Banro's (BAA) CEO John Clarke on Q1 2014 Results - Earnings Call Transcript

May.14.14 | About: Banro Corporation (BAA)

Banro Corporation (NYSEMKT:BAA)

Q1 2014 Earnings Conference Call

May 14, 2014 11:00 AM ET

Executives

Naomi Nemeth - VP, IR

John Clarke - President and CEO

Analysts

Mike Kozak - Cormark Securities

Brock Salier - GMP Securities

Operator

Good morning ladies and gentlemen, and welcome to the Banro Corporation First Quarter 2014 Conference Call. After the presentation we will conduct a question and answer session and instructions will be given at that time. Please note that this call is being recorded today, Wednesday, May 14, 2014 at 11 AM Eastern Time.

I would now like to turn the meeting over to your host for today’s call, Naomi Nemeth, Vice President, Investor Relations. Please go ahead.

Naomi Nemeth

Thank you operator, and thanks everyone for joining us. During today’s call, we will update you on the plant optimization project at the Twangiza Gold Mine, and provide a progress report on plant construction at Namoya. We will also go over the cash and liquidity position and discuss the company’s progress with respect to local DRC bank loans.

Before we get started, we like to emphasize that some of the information discussed in this call, particularly our revenue and production targets for 2014 and beyond and our forward-looking plan is based on information as of today, May 14, 2014. As well, our commentary contains forward-looking statements that involve risk and uncertainty. Actual results may differ materially from those contained in these statements. For a discussion of the risks and uncertainties, we would ask that you review the forward-looking statements disclosure in the financial results press release issued yesterday, and in Banro’s regulatory filings including the Q1 2014 MD&A.

John Clarke, Banro’s President and CEO will provide the overview today; Banro’s CFO Donat Madilo will join us for a Q&A.

I’ll turn the call over to John.

John Clarke

Thank you Naomi, and thanks to all of you for joining us. Before we get into details of our quarterly summary, I would like to make a couple of general comments. With all those progress to be made, we do believe that we are now turning the corner we have been seeing a distance for some months now. The Twangiza expansion is complete. Namoya construction is complete. Now whatever is remaining at both mines now is essentially lot of stumping of components from external sources. And I will describe in more detail some of those in a few minutes.

As we mentioned it earlier in our conference call on March, the weather has not been co-operative through the early months of this year. But we are now seeing the positive effect to our periods. I will go over the provisions we've put in place to mitigate the negative effect of any future excessive draining periods.

Now as Naomi mentioned earlier, I’ll move onto an overview of Q1 2014 financial results followed by more detail on Twangiza and Namoya. As most of you have read the financial results, press release and filings, I will brief here. In Q1, we put 20,137 ounces of gold that means $30.4 million generated from the sale of 24,427 ounces at an average price of $1,246 per ounce. This is in comparison to 19,602 ounces produced in Q1 of 2013 through revenues of $33.2 million from the sale of 20,456 ounce and an average price of $1,621 per ounce.

While gold production is up quarter-over-quarter prices were significantly low in Q1 2014, compared to the same quarter of the previous year. Production cost for Q1 was $24.1 million, compared to $22.2 million for Q1 2013. The company realized net loss of $0.7 million equivalents to $0.0 cents per share in Q1, compared to a net income of $6.3 million in Q1 of 2013 equivalent to $0.03 cents per share. Although mining operations generated profit during the quarter, transaction costs, dividends on the preferred shares, and a loss on the change in fair value of preferred shares, where all expenses has contributed to the net loss of the quarter, as well as the lower gold price received compared to the first quarter 2013.

Cash and cash equivalents at the end of the first quarter was $17.4 million compared with $4.5 million at the end of 2013. Our production has remained relatively consistent, quarter-over-quarter for the past year. In terms of operations at Twangiza in quarter one, approximately 700,000 tons of material was mined, roughly 300,000 tons of which were ore, with an average strip ratio of 1.29. The Twangiza plant milled approximately 250,000 tons of ore with an average head grade of 2.73 g/t, an average recovery of 85% to produce 20,137 ounces of gold at a cash-cost of $978 per ounce for the quarter. In comparison, the cash cost was $840 per ounce, to the 19,602 ounces produced in the first quarter 2013.

As we go on to talk about our cost, please keep in mind that we calculate or cost on a production basis, not sales basis. Cash cost in Q1 appeared higher than prior quarter due to shift in the company is typical gold shipment cycle to accommodate the holiday season of December which left more gold in inventory at the end of the 2013 reporting period. Cost to produce this, in fact sitting in the inventory, we capitalize at the end of 2013 as per accounting rules and then recognizes production cost when this goal are sold in Q1 of 2014.

