B2Gold sells Nicaraguan assets to Calibre Mining

B2Gold (TSX: BTO; NYSE: BTG) is selling its El Limon and La Libertad mines, Nicaragua's largest gold exporters, along with its Pavon project and other mineral concessions in the country, to Calibre Mining (TSXV: CXB) in a deal worth US$100 million.

Calibre Mining, in which B2Gold already owns an 11.9% stake, will pay B2Gold US$40 million in cash, US$40 million in common shares valued at 60 ? per share, another US$10 million in cash a year after the transaction closes, and a US$10 million convertible debenture.

Following the transaction, B2Gold will own 31% of Calibre's shares, and, if B2Gold converts the US$10 million debenture, its shareholding would increase to 35%.

The deal will allow B2Gold to focus on higher margin assets in its portfolio, such as its Fekola mine in Mali, its Otjikoto mine in Namibia, and its Masbate mine in the Philippines, while reducing its overall cash costs, as the Nicaraguan mines are its highest cost producing assets.

"We will always have fond memories of Nicaragua-it's where we started and where we've had great success," Clive Johnson, B2Gold's president and CEO, tells The Northern Miner in an interview.

The mining executive notes that B2Gold's net acquisition cost of the El Limon and La Libertad assets a decade ago was about US$40 million-a transaction that has proven to be extremely accretive to the company's shareholders.

Johnson says management felt the timing was right as it focuses on building bigger mines now. "These are on the smaller end for us and would be about 15% of our gold production this year and less next year, as we're expanding Fekola. It also lowers our overall costs so it's a real win-win."

Even with a smaller percentage of its gold production coming from Nicaragua, Johnson adds, the company still expects consolidated production of between 935,000 to 975,000 ounces of gold this year and over 1 million ounces in 2020.

He also approves of Calibre's management team.

"We're going to own 31% of Calibre and I have known the founders for a long time and they've been very successful," he says. "I'll be there as a director and on their advisory committee so it will be a bigger Nicaraguan company and it has a really bright future for gold mining there with all of us involved."

A driller at the El Limon gold mine in Nicaragua. Credit: B2Gold.

This year, La Libertad is expected to produce 95,000 to 100,000 oz. gold at cash operating costs of between US$840 and US$880 per oz. and all-in sustaining costs (AISCs) of US$1,150 to US$1,190 per ounce.

El Limon is expected to produce 55,000 to 60,000 oz. at cash operating costs of between US$720 and US$760 per oz. and AISCs of US$1,005 to US$1,045 per ounce.

"After removing these assets from our model, our 2020 AISCs estimate decreases to US$665 per oz. from US$683 per oz.," Brian Quast, an analyst at BMO Capital Markets writes, adding that he considers the purchase price "fair in light of our $240-million net asset value (NAV) for the two mines."

Quast puts El Limon's NAV at $225 million and La Libertad's at $15 million.

"With Nicaragua being a less traditional mining jurisdiction, and both mines underperforming expectations of late, it was unlikely that any acquirer was going to pay over NPV for either of these assets," Quast comments in a research note about the deal.

Geordie Mark of Haywood Securities puts a lower value on the Nicaraguan mines.

"We view El Limon and La Libertad as lagging non-core assets comprising of about 3% of BTO's consolidated project NAV6%, with the US$100 million purchase consideration reflecting a ~28% gross premium to our implied NAV6% of ~US$78 million for both assets, respectively," Mark writes.

"In our view, the removal of BTO's Nicaraguan assets rotates its operational focus into mines generating higher magnitudes of operating cashflow and margin through a lower cost asset base (i.e. Fekola)."

B2Gold owns 100% of each mine, which are both open-pit and underground operations. La Libertad is 110 km east of Managua, Nicaragua's capital, and El Limon is 100 km northwest of the city.

The company says both mines have exploration potential, especially El Limon, where B2Gold recently discovered the high-grade El Limon Central zone, which has an open-pit inferred resource measuring 5.1 million tonnes grading 4.92 grams gold per tonne for 812,000 contained oz. gold.

The processing plant at the La Libertad gold mine in Nicaragua. Credit: B2Gold.

The sale includes B2Gold's 100%-owned Pavon project, 150 km to the north of La Libertad, which has indicated resources of 290,000 tonnes grading 5.82 grams gold per tonne for 55,000 contained oz. gold and inferred resources of 130,000 tonnes averaging 5.5 grams gold for 23,000 oz. gold.

The El Limon and La Libertad mines have produced more than 1.4 million oz. gold since 2010.

Over the last decade, B2Gold has invested more than $560 million in capital and exploration in Nicaragua.

Calibre Mining has also operated in the country for ten years and has a 100% interest in the Borosi gold project in northeastern Nicaragua, which includes the Primavera gold-copper project.

In addition, it is involved in a joint-venture with Iamgold (TSX: IMG; NYSE: IAG) on the 176-sq.-km Eastern Borosi gold project, which has an inferred resource of 4.42 million tonnes grading 5.72 grams gold-equivalent per tonne for 812,000 oz. gold-equivalent.

Tara Hassan, an analyst at Raymond James, says the transaction allows B2Gold to "remain exposed to the country where it started."

"Like B2Gold, Calibre has been active in Nicaragua for an extended period, with 10 years of active exploration in the country," Hassan comments in a research note. "In addition to the in-country experience, the board and management team have been involved in the sale of seven mining companies that were sold for more than US$5 billion. The aim of the transaction is to build the next mid-tier gold producer in partnership with B2Gold while continuing to focus on exploration opportunities across the projects."

As for Johnson, he believes B2Gold's involvement in the country has done a huge service to both Nicaraguans and the global mining industry.

"We went to Nicaragua over ten years ago when mining wasn't prevalent or popular because a lot of small miners were using mercury and causing a lot of damage and so the people and the government were against mining," he says. "We showed them what responsible mining could be and made a big difference socially and in terms of environmental protection and reforestation ... Gold is now Nicaragua's third largest export after beef and coffee beans."