SEMAFO rides the ups and downs of West African geology

For SEMAFO (SMF-T) the quest to become the next mid-tier producer via West African assets has been an up and down affair.

While in mid-April the company announced it had beaten its own guidance by 4,200 oz. in turning out 28,700 oz. of gold for the first quarter, the news had to be weighed against a reserve update from mid-March that showed a decline in overall reserves and resources when compared to 2006.

Where proven and probable reserves had been at 2.04 million oz. of gold with an average grade of 2.82 grams per tonne at the end of 2006, by the end of 2007 total ounces were down to 1.97 million oz. with an average grade of 2.48 grams gold.

Total ounces in the measured and indicated category also fell this time to 2.28 million oz. with an average grade of 1.53 grams compared to 2.37 million oz. with an average graded of 1.56 grams gold for 2006.

And while reserves at its Samira Hill mine in Niger increased by 21% to 735,900 ounces, that increase was overshadowed by a 29% decrease in reserves at the Kiniero mine in Guinea.

The drop-off at Kiniero came after SEMAFO had to adjust its geological models after structures identified for mining contained lower than anticipated mineralization.

SEMAFO says the lower grades were due to swarms of much finer veins which created internal dilution.

The company has been forced to try and re-orient the main mill feed source for other structures in the area to get the mine back to “acceptable production levels.”

Fortunately for SEMAFO there is good news to mitigate the bad.

The increase in first quarter production for 2008 — composed of 12,400 ounces from Kiniero mine and 16,300 oz. from Samira Hill — coincided with stronger gold prices

The company’s average sales price was over US$900 per oz. compared with US$661 per oz. for the same period the year previous.

And production guidance for 2008 is a lofty 165,000 to 185,000 ounces of gold.

Helping SEMAFO reach those numbers is its Mana mine in Burkina Faso.

At the end of March the company announced it had made its first gold pour at Mana marking the third mine the company has brought into production in West Africa.

Gold production at Mana is anticipated to ramp up to between 29,000 and 34,000 oz. in the fourth quarter of 2008, for a total production in 2008 of between 60,000 and 70,000 oz.

And the project has significant exploration upside as well.

Recent drilling intersected mineralization beneath and beyond the already known deposit encompassed in its pit outline.

The extended mineralized zone is in and around the deposit known as Wona and sits adjacent to the Mana processing plan.

Drilling shows the mineralized lode to extend over 500 metres under the northeast section of the pit outline and 800 metres northeast, running outside of the pit outline.

Highlights from separate drill holes included: 6.28 grams gold per tonne over 12 metres, 3.47 grams gold over 51 metres, 2.95 grams over 49 metres, and 5.66 grams gold over 13 metres.

The results have SEMAFO considering an underground operation as well as two small open pits in addition to the pit already planned for Wona.

Early indications of the extended zone helped make Mana a bright spot on the 2007 resource update.

Drilling the zone resulted in an uptick in the inferred category which climbed to 1.9 million oz. compared to 444,800 oz. total for the end of 2006.

Financial results for 2007 showed cash flows from operating activities coming in at US$10.3 million and a net loss of $23 million which includes an unrealized loss of US$17.9 because of mark to market of financial instruments.

SEMAFO shares have traded between $2.09 and 73 over the last 52-weeks and the company has roughly 213 million shares outstanding.