West African Resources Limited (WAF) Earnings Call Transcript & Summary

[Audio Gap] [Operator Instructions] I will now hand over to West African Resources' Executive Chairman and CEO, Richard Hyde. Thank you, Richard.

Thanks, Nathan, and good morning fellow shareholders. It's my pleasure to discuss the highlights of the 2020 December quarter for WAF, which is our third full quarter of gold production. Firstly, I'd like to thank again our site team and staff, contractors and also their families for their commitment throughout 2020. The team has been working very hard for our shareholders on-site and have continued to work with various quarantine and isolation regimes before getting back home and getting a break. During the quarter, we maintained continuous operations safely and managed to regularly rotate our workforce. And some of the key highlights from the quarter include continuous operations and also the sound management of COVID-19, which has been providing or giving a lot of challenges to many companies working with remote operations work at the moment. We had no social health or safety incidents, which is really pleasing with over 5 million hours work, LTI-free on the project now. We had a solid increase in gold production, and we kind of met 2 key hurdles. The first time we produced over 50,000 ounces in a quarter, and we managed to get below USD 1,000 an ounce in costs. The biggest move for the quarter was the increase in mined ounces at M1 South, which was up by 184%, and the mill was receiving a lot more regular supplies of underground feed and stoping activities continue to ramp up. And we expect to see that to continue into the coming quarters. We finished the quarter with AUD 95 million in cash, about AUD 4 million in unsold bullion and we generated AUD 53 million in cash from operating activities. Notional debt measured in U.S. dollars was decreased by USD 23 million to USD 101 million. We also made an early USD 25 million debt repayment to our lenders at Taurus. On the growth front, we kept drilling at M1 South at depth, which continues to deliver significant results. And it really shows a strong vertical continuity of the ore body, and we expect to be mining at M1 South for a long time into the future. Just touching operations, the COVID situation worsened in Burkina Faso during the quarter, so we responded by increasing vigilance following health guidelines related to hygiene, mask-wearing, testing, monitoring, isolation for staff and contractors and site visitors. To all of our staff, before they exit Burkina, they've got to provide a negative COVID test and go into isolation before they fly out. They're also tested in isolation when they return back to their home countries. So it's a big ask for our staff at the moment, and we're very pleased with the efforts that they're putting in. Also, our social responsibility team spent a lot of time and effort working with our host communities, providing education and training aimed at minimizing the spread of COVID-19 in the surrounding area. So we didn't experience any material disruptions to freight or consumables, which continue to arrive on-site as expected. The biggest challenge continues to be expat travel and just dealing with requirements from airlines and governments with people flying in and out. However, we're successful in providing regular rotations for expats to their point-of-hire for rest or break periods and work losses were increased with additional personnel and adjusted for the kind of additional isolation that's been required in certain countries. Also, a big thanks to our admin team for being so diligent managing travel, which has been a huge challenge throughout 2020. Just on the underground, it's a great improvement over the last quarter from the underground mining team and our contract in Byrnecut with more steady stoping production coming from M1 South underground. Underground mined ounces were up 184% to over 22,000 ounces from about 67,000 tonnes of ore. The grade has been pretty consistent at just over 10 grams per tonne. We're happy with the grade reconciliation to-date. However, we're still experiencing some operational sequencing delays because we keep finding additional mineralization in the strike drives, particularly towards the southeastern end of the deposit near where the mineralization terminates on an intrusive body. We're basically seeing a number of high grades placed deflecting or bending up into the hanging wall, which is providing us with additional opportunities to add more ore. However, these zones are generally constrained within the current geological model, so it reduces the availability of the long-haul rig because we've got to do additional slabs drilling to define these areas before we can start stoping. So we've given Byrnecut the go-ahead to commence in-drive RC drilling, which will start in Q2, and that's going to better define mineral zones and it will provide better efficiencies. So the long-haul rig can spend more time doing production rather than defining some of these new areas of mineralization. We expect some further improvement for our underground team as gain -- as our underground team gains more experience in stoping, bogging and backfilling mining sequences as there's been a lot of training of new starters. It's a very steady quarter from the open pit team, and contractor is Perenti AMS, with the pits now getting some harder material and 1 million tonnes of ore mined at 1.3 grams per tonne and also our solar build on the ROM stockpiles from open pit mining increasing by 38% in the quarter to about 1 million tonnes at 1.2 grams per tonne. We have substantial ROM stocks now. So we'll probably look to optimize the open pit mining rate going forward so -- with the aim of reducing some costs and improving cash flows. Another really strong quarter from our processing team where the recovery is up to 94.5%, and that's on a much harder blend to previous quarters, so that's a very good outcome. A 10% increase in gold produced to 50,299 ounces from 785,000 tonnes of ore at a head grade of 2.1. The higher head grade represents a high proportion of feed coming from both the M1 South underground and open pit areas. On financials, we've seen costs continue to reduce, which is good, so to USD 992 an ounce, mainly due to the increase in gold ounces produced. Gold ounces sold in Q4 increased 17% on the previous quarter to 51,688 ounces, an average price of USD 1,923 an ounce, and we remain unhedged and fully exposed to the gold price. Notional net debt measured in U.S. dollars decreased by USD 23 million in Q4, and that leaves the company with USD 101 million in notional debt at the end of the year. We saw increased cost of the underground as mining costs reflected in a full quarter of stoping covered with increased mining levels to maintain productivity due to those expat travel restrictions. The increase in development capital is mainly due to pushing the underground decline and so -- a deep drilling program at M1 South, which we've capitalized, and then some of the waste stripping for the open pits. Sustaining capital of nearly AUD 5 million relates to the completion of the second seller tailings storage facility. And we ended the quarter in a healthy financial position with AUD 95 million cash on hand, which was after paying the early repayment to Taurus. We expect our costs to stabilize around these levels going forward and reduce on a per-ounce basis as we continue to ramp up gold production. And then just on growth and exploration, we completed the drilling program for M1 South at depth during the quarter with some very nice high-grade results. M1 South again showed really good vertical continuity as we stepped down nearly 300 meters to just over 900 meters vertical below surface. Towards the end of the quarter, we had some good results from DD239, so that was 6 meters at 20 from 1,200 meters, including 0.5 meter at 167 grams per tonne. The DD237 is 6.5 meters at 16 grams per tonne, including 0.5 meter, 124. And then we closed out mineralization on the northwestern side with DD241, which is 1 meter at 33. So all those results have been received now and we're updating resources for M1 South. The feasibility program is well underway, Toega. We've started geotech drilling. So we've moved some of the rigs from M1 South down to Toega and started geotech metallurgical drilling. And then once we finish those programs, we'll start doing some infill drilling on the resource. And we look forward to reporting those results over the course of 2021. We've got some regional work started around Sanbrado and we've got some teams working on the new project, [indiscernible], which is in the west of Burkina as well. So we look forward to keeping the market updated with new results. Looking ahead to the next quarter, we're focused on maintaining operations, increasing gold production and reducing costs. We'll also look forward to reporting our updated resource reserve estimates and production guidance for 2021, and we'll also be putting out a new life of mine plan for Sanbrado as well. So that works in progress right now and we'll report it later this quarter. Okay. So that kind of really hits the highlights for Q4. I'm here in the boardroom with Padraig O'Donoghue, our Chief Financial Officer; Lyndon Hopkins, who would normally be available, he's on his way back from site and about to start his hotel isolation when he gets back to Perth. So I'm happy to take some calls from shareholders. Nathan, I hand back to you.

