Booking Profits – B2Gold ($53,015.11 Realized Gains)

by FI Fighter on February 9, 2017

in Precious Metals Updates

Well, the time has finally come for me to say, “fare thee well” to another one of my best investments ever… I closed out all remaining 6,626 shares of B2Gold (BTG) @ $3.33/share for net proceeds of $22,058.35.

With the dust settled, I’m walking out of my B2Gold trade with realized gains (pre tax) of $53,015.11.

Buy low and sell high.

Quite honestly, there’s nothing more to it than that…

When I first started buying shares of B2Gold, sentiment around the company (and gold mining) was about as negative and bearish as you could ask for…

Starting in late 2015, I backed up the truck on many occasions, trying to gobble up as many shares of BTG as I possibly could.

Near/at the Depths of Despair, I purchased a final tranche of cheap BTG shares…

Did I catch the bottom and perfectly “time the market”?

Absolutely not…

But I was close enough where I said, “Screw what everybody else thinks, I’m going all in!

Before the bull run in precious metals took flight later in 2016, I had accumulated 30,000 shares of BTG, at a cost basis of $0.994.

Market close, February 19, 2016.

Fast forward about 1 year later, and BTG share price performance has done this since… up 273%!

With mining stocks, it’s NOT about trying to be a market timing “hero”… This asset class just so happens to be pretty freekin’ volatile, so all that you really want to do is, “buy low and sell high.

Naturally, it’s human nature to nitpick the hell out of any kind of investment when it’s selling off for pennies on the dollar and nobody you know would ever dare touch it with a 10,000 ft. pole… Not surprisingly, then, when that same aforementioned investment later goes on to rise above and beyond even your wildest expectations, the general consensus becomes:

Don’t sell.

And why would you even consider such a crazy thing, especially following an announcement made by the company announcing record production achieved in the last year of doing business?

I shared my immediate thoughts upon reading the above press release.

From CEO.CA.

Don’t get me wrong here… B2Gold is a fine company and one of the finest gold stocks that you can buy on the market…

But really, when is it the best time to sell ANY investment?

When anything becomes a “must own” and is firing on all cylinders, of course…

Seriously, I’m NOT trying to be all fancy here… But you know as well as I do that mining is a risky, volatile, and unpredictable business… It’s totally awesome that B2Gold has been exceeding their own guidance and market expectations, but to keep expecting outperformance, over and over, again and again… I think that’s just asking for too much in the Game of Rocks.

And from a valuation standpoint, shares of BTG don’t look cheap to me anymore…

Just glancing at things purely from a market cap perspective (not enterprise value), B2Gold is about on par with Yamana Gold (AUY) now…

How can this be?

From B2Gold.

Look at that growth trajectory (from 2012-2018 estimate)! B2Gold is a MONSTER, no question, and in a few years the company will probably be producing ~1 million gold ounces annually.

For 2016, B2Gold produced 550,423 ounces of gold. Meanwhile, Yamana Gold produced ~1.27 million ounces of gold

Quite a bit of a gap there, no?

Sure, Yamana Gold has a ton more debt than B2Gold, but to me, it looks like all that future growth has already been baked into the price… In other words, B2Gold’s flagship development project, Fekola (due to come online late 2017), is getting essentially full credit from the market even though it hasn’t yet produced any gold ounces…

Here’s a chart showing the narrowing market cap delta between BTG and AUY as Fekola gets closer and closer to becoming a reality for B2Gold.

Again, this is all positive news for B2Gold and its shareholders, so I’m not being a hater… But when I analyze my own investment thesis, with a market cap of now over $3 billion, I gotta ask myself, “How much more can this thing keep on gaining?

The law of large numbers has got to catch up to BTG at some point…

And point blank — I have very little (close to zero) interest investing in large cap/senior gold producers… No, B2Gold isn’t yet anywhere close to being on the same level as the seniors: Barrick Gold (ABX), Newmont Mining (NEM), Goldcorp (GG), Randgold (GOLD), etc… But clearly, B2Gold is now trading in the large cap space operated by the likes of: Kinross Gold (KGC), Gold Fields (GFI), and as mentioned earlier, Yamana Gold (AUY).

And the reality is that it’s tough to make “explosive gains” the larger you get…

Here’s a 1 year chart comparing BTG to its large cap peer group.

B2Gold has outperformed many of its peers by leaps and bounds…

And here’s the performance of the senior gold companies over the last year…

Those gains made by the other large caps/senior gold producers aren’t too bad, but they pale in comparison to some of the epic runs that some junior gold stocks have experienced over the last year…

Just plotting some of the small cap junior holdings in my own portfolio, as an example: Sandspring Resources (SSP.V), GoldQuest Mining (GQC.V), Sarama Resources (SWA.V), and Orca Gold (ORG.V) over the course of 1 year.

Past performance is NEVER indicative of future success

Nevertheless, my own belief is that in a rising gold price environment, the best juniors in the business will provide the most torque to the upside… In other words, I think any MASSIVE gains that are to come in the gold space will happen for these small cap juniors, and because they are so dinky in nature, the multiplicity factor (alpha) that we are all searching for with these investments is still very much intact.

But for the large cap and senior gold producers? Again, I just think the law of large numbers will set in, and sure these stocks will keep doing very well (as will BTG), but they will no longer be able to provide investors with astronomical gains…

Bottom lineI just can’t see shares of BTG doubling from this point moving forward… That is, unless the spot price of gold just goes completely bonkers (then all bets are off… and who knows where the junior stocks might go? 3x, 4x, 5x, maybe?)… And right now, a solid double is exactly what I’m after from a risk vs. reward perspective… No, I’m not asking for the stars and the moon… I’m simply doing my best to get well positioned in the junior companies who I think have a very realistic shot of going 2x their current share price in a tepid bull market environment for precious metals…

What is “tepid”? In my eyes, that just means gold climbing back up to around $1,350/oz, and perhaps even to $1,500/oz, max…

Am I being unreasonable?

Maybe, maybe not…

Please note: I have an EXTREMELY HIGH appetite for risk! Gold stocks (and junior small caps in particular) are massively volatile, so please do your own research and due diligence before putting any of your own investing capital at risk!

And the icing on the cake? If one of those juniors can end up being acquired by a larger company, like B2Gold, at a market premium! That would be pretty sweet! 😉

In conclusion — Shares of BTG have had an absolutely phenomenal run over the course of the last year, and I feel very fortunate to have gotten into this story early on…

I made my gains… $53,015.11, to be exact.

With the benefit of hindsight, the strong conviction that I had to buy shares of BTG in late 2015/early 2016 turned out to be one of the best investment decisions that I have ever made in my entire life.

 

Alas, it’s now time to say goodbye…

 

Fight On!

{ 2 comments… read them below or add one }

1 Roadmap2retireNo Gravatar February 10, 2017 at 5:45 am

Congrats on booking another winner in the portfolio Jay. Those profits are nothing to sneeze at. Your moves when the sentiment was low have allowed you to supercharge your FI journey. I continue to hold B2Gold, but the valuation is starting to look a bit stretched right now.

Best wishes
R2R

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2 FI FighterNo Gravatar February 14, 2017 at 4:17 pm

Sabeel,

Thanks for the support buddy! BTG has been good to us shareholders, but now was the right time to say goodbye for me.

Take care!

Reply

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