Banro Corporation (BAA) Q4 2014 Results Earnings Conference Call April 7, 2015 11:00 AM ET
Executives
John Clarke - President and CEO
Kevin Jennings - SVP and CFO
Analysts
Phil Larson - Millstreet Capital Management
Richard Leach - Private Investor
James Thompson - Individual Shareholder
Operator
Good morning, ladies and gentlemen. Welcome to Banro's Year End 2014 Results 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, April 7th, 2015 at 11 AM Eastern Time.
I would now like to turn the meeting over to Mr. John Clarke, President and CEO of Banro Corporation.
John Clarke
Thanks very much operator. And thanks everyone for joining us. During today's call, I'll provide the Board overview of the final results of 2014 and the full year 2014 together with operations update for both Twangiza and Namoya.
Kevin Jennings, Banro's CFO will provide an update on Banro's financial situation. In Head Office at the moment online we also have divested our team including our Chairman, Richard Brissenden and Martin Jones who is heading up IR and is the Chairman of the Banro Foundation.
In concluding comments is CFO, I will outline the key objectives that we've set for ourselves for 2015 in order to maximize value to shareholders. Before we get started, I'd like to emphasize that some of the information discussed in this call, particularly our revenue and production targets for 2015 and beyond, and our forward-looking plan, is based on information as of today, April 7th. As well, our commentary contains forward-looking statements that involve risk and uncertainty.
Actual results may differ materially from those contained in these statements. And for a discussion of these risks and uncertainties, please look at the forward-looking statements disclosure in the financial results press release issued today and in Banro's regulatory filings, including the year end 2014 MD&A.
Before we address the year-end financial results, I'd like to make a few general comments. Twangiza closed the year 2014 with reducing cash cost and reducing all-in sustaining costs, both driven by increased gold productions through the year.
At year-end, mill throughputs at Twangiza have reached near design capacity and in Q1 2015, we did achieve design capacity. The second half of 2014 averaged approximately 90% of that capacity.
We maintained this production of Twangiza through one of the rainier part of the year and the covered door handling area significantly reduced the difficulties we experienced in this previous rainy season.
Namoya continues to operate and produce gold and we're still targeting commercial production rates for early in the second half of 2015. As you're aware, we experienced difficulties in fully commissioning our Namoya plant last year and has extended by the weaknesses in the design of the in-store plants.
The major deficiency in the design was recognized both by management and by third-party consultants to be the absence of an agglomerate stage. So, in Q4, we purchased agglomeration units, arranged its delivery to the DRC and commenced its commissioning before the end of January 2015. It has been operating well.
I'd like to now hand you over Banro's CFO, Kevin Jennings for an overview of our Q4 and year-end 2014 financial results. Thank you, Kevin.
Kevin Jennings
Great. Thank you, John. Since most of you have read the financial results, press release, and filings, I'll go over them briefly and provide you with some commentary on our Q4 results and some of our expectations for H2 2015.
In Q4 at Twangiza, we reported 29,500 ounces of gold for revenues of $35.2 million, generating from the sale of 29,000 ounces at an average price of $1,202 per ounce. This compares with Q4 of 2013 of 22,900 ounces for revenues of $27 million from the sale of 21,400 ounces at an average price of $1,329 per ounce.
So, this was an increase of 29% in gold produced over the same quarter of 2013 with an increase in revenues of 30%, despite the gold price being $62 lower per ounce from that prior year's quarter.
This higher ounce production with the production cost remaining flat at $17.3 million drove the cash cost down from $813 per ounce in Q4 2013 to $592 per ounce in Q4 2014. This means for the last two quarters, Twangiza or H2 period has averaged at cash cost of $605 per ounce and we expect similar or better results in Q1 2015.
With Twangiza being able to achieve the annualized throughput of 1.7 million tons per annum in Q1 2015, focus has been on building up spares at the plant and with the mobile equipment to ensure that we can maintain this level of throughput.
We will only receive partial benefit of lower fuel prices in Q1 as we carried high levels of fuel during the wet season and we will drive down those fuel inventory levels as we move through the dry season, getting the full benefit of the lower diesel price.
The company realized net income of $230,000 as compared to a net income of $2.1 million in Q4 of 2014. This was driven by increases in gross earnings from operations that increased 55%, moving from $19 million to $24 million quarter-over-quarter from the prior year.
This was partly offset by higher administration and financing expenses resulting from higher financing levels and regional corporate are now being allocated to the operations as we transition from an exploration company to an operating company. Optimizing these indirect costs will be our primary focus for us as a part of a $10 million cost reduction program in Q3 after we've successfully commissioned Namoya.
