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

[Operator Instructions] I'll now hand it over to West African's Executive Chairman and CEO, Richard Hart. Please go ahead.

Thank you, Simon. But first, I'd just like to extend my thanks on behalf of the Board and the team here at West to the site team who continue to do an excellent job and also to our international fly-in fly-out experts and their families who are continuing to put up with the situation certainly here in Australia but also around the world where a number of them have to sit through hotel [ and crammed ] and returned to their country of origin. So just quickly moving on to health and safety. We've had another good quarter with 7 million hours worked LTI free. So that's about 26 (sic) [ 27 ] months LTI free on the project now. We've maintained continuous milling and mining operations during Q2. And we're managing with the COVID pandemic on site and in our supply chains and with international travel, but we're seeing significant disruptions with particularly our Australian fly-in fly-out workers, with limited seats returning back to Australia and often people being bumped from Perth to Sydney or Melbourne or Brisbane. So we're dealing with that for the time being. And hopefully, with the Phase IV rollout announcement recently that our fully vaccinated travelers would be able to quarantine at home in the near future, we're kind of watching that very closely and hopefully, that actually takes place. The ramp-up with regards to production, the ramp-up continued in Q2 with the ounces up to 14% to just under 64,000 ounces. Costs decreased from USD 957 an ounce to USD 928 an ounce, and we averaged just over USD 1,800 an ounce in unhedged gold sales. We're currently tracking well against our annual production plan and we remain on track to meet our production guidance of 250,000 to 280,000 ounces at USD 720 to USD 800 per ounce all-in sustaining costs. In the underground, mine ounces are up significantly on Q1. They're up 116% and ore tonnes increased by 66%. Ore grades are up as well at 10 grams versus about 7 grams in the previous quarter. And we've now moved into the production cycle with continuous stoping and we'll be in that phase for the remainder of 2021. During the quarter, 855 meters of developments completed underground versus about 800 meters in the previous quarter. And at the end of the quarter, the decline was about 340 meters below surface so some really good work going on there. We've also finished developing panel 2, which is obviously, beneath panel 1 and that will enable more continuous production from two underground ore panels. On the open pit, that was steady. Tonnes are down slightly on the previous quarter and grade as well as we've been fitting in some lower grade oxide material as the blends got a bit harder with increased hard material coming from the underground. Surprised we're seeing another good quarter from the processing team with ounces produced up 14% from about 740,000 ounces blended head grades from up to about 2.9, just under 3 grams. This is up significantly from the previous quarter of 2.3 grams. And we're seeing that we've seen that quarter-on-quarter since last year with the increased proportion of high grades from the underground. Recovery is also steady at 94% with mill throughput in line with the previous quarter. On capital, we've got a number of significant projects finished during Q2. We lifted the water storage dam, which was converted before the wet season. So lifted and lined that, and increased capacity by 50%, and that really derisks the future of our process water supply for the project. We've completed the -- or largely completed the aggregate crusher and cement batching plant for the backfill on the underground. We took advantage of having a lot of year of extra gear on side and accelerated the tailings storage facility. That work is largely finished now as well. And we're kind of expecting to have lower sustaining capital over the next two quarters. Inflation and corporate. We finished the quarter with AUD 61 million cash on hand. We generated $62 million from operating activities and we held about AUD 24 million in unsold bullion in the quarter. We made some significant payments during the quarter. Obviously, we repaid $51 million in debt to Taurus. We paid $19 million in our Burkina Faso 2020 income tax and also made a $2 million total distribution -- USD 2 million distribution to the government as part of the profit and the government being a 10% owner of our in-country operating company, SOMISA. Over the sort of the quarter, notional net debt decreased by $19 million to $57 million. So we're making very good progress in getting that debt down. We also completed some good work in the local communities as part of our environmental and social investment. We saw several milestones achieved across this area, including improving our waste management on site, starting work with some of the communities regarding -- for production for their cattle and for their animals that they're grazing in the local area. We've completed a greenhouse [ gas program ], which allows us to align ourselves with climate principles, so we know exactly how much greenhouse gas emissions we're producing. We also finished off work on 1 of 3 schools that we've built in the area. We provided a solar power program -- solar power installation on another 5 schools. A lot of good work regarding livelihood restoration, soil improvement programs, training programs for local women and also for some of the illegal -- former illegal artisanal miners in the region who have been receiving trade training programs and tools so we can actually employ them and give them some new opportunities. Just on growth, we've been working hard on the Toega feasibility study during the quarter. We had almost finished the resource definition infill drilling program at the end of June. We look forward to releasing some of those results over the coming weeks. We've also -- we're also on track with our environmental and social studies and pivoting for Toega. The -- for both the Toega mine area for the whole road back to Sanbrado. And we expect to submit those studies to the government in Q4 this year. Because we're in the middle of wet season, we've halted work on other exploration projects, but we will report results from work that's been completed in the coming months when we get results in from the ore drilling programs. So just moving on to what we are focused on for this quarter, obviously, delivering our mine plan and continuing to increase gold production further than 64,000 ounces last quarter and also reduce our costs and continue on with the Toega feasibility study. Just on that, I'll just turn it over to Simon again to see if we've got other questions.

