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

Good morning, and welcome to the West African Resources Investor Webinar and Conference Call. [Operator Instructions] I'll now hand over to West African Resources' Executive Chairman and Chief Executive Officer, Richard Hyde. Thank you, Richard.

Thanks, Nathan. Good morning, and thank you for joining West African Resources June quarter conference call. Joining me today are the Chief Operating Officer, Lyndon Hopkins; Chief Financial Officer, Padraig O'Donoghue and General Manager of Finance, Todd Giltay. It's been an important and defining quarter for West African as we achieved record gold production across our gold operations in Burkina Faso with group gold production of just over 125,000 ounces. This firmly demonstrates that we're on track to achieve our goal of becoming a plus 500,000-ounce gold producer, having achieved a run rate that exceeds that target this quarter. It was another strong quarter across the group with both our Sanbrado and Kiaka production centers contributing to year-to-date gold performance and remaining on track to meet annual production guidance of 430,000 to 490,000 ounces of gold. We've achieved this at an all-in sustaining cost of USD 1,730 per ounce. This remains well under our 2026 guidance of $1,900 per ounce all-in sustaining costs, and we were tracking well on that year-to-date with all-in sustaining costs of USD 1,823 per ounce for the half year. Group gold sales for the June quarter were 110,737 ounces at a realized price of USD 4,556 per ounce. Year-to-date group gold production reached 232,905 ounces, while our year-to-date gold sales were 214,883 ounces at a realized price of USD 4,744 per ounce. In addition, we've had great success with the drill bit this quarter reporting outstanding infill and extensional drilling results from the M5 deposit at Sanbrado, and I'll go into that in more detail shortly. At Sanbrado, our team delivered over 57,000 ounces of gold production and over 45,000 ounces of gold sales at a realized price of USD 4,568 per ounce. Production increased 37% compared with the prior quarter, mainly reflecting higher mill grade driven by increased tonnes and grade from underground mining. Sanbrado underground performance was a key contributor, M1 South underground mined 1,000 -- sorry, 167,000 tonnes of ore at 8.1 grams per tonne for 43,644 ounces of gold in the quarter with underground mined ounces of -- underground mining ounces 60% higher than the March quarter and the grade also improved 9%. Owner-operators open pit mining continued to ramp up during the quarter. The Sanbrado process plant continued to perform strongly, milling 787,000 tonnes at a head grade of 2.4 grams per tonne and a recovery of 93.7%. Pre-strip mining activities at Sanbrado satellite deposit, Toega continued at a much higher rate in Q2 and included first ore mine from the Stage 1 pit. Sanbrado has produced just under 100,000 ounces for the half year. And at Kiaka, we achieved core production of over 67,000 ounces of gold, slightly up on the last quarter and sold over 65,000 ounces of gold at a realized price of USD 4,548 per ounce. Kiaka continues to be an important part of the group's production profile having produced more than 130,000 ounces of gold for the year-to-date. Mining activities remained focused on the Kiaka main Stage 1 pit while increased mill throughput supported higher gold production. Open pit mining production at Kiaka did slow during the quarter due to limited supply of explosives with our Kiaka explosive facility still awaiting operational approval from the government. Our 2026 Kiaka plan has been adjusted to concentrate on areas of free dig. We also reduced waste stripping at Kiaka and Toega to allocate the available explosive supply to ore production. In terms of cash balance, we ended the quarter with AUD 876 million in cash and $247 million worth of unsold gold bullion, reflecting a very strong balance sheet. I'll now hand over to Padraig to discuss the financials in more detail. Thanks, Padraig.

Thank you, Richard. The WAF Group generated USD 711 million of gold sales revenue in the quarter from a record high 110,737 ounces of gold sold at an average realized gold sales price of USD 4,556 per ounce. Our notional net cash, which is calculated as cash plus bullion minus debt increased by USD 48 million in the quarter to sit at roughly USD 0.5 billion at 30 June 2026. This cash build in the quarter was after the group fully cleared its 2025 income tax and dividend payment obligations to the Burkina Faso government. As reported in our Appendix 5B, we generated AUD 249 million of operating cash flow in Q2 and ended the half year with a record high cash balance of $876 million, as said by Richard. Our capital investing activities in Q4 used AUD 112 million cash, which comprised AUD 12 million for Sanbrado, $30 million for Toega and $70 million for Kiaka. Financing activities used AUD 105 million cash in Q4, mainly comprised of $24 million of loan payments and $11 million of interest payments and the priority dividend to the Burkina Faso government of $67 million. I now hand back to Richard for his comments.

