VANCOUVER — West African-focused producer Semafo (TSX: SMF; US-OTC: SEMFF) looks to have a top-notch asset on its hands with the Natougou gold deposit, which lies 320 km east of the capital city of Ouagadougou in Burkina Faso’s Birimian gold province. The company released a feasibility study on the project in February, and the economics hold up at conservative gold prices.
Semafo picked up Natougou — among other gold assets in Burkina Faso and Côte d’Ivoire — via the US$135-million acquisition of Australian-based Orbis Gold in mid-2015. The project held 2 million oz. gold at an average grade of 3.4 grams gold per tonne at the time of the deal, but the company has boosted the grade and lowered anticipated development costs.
Open-pit reserves at Natougou now total 9.6 million proven and probable tonnes averaging 4.15 grams gold for 1.3 million contained oz. The estimates are based on a US$1,100 per oz. gold price and a cut-off grade of 1.07 grams gold.
Gold mineralization is hosted within a flat-lying shear zone that has a subtle anticlinal geometry. The host lithology consists of mafic-to-intermediate volcanic and intrusive stratigraphy.
Gold is mostly found in a silicified shear zone, and a “significant quantity” of the deposit occurs as visible gold. Sulphide minerals are pyrrhotite, pyrite, and minor arsenopyrite and chalcopyrite, while much of the reserve is amenable to gravity recovery.
Semafo models capital expenses at Natougou of US$219 million, which includes US$42 million in pre-stripping and an US$18-million contingency. The operation would produce 1.2 million oz. over a seven-year mine life at total cash costs of US$408 per oz. — assuming 93% gold recoveries.
The 4,000-tonne-per-day mine would have attractive, upfront operating metrics. Over the first three years of production Natougou would crank out 226,000 oz. gold annually at all-in sustaining costs of US$374 per oz. due to an average head grade of 5.72 grams gold, and 94% recoveries.
“The project is now positioned as one of the highest-grade, open-pit gold deposits in West Africa,” president and CEO Benoit Desormeaux said during a conference call. “These results provide strong economics and a solid foundation on which to expand the regional potential. We’re now looking at operating costs that sit in the lowest quartile globally.”
Based on US$1,100 per oz. gold, the project would generate a US$262-million after-tax net present value at a 5% discount rate, a 48% internal rate of return and a 1.5-year payback period.
To fund the development Semafo has boosted an existing credit facility with Macquarie Bank by US$30 million to US$120 million. The company figures the extra funding — when combined with its $167-million cash position and internal cash flows — should provide “sufficient financial resources to bring Natougou into production.”
Desormeaux said that “the fact that we’re proceeding with an amended facility speaks to the economic strength of the project. Combining those funds with our cash position — and the strength of cash flow from our Mana operation — we believe the capital is in place. Our track record of operating in Burkina Faso gives us confidence that we can deliver this development on time and on budget.”
Semafo suspects this could be the start of a long-life mine at Natougou. The company spent US$1.3 million on regional airborne geophysics last year across a property package that exceeds 700 sq. km. Exploration around the proposed open pit also shows potential to expand resources at depth within the footwall of the Boungou shear zone.
Semafo released drill results from a 10,000-metre program on the Boungou shear in late July, with highlights including 10.8 grams gold over 10 metres from 151 metres deep in hole 103, and 4 metres of 13.04 grams gold from 70 metres deep in hole 104.
“We’ve done additional work on the target area, and expect results in the next few weeks,” Desormeaux added, noting that the company has a US$6-million exploration budget at Natougou in 2016. “It’s definitely a major focus this year, but for us the biggest potential could come from the geophysics, which generated promising regional targets. We’re already getting to work on those with the auger drills, and we’re expecting results there later this year. The property is large, but at the same time everything is within trucking distance.”
TD Securities maintains a “buy” recommendation on the company, along with a 12-month price target of $5.50 per share.
Analyst Steve Green notes that “Semafo remains a go-to name in the mid-cap space because of its strong free cash flow, low cost structure and strong balance sheet. Natougou provides [the company] with a quality high-grade growth project to go with its low-cost Mana production base.”
Semafo aims to permit the project by year-end, with construction expected shortly thereafter. An environmental impact assessment and resettlement plan are scheduled to be filed with the national government in the second quarter.
The company expects to produce between 225,000 and 245,000 oz. in 2016 at all-in sustaining costs ranging from US$535 to US$565 per oz.
Semafo shares have traded within a 52-week range of $2.46 to $4.95, and closed at $4.55 per share at press time. The company has 294 million shares outstanding for a $1.3-billion market capitalization.
Goodyear for this project