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

Good morning, and welcome to the West African Resources Investor Webinar and Conference Call. All attendees are in a listen-only mode. [Operator Instructions] I'll now hand over to West African Resources' Executive Chairman and CEO, Richard Hyde. Thank you, Richard.

Thank you, Nathan, and thanks to everyone for dialing in and listening. I'm pleased to deliver our unhedged gold production guidance for 2022. This year, we're targeting between 220,000 and 240,000 ounces of gold production at all staining costs of between USD 1,040 to USD 1,100 per ounce. We have seen costs increase across the board generally in the last 18 months, but I'll speak to the specific costs in a moment. Because while we've seen some costs increase across the board, some of our costs in '22 are transitory, and we expect [ assets ] to return -- adjust to normal levels from 2023 onwards. One of the big changes for the company this year has been a huge step-up in resources with the acquisition of Kiaka. So resources were up 127% on the prior year to 302 million tonnes at 1.2 grams per tonne for nearly 12 million ounces of gold. Ore reserves were up 13% over 2021, with 26 million tonnes at 2 grams to 1.7 million ounces of gold. So the big change there after the depletion of mined inventory was the maiden reserve for Toega, which was just under 600,000 ounces at just under 2 grams. And that replaces all that's been mined since we commissioned in 2020. And also extends the Sanbrado mine life out to 2034. So we've got some nice long years of production ahead of us. So with the introduction of Toega, the 10-year production outlook for Sanbrado is going to average just under 200,000 ounces a year from 2022 to 2031. And like we just mentioned, mine life has been extended to 2034. Just touching quickly on the political situation of Burkina. So we've had no impact from the recent coup in Burkina. The operators are continuing to operate as normal. So we're not having any impact at all. we're still waiting to hear from the new president, interim president when the interim cabinet is going to be installed, but we understand that's sort of in progress at the moment. Things are generally pretty calm and we've had directors in-country just recently during the coup. And the feedback from there was that if they didn't -- if they hadn't have read about it on the Internet, they wouldn't have known it had happened. So at this stage, it's just business as usual. Just on to open pit mining for this year. So we looking to mine 2.7 million tonnes, around 1.3 grams from Sanbrado open-pits. So in this year, we've seen the completion of the M1 South open pit and also the M5 Stage 1 South pit. We're also seeing a cut back on M5 and that takes the pit to its final design limit, so it's to be cut back. So our strip ratio for this year steps up to 7:1. And then thereafter, we expect the strip ratio to drop back to average 3:1 for the remainder of the 10-year production plan. So we're seeing some open pit capital development costs increasing this year due to this cutback, which is around about $25 million. And we expect -- obviously, the strip ratio would drop back to 3:1 after that. So in kind of cost terms, it's probably around about a $60 to $70 an ounce increase over 2022 that we'll be seeing from this cutback and then we expect costs to normalize going forward. On the underground, we're looking to mine from Panel 1 and Panel 2 in stoping and developing in Panel 3. So Panel 1 is 130 to 205 meters below surface and Panel 2 is about 205 to 305 meters below service. And we'll have a decline down -- developing down to about 460 vertical meters below surface by the end of the year. We're developing Panel 3. So that's going to open up production for 2023. And for 2022, we're looking at production of 400,000 tonnes out of the underground at 7.5 grams per tonne, which is a bit lower than last year. And -- this is the grade that we're seeing from the reserve work that we've done. We do tend to see some pickup in grade when we've done infill drilling, but we've just really got to wait and see how that plays out in production. So I think we've built some conservatism into the underground grade for 2022. On costs, our costs are in line with 2021 for underground. On process, we've got capital expenditure increasing. Again, we've got some capital works projects going on this year. We're guiding overall expenditure at USD 15 million to USD 25 million, which is about $10 million to $15 million over the prior year. And these are kind of one-off projects, again, with a gravity circuit upgrade. So we've been seeing a lot higher gravity recovery in process at Sanbrado since we commissioned. 