Update: Semafo's Q2 Earnings Show Soaring Production And Plummeting Costs

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 |  About: SEMAFO Inc. (SEMFF)
by: Ben Kramer-Miller

Summary

Semafo recently announced Q2 earnings of $13 million, cash flow of $38 million on revenues of $88 million.

These figures are substantially stronger than those from Q2 of last year as production soared and costs plummeted.

Both costs and production exceeded my August 2013 expectations.

While this is great news it is also priced in as the stock is up 160% since then.

Semafo (OTCPK:SEMFF) just reported its second quarter earnings results and they were nothing short of spectacular. The company's earnings came in at $13 million or $0.05/share on revenue of $88 million. Operating cash-flow came in at $38 million. This is compared to a $13 million loss in the second quarter of 2013 and cash-flow of $22 million.

The reason for the strong numbers is soaring production combined with a decline in production costs. Gold production for the quarter skyrocketed from 42,000 to 73,000 ounces. This latter figure annualizes to nearly 300,000 ounces, which is far better than my 230,000 ounce prediction made last August. What was more impressive was that cash-costs came down to just $475/oz. as ore grades and recovery rates improved. This is compared to cash-costs of $604/oz. last year.

While these figures are far better than what I predicted they do reflect the speculative optimism that I expressed regarding the company's Siou deposit on its Mana Project. As I mentioned this deposit had a grade twice as high as the ore that the company had been mining, and we see that the company focused on producing gold here and at another high grade zone - Fofina - which resulted in higher production and lower costs as the company was able to produce substantially more gold while mining less ore.

This is great news! However, it is priced into the stock and then some. The shares are up over 150% since my August, 2013 article, and the gold price has gone nowhere. The company now has a $1.3 billion valuation, and I'm concerned that it is pricing in more excellent quarters - like this one - than the company can deliver: most of the company's gold isn't as high grade. With this in mind it is probably wise to take profits, and to hold off on taking a new position.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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