SEMAFO's (SEMFF) CEO Benoit Desormeaux on Q4 2019 Results - Earnings Call Transcript

SEMAFO Inc. (OTCPK:SEMFF) Q4 2019 Earnings Conference Call March 4, 2020 10:00 AM ET

Company Participants

Ruth Hanna - Investor Relations

Benoit Desormeaux – President and Chief Executive Officer

Martin Milette - CFO

Sylvain Duchesne - Vice President, Engineering and Construction

John Jentz - Vice-President, Corporate Development & Investor Relations

Patrick Moryoussef - Vice President, Mining Operations

Richard Roy - Vice President, Explorations

Conference Call Participants

Lawson Winder - Bank of America

Ovais Habib - Scotiabank

Operator

Good morning. My name is Jessica and I will be your conference operator today. At this time, I would like to welcome everyone to SEMAFO’s Fourth Quarter and Year-End 2019 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Ruth Hanna, you may begin your conference.

Ruth Hanna

Thank you, operator. Good morning. Members of SEMAFO’s senior management team joining me for the call today are Benoit Desormeaux, President and Chief Executive Officer; Martin Milette, CFO; Sylvain Duchesne, Vice President, Engineering and Construction; John Jentz, Vice-President, Corporate Development & Investor Relations, Patrick Moryoussef, Vice President, Mining Operations and Richard Roy, Vice President, Explorations.

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 reserve and resource 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 2019 Annual MD&A as updated and other filings made with the Canadian Securities Regulatory Authorities and available on SEMAFO's website at www.semafo.com.

SEMAFO disclaims any obligation 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 during this conference call today. All dollar amounts referred to U.S. dollars unless otherwise stated.

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

Benoit Desormeaux

Thank you, Ruth, and good morning everyone. Thank you for joining SEMAFO’s fourth quarter 2019 results conference call. Despite some challenges, 2019 saw many accomplishments. On a consolidated basis, we produced over 340,000 ounces at an all-in sustaining cost of just over $700 per ounce, that generated operating cash flow of $247 million.

Operationally, Boungou led the way with excellent performance and free cash flow, while Mana made a solid contribution with first production from Siou underground in the fourth quarter. At the end of the year, our balance sheet remain healthy with cash of $98 million, debt of $60 million, and continued 100% exposure to rising gold price.

On the development side, Bantou led the way with the maiden resource early in the year and the successful integration of adjacent properties to produce a distressed scale and package. With the discovery of Bantou North in the second quarter, the consolidated land package produced a combined inferred resource of 2.2 million ounces at year-end, quite an accomplishment in a short timeframe.

This positioned us strongly for achieving our Bantou resource goal of between 2.5 million ounces and 3 million ounces by year-end. In Q3, we published a PEA for Nabanga that showed an after-tax NPV of $100 million at the $1,300 gold price.

In the fourth quarter, we experienced an unprecedented attack on a convoy transporting our employees and contractors on a public road from Boungou Mine. I have been with SEMAFO for over 20 years and this has been the most challenging time of my life. The entire SEMAFO team in Montreal, Ouagadougou and on both sites showed their strength in successfully dealing with this tragic event.

We have upgraded our security and ways of doing business to adapt to the current operating environment. We remain deeply grateful to our employees, contractors and suppliers who demonstrated resilience and engagement in this difficult time.

Current year 2020 began on a strong note. We restarted Boungou mill in February to process stockpiles. The logistics of transporting our employees by air is working well. We expect to restart mining in the fourth quarter while continuing to work with the government on improvement of regional security.

Mana will produce between 185,000 and 205,000 ounces in 2020 from Wona, Siou open pit and Siou underground which should reach design capacity of 2,000 tonne per day in the coming weeks. We started the year with a relatively modest $7 million budget in exploration, which we expect to increase during the year.

At Bantou, our resource goal of 2.5 million ounces to 3 million ounces by year-end remains on track. In summary, we are looking forward to Boungou getting back to full production and continuing our growth with the development of Bantou.

This concludes my remarks. Operator, I would like to open up the line for Q&A session.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Lawson Winder of Bank of America. Please go ahead.

Lawson Winder

Hi, good morning, Benoit and team. Thank you for your comments and also, thank you for taking the question. Maybe just to start off on with the situation around Boungou. Just trying to get a sense of potential increases in cost and from multiple angles. But one might be – is there a chance that you might find yourselves funding some sort of a private security in order to secure supply routes?

Benoit Desormeaux

To answer that question, we have our own expatriates. We have increased the number of expatriates on site for security. We have some private security from – coming from Burkina Faso. It’s not a possibility in Burkina to bring, let’s say a private or mercenaries or private expat to do more than protecting our sites. So the security for the road will come from the authorities. We have had good meetings with them at the beginning of the year. We have explained the plans to restart Boungou in different phases. There is three things that we’ve asked for so far. We got the first two in order to get them the next phase , we see, we need to see the things coming from them. But we have had a very good meeting and we are expecting news from them in the coming weeks.

Lawson Winder

Okay. That definitely sounds constructive. Now, is there any possibility of SEMAFO helping to fund any Burkinabe military effort in the region?