40% to 50% of the gold is coming out in the gravity circuit. So we're installing a second Knelson Concentrator, which will be finished midyear. It's a little -- also will reduce some of the costs. The predominant sulfide at Sanbrado in all the areas is pyrrhotite. So pyrrhotite is oxygen consuming. So we've been dosing tanks with peroxide since start-up or since we've been processing sulfide material. And we're looking to install an oxygen plant, which will reduce the reliance on hydrogen peroxide to maintain dissolved oxygen levels in the tank. So that's another sort of improvement and obviously some capital outlay, but we'll see costs improve after that as well. And then also with the mine life extending out to 2034, we have got 2 more HFO sets being installed in the powerhouse, which reduces the reliance on the high-speed diesel sets during shutdowns and maintenance. So those sort of are important long-term investments that we're making in the powerhouse at Sanbrado as well. Just on the 10-year mine plan. So the big change is -- for this year is bringing Toega into reserves. And that kind of gives a really robust mine plan out past 2031, averaging just under 200,000 ounces per annum. We've used the long-term gold price of $1,400 for all of our reserve estimation and mine planning. And for the detail around this, I direct everyone to today's announcement, but the outlook based 75% on reserves, 25% of inferred resources. And over the next 5 years, it's based 90% on reserves and 10% on inferred resources. So it's very robust. Just on growth and exploration. So we've been working on the Kiaka feasibility study since late last year. It's on track for completion at the end of Q2 this year. The resource update we've released this year is very robust, just under 7 million ounces at 1 gram. We expect to get a pretty good conversion of resources to reserves, probably around 50%, a very low strip ratio, probably less than 2:1. And B2 did a lot of met test work on this, and we're doing a little bit more at the moment, and we're seeing or confirming what B2 had got. So we're expecting recoveries around about 90% from the test work. So we're in the process of simplifying the mine -- the actual process design. At this stage, we're still targeting Stage 1 at 6 to 8 million tonnes per annum. So it's kind of plus 200,000 ounce per annum target on Stage 1. Our focus is to reduce capital and still have the option of an expansion down the track once we're in production, and a potential expansion could look like plus 12 million tonnes per annum. So that would see Kiaka at some stage in the future playing a plus 300,000 ounce producer, a very simple robust project. So on exploration, we're doing some more exploration, though. We've had the ore [ hold ] rigs testing targets around Sanbrado over the last 12 months. We've got some follow-up work going on at the moment up at [ MV3 ]. So we look forward to sort of releasing some exploration results in that scene, and these targets are sort of oxide targets within trucking distance of the Sanbrado project. We won't talk too much about exploration today. I've got updates coming over the next few weeks. We've got some oxide targets that we'll be testing and we're looking to boost the mine plan with some low strip sort of high-grade oxide material, which will benefit the production plan. So with all these growth projects, we're aiming to be a 400,000 ounce -- plus 400,000 ounce see produced by 2025. I'm happy to take any questions from anyone who's got anything to ask.

