This morning, Clive Johnson's B2Gold (BTO:TSX) released an inferred resource estimate for the Wolfshag zone near the company's Otjikoto gold project in Namibia. The Wolfshag zone sits adjacent to the east and northeast portion of the pit for the Otjikoto deposit. This initial resource estimate was comprised of 703,000 ounces of gold at an average grade of 3.2g/t gold. The Otjikoto open pit has an average grade of 1.42g/t gold so this Wolfshag zone indicates a potential expansion zone, high-grade feed zone and/or an extension of the mine life at Otjikoto. Construction at the mine is on budget and on schedule to start in the fourth quarter of this year.
B2Gold engineers will now work to develop conceptual mine plans to determine when Wolfshag material could be fed to the Otjikoto mills. The company is budgeting roughly $8 million to exploration around Otjikoto in 2014. This will focus mainly on the northern portion of the Wolfshag zone to increase the density of drilling to 50m x 25m. The company also intends to test the southern extension of the zone. They expect to release an updated indicated resource estimate by the end of the year.
The Wolfshag zone remains open down plunge to the southwest but insufficient drilling has been completed to date to allow for classification within a resource. The inferred estimate was based on 119 drill holes and over 33,015m. The Wolfshag zone comprises a series of en-echelon stacked, shallow easterly dipping mineralized shoots which plunge at 10 to 15 degrees to the southwest. The shoots subcrop below calcrete cover to the north and have been traced to the south down plunge for 1,600 metres strike length.
Based on the positive drill results from the Wolfshag zone to date, B2Gold plans to expand the Otjikoto mine in 2015, increasing throughput from 2.5Mtpa to 3Mtpa. They will spend $15 million on the expansion in order to buy a pebble crusher and additional mining equipment and tanks. They believe the expansion will grow average annual gold production to 170,000 ounces per year from 141,000 ounces per year.
The Wolfshag zone allows B2Gold to continue their trend of acquiring or finding higher grade ore deposits near existing mines. This allows the company to utilize the fix cost assets such as the mill and processing facilities with more and higher grade ore feed. This reduces the overall cost of the mine, but increasing the average grade. Grade dilution remains the largest cost increase mines around the world face. B2Gold were successful in finding close by higher grade ore in their Nicaragua operations.
Given the company's production profile (guiding 395,000-420,000 ounces in 2014) and existing reserve/resource base, this news will not have much of an impact on the share price, even though it should prove to significantly increase the economics of the Otjikoto mine in time.
Read: B2Gold Corp. Announces Initial Resource for Wolfshag Zone at Otjikoto Project in Namibia