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

Good morning, and welcome to the West African Resources investor conference call for its March 2021 quarterly report. [Operator Instructions] I will now hand over to West African Resources' Executive Chairman and CEO, Richard Hyde, who is joined by the company's Chief Financial Officer, Padraig O'Donoghue. Thank you, Richard.

Thank you, Nathan. And thanks to our shareholders for dialing in this morning to listen to the summary of our quarterly activities for March 2021. First of all, on behalf of the Board of shareholders, I would like to extend our thanks to the site team, who continue to do a magnificent job in challenging circumstances. In particular, our fly-in, fly-out expats and some of our people are coming up for 5 [ stints in ] quarantine, which is a real challenge. And given that the executive team has recently been on site, so myself, Lyndon Hopkins, our Chief Operating Officer and Execute Director; Padraig O'Donoghue, our CFO; Stu Cruickshanks, our GM, tech services, we're all actually sitting in hotel quarantine here in Perth. We've just been to site, and we're just finishing our first week and we're looking forward to getting out next week. So this is mostly for myself and Stu and Padraig. It's 2 or 3 times. I think Lyndon has done at least 4 [ stints in ] quarantine in the last 12 months. So it's certainly something we're managing and is -- [ really ] is challenging. So -- and the good thing about doing the trip was [ it's a great chance to the operations that have changed ] in the last 12 months. So really pleased to see the progress with open pits, the undergrounds; and also see some of our social initiatives like schools, hospitals and some of the community programs that we've been rolling out over the last year. On a positive note, also it was good to see our national hiring policy improving. Training programs are paying off. And our operating entity in Burkina Faso, SOMISA, currently has more than 90% indigenous employment. So people from the local area and from other regions in Burkina Faso. Just over 20% of our workforce is female as well, so that's a really positive note. So also, while we were in Burkina, we managed to hold some really positive meetings with delegates from the government of Burkina Faso from various departments in mines, finance and tax; and really positive meetings, [ I mean ], buoyed by the government support for the projects and the company. Moving on to health, safety and environment. So during the quarter, we had no significant social, health or safety incidents. We have now worked more than 6 million hours without LTI. And our TRIFR is currently less than West Australian average, so that's a great credit to the team on site. We've maintained continuous mining and milling operations during the quarter. We still see COVID as a significant risk. Obviously everyone is watching what's going on in India and other parts of the world. And further disruptions with international travel, I think, are likely, and given that we've just been through it, we kind of understand that intimately. And look, the measures that we've implemented, we expect to sort of continue for the foreseeable future. And that includes following safety guidelines, health and safety guidelines, with social distancing, temperature checking, testing before you leave Australia, testing when you arrive in Burkina Faso, testing before you leave Burkina Faso. So there's a lot of structure around that and we'll continue doing that for the foreseeable future. Just on production. We've had another solid quarter with ounces up and costs down. Q1, we produced nearly 56,000 ounces of gold. And all-in sustaining costs have been reduced from USD 992 an ounce last quarter to USD 957 an ounce this quarter. We averaged USD 1,800 per ounce in unhedged gold sales, and we're currently tracking really well against the production plan and guidance that we released in March. So we're on track to meet the range of 250,000 to 280,000 ounces of gold produced at USD 720 to USD 800 an ounce. Moving on to the underground. Mined ounces were about 30% below the previous quarter, and ore tonnes were down about 7%. Ore grade was down as well against the previous quarter. And we're still actually picking up quite a bit of mineralization from outside the mine plan, so -- which we've taken the opportunity to mine when we're actually there. The -- during the quarter, we completed 802 meters of underground development versus 510 in