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A Healthy Hybrid

October 17th, 2011

B2Gold Grows With Auryx Buy

By Ted Niles

It is a rare company that hasn’t seen its share price take a beating this year. Rarer still, one that has seen the steady growth that B2Gold Corp TSX:BTO has. President and CEO Clive Johnson puts it down to strength of management, “beating your projections” and growth through exploration and acquisition. He adds, “Most explorers don’t produce; and most producers don’t find a lot. In our case, we’re a bit of a hybrid company. We’re producers, but we’re also very good at exploration. We always have been.”

True enough, as anyone familiar with B2Gold and its predecessor, Bema Gold, will attest. When Bema—a company which began as a grassroots explorer—was acquired by Kinross Gold Corporation TSX:K in 2006 for $3.1 billion, it had nine mines in five countries with reserves and resources of 50 million ounces gold, 80 million ounces silver and 2.9 billion ounces copper. Founded in 2007 (and retaining Bema’s executive and management team), B2Gold now has two producing mines in Nicaragua—La Libertad and Limon, with combined production in 2010 of 108,700 ounces gold—as well as other properties in Latin American and now, after its October 11 acquisition of Auryx Gold Corp TSX:AYX, Namibia.

B2Gold Grows With Auryx Buy

“Some people ask if we can handle all these projects in all these different locations, but I think you have to look at our history,” Johnson remarks. “All of us together in B2Gold built Bema Gold—so we’ve done it before in Russia, in South Africa, in Chile and now in Nicaragua. We have an unusually strong team from exploration all the way through construction and production. We didn’t go to Namibia saying we have to have something in Namibia—we’ve been looking at lots of projects. The [Otjikoto] project itself was the first thing that attracted us. We’re definitely ready to build another mine, and we have the team to do it. We’ve shown we can do it anywhere in the world.”

B2Gold acquired Auryx and its flagship Otjikoto gold project last week in a friendly-merger deal for $160 million. Otjikoto is located on the Damara Belt Formation—which also hosts AngloGold Ashanti’s Navachab Mine—and has a December 2010 NI 43-101 resource estimate of 1.16 million ounces gold indicated and 660,000 ounces inferred. In September 2011 Auryx released a positive preliminary economic assessment showing a pre-tax net present value of $301 million, and an internal rate of return of 42% (with gold at $1,300 per ounce).

“[Otjikoto] is a robust project economically,” Johnson continues. “We think there’s a lot of upside, and we think there’s a lot of optimization that can be done in a number of areas to make an already good project even better. It’s got a minimum 10-year mine life with, by 2015, [production of] 100,000 ounces per year. We think there’s upside on that, but that’s a long mine life. And Namibia is a very good jurisdiction. The logistics are fantastic; the tax regime is fair; and the mining law works. We think it’s a good acquisition for us, and it can have a significant impact on our production. By 2015, we’re looking at getting up over 300,000 ounces.”

B2Gold will visit the project this week. Auryx anticipated the completion of a definitive feasibility study by 2Q 2013, and while B2Gold will be conducting a detailed review, Johnson expects to follow the same timeline.

Meanwhile, B2Gold’s La Libertad and Limon mines in Nicaragua proceed apace. The company had gold revenues totalling $127.5 million in 2010—an increase of 517% from 2009—and expects to increase 2011 production to approximately 135,000 ounces. Also, exploration drilling at La Libertad in 2010 yielded the discovery of the high-grade Jabali target, which already has an inferred mineral resource of 522,000 ounces gold, increasing La Libertad’s total inferred resources by 180%.

We’re definitely ready to build another mine, and we have the team to do it. We’ve shown we can do it anywhere in the world —Clive Johnson

Johnson notes that the company’s Gramalote property in Colombia is becoming an important asset. It is a joint venture with AngloGold Ashanti (B2Gold holds 49%, AngloGold Ashanti 51%), with AngloGold as the project operator. “The 2.4 million ounces we started with there is definitely getting a lot bigger, and everything is looking very positive,” Johnson says. “Anglo is talking 250,000 to 300,000 ounces a year, and we think it might be larger than that.” Johnson expects an updated resource at Gramalote by the end of year.

The combination of good management, year-over-year production increases and aggressive exploration and acquisition have granted B2Gold a degree of financial independence unusual in the junior mining sector. Johnson reports, “We’re generating from the Nicaragua mines right now about $118 million of cash from operations. So we can do all of our capital spends at the mine and all of our exploration—our budget this year totalled $53 million—and we can take on [Otjikoto] as well and still maintain a really strong cash balance going well into the future. With [Auryx's] cash and our cash we’ll have about $100 million in cash and no debt or hedging.”

He concludes, “We’re looking at production growing from about 145,000 ounces this year to, within two years, over 200,000 ounces. Then up to 320,000 ounces or thereabouts by bringing the [Otjikoto] project on. Then there’s the Colombian project. So we see a path to approaching a half-million ounces a year from existing ounces. This puts us in a very unusual place in the sector right now. And there are more acquisitions to be done.”

At press time, B2Gold had 344 million shares trading at $3.36, for a market cap of $1.16 billion. Its other exploration projects in Nicaragua are the Trebol, Pavon and San Pedro properties, which it holds in joint venture with Radius Gold Inc TSXV:RDU; and the Borosi prospect, also a joint venture with Calibre Mining Corp TSXV:CXB. It also has the Bellavista property in Costa Rica, the Mocoa property in Colombia and the Cebollati property in Uruguay.