Friday, November 14, 2014 6:28:13 PM
Banro's (BAA) CEO John Clarke on Q3 2014 Results - Earnings Call Transcript
Nov. 12, 2014 2:34 PM ET
Q3 2014 Earnings Conference Call
Executives
Naomi Nemeth - VP, Investor Relations
John Clarke - President and CEO
Kevin Jennings - SVP and CFO
Analysts
Lawrence Lepard - Equity Management Associates
Daniel McConvey - Rossport Investments
Operator
Good morning, ladies and gentlemen. Welcome to Banro Corporation's Q3 2014 Financial Results Conference Call. After the presentation, we will conduct a question-and-answer session. Instructions will be given at that time. Please note that this call is being recorded today, Wednesday, November 12th at 11 AM Eastern Time. I would now like to turn the meeting over to Naomi Nemeth, Banro's Vice President, Investor Relations. Please go ahead.
Naomi Nemeth - VP, Investor Relations
Thank you, operator, and thanks to everyone for joining us today. During today's call, Banro's CEO, John Clarke, will provide a broad overview of the quarter and an operations update for both Twangiza and Namoya mines, while CFO, Kevin Jennings, will provide an update on Banro's financial situation. Along with us today as well is Banro's Chairman, Richard Brissenden. Following our commentary, we'll go to a Q&A session.
But before we get started, we'd like to emphasize that some of the information discussed in this call, particularly our revenue and production targets for 2014 and beyond, and our forward-looking plan, is based on information as of today, November 12, 2014. As well, our commentary contains forward-looking statements that involve risk and uncertainty.
Actual results may differ materially from those contained in these statements. For a discussion of these risks and uncertainties, please look at the forward-looking statements disclosure in the financial results press release issued yesterday and in Banro's regulatory filings, including the Q3 2014 MD&A.
I'll turn the call over to CEO, John Clarke.
John Clarke - President and CEO
Thank you, Naomi, and thanks to all of you for joining us today. Before we address the third quarter financial results, I'd like to make a few general remarks about the quarter. Twangiza had a good quarter with cash costs and all-in sustaining costs decreasing over the previous quarter. Mill throughputs at Twangiza have reached their near design capacity and we are sustaining those levels. We'll go into specifics on costs and tonnage in a few minutes.
We are back into rainier part of the year and the covered door handling area has significantly mitigated the difficulties we experienced in the previous rainy season. We are now able to maintain a stockpile of approximately 7 to 10 days worth of dry ore, immediately adjacent to the primary crusher. We'll be focusing more on recoveries in the upcoming months as we continue to make the small ongoing adjustments to the plant which will create incremental efficiencies.
We'll go into more detail on Namoya shortly but we want to remind you that Namoya continues to operate and produce gold and we are targeting commercial production late in the second half of 2015.
Now I'll hand the call over to Banro's CFO, Kevin Jennings, for a brief overview of our Q3 2014 financial results.
Kevin Jennings - SVP and CFO
Thank you, John, and good morning to all on the phone. Since most of you have read the financial results press release and filings, I'll go over them briefly and provide you with some commentary on our Q3 results and some of our expectations for Q4.
In Q3 at Twangiza, we reported 27,171 ounces of gold for revenue of $33.3 million, generating sales of approximately 27,000 ounces at an average price of $1,233 per ounce. This compares to 20,784 ounces produced in Q3 of 2013 for a revenue of $27.1 million from the sales of approximately 20,400 ounces at an average price of $1,329 per ounce. This is an increase of 30.7% in gold produced over the same quarter of 2013 versus the prior quarter and revenues of 23% higher, despite the gold price being $100 lower than Q3 2013.
With the completion of the plant upgrade, the Twangiza operation is focusing on operating efficiency and containing production costs at these new levels of throughput. Keeping production costs flat while increasing ounces produced drove the cash costs down from $834 per ounce in Q3 2013 to $615 per ounce in Q3 2014.