The cash and cash equivalents at the end of the year were $1 million compared to $4.5 million at the end of Q4 2013. The cash position will improve with the funds from the $40 million Twangiza gold forward sales agreement and the streaming transaction.
In the past two quarters, we've -- as we waited for the gold holding financing, we did experience a funding gap, where it was quite difficult to properly ramp-up Namoya operation.
Buying essential mobile equipment to feed the ore plant was delayed by six months. So, as a result, we have modified our action plan in Q1. We pre-stripped the Kakula pit earlier in the schedule to open more mining phases and are negotiating the contract some of the waste mining activities in the interim until the larger equipment arise.
The big focus in Q2 will be to reach Namoya's breakeven point as soon as possible, which at site level is approximately 5,500 ounces.
As you are aware from our earnings call from previous quarters, we've been closely managing our trade payables, which stood at $75 million at the end of Q4. Roughly 35% of this balance is with four major suppliers who represent 70% of the over 90-day payables, which we have been negotiating and have set in a payment plan in place.
A large portion of the $40 million gold forward sales agreement and the cash flow from Twangiza is being used in the last two quarters to reduce our overall accounts payable to acceptable levels and the funding from the Namoya gold streaming will be used to further pay down those accounts payable debts for some debt repayment of local debt repayments and the repayment of the backstop facility as well as building up appropriate cash cushion and focusing on high priority capital items.
These capital requirements for H1 will be limited primarily to the mobile trucking fleet as I explained earlier for waste movement at Namoya, and we are still focusing on looking at CAT 777s, then moving the belt trucks to Twangiza or with more 40-ton trucks depending on the financing alternatives. Also, we will be focusing on the ongoing construction of the TMF at Twangiza.
By mid-April, we expect to close the second tranche of the gold forward sale agreement for $20 million and the streaming agreement, which as described for Namoya, a gold streaming agreement for 10% of the Namoya life-of-mine production. We would receive $150 per ounce and any ounces mined within 20 kilometer radius would be subject to this amendment.
So, that being said, I’ll pass this back to John for his further review of the production and ongoing operations.
John Clarke
Thank you, Kevin. In terms of operations, at Twangiza in Q4 approximately 970,000 tons of material was mined with roughly 556,000 tons of high grade ore, with an average strip ratio of 1.74. The Twangiza plant milled approximately 370,000 tons of ore with an average head grade of 3 grams per ton and average recovery of 81.4%. This led to production of 29,445 ounces of gold and cash cost of 592 per ounce for the quarter.
In comparison in Q4 2013, the cash cost was $813 per ounce. For the 22,858 ounces produced, we decreased our cash cost quarter-on-quarter by 27%. Cash costs were lower as we’ve indicated before to increase mine and plant productivity.
Recoveries during Q4 2014 were lower compared to the same period in 2013 going from 84.4% to 81.4%. As we go on to talk about our costs, please keep in mind that we calculate our costs on a sales basis.
All-in sustaining costs of $689 per ounce in Q4 were also significantly lower than those for the same period in 2013 when we had $899 per ounce.
In terms of operations, at Twangiza since the full year 2014, approximately 3.6 million tons of material was mined with roughly 1.9 million tons of that been ore with an average strip ratio of 0.84.
In 2014, the plant milled approximately 1.36 million tons of ore with an average head grade of 2.7 grams per ton and average recovery of 3%. This led to production of 98,184 ounces of gold at a cash cost of $683 per ounce for the year.
Again making a comparison with the previous year and current year 2013, the cash costs have been $836 per ounce for the 80,497 ounces sales, a decrease of 18% in cash cost year-on-year.
Cash costs again were lower due to increased mine and plant productivity. Simply Twangiza's higher production numbers resulted in lower cash costs due to the higher fixed cost elements of our operations.
Recoveries during current year 2014 were marginally lower compared to calendar year 2013 going from 83.8% to 83%.
All-in sustaining cost in 2014 was $781 per ounce, a decrease of 27% from the $167 per ounce in 2013. Again, reducing costs with decrease in all-in sustaining costs per ounce was driven by reduced operating costs per ounce as well as lower levels of sustaining capital expenditure.
The main difference in cash cost and the all-in sustaining costs is cost associated with the ongoing builds of the Tailings Management Facility. We will continue to focus on recoveries and creating additional efficiencies were possible to keep up cost cash costs and all-in sustaining costs as low as we can to higher sustained production rates.