Thanks, Richard. We've got some questions from Mike Millikan at Euroz Hartleys. So the first one is regarding the cost. So can you provide more -- a bit more information on the planned capital improvement projects? Should we assume savings down the line?

Yes. Thanks, Mike. Look, yes, we've got investments going on. The oxygen plant is about USD 1.5 million this year, and that's going to have a pretty quick payback on investments. So it will pay back in less than 1.5 years, improve recoveries by about 1% as well. So I mean this is 1% of revenues. It's a big improvement. We've also got the powerhouse upgrades. So we're going from -- when we built Sanbrado, we had a 4 plus 2, so 4 HFO sets and 2 high-speed diesel sets. And if you go back to the '19 -- sorry, the 2019 feasibility study, we had a 7 new projects. Now we've got a 14 new projects. We're bolstering the powerhouse with a further 2 HFO sets, and that's about $10 million in payback sort of less than sort of 2 years -- or 2 to 3 years on that sort of investment, which is good and obviously reduced costs. We were not running diesel, which is more expensive in Burkina. The gravity circuit is about $1 million, and we'll see some savings there in op cost as well with reduced reagent consumption.

And just further to that, what are you seeing at the mine in regards to cost inflation, in regards to labor, fuel reagents? And how are these being managed?

Right. So -- at this stage, we haven't seen any increase in fuel cost. So Burkina has fixed fuel prices. So they haven't gone up much at the moment. So HFO is up about 5%. Cyanide is flat. Grinding Media, some mill balls are up about 10%. [ Lime ] has been stable. Wages, salaries are up probably 15% over the -- across the board. We're seeing expatriate salaries increasing, which I think you've seen here in Western Australia, it's been a lot of increase -- a bit of an increase in Australian salaries. So we're no different over in Burkina, even though 10% of our workforce are expatriate, it makes up a significant proportion of our salaries.

Thank you. And just in regards to Kiaka and Toega, can you quickly talk through the spend and expected split between the 2 assets? Should we assume largely Toega spend?

Look, we've left a range of between $45 million and $75 million. Both of those projects are in progress at the moment. Currently, we don't have a committee to approve a mining license for Toega. So we may see some costs being held in 2022 on Toega at this stage. So we just have to wait and see how the government -- how that plays out and then all of the committees for approval of environmental permits for mining licenses need to be reinstalled. We're going to be pretty spend light on Kiaka this year. It's mostly early work, so roads, camp and study. So making sure we get a study done properly and really button down the capital costs. We expect to have the feasibility study completed by the end of Q2. And a formal investment decision will occur probably about the same time or soon after. And then we'd be looking to place long-lead item orders in the second half of this year. So we've left the overall range as a range at this stage because it's a bit loose. There's a few moving parts in-country. And also, we haven't finished the study for Kiaka yet. So that's probably about as much as I can say at this stage.

Understood. And could you please provide an update on permitting and any social requirements for both of the projects?

Okay. Well, Toega is -- the work is completed. So we finished the SIA and that's ready for submission to the government when the government is reinstalled. The time line on that is not really critical at the moment. We've got Toega ore coming into the 10-year mine plan in 2024. So it's still 2 years before we start to see ore out of Toega. And given that we've got substantial open pit resources at Sanbrado, there's still a lot of targets around. If we see slippage on that, it's not critical to the project. It just pushes back our production on Toega a bit. Kiaka, part of the feasibility study, we're updating the SIA and the relocation action plan. And again, that will be submitted midyear with the feasibility study. And I expect that in the next few weeks, we'll actually have an interim cabinet. And then after that, we'll have the appointment of the various committees that approve mining projects in Burkina. So there's still a few things at a bit fluid at the moment. But overall, we're seeing sort of a -- pretty much a positive response to the coup from the local population, from our workers who are quite supportive, and it seems like the military is having some success in the north of the country with -- against the terrorists, and we're seeing some improvement in the security situation.

Your next question comes from Andrew Bowler at Macquarie. And he asked, can you give some more color on the year 2022 production profile? Are you expecting a stronger first half due to the higher-grade pits?

Yes. Yes, that's correct. We're seeing the M1 South open pit finish up midyear and also the higher grade M5 South open pit finishing up before half year as well. So we expect production to be stronger in the first half and then flattening in the second half.

Thank you. Some questions regarding the planned M1 South drilling for calendar year '22. Extensions to the north of the existing mine plan, is that going to be a priority? And if you could talk through the potential and any ozpa vertical meter information that's currently available, ounces per vertical, obviously.

Yes, sure. Well, we haven't got a resource on it yet, but we do have some nice results from beneath the northern part of the M1 South open pit. So it's all getting a bit complicated with the North and the South and where it sits. But effectively, it's a strike extension to the main shoot at M1 South. We've got drilling going on there at the moment, and we look forward to releasing some results soon on that. We're seeing similar mineralization to what we see at the main zone. So in terms of alteration and sort of distribution of gold, probably not as thick as what we see in the main zone, but all the right ingredients are there. It seems that there's a bit of a dead zone directly beneath the open pit that kind of kicks off again at about 200, 220 vertical meters. So we'll keep drilling it providing we keep getting good results. We'll release them and then we'll we get a resource out this year on it and look to get into the mine plan. But as far as costs go, it's not far to drive out there and to develop. I mean, most of the costs are already sunk in the decline, which the mains out at M1 South is paid for.

