Banro's (BAA) CEO John Clarke on Q2 2014 Results - Earnings Call Transcript

Aug.19.14 | About: Banro Corporation (BAA)

Banro Corporation (NYSEMKT:BAA)

Q2 2014 Earnings Conference Call

August 19, 2014 11:00 AM ET


Naomi Nemeth - VP, IR

John Clarke - CEO

Richard Brissenden - Chairman


Good morning ladies and gentlemen, and welcome to the Banro Corporation Second Quarter 2014 Conference Call. 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, Tuesday, August 19th 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 of Investor Relations. Please go ahead.

Naomi Nemeth

Thank you, Operator, and good morning, everyone. Thank you so much for joining us today. Before we get started, we’d 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, August 19, 2014, as well, our commentary contains forward-looking statements and involve risk and uncertainty. Actual results may differ materially from those contained in these statements. For a discussion of the risks and uncertainties, please take a look at the forward-looking statements disclosure in the financial press release and in Banro’s regulatory filings, including the Q2 2014 MD&A.

On today’s call, we’ll have both CEO John Clarke and Banro’s Chairman Richard Brissenden and with Donat Madilo joining us for Q&A.

I’ll turn the call over to John.

John Clarke

Thank you, Naomi, and thanks to, all of you for joining us. As the operator mentioned -- the operator couldn’t mention, I am actually calling here from the DRC. Before we get into details of the call through a summary, I would like to make couple of general comments that will help you put those with the observation and financials representing their proper content.

We mentioned during our last quarterly update that we’ve been experiencing unexpected rainfall, which affected product activity levels at Twangiza. Those rains extended into late April. The weather did become dryer for May and June, allowing us to significantly improve production at Twangiza and also allows us time to get underway with the construction of the carried ore handling and stockpile handling. We anticipate to handling that in place prior to the onset of the next wetter period expected later this quarter.

Also, by way of operations context around the financial plan, which I will detail for you shortly, we want to remind you that Namoya continues to operate and produce gold. It is the delay in reaching full production due to the issues surrounding some of the wet drop components, but of course the major explorative plan for our financial requirements.

Now I’ll move on to brief overview of our Q2 2014 financial results, followed by more detail on both Twangiza and Namoya. As most of you have read the financial results press release and filings, I’ll be as brief as possible here. In Q2, at Twangiza, we poured 21,431 ounces of gold for the revenues of $26.5 million generated from the sale of 20,537 ounces of gold at an average price of $1,267 per ounce. This is in comparison to 19,347 ounces produced in Q2 of 2013 through the revenues of $24.5 million from the sale of 18,232 ounces, at an average price of $1,342 per ounce. The increase of 12.5% the amount of gold produced in quarter-over-quarter was slightly offset by the lower gold price we see in Q2 of this year.

Production cost for Q2 was 22 million, even with Q2 of 2013. The Company realized the net loss of 3 million, equivalent to $0.01 per share in Q2, compared to the net loss of 3.1 million in Q2 of 2013, also $0.01 per share. Although mining operations generated profit during the quarter, transaction costs and dividends on the preferred shares were expenses that contribute to the net loss for the quarter, as well as the slightly lower gold plants received compared to the second quarter of 2013.

Cash and cash equivalents, at the end of the second quarter, was $6.5 million compared to $43.2 million at the end of Q2 of 2013, which we reported shortly after raising $100 million mid-Q2 of 2013. In terms of our operations, at Twangiza, in Q2, approximately 870,000 tonnes of material was mined, roughly 485,000 tonnes of which was ore, with an average strip ratio of 0.8. The Twangiza plants milled approximately 340,000 tonnes of ore with an average head grade at 2.44 grams per tonne and average recovery of 84.3%. This led to production of 21,431 ounces of gold at the cash cost of $720 per ounce for the quarter.

In comparison, the cash cost was $789 per ounce to the 19,347 ounces produced in the second quarter of 2013. Recoveries due in Q2, and through compared to the same period in 2013, was 83.4% to 84.3%.

As we go on to talk about our costs, please keep in mind that we calculate our cost on a production basis, not on sales basis.

Cash cost in Q2 was $720 per ounce, roughly 8% lower than the $789 per ounce in Q2 of 2013. Cash costs were lower due to increased mine and plant productivity, but the full benefits of plant enhancements were partially offset by the lower than planned production as a result of the heavy rains in April. All-in sustaining costs of $893 per ounce were roughly 18% lower than the $1,086 per ounce in the same quarter last year. This is due partially to the lower cash costs we just mentioned and partially for the past -- with less sustaining capital expense in Q2 of 2014 than was necessary to spend in the same quarter of the last year. Please recall that the Twangiza, the main risk during the cash cost and the all in sustaining cost, is a cost associated with the ongoing build of the Tailings Management Facility.

The final part of the Twangiza plant expansion program, the commissioning of the second dilution circuit was completed in May. This brings the throughput capacity for Twangiza to 1.7 million tonnes per year. As I mentioned earlier in the call, we have now have several months of dry weather and it will continue for some weeks yet. During this period, we will continue to work towards completing the carried out stockpile in handling area and preparation to the next wetter period, which can start later in Q3.

Our annual goal to Twangiza operations remained production of 100,000 to 110,000 ounces of gold at the cash costs of $650 to $750 per ounce.

