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TABLE OF CONTENTS Dec 9 - 15, 2013 Volume 99 Number 43 - 0 comments

Semafo good to go with Siou and Fofina

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Authorities in Burkina Faso have given Semafo (TSX: SMF; US-OTC: SEMFF) the go-ahead to develop its Siou and Fofina gold deposits sooner than expected. 

The accelerated permitting process will enable Semafo to begin pre-stripping and road construction at its high-grade Siou deposit in the coming months, and enter production in next year’s second quarter — at least six months ahead of schedule. The faster-than-expected permitting approvals mean that Semafo can start Fofina in 2015, instead of 2016 as it had planned.

The company has sliced capital-expediture estimates for Siou in half to US$12.5 million.

The deposit is 15 km from Semafo’s processing plant at Mana, and ore can be trucked to the plant.

The Mana property in the West African country’s Houndé belt — 200 km west of the capital city of Ouagadougou — is the site of Semafo’s flagship Mana mine. The open-pit operation began production in mid-2008.

Kerry Smith of Haywood Securities points out that production at Siou "is now anticipated to commence less than two years from its initial discovery in August 2012, and is expected to improve Mana’s production and cost profiles."

Semafo says Siou would increase the average reserve grade at Mana by 20% and bring quality ounces to Mana’s processing plant, which could increase production and lower total cash costs per ounce. The company anticipates that Siou will help make up 30% of the ore mix at Mana’s processing plant.

The Siou deposit is open laterally and at depth. Proven and probable reserves total 4.84 million tonnes grading 4.94 grams gold per tonne for 769,300 oz.

Semafo has allocated US$3.5 million of its remaining 2013 exploration budget to find and define drill targets at Siou that can be followed up on next year. This includes 120,000 metres of auger drilling, geochemical surveys and field proofing, as well as 8,500 soil samples.

In the third quarter, cash costs rose to US$799 per oz. from US$752 per oz. in the second quarter. That was due in part to lower head grades from mining narrower, lower-grade veins at Mana. The company processed more ore sourced from low-grade stockpiles. 

The company posted quarterly earnings per share of 1¢, and at the end of September held US$83.6 million in cash and equivalents.

During the three months ended Sept. 30, the company wound down operations at its Samira Hill mine in Niger — 90 km west of the capital of Niamey — and placed it in on care and maintenance. It plans to do the same in the coming months at its Kiniero mine in Guinea. Both assets are up for sale.

Semafo has maintained its 2013 production guidance from Mana between 153,000 oz. and 168,000 oz., with total cash costs between US$805 and US$855 per oz.

At press time Semafo was trading at $2.93 per share within a 52-week range of $1.23 to $3.63. The company has 123 million shares outstanding.

Cosmos Chiu of CIBC World Markets raised his 12- to 18-month target price on Nov. 13, from $2.75 per share to $3 per share.

"With 100% of its revenue generated from gold and 100% of its production unhedged, Semafo has one of the highest leverages to gold for both its cash flow and net asset value," Chiu writes. "We believe Semafo is in a position to grow through acquisition in a West African region that remains highly fragmented, in addition to its expansion of Mana."

Pierre Vaillancourt of Macquarie Equities Research has a one-year price target of $3.75 per share. He said in a Nov. 14 research note that after a tough year, Semafo "will soon be in a position to capitalize on higher grades from new deposits and lower power rates, contributing to lower cash costs," and forecasts stronger operational performance at Mana in the fourth quarter.

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Construction workers at Semafo's Mana mine in Burkina Faso. Credit: Semafo
Construction workers at Semafo's Mana mine in Burkina F...

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