And so is the plan to do further infield drilling within the top 500 meters and then plan for a deeper plus 500 meters? Is it all from underground drilling?

Yes, it's all underground drilling for that target. So we'll keep infilling. At the moment, we're infilling down to about 20 meter centers. And then that will be sufficient to put a resource on it, and then we can drive out there and do some sampling as well.

And is there a potential to extend the underground mine life beyond 2029?

Definitely. At the moment, it's only limited by drilling, so at depth and obviously, a long strike to the north is what we're seeing in the mine at the moment. And if you look at some of the production figures over or since we started, we're about 300 -- if you were to look at production numbers from the original reserve, we should have produced about 320,000 tonnes at about 11 grams, which I think is about 130,000 ounces. The reality is we've mined about 500,000 tonnes at 9.5 grams for about 160,000 ounces. So the mine is overproducing. It's -- but it's not easy to quantify. And one of the reasons why we've kind of erred on the side of conservatism for the grade for this year at 7.5%, even though production today is 9.5%.

And any planned drilling activity on the potential M5 underground?

Not at this stage. I mean there's still substantial open pit resources there. So -- look, I think we're trying to direct our kind of exploration budget to where we can get out the most bang for buck in the next sort of 2 to 3 years. We like what we're seeing at [ MV3 ]. There's some nice targets up there. The geology looks good. That's about 8 kilometers northwest of Sanbrado. Some nice artisanals over a few hundred meters since strike and there's some anomalies popping up there as well. So we'll keep working on that. We've also got targets around Toega, which we've been working at. And there's still potential for Toega at depth as well. We've converted about -- it's about half, just over half of the resource into reserves at this stage at USD 1,400 gold. But there's still some fantastic results at depth at Toega that we haven't followed up. So it's about kind of trying to get the low hanging fruit first before we start putting money into more expensive targets.

And in regards to regional exploration planned for calendar year '22, are there any walk-up drill targets of note?

Yes. It looks like something is emerging in [ MV3 ]. So we'll keep working on that. So I think that's going to get RC drilled this year. That's probably the most apparent one. And then there's obviously a few targets to the north of Sanbrado on the Manesse license that we'll be testing as well. We've got 2 or 3 auger [ exactive ] at the moment, and we've got availability with RC rigs from the site and from Geodrill exploration as well.

There's been a lot of questions come through about the political situation. I just wanted to reiterate the people that Richard did cover this in the first 3 to 4 minutes of the conference call. Have you got any further comments to make on that, Richard?

Look, it's just -- it's business as usual at the moment. So I mean we're kind of waiting for the interim cabinet to be installed. At this stage, all of the departments we're dealing with are still operating. We're still receiving VAT back where all parts of government that are not political are functioning normally, so that's quite good. We're still clearing goods across borders and paying taxes and customs duties. So at this stage, we haven't seen any interruption to operations and it doesn't appear likely at the moment. So we look forward to kind of getting on with it this year. And producing hopefully towards the top end of the guidance, again like we did last year and getting some good drilling results out from the exploration targets in the next month or 2.

Right. There are no further questions at this time. So I'll hand back to Richard for closing remarks.

Thanks, Nathan. Look, thanks, everyone, for listening today. Production is going to be pretty solid this year. We've got a 10-year mine plan, which is very solid. All of our production is unhedged. So we've got the full upside to the current $1,900 U.S. gold price, which is good. We're working on Kiaka and getting that up the curve and look forward to making a decision on Kiaka in midyear. It's going to be a substantial project. It's got very good characteristics, a big simple open pit with potential for plus 200,000 ounce production in Stage 1 and probably plus 300,000 ounces in Stage 2. And with that, kind of coming online and Toega coming into the mine plan at Sanbrado, we're on track to be producing over 400,000 ounces a year by 2025. Thanks, everyone, for listening and have a good day.