Overall, the operating costs were slightly lower in this quarter when compared to Q3 2013, that being $16.6 million versus $17.3 million. That essentially exemplifies the fixed cost nature of this operation. We had lower mining costs from lower strip ratio in the quarter, while processing and administrative costs were maintained at the same levels.
The Company realized a net income of $3.7 million, equivalent to $0.01 per share, compared to a net loss of $3.6 million in Q3 of 2013. This was driven by the improved gross earnings from operations at Twangiza and also a gain on the change of the fair market value of financial instruments on some preferred shares.
The cash and cash equivalents at the end of the third quarter were $2.1 million compared to approximately $15 million at the end of Q3 2013. This cash position will improve with the funds from the $41 million Twangiza gold sale agreement that we're currently, imminently closing.
In the light of the current gold price, management is reviewing all opportunities to reduce costs at both the mines and corporate levels that we built into our planning for 2015. A key focus for us, our primary focus is to ramp up Namoya to sufficient production to breakeven on a cash flow basis by the end of the year, and full production by Q3 2015 as a [long low life cost] [ph] mine.
The Company's estimates of production and cash operating profile at full production remains the same as we stated at the end of 2013 for Namoya. At full production, we expect Namoya will run at an annualized rate above 110,000 ounces with a cash cost between $700 and $800 per ounce.
As you are aware from our earnings calls from previous quarters, we have been closely managing our trade payables which stood at approximately $70 million at the end of Q3. Roughly $36 million of this is older than 90 days. A large portion of the $41 million gold sale agreement for Twangiza and the cash flow from Twangiza will be used to reduce our overall accounts payable to acceptable limits.
The funding from the Namoya gold streaming will be used for cleaning up any remaining AP, for debt repayment, building up an appropriate cash cushion, and for dealing with some high-priority capital items. Going forward, the capital requirements will be limited primarily to the purchase and installation of the agglomeration drum at Namoya, to be approximately $2 million, mobile trucking fleet for waste movement at Namoya, and we are looking to buy CAT 777s and move our belt trucks to Twangiza or continue with belt trucks depending on the different truck financing alternatives we look at, and finally the ongoing construction of the TMF at Twangiza.
Finances' attention will then turn to closing the second tranche of the Gold Holding financing which could be described as an $80 million gold streaming agreement for 10% of the Namoya life of mine production up to a maximum of 12,000 ounces per year. Gold Holding would pay $300 per ounce, increasing to $350 per ounce after the delivery of the first 200,000 ounces of production. Gold Holding also has an option to purchase an additional 10% of gold at spot prices. And finally, any ounces mined within the 20 kilometer radius would be subject to this agreement.
So now I'll pass it back to John for the operational review.
John Clarke - President and CEO
Thank you, Kevin. In terms of operations, at Twangiza in Q3 approximately 1 million tons of material was mined with roughly 590,000 tons of ore, with an average strip ratio of 0.7. The Twangiza plant milled approximately 395,000 tons of ore with an average head grade of 2.6 grams per ton and an average recovery of 82.2%. This led to production of 27,171 ounces of gold at a cash cost of $615 per ounce for this quarter.
In comparison, in Q3 of 2013, the cash cost was $834 per ounce for the 20,784 ounces produced, a decrease of 26% in cash costs from the year ago. Cash costs were lower due to increased mine and plant productivity. Simply Twangiza's high production numbers resulted in lower cash costs due to the higher fixed cost element.
Recoveries during Q3 were relatively unchanged compared to the same period in 2013 going from 82.9% to 82.2%. As we're going to talk about our costs, please keep in mind that we calculate our costs on a production basis not a sales basis, although we do report both.
All-in sustaining cost of $698 per ounce was significantly lower than the $1,072 per ounce in the same quarter last year. This is primarily due to the lower cash costs as we just mentioned and partially to the fact that less sustaining capital was spent in Q3 2014 than was necessary to spend in the same quarter last year. Please recall that at Twangiza the main difference between the cash cost and the all-in sustaining cost is the cost associated with the ongoing buildup of Tailings Management Facility.