[Operator Instructions] First question from Nick Levy. What is the updated guidance for ounces produced in the next 3 quarters to the end of 2021?

Well, we will be updating guidance this quarter. So that should be up over the next few weeks, in the next coming weeks, and we'll provide that information then.

Sure. Next questions are from Mike Millikan. So number one, how has the underground grade -- how has the underground grades have been reconciling? How have they been reconciling? Are they within expectations? And what's the mix for quarter 1 in regards to stoping versus development ores targeted tonnes per quarter?

Look, so far, we've been very happy with reconciliation for underground and open pit ore. We were within the expected grades for reserves. What's pleasing as well is the additional mineralization that we've identified in the hanging wall, which isn't always apparent. It's not apparent from some of the gray control drilling and even some of the historical drilling because we're drilling from limited positions in the decline. And towards a termination at the southeast and end of the deposit, some of those holes are some parallel to mineralization, which is why it's important for us to bring in the in-drive RC drilling. So that's going to give us a lot better definition. So even though those new areas that we've been bringing in, we've taken some extra dilution to get there and we're still maintaining roughly a 10-gram head grade, which is very positive. The mix going forward, we're kind of stabilizing with tonnes now for the open pits, given we're in a bit of harder material. So we did about 750,000 tonnes for the quarter. So look, I'd expect open pit tonnes to be in and around probably 650 to 700, something like that. And now that we're kind of getting more steady flow of underground material coming to the mill, we're expecting to sort of get closer to 1,000 tonnes a day or 800 to 1,000 tonnes a day average as we get into the end of this quarter and build into Q2 and Q3 where we really start to pick up tonnes. So that kind of answers Mike's question.

Sure. The next one from Mike is M1 South underground resources currently being estimated. Have you got any general comments what is happening at depth regarding still -- a depth still open, any pinching swell, et cetera?

