B2Gold (TSX: BTO; NYSE-MKT: BTG) has kicked off construction at the Fekola open-pit gold mine in southwestern Mali, after releasing an optimized feasibility study and closing a previously announced US$350-million revolving credit facility.
Fekola — acquired through the US$570-million takeover of Papillon Resources in October 2014 — sits in Kayes province, 365 km west of the capital Bamako. The company owns 90% of the 74 sq. km mining licence, with the Malian government holding the rest, and looking to push its interest to 20%.
Highlights of the optimized study, prepared by Lycopodium Minerals, indicate Fekola has a 12.5-year life based on a June 2015 reserve estimate. Using a US$1,300 per oz. gold price and an elevated cut-off grade of 0.8-gram gold per tonne, Fekola contains 3.72 million oz. gold in reserves, from 4.9 million tonnes at a diluted grade of 2.35 grams gold.
Average annual production is set at 350,000 oz. over the first seven years and 276,000 oz. over the full mine life. This compares to an expected output of 306,000 oz. annually over an 8.6-year life, based on measured and indicated resources in B2Gold’s 2014 preliminary economic assessment (PEA), which built on Papillon’s 2013 prefeasibility study. The stripping ratio is 4.5 tonnes of waste for each tonne of ore, up 50% from the prefeasibility study.
Despite this, costs have improved. During the first seven years, operating cash costs should average US$418 per oz. and US$533 per oz. over the mine’s life, compared to US$580 per oz. in the PEA.
“The feasibility study confirms Fekola’s potential to deliver significant annual production at a lowest quartile cash-operating cost over a healthy 12.5-year mine life,” Raymond James’ analyst Chris Thompson writes.
B2Gold’s first Malian gold mine has an initial US$395-million price tag, plus another US$67 million for mine fleet and power-generator costs. This is in line with the company’s capital guidance of between US$290 million and US$408 million. (The start-up costs exclude the US$30 million of early work slated for completion before July.)
According to the latest study, B2Gold will develop Fekola as an open-pit mine in seven stages, where it will truck run-of-mine ore to the plant for crushing. The plant should process 4 million tonnes per year over the mine’s life, with gold recovery averaging 92.8%, resulting in life-of-mine production of 3.45 million oz. gold. Fekola should come online in late 2017.
The miner did not release after-tax numbers in the optimized study, but it revealed that at US$1,300 gold and a 10% discount rate, the Fekola project has a US$615-million net present value (NPV) and a 35% internal rate of return (IRR), with a 27-month payback period. Using the same metrics, the PEA estimated a pre-tax NPV of US$850 million and a 67% IRR.
B2Gold says its US$350-million four-year loan, coupled with the expected operating cash flow from its mines, provide ample funds to build Fekola and sustain its other operations. The credit facility has an accordion feature, which allows the facility to increase by US$100 million before the loan matures.
The producer operates four gold mines: La Libertad and Limon in Nicaragua, Masbate in the Philippines and the new Otjikoto mine in Namibia. Company-wide 2015 production should range between 500,000 and 540,000 oz. gold, up 35% from last year’s output. With Otjikoto churning out low-cost ounces and Fekola expected to start contributing in late 2017, the firm anticipates company-wide production to grow from 380,000 oz. gold last year to over 900,000 oz. in 2018.
Raymond James’ Thompson estimates Otjikoto and Fekola will contribute 60% of B2Gold’s total production in 2018 and 60% of its operating cash flow.
Fekola secures the company’s “potential future rank as a top-tier intermediate gold producer,” delivering gold at total cash costs of US$600 per oz., and all-in sustaining costs of US$920 per oz., Thompson says. The analyst increased his target to $3.15 from $3, while maintaining an “outperform 2” rating on the stock.