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Executives

Robert LaVallière – VP, IR

Benoit Desormeaux – President and CEO

Martin Milette – CFO

Analysts

Kevin Chiew – CIBC

John Tumazos – John Tumazos Independent Research

Don Blyth – Paradigm Capital

Kerry Smith – Haywood

Ovais Habib – Scotia Bank

SEMAFO Inc. (OTCPK:SEMFF) Q4 2013 Earnings Conference Call March 12, 2014 10:00 AM ET

Operator

Good morning, ladies and gentlemen, and welcome to the SEMAFO’s Q4 2013 Year End Results. After the presentation, we will conduct a question-and-answer session. Instructions will be given at that time. Please note that this call is being recorded today Wednesday, March 12, 2014 at 10 AM Eastern Time.

I will now like to turn the meeting over to Mr. Robert LaVallière, SEMAFO’s Vice President, Investor Relations. Please go ahead Mr. LaVallière.

Robert LaVallière

All right. Thank you, Jonick. Good morning, everyone. Members of SEMAFO’s senior management team joining me for the call today are Benoit Desormeaux, President and CEO, Martin Milette, CFO; Michel Crevier, Vice President, Exploration and Mine Geology; and Patrick Moryoussef, Vice President, Mining Operations.

I would like to remind listeners that some of the matters to be discussed during today’s call may contain forward-looking statements. Forward-looking statements include but are not limited to items such as our expectations regarding the market price of gold, timetables, mining operation expenses, capital expenditures, guidance and resources and reserves estimates. Such statements are given as of the date of this conference call and involve risks and uncertainties. A number of factors and assumptions were made in preparing such statements and actual results could differ materially. Accordingly, you should not place undue reliance on forward-looking statements.

For additional information with respect to forward-looking statements, risk and assumptions, please consult our 2012 annual MD&A and other fillings made with Canadian Securities Regulatory Authorities and available on SEMAFO’s website at www.semafo.com.

SEMAFO disclaims any obligation to update or revise any forward-looking statement except as required by law. I make this cautionary statement on behalf of all SEMAFO’s spokesperson who may address you during this conference call today.

With that said, I would like to turn the call over to Benoit Desormeaux. Benoit?

Benoit Desormeaux

Thank you, Robert. In 2013, the gold industry was negatively impacted by the weak gold price environment. During the year the price of the precious metal planted from a higher- above $1700 per ounce to $1204 per ounce at the end of the year. In spite of the gold price volatility, 2013 was a year of achievements for SEMAFO. We fast-track Siou from discovery to production in a mere 18 months, increased reserves with Siou’s quality ounces. We met our production and cost guidance at Mana. We identified new potential targets for our 2014 exploration program. We sold one non-core asset and placed the second in care and maintenance.

In 2013, we met and even surpassed our objectives. For the six consecutive year, we achieved production and cost guidance. Our Mana mine in Burkina Faso produced 158,600 ounces of gold in the year within guidance. We also beat our cash cost guidance due to the combination of disciplined cost control and optimization programs. Our operations team notched up another strong operating performance at Mana with record throughput at the plant of 2.8 million tonnes of ore at an average rate of 2 gms per tonne. I’m proud about the entire SEMAFO team addressed the challenging year which combined with the fast-tracking of ore of high-grade Siou and Fofina satellite deposits positions us strongly for the coming years.

Gold sales at Mana in 2013 totaled 161,300 ounces for annual revenues of $226 million. Cash flow from operating activities amounted to $77.6 million or $0.28 per share. Operating income totaled $18.9 million a decrease compared to 2012 primarily due to a lower average realized selling price per ounce which fell by $227 per ounce compared to 2012. Net loss in 2013 amounted to $85 million which is almost exclusively due to the impairment of our two non-core assets Samira Hill and Kiniero.

SEMAFO ended 2013 with a 22% increase year-over-year in average reserve grade and a 24% increase year-over-year in its gold reserves which were estimated at the conservative gold price of $1100 per ounce. Our focus on quality ounces and the assets in our pipeline should further enhance our position. In 2014, we expect increased production and a lower cost per ounce as a result of mining the high-grade Siou and Fofina deposits. Our 2014 production guidance has been increased to between 200,000 and 225,000 ounces representing a 34% increase over 2013 gold production. And our total cash cost guidance has been set at between $695 and $745 per ounce, a 7% decrease from 2013. We anticipate achieving the full mining rate at Siou during the second quarter and bringing the Fofina deposits production in the third quarter of 2014.

