667 to US$695 per oz.
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