Study bumps value by 21% at B2Gold’s Gramalote project in Colombia

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A new feasibility study for B2Gold’s (TSX: BTO; NYSE: BTG) Gramalote open pit project in central Colombia lifts the net present value (NPV) by 21% while it cuts capital costs by 8% compared with last year’s preliminary economic assessment. Shares rose.

The $941 million NPV, at a 5% discount rate, assumes a gold price of $2,500 per oz. and comes with an internal rate of return (IRR) of 22%. Construction capital costs are pegged at $740 million over a payback period of 3.4 years. The study also raises mine life to 13 years from 10 in the previous assessment. Gramalote is about 230 km northwest of capital city Bogota.

“The [feasibility study] results are slightly positive in our view, with operating parameters largely in line with our model but featuring a significantly lower initial capital expenditure,” Canaccord Genuity analyst Carey MacRury said in a note Monday.

Exceeds expectations

The study’s NPV and IRR estimates are slightly higher than Canaccord’s which were $862 million and 18%, respectively, MacRury said. He gives the project a net asset value (NAV) of $1.18 billion, using an NPV (at an 8% discount) at a long-term gold price of $3,447 per oz., representing about 12% of his total NAV estimate for B2Gold.

The study comes about two weeks after B2Gold announced the first pour at its Goose mine in Nunavut, marking a new milestone for the company in the Americas. Its other mines include Fekola in Mali, Masbate in Philippines and the Otjikoto mine in Namibia.

MacRury gives B2Gold a buy rating at a target price of C$8.25 on the TSX.

Company shares gained 1% to C$4.83 apiece on Monday at mid-day in Toronto for a market capitalization of C$6.38 billion ($4.65 billion). Its stock has traded in a 12-month range of C$3.16 to C$5.20.

2.3Moz output

Life-of-mine output is about 2.3 million oz. for average annual production of 227,000 oz. in the first five years, for an average grade of 1.23 grams gold per tonne over the first five years, B2Gold said. Annual gold recovery from the open pit is pegged at about 6 million tonnes per year. Mill processing is estimated to run for more than 13 years.

“The primary next step for Gramalote involves permitting,” MacRury said. “While the project benefits from having major permits in place for a larger-scale operation, these must be modified to reflect the smaller 6 million tonnes-per-year scope outlined in the new [study].”

Permit modifications should be completed in about a year to 18 months, B2Gold said.

The study gives Gramalote all-in sustaining costs of $985 per oz. over the project’s life.

The site hosts 76.7 million tonnes in probable reserves grading 0.96 gram gold for 2.36 million ounces, a significant update over last year’s resource. It outlined 192.2 million indicated tonnes grading 0.68 gram gold for 4.21 million contained oz. and 85.4 million inferred tonnes at 0.54 gram gold for 1.48 million ounces.

The feasibility study is based on more than 270,000 metres of drilling at the site.