Very good. Thanks, Padraig. As mentioned earlier, we're mining at Toega and progressed that project on several fronts during the quarter. However, the Stage 1 pit is currently behind schedule and ore delivery to the Sanbrado mill is expected to be delayed due to lack of explosives availability in country. Construction of site infrastructure, including workshops and offices continue to progress on schedule with completion expected in Q3. All road construction has now been completed, and the preferred local contractors has been selected for ore haulage to Sanbrado. The 13,500 meter infill drilling program targeting the Toega underground resource is ongoing, with results expected to be reported in Q3. That brings me on to our exploration efforts, which continue to demonstrate real value for West African. We're on track to achieve more than 100,000 meters of drilling across Sanbrado, Kiaka and surrounding areas in 2026. During the quarter, outstanding infill and extensional results were reported from M5 underground, targeting conversion of inferred mineral resources between the 1,800 and 1,600 levels, which is approximately 500 meters to 570 meters below surface and grade control of the lower levels of the ore reserve. A highlight results from the diamond drilling program below M5 was 27 meters at 6.7 grams per tonne and our infill diamond drilling also returned to an outstanding results, including 29 meters at 16.4 grams per tonne gold, 39 meters at 5 grams per tonne gold and 13 meters at 9.9 grams per tonne gold. These results confirm the quality and consistency of Sanbrado's ore bodies and highlight the potential for significant ore reserve growth at M5 south. Post quarter, we also reported infill diamond Drilling completed within the ore reserve at M5 North and these results will be incorporated into an updated resource model and will support a final pit design update along with an optimization of the Sanbrado mining schedule, which is also underway in preparation for the updated 10-year production forecast due in Q1 2027. Our drilling will focus -- our drilling focus will now shift to other areas of the M5 deposit, targeting further resource and reserve growth opportunities. We also expect to release results from Toega underground during Q3. In regards to our permitting, in addition to our Kiaka Explosive facility, we're awaiting approval to include Sanbrado M5 South underground in our life of mine plan. We'll just start mining there. We've got it in the life of mine plan already. And while we expect this in the second half of this year, we don't see any impact on overall production for 2026. But we're now planning that underground mining at M5 South will commence in early 2027, subject to the government's approval. But we believe there's sufficient flexibility within the life of mine plan, like I said, to maintain our production targets for 2026. Our discussions continued during the quarter with the state-owned SOPAMIB regarding its acquisition of 25% of Kiaka for 70 billion CFA francs, which is approximately AUD 176 million. This is expected to be finalized in 2026, and we continue to work cooperatively with SOPAMIB on this. As you look to our ESG reporting, our safety performance remains strong with no significant health and safety incidents during the quarter and a total reportable injury frequency rate of 1.25 or our TRIFR is 1.25. And in comparison to WA's Gold Industry's most recent result of 5.57 shows that we're still a very safe operator in Burkina Faso. We continue to advance our biodiversity strategy during the quarter as well with the corporate sustainability team working alongside the site environmental managers and biodiversity specialists to develop species action plans for priority Flora and Fauna. Planning also commenced for 2026 reforestation campaign time for implementation during the rainy season. During the quarter, our operations supported Burkina Faso's Eighth National Tree Day donating trees growing in our on-site nurseries. Tree planting activities were also carried out across our sites using locally significant species. Social investment in the quarter continued on education, livelihood restoration resettlement and at Kiaka, with our supplier ORIX, we progressed the construction of a new preschool in the town of Gogo, and that's now more than 70% complete. The outcomes from our vocational training programs remain strong with 76% of participant starting businesses or continuing further education and 7 cooperatives trained in sustainable biofertilizer production. At Toega, about 90% of households have moved into their new homes, at Toega resettlement site, and community engagement is underway to support safe ore haulage from Toega to Sanbrado. We've held community meetings across nearby villages to inform and educate community members on the haul road. The use of community crossings changes the haulage schedules and patterns and other related safety matters to help ensure we can operate this road as safely as possible. In closing, I'd like to congratulate our team on defining -- on a defining June 2026 quarter. We delivered record production, strong financial performance and continue to demonstrate the quality and longevity of our assets through outstanding drilling results at M5 and steady progress at Toega. Our balance sheet is robust, and our operations are performing safely and reliably and we remain firmly on track to meet our 2026 production and cost guidance. With a run rate of over 500,000 ounces and a strong pipeline of growth and a clear strategy, West African is exceptionally well positioned for the second half of 2026 and beyond. Thanks, Nathan.

Thank you. [Operator Instructions] Your first question comes from Mike Millikan at Euroz Hartleys.

Just a very quick question, firstly, on the priority dividend, obviously paid to the government and what it means to WAF. Could you just chat through the withholding tax and how it means for repatriation of funds and stuff for 5 seconds?

Sure. I'll pass it on to Padraig, so he can run you through that, Mike.

Yes. We -- during -- or the end of 2025, the dividend declarations that addressed the 2025 financial year, the operating subsidiaries declared dividends that fully paid the government its priority dividend and also fully paid WAF its share of profit dividend and then also WAF's previously unpaid retained -- share of retained earnings dividend. So there was a big catch-up dividend paid in 2026 related to 2025. So that created a very large dividend, but also very large withholding tax. So we hope that explains the highway holding tax on those dividends.

Yes. Got you. That's really good. And also, just obviously, explosives watching that shortage in country, you guys still waiting for your permit for the manufacturing and storage. How is the permitting going in regards to that? Is it kind of how long is a piece of string? Or is it something that the government is looking to address pretty soon?

I'll just let Lyndon Hopkins answer that question. Thanks, Mike.

Yes. Thanks, Mike. Look, we've been working very closely with our supplier, Maxam for a while now with the government to expedite this. And we've had a number of site visits recently to check on safety standards and that sort of thing. So we're hopeful that it will progress. We've also pointed out to them the damage that is caused to our production profile into the future as well. So we're hopeful that we can get it resolved.

Okay, good. And also just finally also on the underground mining there, M5 South, obviously reading the life of mine plan, you're talking about maybe delay or getting delayed because of the permitting that comes in early '27. Any sort of changes, I assume you can just change around a little bit on the mine plan, but can you just see sort of impacts we might expect there?

Yes. Mike, it's Richard. Look, we're kind of fortunate that we've got quite a flexible mine schedule. And at this stage, we're probably accessing more of M1 South and more of M5 open pit and there's some other areas in M1 underground that we can access as well. So look, we don't see any impact across our projects this year for either the permitting of the underground or the permitting of the explosives. But, yes, look, I'm confident that we can catch it up in early 2027. But look, they're critical for us. We need to get the underground online, and we've provided the government all of the information required to do that. So it's -- we're expecting that to be granted in the back half of this year. And like Lyndon just mentioned with the permitting for the explosives, we are fortunate that Kiaka has got other areas of free digs that we can access, which is what we're doing. So we're mining into some of our other stage pits a bit earlier than we would have expected. But again, it shows how robust and flexible the projects are.