All-in sustaining cost were $1035 compared to $841 per ounce of gold for the fourth quarter of 2013 and $1,141 for the first quarter 2013. Inventory adjustments of $2.8 million were subsequently recognized as production costs within the Company's statement of comprehensive loss of income in the first quarter of 2014. Adjusted cash costs per ounce and all-in sustaining costs per ounce, on a sales basis, are $807 and $853, respectively. Please recall at the Twangiza the main difference between the cash cost and the all-in sustaining cost is the course associated with the ongoing build of the Tailings Management Facility.

We are very pleased with course of the upgrade project of Twangiza is not complete. Our commissioning engineers will be on site this week to complete inspection and testing of the second Elution Circuit for warranty purposes. We do anticipate that this will be completed during May, after which the Twangiza plant will benefit from more flexible corporate management in the lead circuit and greater plant efficiencies..

We now drive period of the year, significantly reducing the challenges of moving saturated ore over slippery roads. During this dry period, we will complete the ore stockpile and handling area and preparation for the next wetter periods. We also took several other measures in place to facilitate the movements of both the clay material and the build as we mentioned in our last operations update. We anticipate that these measures will contribute to reaching daily capacities of approximately 4500 tons per day on a more consistent basis. Our goal for Twangiza remains in production of a 100,000 to 210,000 ounces of gold at a cash cost of $650 to $750 per ounce.

Now on to Namoya, where we are pleased to announce that construction is complete and ventures commissioning engineers are on site for inspection and testing, elements of the gravity strip CIL circuits. We are also very pleased with today, hot commissioning has begun and we are today, at this moment passing the first ore through the entire plant.

As you recall, we were able to begin pulling gold price with the completion of this front-end gravity CIL circuits by passing the main ROM pads and transporting over directly to mobile crushers which right on to the heap leach pads for stacking. During Q1 of 2014, approximately 248,000 tons of ore has been mined, was during the commissioning phase Namoya produced 3362 ounces of gold in the first quarter and roughly a 129,000 tons of ore in an indicated head grade of 1.91 g/t. Our production guidance for Namoya remains 50,000 ounces to 60,000 ounces for the second half of the year at a cash cost of $700 to $800 per ounce.

Yesterday, we filed a NI 43-101 technical report for Namoya, which followed the updated reserve and resource estimate we released at the end of March. While much of the information in the report is all that had been disclosed, you may be interested to go over the line of mine production profile and the economic parameters contained in the report figure on financial modes.

You will note from this release that the like of mine plants in Namoya is based on initial processing plant capacity of 2 million tons per annum with the plant capacity increasing to 2.6 million tons per annum from the third year of operations. We will discuss this in greater detail in the coming quarters.

Intensive exploration activities in Q1 due to the focus on cash flow management during completion of Namoya, exploration work comprised mainly of preparation for programs to be carried out later this year. However, we have begun the leg (ph), both leach extractor for gold surveys at [indiscernible]. These are low cost activities that they do have the potential for providing meaningful results. We are concentrating on target areas which are easily accessible, is cost-effective and can be used as a solid basis for further exploration when [indiscernible]. Basic exploration programs will be undertaken on all the mining licensed areas, Twangiza and Namoya coming through the [indiscernible].

Now into our capital management and liquidity situation. During Q1, we completed a 40 million private placement involving the issuance of preferred shares, two of the company subsidiaries. At the close of Q1 we had a cash position of $17.4 million. Since January Banro’s finance team has been working with the local DRC banks with which we have loans in order to secure payment terms more appropriate for our cash flow situation. To-date we have re-negotiated repayment terms for the remaining $10 million loan with the BCDC bank reducing our monthly installments to $500,000 compared to the original term of $1 million monthly. As well, we have re-negotiated payment terms for the $15 million facility with Ecobank, such that now we will make four equal quarterly payments of roughly $3.75 million from May 30, 2015, August 2015, November 2015 and February 2016. This new payment schedules the first each payment by one year.

In summary with the upgrades completed at Twangiza and with Namoya coming on stream we believe we’ve started to turn that corner we’ve seen coming for the last few months.

We would like to publically thank our team at Twangiza and Namoya for their dedication and hard work, they will continue to work hard to ensure that we build our production profile and optimize our operations at going forward. I’d also like to thank you for your time and attention today. Before I turn the call back to the operator I remind you that we, that you can call us or email us any questions we may have time to cover in this call. Naomi’s contact details are on the bottom of the earnings press release and on the website.