The publication of our Q1 2015 production results on Monday allows us to also present our Q1 2015 production today in the context continued growth and in tune with our operations. Together Twangiza Mine produced 25,197 ounces of gold during Q1 2015 with 35,943 of those ounces coming from Twangiza. A first successive quarter of record production.
The Twangiza production of 35,943 ounces in the first quarter 2015 represents a 17% increase over Q1 2014 when 20,137 ounces of gold were produced, successfully managing the adverse impact of the rainy season and significantly above the 2015 monthly average production guidance of 9,000 ounces per month.
The total plant throughput achieved was 101% of the 1.7 million tons per annum annualized design capacity at Twangiza and more importantly represents three quarters of consistent incremental improvement.
Twangiza processed up to 28% of transition material to assist with the feed blend during the last two quarters. Even though these material is not included in the company's mineral reserves.
This material performed well when mixed with the offsite reserves and provide the basis for some non-offsite material to be incorporated into the ongoing updated NI 43-101 reserves and resources statement and is expected to be released later this month.
Now pass on to Namoya in 2014 and 2015. During 2015 the Namoya mine produced 18,282 ounces of gold from the total of 565,350 ore stacked and sprayed on the heap leach pads and processed through the Carbon-In-Leach circuit at an indicated head grade of 2.11 grams per ton.
Now I would like to focus on Namoya in 2015. The key objectives of Namoya management team include, one was to position itself to reach commercial completion by H2 of 2015. The company had to modify its divisional ramp up plans due to the financing delay with financing having now being secured as we reported in the company's February 27th press release.
These changes have included pre-stripping Kakula reserve pit than planned in order to open up more mining faces to improve flexibility in mine scheduling and provide additional time for the delivery of the mobile truck fleet that would commence waste stripping activities.
Also the completion of the agglomeration drum which was performed in-house to allow the operations to focus on deep mapping, the heap leach operation increasing speed and capacity of the conveyor systems and beginning to restart a modified CIL plant.
There has been significant improvement in heap leach stacked tons during the first quarter of 2015 with 64,720 tons being stacked in January, 87,441 tons stacked in February and 103,162 tons stacked in March for a first quarter 2015 total of 255,323 tons.
Namoya poured 3,260 ounces in January, 2,687 ounces in February and 3,307 ounces in March for a first quarter 2015 total of 9,254 ounces of gold.
With the commissioning of the agglomeration circuit and debottlenecking during Q1 2015, it is anticipated that the gold production profile for the Namoya operations will rise incrementally from its current level of approximately 3,000 ounces per month achieved.
With heap leach operations taking several months of continuous percolation to fully recover the leachable gold, we will see full benefits of the improvements to the heap leach circuit as we to build up during Q2 2015 to a monthly gold production rate of 9,000 to 11,000 ounces per month during second half of the year.
Few thoughts on exploration. Throughout 2014 as the company focused on the developments at Namoya and deep financial operation achievements at Twangiza, exploration activities were limited to low level exploration and ground maintenance activities in the Twangiza regional Kamituga, Lugushwa and Namoya projects.
Exploration activities mainly involve geological mapping, channel and trench sampling, rock chips sampling, limited orientation IP work as well as the analysis of geological results from field work carried out in prior periods.
For my closing remarks, I would like to go through some key objectives that we have for this year and consideration of the potentially depressed gold prices in the foreseeable future and the company’s intent to replace and grow depleted ounces, the company has developed several key objectives for 2015.
These objectives aimed at increasing gold product while containing costs and increase in the company’s mineral resources to potentially prolong the life of its mines, thereby increase its shareholder value.
These objectives include completing the installation and commissioning of the agglomeration drum at the Namoya Mine in the first quarter of 2015 with a target of achieving commercial production early in the third quarter of 2015.
Ramp up to steady production at Namoya with a focus on the heap leach operations and utilizing the CIL for enhanced recoveries on higher grade fine ore and improve the quality of heap leach material.
We plan to maintain steady state production levels at Twangiza while continuing to optimize the plant and rationalize costs. Also at plan Twangiza, mine plan optimization of Twangiza's current reserves and measured and indicated resources are ongoing.
We will focus our exploration initiatives on identifying high value near-mine targets to enhance near term production and replace Mineral Resources through near-mine delineation drilling at both Namoya and Twangiza. While we will undertake limited, but focused regional exploration at Kamituga and Lugushwa.
Thank you very much everybody for joining us today and giving us the time to giving you updates on our operations. I will turn the call back to the operator to open it up to questions. Thank you.
Question-and-Answer Session
Operator
[Operator Instructions]
Your first question comes from the line of James [indiscernible]. Your line is now open.
