Assuming Fidelity spends as much money performing due-diligence as it does advertising on television, less resourceful investors should not be ashamed to borrow its brilliance. Something about B2Gold Corp (NYSEMKT:BTG) has Fidelity feeling confident enough to hold the stock in four of its mutual funds, including the $70 billion Fidelity Contrafund (NASDAQMUTFUND:FCNTX). As per the fund's strategy, Fidelity believes the value in B2Gold is not fully recognized by the public. Likewise, I'll bet 99% of Contrafunds' shareholders would not recognize B2Gold either.
Mining with Ortega's blessing?
Nicaragua's main-man Daniel Ortega took part in B2Gold's La Libertad mine reopening celebration in 2010. He and B2Gold CEO Clive Johnson have met cordially on numerous occasions. Unfortunately, some of the local miners have been less celebratory about open-pit mining in Nicaragua, fearing an accident could lead to irreparable environmental damage. La Nacion Dominicana reported in February that hundreds of people showed up to protest against B2Gold's plan to set up shop at a new zone near its La Libertad and Santo Domingo operations. Tear gas and rubber bullets were used by police to quell the peaceful sit-in. Back in the 1950's and '60s Nicaragua was one of the world's larger producers (15th); with Ortega's continued blessing B2Gold will remain the largest fish in his rejuvenated gold pond.
Growth through acquisition
B2Gold has not been shy about using stock to make acquisitions. In January it issued 252 million shares to acquire the Masbate mine from CGA Mining. All-in, it bagged the largest gold project in the Philippines for $1.1 billion, exchanging its overinflated share price for real assets at just the right time. Last week B2Gold announced its intentions to takeout Volta Resources. Exchanging 0.15 shares for each Volta share values them at $63 million. For a flick of the equity stick, B2Gold will inherit 81% of the advanced stage Kiaka gold project in Burkina Faso.
Kiaka already features a measured and indicated gold resource of 4.86 million ounces (153.3 million tonnes grading 0.99 g/t). That means even greater leverage to future gold prices for B2Gold. I wonder how clients and dealers of Canadian brokerage houses such as Cormark, Scotia Capital, and Wellington West feel about the deal. Within the past two years they raised money for Volta at $1.90 per share (B2Gold paid 78% less).
Experienced mine operators
Long-term holders of Kinross Gold (NYSE:KGC) would remember its Cdn$3.5 billion Bema Gold transaction from 2007. But considering its lackluster performance, on the ground and in the boardroom, it's likely that many KGC shareholders have opted to use their tax-loss privileges within the past five years. Kinross practically bet the farm on Red Back Mining in 2010, paying $7.1 billion to consolidate a large land position in West Africa. Lately, Kinross is valued at just $5.7 billion. What was considered "strategic" at the time is now described in less sophisticated language.
My point is widely recognized within mining circles; the managers at B2Gold have had huge success in the past. They were the guys that founded Bema Gold in 1988, building the company from a junior explorer to an international gold producer. Not one for attachment, Clive Johnson and team cashed out at the right time (thanks to Kinross). Winning over Nicaragua's Daniel Ortega and Fidelity must have been easy compared to that.
Give me the green light?
Not exactly. It's nice (reassuring) to see big investors like Fidelity endorsing a small cap stock, but that alone doesn't give the green light for buying. Contrarians could interpret Fidelity's large stake as a negative -- the anecdotal proof they need that B2Gold is becoming over-owned (no longer un-discovered). Bottom line, folks who trust Fidelity expect a high level of due diligence on any company it adds to its portfolio(s). Do-it-yourself investors often lack the same time and resources required for extensive due diligence— would I be wrong in assuming Fidelity's analysts have done more than kick the tires on B2Gold?