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TABLE OF CONTENTS Mar 17 - 23, 2014 Volume 100 Number 5 - 0 comments

Nicaragua a priority, B2Gold says

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By: Trish Saywell

With two of the company’s three operating mines in Nicaragua, B2 Gold (TSX: BTO; NYSE-MKT: BTG) is the country’s largest gold exporter and taxpayer, and one of its largest employers.

“We’re the dominant player in Nicaragua,” says Clive Johnson, the company’s CEO. “We were the ones that recognized the opportunities quite early on . . . we’ve looked at and will continue to look at other opportunities in Central America, but we think Nicaragua is the best address for us to be in.”

Last year B2Gold’s wholly owned La Libertad mine produced 138,726 oz. gold, and the company expects the open-pit operation will produce 143,000 to 150,000 oz. gold in 2014. At its 95%-owned El Limon mine, open-pit and underground operations are forecast to produce 62,000 to 70,000 oz. gold this year, up from 58,191 oz. in 2013.

Cash-operating costs in 2014 are expected to come in at between US$545 and US$565 per oz. at La Libertad, compared with US$560 per oz. in 2013, and at El Limon between US$650 per oz. and US$675 per oz. compared with US$644 per oz. last year.

“Nicaragua has been a real pleasant surprise — we’ve found it’s a great country,” Johnson says, pointing to its ranking by a recent poll by CID Gallup Latin America as the safest country in Central America, with the lowest levels of criminality. The nation of 5.5 million people also ranks as the top location in terms of enforcing contracts, resolving insolvency and protecting investors, according to a corporate presentation by B2Gold earlier this month.

Nicaragua’s economy seems more robust than many of its peers in Central America. A 121% export growth rate between 2006 and 2011 was the highest in Central America, and foreign direct investment in the country posted a 222% growth rate between 2006 and September 2012, according to company statistics.

When B2Gold looked at Nicaragua as a country in which to invest, Johnson adds, it ticked all of the boxes. “It had to be a safe country, and it’s rated the safest country in Central America. It’s got good road and port access, and good infrastructure. But what was really important to us was the government — was it stable and open to foreign direct investment? We found it very stable, with an elected democracy and interest in supporting foreign direct investment.”

Johnson describes Nicaragua’s 3% net smelter return tax and the 30% net profits tax as “a fair tax regime,” and notes that with the local currency pegged to the U.S. dollar, there’s little currency risk. He says the government works well with respect to importing equipment, and that B2Gold has never had problems with permitting, which he calls a “transparent” process.   

“The rule of law is good, the mining law is good,” he adds. “Frankly it’s one of the best countries I’ve ever worked in. Chile is also a great country, but I’d put them in a similar category, which surprises some people.”

As a rule Johnson likes to look at developing countries that are in transition. In 1988, when he was president and CEO of Bema Gold, his management team took a bet on Chile during a time the country appeared unstable under dictator Augusto Pinochet, who took power in a coup d’état in 1973. But the controversial military government implemented pro-business economic reforms, which included cutting tariffs, stabilizing the currency and opening the country’s markets. (Kinross Gold bought Bema in February 2007.)

“When we first went to Chile, Pinochet was still in power and people thought we were crazy,” Johnson reminisces.  “But it had a good mining law and we believed Pincohet was going to turn it into a free-market economy, and that’s what he did.”

Nicaragua, he says, was a little similar because the country had been unstable for several decades with the revolution and attempts by the U.S. government to overthrow the ruling Sandinista government, and there was little competition for a country that had big mineral potential.    

“I think some of the pioneers like Central Sun recognized the potential, and we also recognized the potential,” Johnson says. Central Sun had bought the La Libertad mine — a failed heap-leach mine from the 1990s — but couldn’t finance a new mill and agreed to a friendly takeover. Johnson and his team then invested $100 million to build a conventional mill and have been increasing production at the mine since 2010. La Libertad’s mine life is an estimated eight years, but Johnson says B2Gold could extend that.

The El Limon mine has been in production since 1941 and has had many owners over its history, including Noranda. When B2Gold took it over it was “a little rundown” and producing just 35,000 oz. gold a year. The company is making exploration discoveries around the mine and says El Limon could be in production for a long time. “It has a five-year mine life left, but it’s the kind of mine that has been saying it’s got a five-year mine life left since 1941, so it’s had a good, long mine life, and we expect that to continue,” Johnson says.

This year B2Gold says it has budgeted $4.3 million for exploration at El Limon, with $4 million for brownfield and $302,292 for greenfield targets in a 10,700-metre drill program. At La Libertad, $4.3 million has been earmarked for exploration, with $3.5 million for brownfield exploration and $808,338 for greenfield, with a total drill program of 10,500 metres.

Some of the brownfield exploration near the El Limon mine this year will focus on the Loma Sola target on the west side of the mine, less than 10 km from the existing mill. Loma Sola is covered with a thin layer of ash that has never been explored. “The alteration you see around the main mine area is the same as you see out there at Loma Sola, and it covers another couple of kilometres of potential veining,” says Thomas Garagan, B2Gold’s senior vice-president of exploration.

At Libertad, exploration this year will focus on the underground potential underneath several of the main vein zones below the mine’s four open pits, starting with the Mojon open pit, which is closest to the mill. “Once the pits are mined out, it looks like we’ll be able to go underground in certain areas of the Mojon vein and a couple of other nearby veins,” Garagan says.

Nicaragua’s geology “looks pretty good,” he adds. “There are a number of low-sulphidation epithermal systems in the country, and it appears there is potential for copper–gold porphyries and associated skarns.”   

The company expects to spend $36.3 million this year in sustaining capital at La Libertad to build more tailings pond facilities and advance underground development and pre-stripping, and $4.3 million at El Limon on underground workings to access additional reserves and buy more mine equipment. But Johnson says he hopes to see sustaining costs decline over the next few years.

In addition to its two mines and several exploration projects in Nicaragua, B2Gold owns the Masbate gold mine in the Philippines and is developing the Otjikoto open-pit gold project in Namibia. It is also advancing its Kiaka gold project in Burkina Faso — which the company believes is one of the largest undeveloped gold resources in West Africa — and its Gramalote project in Colombia, a joint-venture in central Colombia with AngloGold Ashanti (NYSE: AU). But Nicaragua, Johnson says, remains a priority.

“We have a lot of confidence that we’re going to improve and increase production, which we’ve done every year for the last five years,” he says. “And we’re going to continue with a significant exploration budget to grow the existing mines, and grow other properties in the country.”

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