Unidentified Speaker
Hi guys thanks taking my questions and I apologize in advance if you've covered this. The line here wasn’t fantastic. My first question is with regards to the guidance from Twangiza is that inclusive of the ounces that have been forward sold to Gramercy? And similarly is the cash cost guidance taken over the total amounts of ounces to be sold including those forward sold ounces or just the ounces that as we sold elsewhere.
Kevin Jennings
Yes, James, the cash cost are before any type of financing. So those are the just the kind of pure cash costs per ounce.
Unidentified Speaker
Okay.
Kevin Jennings
Okay.
Unidentified Speaker
On the guidance for 2015 of 100 to 110 ounces, do I then take the forward sold ounces off that or are the forward sold ounces already been taken off that number?
Kevin Jennings
They have now been taken off. So those are just the pure numbers, unfinanced numbers.
Unidentified Speaker
Thanks very much. Second question, could you -- I appreciate you gave us some detail, I may have missed this. But could you break down a little bit more detail your plans for the 19 million those coming in from the forward sales in the G&A agreement. I appreciate you have pay back the 35 million backstop facility and also you've got the interest on the loan on September 1st on preference dividends.
But how much -- what was the cash likely to be spend? Do you have a number for how much you estimate it will take to finish Namoya? What in your mind is the sustainable level of payables. And are there any other large items, large capital items I'm missing with regards to upgrading the mining fleets at Twangiza?
Kevin Jennings
Yeah. So of the 90 million basically about 45 million will be to pay down debt which including the backstop and a local amounts. Then we want to have at least a cash cushion there of 10 million to 15 million. And then the rest would be pay down payables and from our own cash flows we would pay with our capital.
So our capital is really just getting through the mobile equipment and the month-to-month payment to the TMF is really our critical capital going forward.
Unidentified Speaker
And one question is just going come to -- or going through this, that the guidance looks pretty light considering you've got such a good first quarter. Obviously that was driven by the grade. Can you give any guidance as to how you expect that grade profile to change over the year? Is it pretty to be lumpy or come down over the year or any sort of color you could give on that would be appreciated also.
Kevin Jennings
Well, obviously, the -- sorry, John?
John Clarke
No, no, I had disturbance at my end.
Kevin Jennings
All right. Really the Twangiza and Namoya tend to have a complementary production profile where basically Twangiza is a little bit front-loaded at the front and tails off to the second part of the year, higher grade in the first part and a little bit lower in the second part.
While as Namoya ramps up that will be the different situation. As they ramp they will -- we will be opening up more mine basis and focus to seeing higher grade. So -- which comes out to almost kind of more or less a pretty even production profile.
Unidentified Speaker
Thanks a lot guys. I will let someone else ask. Cheers.
Kevin Jennings
Thank you.
Operator
Your next question comes from Phil Larson with Millstreet Capital. Your line is open.
Phil Larson
Hi, guys. Congrats on the improving operations. I was wondering if you could just kind of walk me through what the capital structure is going to look like once the second forward sale comes in and the streaming operation is in and then all of the planned pay downs happen. Just trying to get really clear picture of what that will be.
Kevin Jennings
Okay. So you look at our current debt structure, 175 million for the loan indenture. Right now we have about 20 million of local debt between Ecobank and BCDC. We have a backstop facility of basically 37 million plus capitalized interest for 40.
So roughly of that $235 million of debt the preferreds -- the Gramercy preferred and the other series of A&B preferreds of about $72 million. So we roughly have $307 million of debt.
If you go and look opposed to refinancing, I mentioned about 45 million to 47 million paying that off. So we would have basically about $260 million, plus the gold forward sale agreement of 40 million. So it still be about 300 million including the gold forward sale agreement. And that breakdown would basically have the streaming -- would basically kind of reducing that backstop of $40 million.
So what we are looking at is that that kind of structure and what we are looking at is paying back some of the loans in 2015 of 20 million and that gold forward sale agreement would be obviously draw down over the next three years.
So our structure is now we really kind of more longer term debt replacing very short term debt that obviously kind of provides a little bit more of a liquidity discount to us.
Phil Larson
Okay, great. Thank you.
Operator
Your next question comes from the line of Richard Leach, Private Investor. Your line is open.
Richard Leach
Yeah. Thank you for taking the call. I've been investor going back to 2006 and I have to say that last year’s performance is the best I have seen. I would like to congratulate management. Here is the question I have for Kevin. Is my understanding correct that the net earnings of $230,000 is very de minimis, but if you look at the EBITDA based on my calculations of the outstanding shares, it almost says -- looks like it’s about $0.18 a share which in my opinion would be a homerun. Is my understanding correct?
