B2 Gold Corp (BTO)

[NYBob]

B2Gold: Buy Now Because Gold Prices Will Go Higher
Sep. 29, 2020 1:52 PM ET|6 comments | About: B2Gold Corp. (BTG), Includes: GOLD
Investor Trip
Deep Value, Contrarian, Momentum, Long/Short Equity
(387 followers)
Summary

B2Gold continues to profit from rising gold prices and has a rock-solid balance sheet.

The company has repaid the majority of its revolving credit loan and is almost 100% debt free.

Higher gold prices could translate into future dividend increases and a lot of additional income for dividend growth investors.

B2Gold (BTG) is a Canadian gold mining company that operates gold mines in Mali, Namibia, and the Philippines.

Many investors have taken a keen interest in gold stocks after Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) reported a brand new equity stake in Barrick Gold (GOLD).

Whenever Warren Buffett makes a move, people watch and study his reasons for doing so.

https://seekingalpha.com/article/4376869-b2gold-buy-now-because-gold-prices-will-go-higher?utm_source=feed_articles_macro_view_all&utm_medium=referral



(Source: CNBC.com)

Of course, Warren Buffett doesn't act alone at this stage of his investment career and his proteges, Todd Combs and Ted Weschler, could be behind the newly acquired stake.

What we do know is that gold has been considered real money for thousands of years and cannot be printed by world governments.

JPMorgan said it best with his infamous quote:

Gold is money and everything else is credit.

JP Morgan Gold quote

(Source: Steemit.com)

As governments continue to print an endless supply of currency to ease the blow dealt by the COVID-19 pandemic, gold looks like an attractive investment class.

While I always advocate owning gold as a physical asset, I am also interested in undervalued gold stocks with rising dividends as another hedge against the declining U.S. dollar.

B2Gold fits this bill perfectly and I'll discuss the pros and cons of buying B2Gold stock during the current economic climate.

B2Gold Reported Quarterly Records for Gold Revenue
A high price for Gold helped B2Gold reach record gold revenue for Q2 2020 as noted in their latest Q2 2020 earnings release.

Gold revenue hit $442 million and increased 65% YoY when compared to Q2 2019.

Net income reached $124 million or 12 cents per share. B2Gold is highly profitable and should continue to rake in profits as gold prices remain high.

The Fekola mine in Mali generated the majority of the company's results and hit 147,424 ounces of gold production in the most recent Q2 2020.



(Source: B2Gold.com)

The company reported a healthy relationship with the Mali government since B2Gold has become an important partner in assisting Mali with the unique challenges created by COVID-19.

B2Gold management is planning a further expansion of the Fekola Mine and these additions will be completed by the end of Q3 2020.

Record revenue helped improve B2Gold's cash flows and the company has reached a net positive cash position, which helped B2Gold increase its dividend as well.

Rising Dividends Mean More Passive Income for Investors
B2Gold management doubled the quarterly dividend to 4 cents per quarter, which shows just how confident management is in higher gold prices and increased annual gold production in the future.

If you've been following my articles on Seeking Alpha, then you know how much I encourage investors to seek out companies that pay rising dividends.

When management increases the dividend payout, I think it's one of the most positive signals that the business is doing extremely well.

Rising dividends translate to more quarterly payouts, which compound greatly over time.

Potential Risks Include a COVID-19 Second Wave and Problems from Local governments
The COVID-19 pandemic halted gold mining production while the world began to fight the global health crisis.

Many healthy organizations talk about the second wave effect that may cause B2Gold to shut down its production in the future.

If gold production halts, then investors are left holding a stock that bleeds through cash without generating any revenue.

Geopolitical risks also create problems for gold mining companies that must adhere to local government laws while appeasing shareholders at the same time.

It's a difficult balancing act that improves gradually as companies open up more mining locations.

Right now, the Fekola mine in Mali represents a majority of the gold production, thus creating risks if production gets shut down.

B2Gold Fekola Mine in Mali

Fekola Mine in Mali (Source: Mining.com)

Strong Cash Position and Access to Revolving Credit Means B2Gold is Financially Secure
In times like this, I think investors should focus on companies with rock-solid balance sheets.

A large cash position is absolutely crucial to survival since many businesses are on the brink of bankruptcy as we speak.

B2Gold has $628 million in cash and another $50 million in revolving credit to provide emergency liquidity for its operations.

The company has repaid the majority of its revolving credit line and should be 100% debt-free by the end of September 2020.

Conclusion
I want to bring the spotlight on B2Gold because I believe this is an amazingly well-run company that falls under the radar in the gold mining stock community.

A 16 P/E ratio shows B2Gold is reasonably priced and not too expensive. Anytime I find a good company with a P/E ratio under 20, I consider it fairly valued.

B2Gold stock trades just under $7 with a 2% dividend yield adjusted according to the latest dividend increase.

Gold will go higher as world governments issue more currency as a coping mechanism for a flawed financial system.

B2Gold is one of the beneficiaries of the global financial crisis and could pay major dividends (no pun intended) if management continues to increase the dividend over the long run.

Disclosure: I am/we are long BTG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.