Semafo’s Siou does not disappoint

Semafo (SMF-T) discovered the Siou mineralized sector in the southern sector of its Mana property in Burkina Faso during the third quarter of 2012 and has lost little time carving out an initial inferred resource. If advanced to production, the company says, mining could commence as early as 2014 or early 2015 and “could enhance the head-grade at the Mana processing plant for years to come.”

The Siou deposit—about 15 km east of the Mana processing plant—currently has an initial in-pit inferred resource of  6.73 million tonnes grading 4.62 grams gold per tonne for about 999,200 ounces of contained gold. The majority of the ounces come from the Siou and the Nine zones, and the resource was based on 132 reverse-circulation holes (17,600 metres) and 46 diamond drill holes (9,500 metres). The pit shell used was about 2 km long and 250 metres deep.

Semafo is undertaking delineation drilling to convert as much of the inferred resource into the proven and probable reserves category and is also doing more exploration to test for potential extensions and to get a better handle on the continuity of the deposit’s deeper mineralization.

Semafo’s flagship Mana mine, an open-pit operation on the Mana property, is about 200 km west of the capital, Ouagadougou.

The Siou area is overlain by a thin overburden cover followed by a saprolitic and transitional horizon measuring about 50 to 80 metres thick, before transforming to fresh bedrock.

Mineralization occurs at or near the contact between a sedimentary unit to the west and a granodioritic intrusive to the east, the company says, where series of shear zones containing quartz veining and sericite alteration over thicknesses of 5-25 metres have been observed.

The Siou and Nine zones vary from less than one metre to close to 20 metres in width, with an average of between 4 and 4.5 metres.

Cosmos Chiu, Barry Copper and Kevin Chiew of CIBC believe that an increase of 0.2 gram gold per tonne in the head grade at the Mana mill “could equate to a 15% increase in the net asset value, even after considering transportation costs.”

They also note that  “given previous missteps by the company, this time around Semafo has taken steps to: 1) not overpromise the market; 2) use conservative assumptions.” The key assumptions Semafo used included “sensitivities to lower gold prices, feasibility level cost assumptions, and incorporating mining dilution factors,” they note, adding that even at lower prices for gold and incorporating their cost assumptions, “both the number of ounces and grade hold up quite well.”

Permitting should not be a problem, they add, “as Semafo believes that it can use supplemental filings on its current mining licence to incorporate the new area.”

“Permitting will start in earnest after filing of the reserve estimate, which is scheduled for the third quarter of 2013.”

Semafo operates three gold mines in Burkina Faso, Niger and Guinea.

“With 100% of its revenue generated from gold and 100% of its production unhedged, Semafo has one of the highest leverages to gold for both its cash flow and net asset value,” the analysts write. “We believe Semafo is in a position to grow through acquisition in a West African region that remains highly fragmented, in addition to its expansion at Mana.”

The CIBC analysts have a 12-18 month target price on the stock of $5.50.

At presstime in Toronto, Semafo was trading at $2.87 per share within a 52-week range of $2.21 and $6.86. The company has about 273 million shares outstanding.