Thank you very much and I’ll turn you back to the operator now.

Question-and-Answer Session

Operator

(Operator Instructions) And our first question comes from Mike Kozak from Cormark Securities. Your line is open.

Mike Kozak - Cormark Securities

Few from me, so first of all how quick do you expect to ramp that one 1 million tonne a year after the final testing is done in May.

John Clarke

I expect this to be taking our tonnage doing this quarter up to that sort of level. You got a dry period we are having consistent reasonable tonnage as we would expect for this time of the year. So during this quarter I expect this.

Mike Kozak - Cormark Securities

And then just the 1.91 gram per tonne I think you gave out for the grade the plant at Namoya. I know that’s up versus the reserve grade but how is it reconciled relative to your mining blocks.

John Clarke

It reconciles well, we remember as you expected any mine we will have certain months in the year where we’ll hit some sweet spots, that will be quite a routine. So the 1.91 just happens to be the expenses that we take sequentially down as we start our operations reconciliations.

Mike Kozak - Cormark Securities

And then in April early April I think you were saying 40.2 million of total Q1 and Q2 CapEx at Namoya excluding gold sales. Are you still sticking to that number?

John Clarke

Very broadly.

Mike Kozak - Cormark Securities

And then if you can, what are the amounts of the quarterly payments at the renegotiated Ecobank facility now. I think you gave the updated timing but not…

John Clarke

3.75 million per quarter.

Operator

And our next question comes from Brock Salier from GMP. Your line is open

Brock Salier - GMP Securities

Just a couple of question on the new mine plant and reported Namoya. First of all there was a $10 million or $11 million flat as an ongoing and new capital as well as sustaining CapEx in the first couple of years. What’s that covering and is that take report. Is that still what you’re expectations are from your internals plants?

John Clarke

Yes broadly they are block, it covers issues such as new larger mining fleets to give us more efficient operations.

Brock Salier - GMP Securities

And once you have reached steady state there, what’s your estimate of the working cap balance, just going to meet the total inventory and accounts receivable your accounts payable.

John Clarke

We expect both of our operations to be carrying 1.5 to two months of costs.

Unidentified Company Representative

That is correct, as accounts payable.

Brock Salier - GMP Securities

What’s that on an absolute basis?

Unidentified Company Representative

With the 12 million to 16 million.

Brock Salier - GMP Securities

Perfect. And just the Twangiza, obviously the illusion circuit throughput from lifting up until that’s been installed but the new CIO tanks that would take the recovery up there back up to the 90s. Can you just comment on the fact the recovery was still sitting down there in the mid 80s and what your estimations are of that going forward.

John Clarke

We had serious discussion I have been quite cautious on getting to the 90 mark as oppose to quoting high 80s. And that is as much an issue of where we’re on our bench plans we have certain part of the ore bodies that’s combinations. And so unfortunately as far as the simple numbers can’t any given months or quarters isn’t fully reflective of how efficient we’ve been, because if we hit one of those periods with a higher combinations period our recoveries are down even if we’re doing well and that’s all within the months and estimates and cash flow predictions.

Brock Salier - GMP Securities

And just finally on that Ecobank note, there was coupon and what was the cost of the refinance?

John Clarke

Well it’s going to be basically the same terms we don’t have a new but interest rate is 8.5% now.

Brock Salier - GMP Securities

And the cost of the refinance?

John Clarke

Nothing.

Unidentified Company Representative

If I could go back to the previous question that I answered, the flexibility of the second delusion circuit should significantly assist us in having better recoveries, because carbon management is as basic part as everything else in the circuit. So I should have added that to the comment, it’s a very fair question.

Brock Salier - GMP Securities

Understood, hopefully in a couple of weeks.

John Clarke

See how it goes.

Operator

(Operator Instructions). And our next question comes from Andrew from [indiscernible]. Your line is open.

Unidentified Analyst

Thanks for taking the time for the call. Your management discussion and analysis, you disclose a related party payment of $2.3 million. Who received these funds and what fraction was cash?

John Clarke

Just a second. It’s the remaining balance of payments for the former CEO.

Unidentified Analyst

Alright. Was that all cash or was there some share fraction?

John Clarke

All cash.

Operator

And we have no further questions in queue. I’ll turn the call back to our presenters.

Naomi Nemeth

Thanks very much operator and thanks to everyone who are participating today. I would remind you this call available for replay for two weeks and the numbers can be found at the end of yesterday’s press release and on the Banro web site. Most of you know how to reach me and nnemeth@banro com and again thank you all.

Operator

This concludes today’s conference call, you may now disconnect.

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