SEMAFO's (SEMFF) CEO Benoit Desormeaux on Q2 2018 Results - Earnings Call Transcript

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About: SEMAFO Inc. (SEMFF)
by: SA Transcripts

SEMAFO Inc. (OTCPK:SEMFF) Q2 2018 Earnings Conference Call August 8, 2018 8:00 AM ET

Executives

John Jentz – Vice President, Corporate Development and Investor Relations

Benoit Desormeaux – President and Chief Executive Officer

Analysts

Mick Sroba – Macquarie

Brock Salier – Sprott Capital Partners

Kerry Smith – Haywood Securities

Operator

Good morning, ladies and gentlemen, and welcome to SEMAFO’s Second Quarter 2018 Production 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, August 8, 2018, at 8:00 AM Eastern time.

I would now like to turn the meeting over to Mr. John Jentz, Vice President, Corporate Development and Investor Relations. Please go ahead, Mr. Jentz.

John Jentz

Thank you, operator. Good morning, everyone. Members of the SEMAFO’s senior management team that joining us today for the call are Benoit Desormeaux, President and CEO; Martin Milette, Chief Financial Officer; Patrick Moryoussef, Vice President, Mining Operations and Richard Roy, Vice President, Exploration.

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 resource and reserve 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, risks and assumptions, please consult our 2017 annual MD&A as updated and other filings made with the Canadian securities regulatory authorities and available on SEMAFO’s website at semafo.com.

SEMAFO disclaims any obligations to update or revise any forward-looking statements except as required by law. I make this cautionary statement on behalf of all SEMAFO spokespersons who may address you today during this call. All dollar amounts refer to U.S. dollars unless otherwise stated.

With that said, I’ll now turn the call over to Benoit Desormeaux for the presentation portion of the call, followed by Q&A. Benoit?

Benoit Desormeaux

Thank you, John and good morning, everyone. Welcome to SEMAFO’s Q2 2018 operating and financial results conference call. Before my thoughts on the quarterly results, I would like to highlight the presence of Richard Roy, our Vice President, Exploration with us today. As announced Richard has taken over management of Exploration from Michel Crevier, who retired from the company at the end of June. Richard has been with the company for nine years now and his promotion is part of an orderly transition. We thank Michel for his many years dedicated service to the company, and thank Richard for accepting to step into Michel’s very big shoes.

So this was a very busy quarter for us, in which we began our transition into a multi-mine company with projected annual production of over 400,000 ounces of gold. Mana delivered 45,700 ounces at an all-in sustaining cost of about $1,100 per ounce. We continue to advance development of Siou Underground in line with our plan. And our 2018 exploration delivered an initial series of promising results. That said, the highlights of the quarter, was clearly the first gold poured at the Boungou Mine.

The Boungou project was commissioned ahead of schedule, on budget and with the stellar safety record of 5.5 million hours without a single lost-time injury. We’re extremely proud of the safety record, which, we believe speak to the efficiency and strong management of the mine construction team. To this end, I would like to publicly thank Sylvain Duchesne and Patrick Moryoussef and their team for their hard work this quarter as indeed over the past 18 months.

As first gold poured at Boungou was achieved late in the second quarter, we expect to update you later this month on our commercial production. To-date the ramp up is going to plan with equipment working well progress nominal design capacity.

At Mana we had a stable operating performance giving production of 91,000 ounces year-to-date with an average mill recovery of 96%, head grade in the quarter was 2.35 per tonne mainly reflecting the contribution of Wona instead of Fofina last year.

Revenue reached $58.5 million in the quarter at an average price of $1,298 per ounce. The all-in sustaining cost reached $1,103 per ounce in the quarter compared to $1,774 per ounce last year. The increase is due to higher stripping ratio and the hardness of the ore.

We ended the quarter with $131 million of cash after generating $16 million in operating cash flow and completing construction of Boungou within the $231 million budget. This leaves us strongly placed to fund our growth by plan as we move into a new cash flow generation cycle.

The development of Siou Underground continues in line with our plan. Key milestone in the quarter was the signing of an underground mining services contract with AUMS, an experienced operator in West Africa to provide turnkey mining services. Mobilization of AUMS on site is now in progress with the aim of beginning development this quarter.

On the exploration side, I would like to briefly touch on two new recently identified zones at Boungou. These results from – are $9 million budget for Boungou in 2018 with the objective of expanding to eight-year mine life.

