Geordie Mark Focuses On Miners Making Money At $1,200/oz Gold

GM: We view these as short-term phenomena, but do not project a specific date or catalyst to change the status quo. Our team sees oil prices moving higher over time, certainly in the mid-term. As for the U.S. dollar, we project the currency holding its strength against the basket of other currencies over the near term. That is good news for resource companies with operations in the European Union, Asia, Australasia, South America and those countries linked to the South African rand, like Namibia.

 

TGR: Of the companies you follow, which are your favorite gold producers?

GM: If you're looking for free cash-flow generation and producing yield with some growth, we like Tahoe Resources Inc. (TAHO:NYSE; THO:TSX) for exposure to silver and gold in the Americas.

If you're looking at Asia and Australasia, we like OceanaGold Corp. (OGC:TSX; OGC:ASX). This company boasts modest growth in the near term and delivers solid operating margins while also offering modest dividend yield.

If you're looking for significant growth and a gold producer looking to put another operation into production over the nearer term, we like B2Gold Corp. (BTG:NYSE; BTO:TSX; B2G:NSX). It has operations in the Philippines, Nicaragua and Namibia and has begun infrastructure development at a fifth potential mine, Fekola in Mali.

These companies have all witnessed recent operating cost reduction arising because of lower energy costs and weaker local currencies.

TGR: Earlier this year, Tahoe bought Rio Alto Mining. How does the new Tahoe differ from the old company?

GM: The takeover of Rio Alto and its Peruvian assets, the La Arena gold mine and the Shahuindo gold project, have bolstered Tahoe's production profile and its technical expertise profile and given it jurisdictional diversification. The company is now producing a significant amount of gold—220,000 oz (220 Koz) from La Arena last year—to add to the silver it produces from Escobal in Guatemala. It has come close to doubling silver-equivalent production as a result of the merger. It now has significant free cash flow that it can put to work to developing Shahuindo, which is scheduled to begin production in early 2016. Bringing Shahuindo on-stream is expected to aid cash flow generation that ultimately could be used to fund further acquisitions.

TGR: What's your opinion of Shahuindo's prospects?

GM: It looks to be a low-cost build, with a modest capital expenditure (capex) for an initial Run of Mine heap leach operation that would likely move to a larger scale multi-stage crush, heap leach mine. Senior management from both Tahoe and Rio Alto has heap-leach experience, and with La Arena relatively proximal to Shahuindo, they have significant operational experience within Peru. These synergies certainly boost Shahuindo's performance and growth potential.

TGR: B2Gold is another company with jurisdictional diversification, with mines in Nicaragua, the Philippines and now, Otjikoto in Namibia. Having visited Otjikoto, how do you rate its ramp up?

GM: Otjikoto began commercial production last quarter, following a first pour in December 2014. This project was basically on time and on budget. That's rare for mining projects. We see Otjikoto as being the platform for the company's production expansion within Africa, and reportedly appears to be operating ahead of budget year to date. Next up is Fekola in Mali. Team members that built Otjikoto are in Mali now, developing the project's infrastructure, and further team members are expected to migrate to Mali over time as the Otjikoto expansion is completed next quarter. The Fekola feasibility study was just delivered, and we believe that B2Gold's board will likely make a formal development decision soon given its anticipated low opex and life expansion potential beyond the currently outlined 12.5 years.

TGR: On May 20, B2Gold announced it had secured a $350 million ($350M) credit facility. What do you make of this?

GM: It resolves a perceived overhang. The market had believed that the company would be forced to tap the equity market to fund its development and expansion plans. We see the $350M facility negating the need for the company to issue shares to fund growth in the near term. The new facility, which is now closed and the first $150M draw, is expected to be used primarily to fund work at Otjikoto, such as the development of an underground mine at the Wolfshag zone, as well as the development of Fekola. The revolver facility also has the capacity to be expanded to $450M, which gives further support to the company's argument for not needing to draw on the equity markets. In our view, if commodity prices remain stable, we believe that B2Gold can fund its development projects with its new revolver facility and cash flow from its existing portfolio of assets.

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Disclosure:

1) Kevin Michael Grace conducted this interview for Streetwise Reports LLC, publisher of more

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