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

West African's Executive Chairman and CEO, Richard Hyde. Thank you, Richard.

Thanks, Nathan, and thanks to all the investors dialed into the call. We've got the -- we've got a team here. We've got Padraig O'Donoghue, our CFO. We've got Todd Giltay, our General Manager of Finance; and also [ Nick Hatch ], who is CEO of [ Rimco ], who's advising on our debt funding process for Kiaka. So just off the top, it was a quarter of production up and costs down, which is really positive, and also significant quarter for growth with our resource and reserve update and our 10-year mining plan published. So unhedged resource is now standing at 12.6 million ounces and unhedged reserves at 6.4 million ounces. For the quarter, we didn't have any significant social health or safety incidents. Our TRIFR is now standing at 1.67% compared to the West Australian gold average of 7.1, which is very positive. Gold produced in the quarter was 56,307 ounces, which is up 13% in the December quarter. Our costs were down 10% at $1,172 per ounce all-in sustaining costs. And again, I always note that we're reporting our all-in sustaining costs according to the World Gold Council guidelines. Unhedged gold sales were 48,208 ounces, and unhedged sales at $1,878 an ounce. So that generated $29 million of operating cash flow after a final installment of $25 million to Burkina Faso government from our profit in 2021. So the underground mining plan, moving on to that, track very well. So ounces were up 13% on the last quarter, mostly due to high grade. So the underground grade average, nearly 8 grams per tonne. Open pit mining continued really well, significantly ounces are up over the previous quarter now that we've finished that pit cutback at the southern M5. So we'll see that strip ratio trend lower over this year and over the next few years. Our processing continued its strong performance. It's been very solid at nearly 760,000 tonnes milled at an average head grade of 2.5 grams per tonne, nearly 94% recovery, which is an outstanding effort. So on growth, during the quarter, we released our resource and reserve update and our 10-year mining plan. And that's something that we want to keep doing, which demonstrates that we're a sustainable business with long-term prospects. Our resources increased by 1 million ounces to 12.6 million ounces of gold, and that's net of mining in 2022. Our ore reserves increased 4.7 million ounces to 6.4 million assets gold net of mining in 2022 as well, and that's with the addition of Kiaka coming in. And also, we converted 2 panels of underground material at M1 South, which we'll continue getting ahead of production in M1 South throughout this year and next year as well. Currently, M1 South has got a mine life that takes that to 2037 and well past the 10-year mining plan. The 10-year mining plan incorporated Kiaka as well, which has got a mine life out to 2042. And moving on to Kiaka. The projects -- the project summary has been reiterated in this morning's quarterly report. But years 1 to 5, we're expecting 233,000 ounces per annum production and about 220,000 ounces of production per annum over the life of the project, which is about 18 years, which takes at 2042. So both operating centers have got relatively low-cost and long-life mines. During the quarter, we also made good progress on construction at Kiaka. So earthworks for the main camp and front gate were completed. We focused on completing our areas relating to security and fencing, also upgrading the exploration camp and starting on the permanent or the main camp for the project as well, which we expect to have well advanced throughout this quarter. We've also secured some long lead items during the quarter, and it's pleasing to note that we're not seeing any escalation in costs. So over 20% of the project is now committed and fixed, and we believe the capital estimate from August 2022 is still accurate and may include EPCM services, SAG and ball mills, primary crusher, apron feeders, thickener. So we're actually getting down the track on some of these major components. And we're not seeing any escalation, which is very positive. And finally, just on Kiaka funding. We're quite well advanced on that. We're expecting to appoint a syndicate of lenders later this quarter. And given the gold price at the moment, around $2,000 an ounce, we're expecting to fully fund the construction of Kiaka with somewhere between USD 250 million and USD 300 million in debt and cash flow from Sanbrado and also utilizing our cash at bank. And that, we see us finishing construction in the middle of 2025 and from then on being a solid plus 400,000 ounce producer, a cost around about USD 1,000 an ounce, which is last quartile for the industry at the moment. All right. That's a quick summary of the quarter. Nathan, I'll hand it back for questions.

