West African Resources Ltd

ASX:WAF

Earnings Call Transcript

[Richard Hyde, executive]

Look, thanks to everybody for joining us for this morning's September 2024 quarterly call. With me this morning, I have Padraig O'Donoghue, WAF's CFO. I've also got Lyndon Hopkins, WAF's Chief Operating Officer and Executive Director. We also have Todd Giltay, WAF's GM of Finance. So if you have any questions or any queries at the end of the call, feel free to call any of us out for a question.

We've had another safe and productive quarter at Sanbrado. Our construction at Kiaka is going very well, and we're edging very -- edging closer to becoming a plus 400,000 ounce a year gold producer, hopefully, only a bit over a year -- half a year away. Gold production at Sanbrado for the period was 47,799 ounces. And with that effort, I'm pleased to say we remain on track to achieve the mid- to upper end of annual production guidance for 2024 of 190,000 to 210,000 ounces of gold.

In the three quarters of calendar year 2024, we've achieved production of just over 155,000 ounces. Sorry, bear with me, technical problem. Production of 155,000 ounces of gold. Our cost guidance is also tracking very well, and we expect to achieve an all-in sustaining cost of less than USD 1,300 an ounce for the year. Our year-to-date all sustaining cost is sitting below USD 1,250 an ounce. So we're performing at or better than our expectations.

Taking a closer look at Sanbrado's gold production, we had no significant health or safety incidents for the period, and our TRIFR at the end of September was just over 1, which is considerably better than the performance of the average for the West Australian gold mining industry, which sits most recently at a TRIFR of more than 6.

Open pit mining accelerated in Q3 compared to the previous quarter with mined ounces up 66%. This related to a 57% increase in more tonnes mined with 1.1 million tonnes of ore mined at 0.9 grams per tonne for just over 31,000 ounces of gold for the quarter. Year-to-date open pit mining has produced just over 71,000 ounces of gold at the same grade.

Underground mining for the quarter was 14% lower due to a slightly lower average underground grade for M1 South. We mined 125,000 tonnes of ore at a grade of 7.2 grams per tonne for 29,000 -- 127,000 ounces of gold mined. Overall, we've mined 351,000 tonnes of ore at a grade of 8 grams per tonne or just over 90,000 ounces of mined gold from underground operations for the year. Underground development continued to go well with nearly 900 meters of development completed during the quarter, including 91 vertical meters of advance of the decline. So the vertical depth has increased to over 605 meters below surface.

Processing continued to perform well in the third quarter with 850,000 tonnes milled at an average head grade of 1.9 grams per tonne and recovery of 93%. Gold production of 47,799 ounces was 6% below our previous quarter due to a slightly lower head grade and recovery percentage. We also had a plant shutdown for mill relining during the quarter. It's also worth pointing out, it was quite a wet quarter as well.

So we've actually had a very good quarter considering how much rain we've had in the last -- or in the September quarter. Our closing ROM stockpiles increased 15% in the third quarter to 69,397 ounces of contained gold. In drilling -- in terms of drilling at Sanbrado, we had results from our resource definition drilling that confirm the geometry and continuity of high-grade mineralization at M1 South beneath the current ore reserves with reported grades of up to 108 grams per tonne.

WAF's updated mineral resource estimate and ore reserve statement is expected in Q1 2025, and that will incorporate the results of this drilling. At Kiaka, we continue to advance construction and development of our second gold mine. We achieved several key construction milestones during the quarter, including the completion of final mill concrete pours, completion of CIL tank welding, beginning mill installation and completion of water intake area and piping to the water storage dam.

Some of our building works have been completed ahead of schedule. Bulk earthworks on the tailings storage dam is progressing to schedule and lining in the water storage dam has commenced. The concrete program is nearly fully complete and works under the structural mechanical and piping contracts ramped up considerably during the quarter.

Equipment continues to arrive on site. We've had a few delays due to the unrest in the Middle East with a lot of ocean transport avoiding the Red Sea. But all in all, construction is progressing very well and is on time and on budget. Looking to the future, our updated ore reserve and 10-year production target released early in the quarter increased ore reserves by 4% and increased our 10-year production target significantly, which is now set to average 480,000 ounces per annum from 2026 to 2031. On the back of this, we released an updated feasibility study for Kiaka, which is -- now has a 4.8 million ounce ore reserve. This update confirms strong cash flows and incorporate improvements to our initial feasibility study for Kiaka released in 2022.

With a target production of 258,000 ounces of gold per year over the first 5 years and 234,000 ounces per year over the 20-year mine life. The study also confirmed that we'll use conventional open pit mining with very low strip ratio of 1.8:1 waste to ore. It's a conventional SABC circuit with a CIL processing circuit. Kiaka has got free milling ore and it's going to average a 9% recovery for the life of mine. So a very simple straightforward operation.

Now the gold price moved significantly since we completed this study, but at USD 2,100 an ounce on a 100% project basis, the project delivered a pretax cash flow of USD 3.4 billion. That's significantly higher now given that we've remained unhedged. Improved post-tax NPV at 5% discount rate of about USD 1.2 billion. And at 2,100 gold, it creates an internal rate of return of over 27% and a payback in about 2.2 years on preproduction development capital.

