Semafo (SMF-T) is bouncing back from a tough third quarter which saw production dip at its key mine in West Africa.
The company released results from October and November after getting through, what it admitted, was a “challenging” third quarter.
Over the last two months, Semafo managed to turn out 43,600 oz. of gold, which shows its trending in the right direction after only producing 52,300 oz. of gold for the entire third quarter.
The past period’s disappointing results were chalked up to delays caused by weather and operational issues at two of the projects pits.
A heavier than usual rainy season meant Semafo couldn’t access higher grade zones at its flagship Mana project in Burkina Faso, and instead was forced to process lower grade ore.
Accessing such lower grade ore came at a bad time, as it had just commissioned phase four of a plant expansion that was designed to take a higher throughput. That higher capacity was met with lower grade stockpiles that totaled 200,000 tonnes.
On top of that, there were operational issues at the project’s Wona pit, while pre-stripping activities held up production from the Kona pit, both of which are now behind it.
From the two month total, Mana was responsible for 33,300 oz. of gold, which represents 76% of total production. In the previous quarter, the mine was responsible for 36,600 oz. of production.
With the rainy season over and access regained to higher grade zones, the increased mill capacity should help make for a solid recovery when the fourth quarter results are tallied.
Haywood Securities analyst Kerry Smith wrote in his research note that he expects the company to reach production levels of 60,000 oz. for the last quarter.
“These levels are, however, lower than those achieved in 2011 as the company continues to source most of its Mana mill feed from the lower grade Wona pit, compared to a larger percentage of higher grade ore from the Nyafe pit in 2011,” he wrote.
Smith said that grades will likely improve as it reaches higher grade ore within Wona.
For its part, Semafo says it expects total year production to be in the lower end of its guidance of 235,000 to 260,000 oz. of gold for 2012.
As for the future, total production at Mana could well climb thanks to the recent discovery of the high-grade Siou zone, which is roughly 15-km east of the mill at Mana.
“The potential here is for 500,000 oz. (to a 200 metre depth) at indicated grades in the 6 to 8 grams per tonne range,” Smith wrote of Siou in his note.
Such a positive upside to the find led Semafo to increase this year’s exploration budget by $1 million to do more drilling over the area. It says two diamond drill rigs are currently active on the zone drilling 8,000 metres of core with the aim of adding the zone to its resource calculation by year end with reserves coming by the end of 2013.
In Toronto on Dec. 11, the company’s shares were off 4¢ to $3.38 on 627,000 shares traded.
I still believe Semafo has been unduly punished. In an admittedly poor Q3, it still had cash flow per share of 9 cents, which makes the 3.33 price quite appealing. I am confounded why Semafo is overlooked. It has no debt.