Saint-Laurent Nov 12, 2015 (Thomson StreetEvents) -- Edited Transcript of Semafo Inc earnings conference call or presentation Thursday, November 12, 2015 at 3:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Robert LaValliere Semafo Inc - VP of Corporate Affairs and IR * Benoit Desormeaux Semafo Inc - President & CEO * Martin Milette Semafo Inc - CFO ================================================================================ Conference Call Participants ================================================================================ * Kevin Chiew CIBC World Markets - Analyst * Ovais Habib Scotiabank - Analyst * Nana Sangmuah Clarus Securities - Analyst * Chris Thompson Raymond James & Associates, Inc. - Analyst * Kerry Smith Haywood Securities Inc. - Analyst * Don Blyth Paradigm Capital - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good morning, ladies and gentlemen, and welcome to the SEMAFO, Inc. Q3 2015 results. (Operator Instructions) Please note that this call is being recorded today Thursday, November 12, 2015, at 10 AM Eastern time. I would now like to turn the meeting over to Mr. Robert LaValliere, Vice President, Corporate Affairs and Investor Relations. Please go ahead, Mr. LaValliere. -------------------------------------------------------------------------------- Robert LaValliere, Semafo Inc - VP of Corporate Affairs and IR [2] -------------------------------------------------------------------------------- Thank you, Simon, and 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; Patrick Moryoussef, Vice President, Mining Operations; and Sylvain Duchesne, Vice President, Engineering and Construction. 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 expectations regarding the market price of gold, time tables, mining operation expenses, capital expenditures, guidance, and resources and reserve estimates. Such statements are given as of the date of this conference call and involve risk 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 2014 annual MD&A as updated in the first, second, and third quarter 2015 MD&A and other filings made with the Canadian Securities Regulatory Authorities and available on our website at 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 spokesperson who may address you during this conference call today. All amounts are referred to US dollars unless otherwise stated. With that said, I would like to turn the call over to Benoit Desormeaux. Benoit? -------------------------------------------------------------------------------- Benoit Desormeaux, Semafo Inc - President & CEO [3] -------------------------------------------------------------------------------- Thank you, Robert. Good morning, everyone. We have defined our short-term priorities to be disciplined exploration within trucking distance of the Mana Mine and Natougou deposits, to deliver our production guidance for an 8th consecutive year, to complete the feasibility study at Natougou, and to continue our cost containment efforts. Delivering against these commitments lies at the heart of our value creation for shareholders. Today in announcing our third-quarter financial and operational results we also discuss our progress towards meeting these priorities. In the third quarter the operational performance of our satellite deposits continued to demonstrate their quality. Despite the rainy season we delivered a 4% increase in production at Mana as compared to the third quarter of 2014, representing a strong performance and continuance of the trend established in the first half of the year. Grade in the quarter averaged 3.67 grams per ton, a 26% increase compared to the third quarter of 2014. That is due to a greater percentage of high-grade ore processed from the Siou and Fofina pits. The increase in production was achieved at lower costs compared to Q3 of 2014. Our total cash costs decreased by 13% year over year to $485 an ounce. In addition our all-in sustaining cost per ounce sold declined by 13%, $616 per ounce on a year-over-year basis. In light of the strong results, the cost guidance ranges have been improved to account for our cost containment efforts, lower industry costs, and favorable exchange rates. Our total cash cost guidance for 2015 now stands at between $485 and $505 per ounce. Consequently our all-in sustaining cost guidance for the year has been lowered to between $630 and $650 per ounce, representing a $30 decrease at midpoint from August revised guidance. We are on track to achieve the midpoint of our 2015 production guidance of between 245,000 and 275,000 ounces, thus meeting our production guidance for an 8th consecutive year. The average realized gold price sold declined by 11%, or about $141 an ounce year over year, to just under $1,190 in Q3 of 2015, down from $1,200 in Q2 of 2015. The lower realized gold price coupled with the slightly lower gold ounces sold impacted our gold sales in the quarter which decreased 14% to $72.5 million relative to the same period in 2014. Despite this, cash flow from operations reached $35 million, or $0.12 per share, in Q3. As a result of our lower revenue offset by lower mining operation expenses, our adjusted net income from continuing operations decreased by 28% year over year to come in at $13.9 million, or $0.05 per share in the quarter. We closed the quarter with $138 million in cash and cash equivalents on our balance sheet. However, the figure of $138 million does not include $17.5 million received in early October 2015 which represents the September 30 gold shipment. Taken together we would have finished the quarter with just over $155 million in cash and cash equivalents. In the third quarter we continued to execute against our objective of delivering the feasibility study for the Natougou deposit early in the second quarter of 2016. At the end of September we had completed 70% of the feasibility study for Natougou. Almost all of the process and hydrology items have been conducted and we are working to finalize the CapEx and OpEx estimates. Given that the resources model is complete and the geological black model is in process, our dedicated team is focusing strongly on the reserve calculation, mining, and conclusion of the environmental impact study. In the quarter we carried out metallurgical test work in the Boungou Shear Zone consisting of 109 individual drilled core samples. The tests ensured both spatial and grade representation as well as comparison of oxidized and fresh rock characteristics. Our results show that the recovery is consistent throughout the deposit, and our trace metal analysis returned no refinery concerns. Fresh rock samples indicated a gold recovery rate of over 92%, while oxidized sample yielded a recovery of over 96%. At the end of the quarter a total of $9.9 million of the $12.5 million budget had been disbursed for the feasibility study. Turning to exploration. Due to the rainy season exploration in the third quarter was lower than in other quarters. However, we maintained our focus on exploration within trucking distance of the Mana Mine and Natougou deposit. During the quarter, auger and RC drilling campaigns were conducted within trucking distance of Mana. The RC drill program consisted of 6,600 meters and 44 holes focused on the Bombouela, [Forbiri tu], and Kona Ble permits. During the quarter as part of our 56,000 meters of infill drilling completed for the Natougou feasibility study, delineation, drilling and short hole-extension program were complete to test the continuity of the footwall zone on the Boungou Shear Zone. A total of 20 holes were extended in order to reach the footwall zone. After analysis of the results, a total of 12 additional holes were interpreted to have also crossed the footwall zone. Results from the 32 holes suggest that the width of the footwall zone averaged 1.5 meters. The program returned high-grade results of up to 32 grams over 2.5 meters. The zone lies sub-parallel to and some 5 to 20 meters below the main Boungou Shear Zone. To date the footwall zone has been traced over 300 meters by 90 meters area and remains open in all directions. Further drilling will be carried out. The third quarter was especially active on the community relations fund. SEMAFO Foundation marked the start of the new school year at Mana by building new high school and filling school drinking water facilities and disturbing school kits to students. The bulk of the remaining funds was used to construct water wells for two villages. During the quarter mine management fielded several visits. In August we welcomed a large delegation from the Natougou communities which was on a fact-finding mission to learn more about SEMAFO's experience in resettling villages and to witness firsthand its community development measures. During the two-day visit participants held a discussion with leaders of several villages near Mana who demonstrated the improved living condition in the new village and explained the compensation process. In addition, delegates visited the Foundation's [Lavliotte] project and schools. Separately the Foundation installed the first fresh water drinking well for the population of Natougou in the quarter. During the third quarter of 2015 SEMAFO Foundation was honored to receive an award from Forum Africa for excellence in supporting women's entrepreneurship in Africa. Selection for the prize was determined by a review of Canadian companies' activities over the past two years that support projects managed by women in Africa through training, mentoring, or financing. In summary, we are in line to meet our gold production guidance of between 245,000 and 275,000 ounces for the year, thus achieving our production guidance for an 8th consecutive year. We are also well on track to achieve our relowered 2015 total cash cost guidance of between $485 and $505 per ounce and all-in sustaining costs of between $630 and $650 per ounce. The feasibility study at Natougou is advancing well, and associated metallurgical test results are in line with expectations. In addition proximal and regional exploration programs at Natougou are promising and offer offsite potential. Our balance sheet is in excellent shape, providing us with liquidity and financial flexibility, and we are generating free cash flow despite the lower gold price. We expect to finish the year in strength providing a strong spring board for 2016 and beyond. Operator, this concludes the presentation portion of this conference call. I would now like to open up the lines for question-and-answer session. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Benoit Desormeaux, Semafo Inc - President & CEO [1] -------------------------------------------------------------------------------- (Operator Instructions) Kevin Chiew with CIBC. -------------------------------------------------------------------------------- Kevin Chiew, CIBC World Markets - Analyst [2] -------------------------------------------------------------------------------- Good morning, Benoit, and congrats on a good quarter. I have a few questions here, maybe just if we could start on the CapEx. Just wondering what we should expect for Q4? It looks like you have a bit more to spend on the sustaining CapEx based on the original four-year guidance, but at the same time it looks like there would be less on the feasibility side. Just wondering if you could maybe comment on that? -------------------------------------------------------------------------------- Benoit Desormeaux, Semafo Inc - President & CEO [3] -------------------------------------------------------------------------------- I will ask Martin to answer this question. -------------------------------------------------------------------------------- Martin Milette, Semafo Inc - CFO [4] -------------------------------------------------------------------------------- Yes, so if you look on the MD&A on page 17, you see that after 9 months of sustaining and stripping costs we are at $24.6 million, and we have a budget of $37 million. So there is a remaining $12 million for the fourth quarter. And also we are at $9.8 million for the feasibility study, and we have a budget of $12.5 million. But the $12.5 million is going up to the end of the feasibility study at the beginning of the second quarter of 2016. So feasibility study will be maybe another $1.5 million in the fourth quarter. -------------------------------------------------------------------------------- Kevin Chiew, CIBC World Markets - Analyst [5] -------------------------------------------------------------------------------- Okay, so it will be fairly stable. Okay. And then maybe looking -- switching gears, looking at the amount of ore processed in the quarter. Obviously it's lower year over year based on the mine plan. Just wondering if there's an opportunity here to further optimize the mine plan to utilize that excess capacity? -------------------------------------------------------------------------------- Benoit Desormeaux, Semafo Inc - President & CEO [6] -------------------------------------------------------------------------------- When it's possible to do of course we do it. What brings more challenges these days is because we're mining from two satellite deposits 15 kilometers away from the plant. So mixing the ore from three different deposits that are far from the plant is not always easy. So we may have some quarters that are very different from one to another, but you can be sure that we maximize everything we can. -------------------------------------------------------------------------------- Kevin Chiew, CIBC World Markets - Analyst [7] -------------------------------------------------------------------------------- Right. Okay, and just maybe finally on the upcoming election on the 29th, just wondering if you have any thoughts and maybe just what it means for SEMAFO? -------------------------------------------------------------------------------- Benoit Desormeaux, Semafo Inc - President & CEO [8] -------------------------------------------------------------------------------- Our thought is that it's going to happen on November 29. (laughter) So that's the good news. Depending who is winning the election, we don't anticipate any issues. We will work pretty well with anyone who will be elected. We have -- we know these guys and we have always had very good relations with different authorities in every country. So we don't anticipate any issues. -------------------------------------------------------------------------------- Kevin Chiew, CIBC World Markets - Analyst [9] -------------------------------------------------------------------------------- Right. Great, thanks so much. -------------------------------------------------------------------------------- Benoit Desormeaux, Semafo Inc - President & CEO [10] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- Operator [11] -------------------------------------------------------------------------------- Ovais Habib, Scotiabank. -------------------------------------------------------------------------------- Ovais Habib, Scotiabank - Analyst [12] -------------------------------------------------------------------------------- Good morning, guys, and congratulations on a great quarter. A couple of questions, guys. Just on in terms of the mix that's coming from the three deposits going into the mill, can you give us a little bit information as to how much in terms of percentage came from which deposit this quarter? And just a little bit of guidance in terms of going forward? -------------------------------------------------------------------------------- Benoit Desormeaux, Semafo Inc - President & CEO [13] -------------------------------------------------------------------------------- Yes, in the third quarter I can tell you it was -- Wona was counting for 40% approximately, Fofina as well, 40%, and Siou was 20%. That is in Q3. And it should remain similar in the fourth quarter. -------------------------------------------------------------------------------- Ovais Habib, Scotiabank - Analyst [14] -------------------------------------------------------------------------------- In the fourth quarter as well. -------------------------------------------------------------------------------- Benoit Desormeaux, Semafo Inc - President & CEO [15] -------------------------------------------------------------------------------- Yes, pretty close. We are mining out the Kona sector, at the end of December it should be mined out. So I would guess the average would be pretty similar. -------------------------------------------------------------------------------- Ovais Habib, Scotiabank - Analyst [16] -------------------------------------------------------------------------------- In terms of, just switching gears in terms of -- more in terms of expiration around Mana, do you expect to release any results in terms of the work that you are doing around Mana maybe in Q4 or are we talking more earlier in 2016? -------------------------------------------------------------------------------- Benoit Desormeaux, Semafo Inc - President & CEO [17] -------------------------------------------------------------------------------- I would say early 2016. We've worked all around the year at Mana. We have made some -- many, many drill holes, we have some results, but as we expressed the continuity was always a challenge. So there is no big news to announce. Not that we didn't find anything, but it's tricky and it's not easy. So it's been slower in the fourth quarter; of course we are working now. So I would say more in the first quarter of 2016 or beginning of the year. -------------------------------------------------------------------------------- Ovais Habib, Scotiabank - Analyst [18] -------------------------------------------------------------------------------- Okay, that's perfect. Benoit, that's great. That's it for me. Thanks so much. -------------------------------------------------------------------------------- Benoit Desormeaux, Semafo Inc - President & CEO [19] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- Operator [20] -------------------------------------------------------------------------------- Nana Sangmuah, Clarus Securities. -------------------------------------------------------------------------------- Nana Sangmuah, Clarus Securities - Analyst [21] -------------------------------------------------------------------------------- Thank you, operator. Congratulations, gentlemen, for another good quarter. A couple of questions. Totals taken with exploration at Mana, can you comment on how much of the budget has been spent so far and what is still outstanding? -------------------------------------------------------------------------------- Benoit Desormeaux, Semafo Inc - President & CEO [22] -------------------------------------------------------------------------------- I would say we are probably at 80%, 85% of the budget at Mana. -------------------------------------------------------------------------------- Nana Sangmuah, Clarus Securities - Analyst [23] -------------------------------------------------------------------------------- I see. And we should be expecting an update like you said sometime in Q1 from the bulk of the drilling? -------------------------------------------------------------------------------- Benoit Desormeaux, Semafo Inc - President & CEO [24] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Nana Sangmuah, Clarus Securities - Analyst [25] -------------------------------------------------------------------------------- And in terms of the cost guidance, I know that it came lower. Should we be anticipating this level going into 2016? And could you give any indication as to whether you've had any confirmation of the great connection and impact on cost at all going forward? -------------------------------------------------------------------------------- Benoit Desormeaux, Semafo Inc - President & CEO [26] -------------------------------------------------------------------------------- Okay. For 2016 on cost, we are in the budget process. What I can tell you is that to maintain these costs it will depend on the grade on a cost per ounce basis. Can we maintain that kind of cost on a per ton basis? There are many variables depending on what will be the operational strip ratio, but everything would remain constant. Same exchange rate, same fuel price, I would guess and the same strip ratio we could maintain the same cost per ton. On the power line, very difficult for us to answer when we're going to receive power. I would hope to have a better feeling beginning of next year or once we have a new government in place. These days it's pretty difficult with transitional people. Not difficult with them, but difficult to know exactly what is going to happen. So hopefully with the new government in place we will have a better vision on it. -------------------------------------------------------------------------------- Nana Sangmuah, Clarus Securities - Analyst [27] -------------------------------------------------------------------------------- Great. And what currently is the cost per kilowatt hour using oil? -------------------------------------------------------------------------------- Benoit Desormeaux, Semafo Inc - President & CEO [28] -------------------------------------------------------------------------------- Can you repeat? -------------------------------------------------------------------------------- Nana Sangmuah, Clarus Securities - Analyst [29] -------------------------------------------------------------------------------- Dollars per kilowatt hour currently using oil to generate power for your operations. Where does it sit right now? -------------------------------------------------------------------------------- Benoit