Other operating efficiencies will see us increase the mining rate by 3.3 million tonnes per year over the life of mine and gold production increased by 25,000 ounces a year for the first 5 years. We've moved to an owner mining strategy for Kiaka, which will capture cost savings over the long mine life. While this has added about USD 120 million to our preproduction development capital, we expect to deliver cost savings of USD 293 million over the life of mine and provide greater operational flexibility.

Our plan was supported by new and existing shareholders via share placement that raised AUD 150 million before costs with the proceeds for this primarily for Kiaka development. I'd like to thank our shareholders for your support in this, which allows us to continue to develop Kiaka at pace. We'd now like to talk about our financials. On that note, I'll hand over to our Chief Financial Officer, Padraig O'Donoghue, to talk us through the financials for the quarter.

[Padraig O'Donoghue, executive]

Thank you, Richard. Like you said in your quotes, it was a solid quarter at Sanbrado. In terms of revenue, we sold 49,600 ounces of gold in Q3 at an average price of USD 2,493 per ounce. This equates to AUD 185 million of gold sales revenue in the quarter, and the company remains unhedged.

In terms of cash, WAF closed the quarter with a healthy cash balance of AUD 430 million. WAF generated AUD 59 million of operating cash flow in the quarter after paying AUD 18 million of Burkina Faso income taxes. Capital investing activities in Q3 used AUD 175 million cash, which was mostly comprised of AUD 161 million for development of Kiaka.

Financing activities provided AUD 126 million cash in Q3, significantly reflecting proceeds received from the AUD 150 million share placement that Richard spoke about, which we completed early in the quarter. Also to recap our June '24 half year financial report that was released in Q3, WAF reported a half year profit of AUD 133 million before tax and AUD 92 million after tax. So it's a very good quarter for us. And now I'll hand back to Richard for his comments.

[Richard Hyde, executive]

Thank you, Padraig. It's very nice to have you here this morning. In other news, during the quarter, there were some comments made by the President of Burkina Faso, President Traore, while he was speaking on Radio Burkina this month. The broadcast raised questions about the possibility of government withdrawing mining permits. Through our communication with government officials, we were informed that the President's comments with respect to the potential withdrawal of mining permits were directed to those companies operating in violation of the laws of Burkina Faso.

Companies operating in compliance with the laws of Burkina Faso, which includes WAF and many other mining companies will not have their mining permits withdrawn or revoked. Officials from the Ministry of Mines and Quarries confirmed that none of WAF's mining permits are under review and all of them remain in good standing. We appreciate this clarification from the Burkina Faso government and look forward to continuing our operations in the nation for years to come to the benefit of all stakeholders.

So all in all, it's been another strong quarter for our company with continued solid gold production at Sanbrado and Kiaka development is progressing to plan. I continue to be impressed by how well our teams work together to achieve our goals in a safe and responsible manner. We're less than a year from first gold at Kiaka, and this is a really exciting time for our company as we track towards increased gold production in 2025 and beyond. Simon, I'll now -- I'll open up to questions.

[Simon Hinsley]

Great. Thanks, Rich and thanks, Padraig. [Operator Instructions] But the first question that's been submitted, Rich, thanks, guys. It looks like there's only around USD 100 million left to spend at Kiaka outside of the USD 120 million for the mining fleet. How will this spend be distributed over the next 12 months?

[Padraig O'Donoghue, executive]

Yes. I think there's a little bit more than that to spend, but mainly what's left to spend. We've purchased the bulk of the yellow gear, the mining gear and it's arriving to site -- starting to arrive this quarter now. So coming in and we'll be commissioning it. So we'll have a small amount of remainder of the installments on that to pay. Also, we have the preproduction mining, open pit mining that will be commencing in Q1 2025. We'll be spending on that.

And then the rest -- the bulk of it will be spent finishing off the process plant, which is most of the gear has arrived at site and has been paid for, but there's a lot of work, a lot of expenditure still to go in on assembling all of that and commissioning it and getting it running properly.

[Richard Hyde, executive]

Yes. I think we obviously run our internal budgets at a much lower gold price, and we've got a very healthy cash buffer of over USD 100 million coming to our last cash point. So we're well funded. The projects -- the build is going very well. All the critical gears on site. So I think we're in a really good shape.

[Simon Hinsley]

Great. Thanks, Rich. No more questions have been submitted or no one is raising their hands. So I might just hand it back to you for closing remarks, and we'll finish up there.

[Richard Hyde, executive]

All right. Thanks, Simon. Look, thanks again for your interest in West African Resources. It was a volatile quarter for the share price, but it's good to see us clawing our value back. We look forward to further updates during the quarter with -- we've got drilling programs, obviously, at Kiaka and M1 South.

We are actually -- we didn't talk a lot about exploration, but we are driving an underground drive from M1 South at the moment across to M5, and that's progressing quite well. Hopefully, we'll be in a position to start drilling the deeps of M5 by late this year. We'll also aim to have an underground scoping study released on Toega by the end of the year, which I think will add significant mine life to the Toega project, which comes into production at the end of 2025.

So all in all, there's going to be some good news flow during the quarter. And then we also look forward to talking with you again at the end of January to wrap up the production for Q4. Thanks very much for your time.

[Simon Hinsley]

Thanks, Rich. Thanks all for joining.