the previous quarter. And at the end of the quarter, the decline was 315 meters below surface. So as you can see from the numbers, during the quarter, our production cycle moved from stoping to backfilling and development. And what we're really doing is setting up the rest of 2021 to focus on stoping activity. So we're putting in that development and hard work now and it'll be paying off throughout 2021. On open pits, mined ounces were down on previous quarter by 5%, with a higher strip ratio. However, that's generally due to mine in the M1 South open pit, though this resulted in a 35% increase in grade. So the grade is lifted from 1.3 grams in Q4 last year to 1.9 grams in Q1 this year. On processing. The process continued a solid performance as it has done since we started up last year. And as mentioned earlier, gold produced was just under 56,000 ounces, with a 10% increase in head grade to 2.3 grams per tonne last quarter compared to 2.1 grams per tonne in Q1 -- Q4 last year. Recoveries are steady as well at 94%, and mill throughput was in line with the last quarter. Just running through the financial and corporate review. We finished the quarter with $94 million cash on hand. We had AUD 39 million generated in cash from operating activities. And we finished the quarter with about $31 million in unsold bullion, and that's just due to timing of gold shipments which was a bit higher than what we had last quarter. We also made our first scheduled debt repayment to Taurus of USD 13 million. And we also made an additional USD 25 million debt repayment just after the end of the quarter, reducing the Taurus loan balance to USD 137 million. So we basically paid down $38 million in debt in 1 quarter, which is quite an achievement. At the end of the quarter, notional debt decreased by USD 25 million to USD 76 million, so we're making good progress on that front as well. Moving on to growth. So during the quarter, we released our updated resources, reserves and production guidance; and a 10-year production outlook. Resources ticked over 5 million ounces, 5.1 million ounces, at 2 grams, which is a great outcome for the company. That's with the addition of Toega and extensions at M1 South. Ore reserves, no real change in ore reserves, except for deflation. And we expect that, by the end of this year, we'll be bringing Toega into ore reserves and also portions of the M1 South underground. So we expect that to lift. We also provided guidance for production for 2021, which I mentioned earlier. And we also provided a 10-year production outlook of over 216,000 ounces from -- average production from 2021 to 2030. So that's a significant improvement on our previous life-of-mine plan. And I'll just guide investors to have a look at the announcement we made on the 9th of March, which is lodged on the ASX and on our website, if anyone needs any further detail on that. And we've been progressing Toega during the quarter as well, so feasibility studies are ongoing and permitting work is well in hand. We completed geotechnical drilling. And samples for geotech and met test work samples were made ready for shipping, and they'll be shipped very soon from Burkina back to Perth. We're currently infill drilling at Toega, and we expect to finish that drilling by the end of this quarter. On other exploration. We have been doing some auger drilling programs in the west of Burkina, the Comoe project. We've also got [ augering ] at the M V3 -- or a V3 permit which is just to the west of Sanbrado, and we've also completed a historical data review over V3. And then it turns out there has been some historical drilling on that permit with some RC drilling, returning 16 meters at 5 grams beneath workings, so we'll be following those up with RC drilling later this year once we finish all the auger work and mapping. And we expect to finish the auger programs in Q3, and then we should be in a position to go through the data and work on target definition for next field season. So just moving on to our objectives for next quarter. We've obviously focusing on delivering the guidance, so increasing gold production and reducing per-ounce costs. We want to finish the drilling at Toega, which will -- the infill drilling, which is the plan to increase resource category and convert resources into reserves. And we'll crack on with the auger drilling campaigns at -- around Sanbrado and Comoe. That's the sort of high-level coverage for the quarter, and I'll pass back to Nathan for any questions. Thank you.

