Not just the precious metal, but many gold-related financial instruments, including VanEck Junior Gold Miners ETF (GDXJ) shares, have been positive so far this year.
GDXJ shares, which serve as a benchmark for US-listed junior gold stocks, are up 12.8% (to $47.29 per unit at the time of writing), but one of its constituents, B2Gold (BTG), performed much better. The Canadian miner’s stock is up around 17.7% year-to-date.
Here’s why I’m bullish on this stock.
A high gold beta will further reinforce the magnitude of the expected rise in the commodity price, while the Relative Strength Index (RSI) of 58 indicates the stock price still has plenty of room for growth. I believe B2Gold will trade higher throughout the year.
For beginners:
• Gold beta measures the dependence of gold miners’ stock price returns against changes in the price of gold. B2Gold must have a high coefficient since its shares have risen faster than the metal.
• The RSI is a technical analysis tool used to assess whether the price of a stock or other asset is either overbought or oversold. When the RSI is above 70, the stock is generally considered overbought, while below 30 is considered oversold.
B2Gold and its Portfolio of Mineral Assets
B2Gold is a Canadian mid-tier gold mining and exploration company that owns mineral resources and exploitation activities in Namibia, Mali, and the Philippines.
The company also owns 25% of Calibre Mining (TSE: CXB), a Vancouver, Canada-based gold company with mines in Nicaragua and Nevada.
In 2021, B2Gold achieved total gold production of nearly 1.05 million ounces, which the company says is a record and reflects a 0.64% increase from 2020.
Calibre Mining’s interest stake accounted for 5.7% of total production, while the Fekola Mine (80% ownership interest) in Mali contributed 54.1% of total production. The Masbate mine (100% owned) in the Philippines contributed 21.1% of total production, while the Otjikoto mine (90% ownership interest) in Namibia accounted for 19% of total gold production in 2021.
In addition, the company has other evaluation and exploration assets in Burkina Faso and Colombia.
Including mineral reserves, estimates attribute total proven reserves to B2Gold of approximately 6.2 million ounces of gold. The grade of these resources ranges from 0.80 grams per tonne ore to 1.86 grams per tonne ore.
Gold Price Outlook
The high level of uncertainty caused by the unjustified Russian attack in Ukraine leads to a hunt for financial tools that traders can use to protect themselves from negative consequences.
One of these effects is usually increased volatility. Gold is often used as a safe-haven hedge against uncertainty and/or volatility.
Largely for the reasons above, gold futures maturing to June 2022 are on the rise, gaining around 5.6% year-to-date and trading at $1,936 an ounce at the time of writing.
Looking ahead, analysts estimate that gold will trade at $1,945 per troy ounce by the end of June 2022, up slightly from current levels. They also forecast gold prices to be around $2,009 before the end of the first quarter of 2023.
The factors that will drive gold prices higher in the coming months will mainly be the following. As the crisis in Eastern Europe raises concerns about regular supplies of Russian gas and oil to Europe, the prices of these commodities will experience strong upward pressure.
If production costs rise due to high energy bills, companies will seek to pass them on to consumers by raising the prices of goods and services, likely pushing inflation above the Federal Reserve’s 2% target for many more quarters.
This will require the Federal Reserve to raise interest rates more quickly to offset rising inflation, which could potentially halt GDP growth.
Given the resulting uncertainty, investors would likely demand gold as a safe-haven asset.
The Company’s Forecast of Production, Costs, and Cash Flow
This year, B2Gold is expected to benefit from rising gold prices by producing approximately 1.02 million ounces, including Calibre’s ounces.
Due to higher inflationary pressures, costs will be slightly higher in 2022. Total all-in sustaining costs, including operating costs and non-capitalized exploration costs, are expected to be approximately $1,010 to $1,050 per ounce of gold sold.
Operating cash flow should be about $625 million, down significantly from $724 million in 2021.
However, with operating cash flow generation expected to accelerate into 2022, the additional catalyst that could potentially result will provide an additional boost to the stock price alongside rising gold prices.
If Fekola continues to deliver record throughput while Masbate surprises with recoveries and grades, the company could be on track to produce 1.05 million ounces of gold.
Geographic Risk for B2Gold
Following social tensions leading to the August 18, 2020 coup, Mali is now ruled by an elite military group. Although this type of government is a concern in the international community, it has recently shown its full willingness to work together against terrorism and to stabilize migration flows in the Sahel.
So, while Northern Mali is often the scene of terrorist attacks by jihadist groups, the situation in the rest of the territory is currently stable. The risk is moderate.
The Philippines is part of the fire belt where earthquakes are frequent, even with a magnitude of more than 6 Richter. Floods due to torrential rains are also quite common in this archipelago, concentrating between October and December each year. The risk is high.
In Nicaragua, the government of President Daniel Ortega, which has been heavily criticized internationally for prosecuting politicians accused of encouraging foreign interference in the country, could pose a risk to mining activities by North American companies, including B2gold. The risk is moderate.
Namibia does not appear to pose any major problems for foreign multinationals exploiting mineral resources. The risk is low.
Thus, I believe the country risk is medium for B2Gold.
B2Gold’s Financial Condition
The balance sheet is solid, as evidenced by an interest coverage ratio of 58.2 combined with an Altman Z-score of 6.35.
If the first ratio is higher than 1.5, it indicates that the company has no trouble paying interest costs on outstanding debt.
The second metric measures the likelihood that a business can fail within a few years. If the ratio is higher than 3, there is an extremely low probability of bankruptcy since the company is in the “safe zone.”
Wall Street’s Take
For the past three months, 10 Wall Street analysts have issued a 12-month price target for BTG. The company has a Strong Buy consensus rating based on nine Buys, one Hold, and zero Sell ratings.
The average B2Gold price target is $6.26, implying a 35.9% upside potential.
Shares are changing hands at around $4.60 as of the writing of this article, for a market cap of $4.9 billion, a P/E ratio of 11.6, and a 52-week range of $3.30 to $5.37. Also, the stock offers a dividend yield of around 3.5%.
Conclusion
Based on a strong outlook for gold prices, and after weighing potential production growth drivers against local conditions in countries hosting the mineral resources, I believe this stock has a strong chance of achieving a much higher share price.
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