[Operator Instructions] Your first question comes from Roger FitzPatrick at [ Charlton Asset Management ]. He's just asked if you could give some more color around the build costs at Kiaka. And I guess why this isn't -- why in the current inflationary environment, you're not seeing an effect so far.

All right. Thanks, Nathan. Thanks, Roger. Well, I think the major reason is that I think we saw oil -- steel prices peaked last year. We've seen oil prices peaked last year, which kind of relates to a lot of the piping products and host [ DPE ] that we need for the project. And also from a labor perspective, West Africa hasn't seen the same cost pressures as more developed jurisdictions like Western Australia and North America, U.S. and Canada. So I think that's one of the reasons. But also, West Africa is historically a good place to build gold projects, very simple terrain in -- particularly in Burkina Faso. It's quite flat. No, we don't have any of the uncertainties around earthworks that some of the North American projects seem to have had recently. And I think if you look more broadly, over recent years and particularly projects that we built previously with Lycopodium, and Lycopodium is built with the other clients, they built them on time and budget or generally slightly ahead of schedule and under budget. I hope that answers the question.

Thank you. Your next question comes from Mark Hinsley at Cranport. He's asked if you can secure USD 250 million to USD 350 million in debt, then is that enough combined with the cash flow to avoid any capital raise for Kiaka? And secondly, would you need to hedge for the -- to get the debt financing?

Yes. So look, if the gold price stays around the current spot price, yes, that $250 million in funding, would see as fully funded. And look, maybe, Padraig, do you want to talk a bit about hedging? And really, we don't -- we do believe the gold price is going higher over the -- higher for longer, which is why we're more focused on keeping our ore reserve prices at USD $1,400 an hour. So we maintain margin, but it is a discussion that we have quite a bit here.

This question, he already asked. On the negotiations, hedging will be discretionary. Yes, for the loan, negotiations, hedging will be discretionary, not mandatory, so whether we hedge will be decided at a later point. Okay.

Thanks, man.

Thank you. And we've had a series of questions asking for a comment about the security situation in Burkina Faso. Just wondered if you could give an update on that please.

Certainly. So we continue to see unrest in the north and the east of the country. However, more recently, it's been a result of, I guess, the government's military action. I think if we go back to the start of last quarter, there were a lot of questions around the French leaving and whether Russia's Wagner Group were going to come into country. We kind of advised after meeting government officials at [ Indaba ] in early February that we didn't think that was the case. And thankfully, we're now well into April, and we haven't seen the Russian mercenary group coming to country. The French demobilized from Ouagadougou in February as well, which went reasonably smoothly. I think since then, we've seen the military in Burkina adopt some of the tactics that terrorists have been using in the north and east of the country. So they're much more mobile now. They're using motorcycles and technology to track terrorists in the north and the east of the country. They've also acquired new equipment, so they've recently bought Turkish drones, the TB2s that have been very successful in the Ukraine. And over the last 2 months, they've had significant success in tracking down terrorists and in canceling them, I suppose, and we hope that continues. If you have a look at -- across the Sahel in Mali, Niger and Burkina Faso, there's more than 1,000 schools that are closed at the moment. It's a situation that doesn't get a lot of press. And mostly, the Burkina government and Mali government have had to take this fight on themselves with very little international assistance. So it's pleasing to see that the Burkina government since the second Q or the change in leadership in September last year really have got on the front foot. They've made really good progress. So we're quite positive on the situation at the moment, and we hope it kind of keeps moving in the right direction.

Thanks, Richard. There's no further questions at this time, so I'll now hand back to you for closing remarks.

All right. Thanks, Nathan. Look, just looking forward to next quarter, we want investors to keep an eye out for the company announcing the syndicates that provide USD 250 million to USD 300 million in debt finance at Kiaka. That would see us fully funded at the current gold price and not requiring an equity raise to fund Kiaka. Also, we are drilling at M5 South. We are infilling beneath the base of the life-of-mine open pit and expecting with further good results there that we could sink a decline off the bottom of the M5 open pit and open up our second underground mine for the project. So that drilling and scoping study work is underway at the moment. And with that, thanks, everyone, for dialing in, and we look forward to updating you again next quarter.