Kevin Jennings
Yeah, so these companies basically generate quite a bit of EBITDA, but obviously we have high financing cost and interest cost and some of the administrative cost which we are working on to reduce.
As you get both these operations ramped up, they will generate quite good cash flows and EBITDA, and those kind of overheads and financing cost would be spread through them.
So -- well, Twangiza right now is covering all those cost, the interest in the administration, then Namoya will come and that cash flow will be over and above. So, we don’t anticipate any of those cost to basically increase with the additional EBITDA that Namoya generates. But as you say the EBITDA per ounce -- per share is good and obviously that’s why we’ve been focused more on financing with debt as opposed to shares so that we don’t dilute ourselves in this type of environment.
Richard Leach
Yeah. Excellent. Thank you.
Operator
[Operator Instructions]
Your next question comes from the line of James Thompson, Individual Shareholder. Your line is open.
James Thompson
Morning, gentlemen. I just had a couple of quick question. First, regarding the Namoya gold streaming deal, is that able to be paid of early or anything such as Twangiza deal or is that truly just for the life of mine there?
Kevin Jennings
Yeah, currently as it’s -- it says contracted, it is for the life of mine. We know there is always option where we could offer buyback at any time, just depends on what the market price is at the time.
James Thompson
Okay, great. Thank you. And that’s what I kind of assume from the way PR has done the rating. And then the second question, I just wonder if you could comment general how this year’s rainy season has been compared to last. I know last year -- I guess I don’t recall actually which quarter it was, but I know there is one really rough one. And I guess I just wanted to know if we got a really good test of the improvements at Twangiza as compared to last year.
John Clarke
Yes, we did have really good test of it. James the -- we're in a part of the world that rains -- sorry, part of the world that has excessive rain for much of the year. We have drier period limited truly drier periods like middle of the year sort of May, August -- May, June, July and also August we have lots of relief and usually in February we have some relief of rains.
But we’ve actually found over the last few years, we’ve had very, very changeable patterns not on seasonality, but different months end up being the highest rains when we were experiencing already exploration years.
We also have the issues that it’s not just the rainfall that causes us grief, but we’re worst off with light drizzle happening 24 hours a day than we have at the half hour torrential downfall which will just run off all of our structures and allow the mine to be uneasy operation whereas the constant drizzle just throughout the road network. A long answer, but the bottom-line is, no we have -- the steps we’ve taken have allowed us to work through some fizzy and tolerable rain storms.
James Thompson
Great. Thank you, guys, very much.
Operator
Your next question comes from the line of Phil Larson with Millstreet Capital. Your line is open.
Phil Larson
Hi, guys. Just couple of quick follow-up items. Could you give us a current cash balance and accounts payable balance?
Kevin Jennings
Are you saying as of year-end or as of quarter -- this quarter?
Phil Larson
As of this quarter would be helpful.
- Kevin Jennings
Okay. Well, just basically it's roughly about $60 million. You know I'm obviously -- we haven’t finished the quarter off, but it's about $60 million -- $55 million to $60 million will be the number for the payables.
Phil Larson
Okay. And cash balance?
Kevin Jennings
And the cash balance I run really tight. So, it's in that $1 million zone. So, as long as I know I have--
Phil Larson
Okay.
Kevin Jennings
…I have more than I paid everything else to this players, I can keep them happy.
Phil Larson
Yes. And then just one last thing. I may have just missed it in the press release during the call, what was the cash cost at Namoya during Q4?
Kevin Jennings
Well, it's not a metric right now right we're currently not in production.
Phil Larson
Yeah. So, you won't be--
Kevin Jennings
If you look at 4,000 ounces we've produced in December, and our breakeven point is about 5,500 ounces, so -- I mean you probably do the math, it's probably at about let's say 1,600 per ounces, but it's also running at less -- 40% versus capacity.
Phil Larson
Yeah. Okay. All right. Thanks guys.
Kevin Jennings
Thanks.
Operator
And there are no further questions in queue at this time. I turn the call back to Mr. John Clarke for any closing comments.
John Clarke
Thanks very much. And thanks to our participants. I'd like to remind you that this call is available for replay for next two weeks. The numbers can be found at the end of yesterday's press release and on the Banro's website. If you have any additional questions, please contact us at ir@banro.com, it will be pleasure to respond. Thank you very much.
Operator
Ladies and gentlemen this concludes today's conference call. You may now disconnect.
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