Yes. Look, there's pinching swell and there's grade variability as well, but what was really pleasing is that geology is very consistent. So we stepped down 300 meters and we've hit very similar zones of alteration and marker units. So it's one of the things about M1 South is you can look at drill core from 900 meters vertical and compare it to drill core from 200 meters vertical, and it's all very similar and consistent. So the ore body sort of averages about 1,500 ounces per vertical meter from surface down to about 600 meters, so we're not seeing any reason why that would change.

Sure. Next one, any thoughts of increasing debt repayments in calendar year 2021?

Yes, definitely. So our focus this year is to pay down debt as quickly as possible. We've demonstrated that already with an early payment at the end of 2020. We -- the facility we've got with Taurus allows for early repayment without penalties, and that's what we're focused on.

Yes. And last one for Mike. The LOM plan reserve resource upgrade and calendar 2021 guidance, should we expect this update in mid or late March quarter?

It will be in before the end of the quarter.

Sure. Now the next one is from John Deniz. At spot gold assumption, do you expect to be net cash by June 30, 2021?

I fully hand it over to Padraig.

[indiscernible] that's kind of a guidance-related question in my point of view. So we're still waiting to give out guidance on production. And production will, of course, feed into gold sales. And at a given margin, we'll be definitely building cash. We don't want to give out that quite yet.

Understood. The next one is from John Ogden. It says do you expect to be able to keep rotating expat staff without affecting production given new restrictions, which have, I mean, across Europe, et cetera, with various -- with the new virus variance?

Look, I think we've made plans to deal with COVID for the foreseeable future. It's good news in Australia that the Pfizer vaccines had TGA approval. So I'll be getting a jab as soon as I can and returning back. And I think what we'd like to see would be shorter stints in isolation with testing rather than just manage it in 2 weeks, which is what we've been dealing with. We've got a pretty resilient group of people who have been dealing with this for the last 12 months. And look, it has affected staffing levels. We have seen some pushback and some staff not renew contracts because of the requirements. And it's not fun sitting in a hotel for 2 weeks out of every 10. So I think things are improving. There is a vaccine now. We expect the quarantine and isolation guidelines or restrictions to ease over the year. We've handled things a lot better in Australia than it has been handled overseas. The bulk of our expat workforce come back to Australia, not to Europe. So that's kind of -- it's a bit vague, but that's about as best as I can answer it.

Sure. And just to -- there's a couple more from John Deniz at Paragon. When do you think you hit the 20-gram per tonne, very high-grade M1 South part of the reserve as per your old BFS mine plan?

Yes. So I mean, the core of the mineralization, which we haven't got into yet, so the lower grade halo and the mineralization to the southeastern indies is averaging about 10 grams at the moment. We've got some very high -- without speaking to guidance, but we expect the grade to pick up towards mid- to late '21. We have already seen pockets of high grade in some of the areas where we're stoping out to the southeastern end of the deposit. And parts of those stopes are well outside the original mine plan. And we've already had days where we've had combined production from open pit and underground, well over 6 or 7 or 8 grams per tonne. So we just need more of those days to come through. And we'll -- we expect to get more of those days once we get into the central part of the orebody.

Sure. And just a question that's come through from a few different sources was -- what was the reason for the lower open pit ounces? Was this just 1 quarter where WAF needed to do more development and we can expect to move the open pit ounces higher again in the coming quarters?

Look, we haven't provided guidance so far for a reason, and that's because we've been operating in a very uncertain environment. It's very hard to go at the market at the moment. We've got -- come from a situation where 2 months or 2, 2 quarters ago, we had no rotations of expats and staff and we had -- we were seeing shifting in the underground. We are now getting solid sort of production performance as been demonstrated with the underground tonnes up. I've kind of explained where the grade is sitting with the underground and the additional tonnes coming from outside the mine plan. We mined a lot more oxide material during 2020 than was in the original plan, and we did that to keep the mill sort of full while the underground was being developed. So the original mine plan has been shifted around a bit, but we're very pleased with performance to-date. And the reconciliation of the open pits and the underground are on plan with what we expected to mine. So already January is tracking better than December, and I expect each quarter to be an improvement on previous quarters as we go through 2021, but we'll provide full guidance and costs towards the end of the quarter and then we'll be working towards meeting that for shareholders.

Thank you. I will now hand back to Richard for closing remarks.

Thanks, Nathan, and thanks to everyone for listening. We look forward to kind of maintaining our operations throughout this quarter, obviously, providing some guidance towards the end of the quarter for 2021 production and costs and also releasing our updated resources reserves and life of mine planning. We're aiming to provide a full 10-year mine plan for Sanbrado, which I expect will deliver full value for shareholders. So thanks for listening, and I encourage investors to keep an eye out for news as it's released throughout this quarter. Thank you.