In terms of investments, SEMAFO’s 2014 sustaining capital expenditure budget has been established at $31 million mainly representing stripping costs for the mining of four pits, while a non-recurring amount of $18 million in growth capital expenditures has been allocated for the development of Siou and Fofina. On the exploration side, the Corporation [invest] (ph) 2014 exploration budget of $18 million will focus on the Siou intrusive area, located some 20 kilometers east of the Mana processing plant. Drilling will focus on the North Apex, the newly acquired Pompoi Nord permit and the recently announced 15-kilometer geochemical anomaly trend.

Results of auger and reverse-circulation drilling are expected in the second and third quarters of 2014. As part of the program, during the second half of year, 24,000 meters of diamond drilling will be carried out at Siou with the objective of converting some of the at-depth mineral resources between 125 – 225 meters to reserves and ultimately extending the mine life. We continue to enjoy a strong financial position, in addition, we are debt-free, we had cash and cash equivalent of $83 million at the end of December 2013.

Finally, we will continue to build on our track record of disciplined cost management which has already generated millions of dollars of saving. We expect to lower general and administration expenses yet again in 2014 to $16 million. The sale of the Samira Hill mine in December and the placing of the Kiniero mine being referred for 2014 will allow us to focus on the strong geological potential at our Mana property.

This concludes our presentation portion of this conference call. I will now like to open up the lines for the question-and-answer session. Operator?

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Kevin Chiew from CIBC. Your line is now open.

Kevin Chiew – CIBC

Hi, good morning guys.

Benoit Desormeaux

Good morning.

Kevin Chiew – CIBC

So, I just wanted to ask about the Siou deposit in terms of – I believe you guys had probably started to process some of that ore. Could you provide us with a bit of color in terms of that performance to-date on recoveries if you have any immediate props in terms of some of the grades?

Benoit Desormeaux

Yes, Kevin, it’s only really the start-up of Siou, we announced in February that we did the first test of about 20,000, 30,000 tonne. So, it’s very early to conclude on any parameters but the only thing we can say so far is it is as expected, so, so far so good. We are doing another test in March probably starting in the last two weeks of March, so we’ll have a much better view. Keep in mind where it’s the first 10 step that we’re mining so it’s very, very early. So, we will have a much better view and we will update the market after our first quarter.

Kevin Chiew – CIBC

And, I was wondering if you could provide us with some guidance in terms of how the strip ratio kind of looks over the course of 2014?

Benoit Desormeaux

I think we gave that kind of information in our release in January with the guidance, I don’t exactly remember what the strip – the total is.

Kevin Chiew – CIBC

Okay. I wasn’t looking for perhaps on a quarterly basis.

Benoit Desormeaux

Yes, we haven’t given any figures on a quarterly basis. We announced the guidance for the year looking at processing 2.5 million tonnes at 3 gms but we have not provide any guidance but you can expect as Siou will be in full production in the second quarter and Fofina getting in production in the third quarter, that the grade and the production will increase as we are moving in 2014.

Kevin Chiew – CIBC

Great. Okay, great. Thanks guys.

Benoit Desormeaux

Thank you.

Operator

Your next question comes from John Tumazos from John Tumazos Independent Research. Your line is now open.

John Tumazos – John Tumazos Independent Research

Thank you. And excuse me, I’ve not traveled to Burkina Faso and I might not be as familiar as I should be with your host country. I believe the gold industry is important in Burkina Faso, are they doing anything to try to make business easier to offset a little bit of the gold price decline, is there any streamlining of regulatory requirements, do they come to you when you write-off properties, so is there anything we can do to make it easier?

Benoit Desormeaux

What I can say is that there is many mines operating in Burkina Faso, they have all been affected by lower gold price and higher cost that have affected the industry over the past few years. The country I think is mining-friendly country as we demonstrate that with the permits we received in November, the permitting process we have had with Siou demonstrate that the understanding of the authorities in Burkina Faso. We’ve been able to get the permit and think – bring Siou from discovery to production in less than 18 months which is really a demonstration of their support.

Apart from that, we should see some decrease in cost but those will be mainly consequences of a lower gold price, we have seen some cost going down last year, we’re expecting others to come down this year. But, in terms of what the authorities at least can do I think they’ve talked at some stage to change the mining gold which they haven’t done so I think they are supportive of the mines operating there. The – I think they understand what – that the market is not the same as it was two, three years ago. So, I think this is the kind of support they are showing.

John Tumazos – John Tumazos Independent Research

Could you review the tax and royalty system in Burkina Faso please?

Benoit Desormeaux

We’re paying between 3% and 5% royalty depending on the gold price, we’re paying 17.5% of corporate tax. They are – they have 10% of our property in Burkina Faso. So, they’re allowed to 10% of the dividends we’re paying in country. And there is a 6% withholding tax on dividend that’s about it.

John Tumazos – John Tumazos Independent Research

Thank you.

Benoit Desormeaux

Welcome.

Operator

Your next question comes from Don Blyth from Paradigm Capital. Your line is now open.