The first is at Tawori, an area located 4 kilometers from the Boungou Mine. Here, we outline a geological zone called Osaanpalo, whose mineralization presents similarities to the Boungou Shear Zone. A number of significant results were obtained including 3 meters at 17 gram per tonne, 10 meters at 2.17 gram per tonne. Follow-up drilling is ongoing to deepen our understanding of this zone.

We also obtained promising results from a second area at Boungou located on the Dangou permit 30 kilometers northeast of the mine. Results showed that the area is highly anomalous in gold throughout and significant mineralization was obtained from altered and locally sheared intervals of intrusive rocks in particular from a zone call Baali.

Results include 9 meters at 7.6 gram per tonne, 5 meters at 6.15 grams per tonne. We will be focusing our full efforts on better defining Baali where current information suggests a subvertical zone of gabbro and basalt.

In closing, we are very pleased to report a steady quarter from Mana that coupled with the start of the Boungou positioned us well to meet our consolidated guidance for 2018. We are very excited about becoming a multi-mine gold producer again, and with such quality assets.

Over the coming five years, Boungou full year contribution will push our corporate all-in sustaining cost down to under $700 per ounce in addition to doubling our production and operating cash flow. All of this provides significant room to fund our pipeline of gold project. And we look forward to updating you as they advance.

Operator, I will now like to open up the lines for a Q&A session.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Your first question comes from the line of Mick Sroba from Macquarie. Please go ahead.

Mick Sroba

Yes. Good morning, Benoit and team. Three questions on my end. I just like to get some granularity, please, on the breakdown in production between Wona and Siou and the stockpile. I would imagine this had a lot to do with the high recoveries during the quarter.

Benoit Desormeaux

Yes. During the quarter, Siou accounts for 380,000 tonne. Wona was 220,000 and only 3,000 from stockpile. So that’s the reason why, as you said, recovery is higher because Siou was by far the best contribution.

Mick Sroba

All right. And do you have an idea of the recoveries that you are achieving purely from the Wona ore or is that hard to say at this point?

Benoit Desormeaux

Wona, we’re definitely – may be just below 90% so probably between 88% and 90%.

Mick Sroba

Okay, great. And if you can provide us some information on mining cost per tonne and processing at all

Benoit Desormeaux

Yes. So in the second quarter, I would say the plant is fairly steady, it’s $19 per tonne. On the mining side, it’s $2.60. And we have, let’s say, on site G&A $4 a tonne. This is what ends up with $70 in all included if you consider total strip.

Mick Sroba

Okay. And just at Boungou, how long were you able to achieve the design throughput and the 63 micron grind size for?

Benoit Desormeaux

We – this has been achieved, the 63 micron is definitely not a challenge. That’s been achieved fairly quickly. Now we’re working on operating on the steady-state basis. We have established commercial production on the tonnage being 75% of design. So that would – since we have 4,000 tonne per day plan, we’re looking at 30 days at 75%, so 30 days at 3,000 tonne per day as well as having the proper recovery in grades. So this is just a question of tweaking the different things and – but throughput grind size has not been a challenge at all.

Operator

[Operator Instructions] Your next question comes from the line of Brock Salier from Sprott Capital Partners. Please go ahead.

Brock Salier

Good morning. I just want to take a bit of an update of what the mining conditions are looking like at Boungou? And how that translates into what your expectations are onset of mill grades in the second half, obviously, it’s slightly differently oriented ore body, but most of those [indiscernible] at Burkina Faso what’s looking like now you’re ramping up?

Benoit Desormeaux

So far – I would say so far, so good. Great – so for great control, it’s confirming pretty much what we have. We’ve only mined first tonne of ore from the west pit at the end of June, which is the start of the higher grade ore. So, of course, since the beginning of the ramp up, we’re using lower grade coming from east. But even if it was a flat zone so far it does not show any difficult challenge.

Brock Salier

Got you. And the previous mine plan was looking at grades in the high 4s in the second half of the year? Is that something that you still like to think, you’d be able to achieve and – from what you’re seeing now?

Benoit Desormeaux

Yes. This is still the plan and this is still what we think will happen in the next coming months, yes.

Brock Salier

Perfect. And one more question if I may, on the Wona recovery. Should we be thinking about that long-term coming up into the high 80s or 90s. You don’t have the space between Wona and Siou, but your overall recovery look like they’re not being pulled down by that kind of low 80s recovery, we thought we might get at Wona?