Benoit Desormeaux

Yes, that’s for sure. That was part of our plan and part of our discussions with the authorities. What we are requesting, we are ready to provide the funding for that, whether it’s going to be camp installation or even adding more security forces in the region, we are ready to pay for that. And we know that Boungou is a very good operation that low all-in sustaining cost. Additional security, we’ve added security lately. We will continue to adapt to the environment. But at the end, we are talking about couple million dollars, maybe we are talking about three, maybe it could get to five. But when you look at an operation like we have at Boungou, it’s an overhead that we have to do it.

Lawson Winder

Okay. That’s very helpful. And then, just maybe one more from me on replacing African mines service. Could they – is there a possibility that your all-in mining contractor would come back? Or now that they have declared force majeure on the contract. Is it now gone? And if that is the case, then what are some of your options? And do you have an array of options? Thank you.

Benoit Desormeaux

I don’t think they will come back. They’ve made it pretty clear that they would not. But yes, of course, there is different scenarios that we are looking into. We are already in discussions with many mining contractors that are ready to work at Boungou. So, we have had meetings this week, last week with some in Montreal. So we’ll see how it goes. But definitely there is contractors that are ready to go.

Lawson Winder

I apologize. I said, just one more question, but also on the runway, I would have thought that the runway could have – it could have been done by Q4 last year. Was there anything prior to this tragic event happening that was delaying the runway from getting completed?

Benoit Desormeaux

The only thing where we had some delays, it was in the process of getting all the approvals from the different level of authorities. We had a bit of a delay in that. So we’ve started later than it was expected at the beginning. At the same time, we are bringing ways from the pit to the air strip for the construction of the air strip. I think the delay we had is definitely on the approval side after – of course after November 6 we were no longer working on it. We are planning to restart fairly shortly with the local contractor and there is probably two months and a half two months of work to complete the air strip. But today we are transporting our employees by air still with helicopter. It’s a ten seat helicopter. Most of our employees are – most all of our employees we’re bringing them on site from Fada not from Ouagadougou. So it’s only a 30 minute flight.

Lawson Winder

Okay. That’s great. And it’s fantastic to see things turning to improve around Boungou. So, best of luck guys. Thanks.

Benoit Desormeaux

Thank you.

Operator

[Operator Instructions] Your next question comes from Ovais Habib of Scotiabank. Please go ahead.

Ovais Habib

Hi, good morning, Benoit. Just a couple of questions from me. Some of my questions was already answered. Just a follow-up from – on the contractor for Boungou. Obviously, your guidance for the second half of the year includes mining operations restarting. Is there a cut-off point where you need to make a decision on the contractor for that guidance to remain intact?

Benoit Desormeaux

In fact, Ovais, what you have in our guidance is approximately two months of mining at the end of the year. So we said it would be before. In order to add them on site on time depending if they buy the MS equipment or they bring their own equipment, we have plenty of time I think between today and the day we have to make a decision. We probably have to make a decision sometime in Q3.

Ovais Habib

Got it. Okay, okay. That’s good to know. And moving

Benoit Desormeaux

But again.

Ovais Habib

Sorry, go ahead.

Benoit Desormeaux

Just to add, Ovais, of course, if we can do it quicker than that we will. So it’s not a question that we won’t restart mining. It’s a question of having the contractor ready and having the proper security. So if we can do it quicker, of course, we will.

Ovais Habib

And that’s also contingent, I guess, on the government efforts, as well?

Benoit Desormeaux

Yes, because at some point, having Boungou full of – full production of course, there is more consumables that we need to bring on site and we have to bring consumables by road of course. So, this is what we are doing since the beginning of February when we started the plant at the full runrate of course, it’s more trucks and we will have to see some improvement in security. But as I said, we had a very positive meeting with them. So we expect news in the coming months.

Ovais Habib

Got it. Now that’s good to hear. And just moving off Boungou, just a little bit on Siou underground. I mean, in terms of, obviously you guys had some good drilling completed ahead of schedule as well and seems like things are moving already ahead of schedule on mining, as well. How is the grade reconciliation been, Benoit, been done so, how you were looking at your modeling assumptions?

Benoit Desormeaux

We did – I think, 50% of grade in Siou. So far we are within 5% of our initial model. So no big deal. So, you saw that the new results that we have published which are within 5%. So, so far so good. We’ve mined a little since the beginning of the year, of course, I think in January, we have reached something like 56,000 tonnes in the month. So, so far so good.

Ovais Habib

Okay. Excellent. And Benoit, I’d leave at that and let other callers could poll in for questions. Thanks.

Benoit Desormeaux

Thank you, Ovais.

Operator

We have no further questions at this time. Please proceed.

Ruth Hanna

I would like to remind listeners that our fourth quarter 2019 MD&A and financial statements are available on our website or on SEDAR. The audio webcast of this conference call will also available for replay on our website for a period of 30 days. I would also like to mention that currently, our 2020 first quarter financial and operating results are scheduled for publication on or around May 12^th.

Thank you and have a good day.

Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.