Thanks, Richard. [Operator Instructions] The first question is from [ Roger Fitzpatrick ] at [ Charlton Asset Management ]. Richard, can you please provide some detail on how the underground ramp-up is progressing?

Okay. Thank you, Roger. Well, we've moved into a back-to-back stoping cycle now, which is where we've been wanting to get into for the last kind of 18 months. We've now got, I think, 7 levels developed and team made areas of stoping ore production, which is going to give us continuous stoping ore feed for the rest of this year. We set ourselves a target of hitting an average of about 1,000 tonnes a day from the underground. And the last 6 weeks, we've been exceeding that. And that looks like it's going to continue for the rest of the year. So we're very pleased that we're finally into this more continuous stoping phase. And we should see the benefit of continued grade improvement over the back half of the year.

Great. Thanks, Richard. Next question. How much does the sustaining capital costs make up on the total costs? And will this continue?

Look, I'll pass it over to Padraig O'Donoghue, our CFO, who's also here with me.

The sustaining capital makes up about USD 76 per ounce of the all-in sustaining cost. It's going to continue at lower levels than that. We're thinking about USD 40 or so or less per ounce going forward.

Great. Thank you. Next question is how is Sanbrado's performance reconciling to the resource and reserve modeling? And have there been any significant variances to date since the start of production?

We're tracking very closely to reserves. Well, we have had some production from outside reserves. But early on, when we first ramped up in the first 6 to 8 weeks, we had a negative reconciliation, but that was generally due to near surface artisanal activity, which -- and some of the balked entities that were included in the resource work. But after the first sort of 6 to 8 weeks, it's corrected itself, and we've kind of -- we've tracked up, we've tracked slightly down. But on average, we're tracking very closely to our reserves.

Great. Thanks, Richard. Next question just regarding the company's debt. Is it likely to be repaid in 2021?

Padraig, I'll pass this on back to you.

Our current modeling goal is to repay it in first quarter of 2022. But I guess if ore prices really did well and production came ahead then we would probably look for opportunities to pay down early because we just want to get the interest put away and open up our optionality on our cash going forward.

Great. Thanks. Can you please comment on the security situation within Burkina?

Right. Well, the situation in Burkina has not improved in the last 4 or 5 years. There is a significant humanitarian crisis in Burkina. I think 1.5 million people have been displaced from Southern Mali, Northern Burkina Faso and also from Niger. This is something that the Burkina government is dealing with and with their limited resources. I think since 2015, about 1,500 people have also been killed on the border with Mali, Mali and Niger. So we continue to see unrest in that region, and much of it is really due to the eastern 2/3 of Mali being ungoverned. And it's a place where some Islamic insurgents are operating. So it's very unfortunate, and it's something we're watching very closely. Coming into sort of the central part of Burkina where we're located, we don't see a lot of local issues regarding the security. We are the biggest employer in our area, and we've got very strong links with local groups and the local security forces in the army and the place. So it's something we're monitoring. We obviously take precautions when we're moving our people around. And right now, for the foreseeable future, we believe we can operate safely in the country and also do our part to help improve the situation by being a large royalty payer and taxpayer to the Burkina government.

Great. Thanks, Richard. Just on to Toega feasibility timing, is it still late calendar year '22? Any additional met test work required?

Right. So part of the drilling program that we've completed, the first thing we did was we completed a number of met holes and geotech holes. Both those selected core samples are back in Perth being tested at the moment. We -- as I mentioned just in the distribution before the Q&A, we have completed most of the drilling for the resource work. There's only 2 or 3 or 4 holes to go. We have made really good progress with wet season sampling. So we've started all the aquatic sampling for permitting and also prior to that, we've been doing dry season sampling as well. That part of the feasibility study is lined up to be finished by Q4 and submitted to the government. So that's all part of the permitting process. So we would expect to get fully permitted towards the back end of 2022, which kind of lines up well with our -- a reasonable time line.

Great. Thanks, Richard. Can you please give an update on the progress of accessing the high-grade ore in the M1 South open pit?

We're accessing it. So that's the update really. It's -- the pits have gone well. So once we got down through the artisanal zone, which was pretty extensive at M1 South, part of the increase in grade that we're seeing, we've gone from 2.3 to 2.9 grams per tonne in the last quarter. Part of that increase is coming from M1 South open pit as well as the underground.

Perfect. Thanks. Are dividends being considered post repayment of the Taurus debt?

Look, we'll probably look -- we got to look at our capital management program later this year. We'll take advice on that. So we'll look at the range of options. But certainly, paying dividends or buying back shares will be on the table. We need to pay Taurus back before we can implement those programs. So that's -- our focus right now is to pay back the debt as quickly as possible.

Right. Thanks, Richard. That concludes the Q&A segment. I'll now just hand it back to you for closing remarks.

Thanks, Simon. Look, thanks again. It was another good quarter of increased production and decreased costs, and we expect that to continue for the rest of the year and we remain on track to meet our guidance. Thank you.

Great. Thanks, Richard, and thanks all for joining.