Benoit Desormeaux

Yes, so far what we see, you’re right, we have a better recovery at Wona than what we were anticipating. The historical recovery was based on feasibility studies that was done 10 years ago. We had a bit of Wona maybe four years ago. And as we were going deeper, the recovery was getting lower. But lots of modification were done at the plant and we did not – any update on the recovery. But what we’ve seen is a bit higher. So I don’t think we will get down to 81% where it was in the feasibility study. But we will have a better idea what we can achieve in the next two quarters as Siou – we still Siou – we still have some Siou for third quarter, but not anymore for the fourth quarter. But definitely, we believe it’s going to be higher than what we thought. So we assumed we could reach 88% and may be better.

Brock Salier

Got you. And just one final question on the throughput of Mana. I know, you flagged a harder rock dropping you on the 500,000 tonnes in the quarter. Going forward, I think, the original mine plan was always sitting broadly somewhere between 500 and 600. Again, is that your expectations? Or is this harder rock at depth going to sort of pull that down closer to 500 than 600 going forward?

Benoit Desormeaux

What we see when we’re – especially protecting Wona, we are closer to 7,000 per day. So that still demonstrates that we could achieve 600,000 per quarter. Because the difference between Wona and Siou is not big. Siou is a fairly hard quartz vein, Wona is hard bed rock, but mixing both is not making a use different than going with 100% of Wona.

Brock Salier

Okay. Thanks very much.

Benoit Desormeaux

Thank you.

Operator

Your next question comes from the line of Kerry Smith from Haywood Securities. Please go ahead.

Kerry Smith

Thank you, operator. Good morning, Ben.

Benoit Desormeaux

Good morning.

Kerry Smith

A couple of questions. I know, you have in mind that many times you had at Boungou, but I’m just wondering how the grade on that – I think, it was 200,000 tonnes that you’ve mined, just how that grade is reconciled with the model in terms of what you expected?

Benoit Desormeaux

Yes, it reconciled well, Kerry. We haven’t stockpiled something that is at 2.5 gram per tonne, which is pretty much representative of what we were mining in the east pit. As I said the first tonne of higher grade that came from west pit only started at the end of June that was the plan. There is no surprise there. So far, so good.

Kerry Smith

Okay. And of the $26 million that you had budgeted for the year on exploration. How much of that have you actually spent as of June 30?

Benoit Desormeaux

About 50% – 70%

Kerry Smith

Sorry, 50% or 70%, Ben?

Benoit Desormeaux

No, no, we’re at $17 million. So $16 million is 16%.

Kerry Smith

Okay, great. And then why was the expense strip ratio so much higher like normally it runs around 17:1 it seems but it was almost 11:1?

Benoit Desormeaux

Yes, it was 10.7. It’s really a question of where we are mining and it’s for on accounting rules what you develop for future and what you’re stripping for the current mill feed. But we – on our side, since everyone is focusing on all-in sustaining costs, we don’t even focus on operating strip or a pre-stripping. So we look at the overall strip ratio. When we announced at the beginning of the year, a total strip ratio will sometimes provide a figure for operational, but if it’s changed over time, from one quarter to a quarter we don’t really look at this as long as in the total strip if it’s pretty much what we’re expecting. And it is the case.

Kerry Smith

And so the – this remind me the strip ratio you’re expecting for the year?

Benoit Desormeaux

16:1.

Kerry Smith

Okay.

Benoit Desormeaux

And when I look at what – if you still focus on operational strip and pre-stripping the second half of the year, what we see now what would have been achieved in the first half of the year and the second part of the year the operational strip goes much more lower. So we’re going just below 7.

Kerry Smith

Okay. So around 7:1 for the back half, but the total strip ratio will be around 16 for the back half.

Benoit Desormeaux

Correct. And it was 16 for the first half as well.

Kerry Smith

Okay, that’s great. Thank you very much.

Operator

There are no further questions at this time. I will turn the call back over to the presenters for closing remarks.

John Jentz

I would like to take this opportunity to remind listeners that our second quarter 2018 MD&A and financial statements are available on our website or on SEDAR. The audio webcast of this conference call will be available for replay on our website for a period of 30 days. I’d also like to mention that our 2018 Q3 financial and operating results are currently scheduled for publication on or about November 6, of this year. Thank you, everyone, and have a good day.

Operator

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