Hedge Funds Find Value at B2Gold

11/03/2020 5:00 am EST

Focus: COMMODITIES

Mark Skousen

Editor, Forecasts & Strategies, TNT Trader

One of our biggest winners this year has been B2Gold (BTG), the Vancouver-based international mining company. It is now up 50% since we recommended it seven months ago, but I still think it’s undervalued, explains Mark Skousen, growth and income expert and editor of Forecasts & Strategies.

It is selling for less than 14 times future earnings in an industry that has an average forward P/E ratio of 20. It also has a price-earnings-to-growth (PEG) ratio of 0.71. The PEG ratio takes into account the expected earnings growth rate. Any PEG less than 1 is considered excellent.

B2Gold’s total gold production in the first half of 2020 was a record 490,206 ounces and is expected to produce more than 1 million ounces by the end of the year. All of its operating mines — Fekola Mine in Mali, the Otjikoto Mine in Namibia and the Masbate Mine in Philippines — exceeded their targets so far in 2020.

B2Gold is expanding its Fekola Mine, despite a military coup during the summer. Mining officials said the political situation in Mali is improving. “The political situation is headed in the right direction,” CEO Clive Johnson told the Gold Forum Americas conference.

“The new military leadership is… working closely with the business community and others to make this a seamless transition,” he said, adding that the leadership has promised elections within 18 months. It is good that the government owns 10% of the Fekola Mine.

B2Gold reported 44% growth in revenues in first-quarter 2020 followed by a 65% surge in the second quarter, driven by higher gold prices and increasing gold ounces sold. The stock provides a 2.3% yield.

Total gold revenues for the first half of 2020 came in at a record $822 million, marking a 55% jump from the year-ago comparable period. In the first quarter and second quarter of 2020, B2Gold’s earnings improved 233% and 120%, respectively, driven by solid revenues and lower costs.

The mine’s profit margins will rise due to higher gold prices and lower costs. Average costs of production are expected to fall by 15% or more. The company also is selling its higher-cost Nicaraguan mines.

You can see why I identified B2Gold as my favorite speculative stock of the year back in January. Plus, it has a rising dividend policy, the highest payout among mining stocks.

The two top hedge fund leaders to own B2Gold are led by Jim Simons of Renaissance Technologies (the most successful hedge fund in history) and Rick Rule of Sprott Asset Management USA (the most successful venture capitalist in mining). You can’t get a better endorsement than that.

B2Gold continues to fire on all cylinders. The company plans to upsize the Fekola mine in Mali again, and regional exploration success is encouraging. It could easily be a buyout candidate in the next year.

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