Don Blyth – Paradigm Capital

Hi guys. Could you give us a little bit of color as to what happened to the per tonne cost operating in Mana in Q4 is – $45 a tonne little bit higher than its and that’s been for and about 12% higher than the full year average. Was there any particular higher strip or something that accounts for that?

Benoit Desormeaux

In the fourth quarter we’ve made decision to bring some equipment in Siou to add them to the development, we’re left with less equipment in the pits. We were mining at the bottom of Kona and Wona pits, it is really hard rock. So, that the drilling blocks percentage increased from 50% to 75%, so of course it has an impact on the cost per tonne basis. So, it’s nothing really particular, there is a combination of things but the hardness of the ore is definitely one. Strip ratio was very similar to what we had previously, so that is not an explanation, it’s fairly the hardness of the ore and a bit less than at the mills.

Don Blyth – Paradigm Capital

Should you think that 45 is sort of more what we might see for the Wona-Kona portion of the deposit going forward?

Benoit Desormeaux

I would not say it’s 45 exactly but that’s kind of a figure where last year we were at depending on the strip about 40, 42. So, it’s in the range.

Don Blyth – Paradigm Capital

Okay. Thanks.

Benoit Desormeaux

Thank you.

Operator

(Operator Instructions). Your next question comes from Kerry Smith from Haywood. Your line is now open.

Kerry Smith – Haywood

Thanks operator. Hi, Ben.

Benoit Desormeaux

Hi, Kerry.

Kerry Smith – Haywood

I have couple of questions, first you so far I know you have a mill much ore, you’ve mined at least more amount of waste, have the mining cost pretty much been in line with what you were expecting there?

Benoit Desormeaux

Yes, mining cost is pretty much what we have in our budget.

Kerry Smith – Haywood

Okay. And can you just remind me what that number is so?

Benoit Desormeaux

On the cost per tonne basis…

Kerry Smith – Haywood

Per tonne – per tonne, yes, yes.

Benoit Desormeaux

$2.50 – it’s $2 about $2.30 or something like that.

Kerry Smith – Haywood

$2.30 a tonne, okay. Okay, great. And when in 2014 do you expect that you would get the tonnage from Siou to the mill to be the 30% mix that you talked in the disclosure where you said you thought it would deliver 30% of tonnes this year, like where would you get to that rate?

Benoit Desormeaux

I think it was mostly at the end of the second quarter. It was increasing from one month to another and we’re reaching 90,000 tonnes so 3000 tonnes per day somewhere in the second part of the second quarter.

Kerry Smith – Haywood

Okay. So, the back half of Q3 will be around 3000 tonne a day of ore?

Benoit Desormeaux

Exactly.

Kerry Smith – Haywood

Okay. And that will be delivered to the mill, okay. And the last question I had on the $16 million of G&A, I’m presuming that does not include stock-based compensation, right that’s just the cash component of your G&A, is that correct?

Benoit Desormeaux

That’s correct.

Kerry Smith – Haywood

Yes, okay. Okay, perfect. Thanks very much.

Benoit Desormeaux

Thank you, Kerry.

Operator

Your next question comes from Ovais Habib from Scotia Bank. Your line is now open.

Ovais Habib – Scotia Bank

Good morning, everyone. Ben, just a quick question on the deprecation charge in Q4, we saw a significant jump in the number. Can you give us any kind of color on that?

Benoit Desormeaux

Yes, I will ask Martin Milette to answer that question.

Martin Milette

Yes. We adopted in the first quarter of 2014 the new rules of EFRS for stripping cost. So, it affected their stripping cost that you capitalize and also the amortization. So, we started to adopt his rule in the first quarter of 2013 and in the last quarter of 2013 we did an adjustment for the year for – so we restated our previous quarter of 2013 for the amortization charge. So, it increase a little bit somehow approximately on the yearly basis approximately $350 per ounce. So, that’s going to be the same approximately for 2014.

Ovais Habib – Scotia Bank

2014 as well, okay. That’s it from me guys. Thanks, so much.

Benoit Desormeaux

Thank you.

Operator

There are no further questions at this time. I’ll turn the call back over to Mr. LaVallière.

Robert LaVallière

Thank you, Jonick. I would like to take this opportunity to remind listeners that SEMAFO’s 2013 annual MD&A and financial statements are available on our website and also on the SEDAR website. The audio webcast of this conference call will also be available for replay on our website for a period of 30 days. Our first quarter financial and operating results are currently scheduled for publication on or around May 6, 2014. SEMAFO’s Annual General and Special Meeting of Shareholders will be held on Thursday May 15, at 4 PM at Montreal at the Sheraton Hotel and you are welcome to participate. So, have a good day. Thank you.

Operator

This concludes today’s conference call. You may now disconnect.

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