Thanks, Richard. [Operator Instructions] Your first question comes from [ Roger Fitzpatrick ] from [ Chiltern ] family office. There's 2 questions. The first one is when can shareholders expect to be paid a dividend. Or will you be concentrating on paying back the debt?

All right, thanks, Nathan. Thanks, [ Roger ], for your question. Certainly our focus this year is to pay down the debt. You can see we just made a pretty big inroad into it this quarter with $38 million payback since our last quarter, and that's reduced our overall debt down to USD 137 million. Later this year, we'll, I guess, focus on what we do for next year. And that's whether we pay dividend or whether we buy back shares, and that will be something we're considering. This year, we're focused on -- obviously on debt repayment. And I think, if the gold price stays around where it is, we should have the debt cleared with Taurus. Well, certainly we should be net cash by the end of the year and have the loan paid off in Q1 next year. Thanks.

And the second question: What is the exploration budget for the company this year, and where will it be spent?

The exploration budget so far, well, for -- to 2021 is about USD 12.5 million. Most of that is being spent on the Toega feasibility study. And we're obviously very focused on converting the inferred resource at Toega into a higher category and then getting reserves into our mine plan. And the life-of-mine plan that we put out in March includes some inferred resources, so our focus is delivering that and converting inferred into indicated and measured categories. Like I said, we've got 2 auger rigs operating at the moment. We have -- so one, the M V3, which is very close to Sanbrado. We've got one out at Comoe which is working on a new grassroots project. So Comoe is a collection of about 3 or 4 permits. It's in a really good location in a nice geological setting, and we look forward to sort of releasing some results from that later this year. And then we've also got some exploration to do around Sanbrado, which we will be moving on to after we finish the infill drilling at Toega. So that's the [ current focus. We would think there's ] really quite a high probability of [ adding ] ounces from the surrounding area around Sanbrado in addition to the sort of organic growth from our early-stage or grassroots exploration programs. Thanks, Nathan.

Thank you. So your next 2 questions come from Mike Millikan at Euroz Hartleys. So the first one is regarding M1 South underground grades, and he's asked, "Regarding the M1 South underground grade, should -- they should be tracking in [indiscernible] they're going to be tracking in the current quarters. i.e., any additional ores outside the mine plan, mix between stoping and development ores and results from any reconciliations."

All right, thanks. So the last quarter, we were just under 8 grams per tonne for the average grade. That included a lot of development ore and also some hanging wall zones outside the mine plan. What we found is there are some areas that are kind of hard to define from grade control drilling. And when we've been doing the longitudinal ore drives, which the first 3 levels of the underground mine, we've seen that -- we've had to go and chase some of these zones with sludge drilling after the ore drive development. So that did kind of slow us up a little bit with the overall sequencing of stoping and backfilling, but the part of the ore body that we've been mining to date has been in the southern end and also the sort of hanging wall zones. And we're moving into the main part of the ore body now, which is the second panel which is closer to the core of the mineralization, so we expect kind of [ growth and then improve ] from here. Like I said, earlier on the quarter -- in this quarter, we focused a lot on development, really setting ourselves up for big 2 quarters -- final 2 quarters of this year, which we're almost entirely stoping ore. So the development that we're putting in now is between the 2070 and 1995. So surface level is 2,300, and we've got generally 25-meter levels from [ 2170 ] down to 1995 which have been developed. And if investors remember our exploration story: We hit a lot of high-grade mineralization not long after we made the discovery, and most of those results have actually come from that 2070 to 1995 level. That's where the ore body kind of joins back together and we've got one solid pipe. So that's where we've got transverse development. So we're going across the ore body, and that's something that I've seen just recently when I was on site. So that looks very good. So we expect growth to pick up. We don't see any issues around the life-of-mine grade. So I think that kind of covers that question off. And we expect the bulk of the tonnes that come from the stoping in the back end of this year. And we've still got a [ bit of development ] to do this quarter, but we're getting, going back into a stoping cycle by the end of Q2. [ Thanks, Nathan ].

Thank you. And Stuart Dodd from Renaissance also asked a question about the underground and reconciliation, but I'll -- I think you've covered it there. So the last one from Mike is when should we expect drill results from Toega and the timing for the resource update.

Right. So we can expect some results from Toega [ later this quarter ], and we'll be releasing those into -- late in the quarter, into Q3. We will update the resources in line with our annual resource, reserve update, which we'll be working on late this year and then releasing in January -- sorry, January '22.

[indiscernible]. All right, thanks, Richard. There's no further questions at this time, so I'll hand back to you for closing remarks.

Thanks, Nathan. Look, thanks to our shareholders again. And thanks to our site team for doing a good job. And we look forward to keeping investors updated with progress throughout the quarter. And that's about it. Thanks very much to you. Bye.