Desormeaux, Semafo Inc - President & CEO [30] -------------------------------------------------------------------------------- It's about $0.30 kilowatt hour. -------------------------------------------------------------------------------- Nana Sangmuah, Clarus Securities - Analyst [31] -------------------------------------------------------------------------------- That's it for me. Congratulations once again. -------------------------------------------------------------------------------- Benoit Desormeaux, Semafo Inc - President & CEO [32] -------------------------------------------------------------------------------- Thank you, Nana. -------------------------------------------------------------------------------- Operator [33] -------------------------------------------------------------------------------- Chris Thompson, Raymond James. -------------------------------------------------------------------------------- Chris Thompson, Raymond James & Associates, Inc. - Analyst [34] -------------------------------------------------------------------------------- Congratulations on a very strong quarter. A lot of my questions have been asked, but just one question relates to Natougou. As far as the feasibility, you say that you're going to be delivering a feasibility for the project in Q2 next year. Can you give us a sense or remind us on the strategy following that? -------------------------------------------------------------------------------- Benoit Desormeaux, Semafo Inc - President & CEO [35] -------------------------------------------------------------------------------- The strategy following what the date of -- -------------------------------------------------------------------------------- Chris Thompson, Raymond James & Associates, Inc. - Analyst [36] -------------------------------------------------------------------------------- What's the plan after you deliver the feasibility? -------------------------------------------------------------------------------- Benoit Desormeaux, Semafo Inc - President & CEO [37] -------------------------------------------------------------------------------- We are planning to release the results of the feasibility study of course in the beginning of the second quarter. Of course after that we have to launch the detail engineering. There is a permitting process that will take place today. We don't know yet, and depending on the government, with that in place it might be easier. But of course we will be looking at the financing need once we have all the CapEx estimates to launch the construction, maybe order some [longeed] items. But to give you a feeling of what the timing is for that, I can just tell you that we expect to release the feasibility study early Q2, then everything will fall in place after that. Give you timing on that I think it's pretty -- it's too early. -------------------------------------------------------------------------------- Chris Thompson, Raymond James & Associates, Inc. - Analyst [38] -------------------------------------------------------------------------------- Okay. That's fair enough. Thanks a lot, guys. Congratulations. -------------------------------------------------------------------------------- Benoit Desormeaux, Semafo Inc - President & CEO [39] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- Operator [40] -------------------------------------------------------------------------------- Kerry Smith, Haywood Securities. -------------------------------------------------------------------------------- Kerry Smith, Haywood Securities Inc. - Analyst [41] -------------------------------------------------------------------------------- I have just a couple of questions on Mana. Do you have any plans to update the old life-of-mine plan that you generated for Mana when you incorporated Siou and Fofina? Or is that plan still a reasonable plan that we could use on a go-forward basis? -------------------------------------------------------------------------------- Benoit Desormeaux, Semafo Inc - President & CEO [42] -------------------------------------------------------------------------------- You could probably still look at the latest 43-101 report that has some mine plan. We will update of course the reserves, that will give you an idea. But for the mix and all the mine plans for the next eight years, if we are not issuing a new 43-101 we're not really giving or providing a new mine plan because sometimes it does not change much with the latest one. So I would not anticipate to do it because I don't think there is a big change this year in reserves at Mana, so I would assume that the latest one is still -- we will make a calculation, but not a new report. -------------------------------------------------------------------------------- Kerry Smith, Haywood Securities Inc. - Analyst [43] -------------------------------------------------------------------------------- Okay, yes. So it's still reasonably accurate then. That's perfect. And then you talked about the permitting at Natougou. Roughly what do you think it would take in terms of time to actually get the permits in place so that the project could be construction ready once the feasibility is done? Do you think it's a 12-month window or something less? -------------------------------------------------------------------------------- Benoit Desormeaux, Semafo Inc - President & CEO [44] -------------------------------------------------------------------------------- I would say something less. I would say something less. Again that will depend on many things, but I would say more like three to six months. -------------------------------------------------------------------------------- Kerry Smith, Haywood Securities Inc. - Analyst [45] -------------------------------------------------------------------------------- Right, okay. And that possibly could start once the feas is done basically. So maybe you could have the permits in place by the end of next year? Would that be a reasonable assumption? -------------------------------------------------------------------------------- Benoit Desormeaux, Semafo Inc - President & CEO [46] -------------------------------------------------------------------------------- That's definitely one of our goals. But we have to deposit the feasibility study to the government before getting it and negotiating a mining convention. -------------------------------------------------------------------------------- Kerry Smith, Haywood Securities Inc. - Analyst [47] -------------------------------------------------------------------------------- Right, right. I've got you. Okay. And then the last question I had on Natougou, you mentioned in the release that you had updated a resource model based on all the drilling you've done. How does that resource model look just in general terms relative to the old model that was there that Orbis had? Can you make any general comments on it? -------------------------------------------------------------------------------- Benoit Desormeaux, Semafo Inc - President & CEO [48] -------------------------------------------------------------------------------- It's pretty -- I would say it's similar. We have issued a 42-101 report on resources. I would say that's similar, but it has changed a bit because of the infill, but I would say it hasn't changed much. And the 42-101 report was very close to the resources that was announced by Orbis previously. -------------------------------------------------------------------------------- Kerry Smith, Haywood Securities Inc. - Analyst [49] -------------------------------------------------------------------------------- Right, okay. Okay, great. Thanks very much. I appreciate it. -------------------------------------------------------------------------------- Benoit Desormeaux, Semafo Inc - President & CEO [50] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- Operator [51] -------------------------------------------------------------------------------- (Operator Instructions) Don Blyth, Paradigm Capital. -------------------------------------------------------------------------------- Don Blyth, Paradigm Capital - Analyst [52] -------------------------------------------------------------------------------- Hi Benoit and crowd. Again, congratulations on a good quarter. Most of my questions have been answered. Just a clarification on an earlier question there, that 40%/40%/20% split of Wona, Fofina, and Siou. Was that on a gold production basis or a tonnage basis? -------------------------------------------------------------------------------- Benoit Desormeaux, Semafo Inc - President & CEO [53] -------------------------------------------------------------------------------- Tonnage basis. -------------------------------------------------------------------------------- Don Blyth, Paradigm Capital - Analyst [54] -------------------------------------------------------------------------------- Okay. And could you give any sort of sense of the average grades from those C deposits in the quarter? -------------------------------------------------------------------------------- Benoit Desormeaux, Semafo Inc - President & CEO [55] -------------------------------------------------------------------------------- Yes. At Wona the average of these tons of the 40% tonnage is 2.36, Siou was 9.6, and Fofina was 2.24. -------------------------------------------------------------------------------- Don Blyth, Paradigm Capital - Analyst [56] -------------------------------------------------------------------------------- Okay, thanks very much. -------------------------------------------------------------------------------- Operator [57] -------------------------------------------------------------------------------- And there are no further questions at this time. I turn the call back over to our presenters. -------------------------------------------------------------------------------- Robert LaValliere, Semafo Inc - VP of Corporate Affairs and IR [58] -------------------------------------------------------------------------------- Thank you. I would like to take this opportunity to remind listeners that SEMAFO third-quarter 2015 MD&A and financial statement are available on our website at www.semafo.com. The audio webcast of this conference call will also be available for replay on our website for a period of 30 days. I would like to mention to listeners that our fourth-quarter 2015 financial and operating results are currently scheduled for publication on or around March 9, 2016. Thank you very much and have a good day. -------------------------------------------------------------------------------- Operator [59] -------------------------------------------------------------------------------- Ladies and gentlemen, this concludes today's conference call. You may now disconnect.
|