Now on to Namoya. As you recall, we were able to begin pulling gold prior for the completion of this front-end and the gravity CIL circuits by bypassing the main run of mine pads and transporting ore directly to two mobile crushers, which had on to the heap leach pads for stacking. This allowed us to commission the heap leach portion of the operations sooner than the front-end of the process. Full construction at the open pit hybrid CIL heap leach operation at Namoya is completed in April and we started half commissioning of the plant incurred in the scrubber, secondary and tertiary crushing circuits as well as the CIL circuit in May. The plant was run on a stop and fix basis to resolve various commissioning issues. And during the commissioning activities, the Company determines that the Namoya hybrid CIL heap leach plants was not able to run at design capacity, because the percentage of fine material was found to be higher than some components of the plant were designed to process.

In addition to the issued content of the ore, we will need to make modification to these components of the west part of the plant, the gravity CIL component, and anticipate that they should be completed during the fourth quarter of 2014 to make the necessary modifications to the focused plants, as estimated based on preliminary assessments.

At this point, the management is continuing to work with internal expertise and external consultants, including Kappes Cassiday and Associates, a firm which specializes in the development, engineering and implementation of extractive metallurgical processes for the mining industry, with particular specialist focused on heap leach operations. The Company and its operations’ advisors recognize the need to introduce a traditional agglomeration drum into the circuit. This means not washing all of the ore at the front-end of the process as originally planned but introducing an additional dry ore feed with appropriate cement additions into an agglomeration drum to bind the fine components of the ore to allow for efficient percolation of the cyanide solution on the agglomerated heap.

In terms of processing, during the second quarter, the Namoya mine produced 1,458 ounces of gold from a total of 65,858 tonnes of ore, stacked and sprayed, on the heap leach pads and processed through the CIL circuit, at an indicated head grade of 2.31 grams per tonne gold. Our production guidance for Namoya remains 25,000 ounces to 30,000 ounces of gold per ounce.

In terms of the exploration activity in Q2, due to the focus on cash flow management during the completion of Namoya, exploration work was comprise mainly of circulation programs to be carried out later this year. We continue to carry out lower cost activities at Kamituga and Lugushwa with the potential for very meaningful results. We are concentrating on targets areas, which are easily accessible. This is cost effective and can be used as a solid basis for further exploration when budgets allow.

At this point, I’d like to hand over to Richard. Thank you.

Richard Brissenden

Thank you, John. Now, on to our capital management and liquidity situation. At the close of Q2, we had a cash position of 6.4 million. Since January, Banro’s finance team has been working with the local DRC banks through which we have loans in order to secure payment terms more appropriate for our cash flow situation. To-date, we have renegotiated repayment terms for the remaining 10 million with the BCDC Bank, reducing our monthly installments to 500,000, compared to the original terms of 1 million monthly. As well, during Q2, we renegotiated payment terms for the 15 million facility with Ecobank such that now we will make four equal quarterly payments of roughly 3.75 million, May, August, November, of 2015 and February of 2016.

Yesterday’s press release detail the financial arrangements and agreements we have put in place to address our current financial requirements. These arrangements have two basic components; the first is that 35.5 million financing with current stakeholder privacy by way of the issue of two types of notes with associated warrants. There are priority notes with an aggregate principle amount of 27 million and 8 million imparity notes. Both types of notes mature July 2016 with interest rates increasing from issuing till maturity as is detailed in yesterday’s press release. The three year warrants associated with these notes entitle holders to purchase a total of 13.3 million common shares at an exercise price of $0.0269 cents per share.

The second part of this financing plan is the memorandum of understanding with the private gold group for two gold streams, a 41 million stream related to Twangiza and an 18 million stream related to Namoya. In the Twangiza transaction, the buyer would prepay US$41 million for 40,000 ounces of gold deliverable over four years at the rate of 10,000 ounces per year. In the Namoya transaction, the buyer would pay a deposit of US$80 million and be delivered 10% of the Namoya life of mine gold production up to a maximum of 12,000 ounces per year. Under this arrangement, the buyer would pay US$300 per ounce, increasing to US$350 per ounce after the delivery of the first 200,000 ounces.

Under both arrangements, the buyer has an option to purchase an additional 10% of the gold at spot prices. Also, the Namoya stream arrangement can be terminated any time with the payment to the buyer of a one-time termination amount equal to a 15% internal rate of return on the initial financial deposit made for this stream. The completion of both these streaming arrangements is subject to due diligence and the entering into of a definitive agreement, and both would be set to close, are set to close, on October 15th.

We plan to use the net proceeds from these arrangements as follows; first, the repayment of the privacy notes issued under this financing; two, insurer accounts payable are reduced to current level; and to provide funds for ongoing capital requirements and for working capital.

Before we close, I would also like to welcome Kevin Jennings to Banro in the role of CFO beginning September 1st. Kevin has extensive experience in senior roles in the mining industry, including that of CFO for American Barrick and other senior positions with Barrick Gold, Xstrata Nickel and Falconbridge. We look forward to having Kevin join us. I’d also like to thanks Donat for his contributions to-date, and continuing contributions in the future.

With that, I will turn it over back to John. Thank you.

John Clarke

Thank you, Richard. Just a quick summary now, Twangiza is performing as expected and we look forward to continuing to treat the plant and the processes to optimum production. We will also continue production at Namoya from the heap leach while we make the necessary modifications to front-end of the plants to bring Namoya up to design capacity. As we are waiting the full quarter next, so things are silent we will update stakeholders as we go forward.

Thank you very much for joining us today. And I will turn the call back to the operator to open it up for questions. Thank you.

Question-and-Answer Session


(Operator Instructions) As we have no further participants queued up for questions, I will turn the call back to Mr. Brissenden.

Richard Brissenden

Thank you. Thanks to all our participants. I would remind you that this call is available for repay for two weeks. The numbers can be found at the end of yesterday’s press -- the last week’s press release and on Banro’s Web site. Thank you.


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

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