Semafo’s Boungou mine achieves commercial production

Since its first gold pour at the end of June, Semafo’s (TSX: SMF) Boungou mine in Burkina Faso has produced more than 12,000 ounces of gold. The mine officially moved into commercial production on September 1.

During August the mill processed more than 90,000 tonnes of ore at an average grade of 2.4 grams gold per tonne with an 83% recovery rate. The mill mainly processed lower grade ore from the east pit during the 30-day period, but as the process was optimized, higher grade ore was introduced and a recovery rate of more than 93% was reached at the end of the month.

Boungou is expected to produce between 60,000 and 70,000 ounces of gold this year.

Currently, the stockpile at Boungou holds more than 300,000 tonnes of ore.

Mining is ramping up in the starter pit, which contains the highest-grade reserves.

Boungou’s water storage facilities hold 2 million cubic meters of water, more than enough, the company says, to maintain operations until the next rainy season.

Mineral reserves as of December 2017 stood at 11.2 million tonnes averaging 4.11 grams gold per tonne for 1.5 million ounces of gold.

Initial results from the US$9 million 2018 exploration program on Boungou have confirmed the occurrence of gold-bearing mineralization at the nearby Osaanpalo and Baali zones, the company says.

Drill programs after the rainy season will focus on testing the extent of the structures on both zones with the aim of identifying new mineral resources and supporting future production increases.

In addition to Boungou, Semafo operates the Mana mine in Burkina Faso. Mana includes the high-grade Siou deposit.

So far this year, the Mana mine has produced 91,200 ounces of gold at an average total cash cost of US$853 per oz. and AISCs of US$1,093 per oz.

Semafo’s guidance for 2018 is between 235,000 and 265,000 ounces of gold at an all-in sustaining costs of US$900 to US$940 per ounce.

“In 2019, Boungou will contribute a full year of production, and we forecast total production from Mana and Boungou of 416,000 ounces at a total cash cost of US$660/oz. and AISC of US$735/oz.,” Kerry Smith of Haywood Securities states in a research note.  “At a US$1,200 per oz. gold price assumption, cash flow in 2019 would be $190 million, or $0.60/share, and free cash flow would be US$65 million.”

With Boungou online, Smith notes, Semafo will have a “solid production profile for the 2019-2023 period, averaging 413,000 ounces per year at AISC of US$696 per ounce, based on company guidance.”

The West Africa-focused gold producer also benefits from having a decent balance sheet.

“Semafo still has a great capital structure,” Smith writes, “with US$109 million of cash at the end of Q2, and with Boungou online, we model US$134 million of free cash flow in 2019 at a US$1,300/oz. gold price.”