Mill throughputs at the plant at Twangiza have reached the rate of roughly 1.6 million tons per year, just slightly below the design capacity of 1.7 million. As we mentioned earlier, we will continue to focus on recoveries and creating additional efficiencies where possible to keep both cash costs and all-in sustaining costs as low as possible through higher sustained production rates. Our new goal for Twangiza remains production of plus 90,000 ounces of gold at a cash cost of $650 to $750 per ounce.
Now on to Namoya. Mining continued at the two active sites at Namoya, the Seketi and Mwendamboko pits, comprising roughly 375,000 tons of material, of which roughly 101,400 tons were ore. The approximately 50% lower mine production over the previous quarter reflects management's decision to slow down mining in July and August to match the achievable feed rate through the wet scrubbing circuit.
As you'll recall from the previous quarter, the Company and its operations advisor, Kappes Cassiday, recognized the need to introduce a traditional agglomeration drum into the circuit. This would define components of the ore to allow for efficient percolation of the cyanide solution on the agglomerated heap. This means not washing all of the ore at the front end of the process as was originally designed. Until this agglomeration drum is installed, ore going to the heap leach will continue to be semi-agglomerated on the transport conveyors to the stacker.
During the third quarter, Namoya produced 4,671 ounces of gold from 150,300 tons of ore, stacked and sprayed on the heap leach pads and processed through the CIL circuit, at an indicated head grade of 2.11 grams per ton, which has given us year-to-date 9,175 ounces. The plan for the fourth quarter is to increase the monthly stacking rate to up to 90,000 tonnes per month of available high grade ore and our full year guidance still remains in the 21,000 to 22,000 ounce range.
On to exploration, in terms of exploration activities in Q3, due to our focus on cash flow management during the completion of Namoya, exploration work was comprised mainly of preparation for programs to be carried out later this year and into 2015. We do continue to implement lower-cost activities at both Kamituga and Lugushwa with a potential for very meaningful results. We are concentrating on target areas which are easily accessible and this is a cost-effective use of funds and can be used as a solid basis for further exploration when budgets allow.
Just a quick summary, Twangiza is performing as expected and we do look forward to continuing to create efficiencies where possible with both the plant and the processes for optimum production over time. We will also continue production of Namoya from the heap leach and the existing CIL while we make the arrangements for the agglomeration drum.
Thank you all for joining us today. I'll turn this call back to the operator and open it up for questions. Thank you.
Question-and-Answer Session
Operator
[Operator Instructions] Your first question comes from the line of Lawrence Lepard of Equity Management. Your line is now open.
Lawrence Lepard - Equity Management Associates
Can you guys give me a sense of when the $41 million is going to close and when the next agreement is scheduled to close, financing-wise?
Kevin Jennings - SVP and CFO
This is Kevin Jennings. So the $41 million we would say is imminent, that is we had stated in the previous press release of November 15, and so we are working towards those stated dates. And for the $80 million, as we stated before, we put a targeted date of December 15th, and so we're also working to those dates.
Operator
Your next question comes from the line of Daniel McConvey of Rossport. Your line is now open.
Daniel McConvey - Rossport Investments
Congratulations on the profit. First question was answered. Second, just wondering with the payables, you're managing those payables, probably managing a lot of suppliers and contractors and I'm just wondering if there's any losses or consequences of the late payment?
Kevin Jennings - SVP and CFO
We are working very hard with the suppliers. They've been patient, and while we are in a working capital constrained environment, we are getting through. I guess if we were kind of at a bit higher production at Namoya, we would have probably more constraint on supplies, but we are turning over the inventories with the improvement at Twangiza in the last quarter and getting some payments out, but obviously the $41 million will get us to alleviate a lot of those long overdue payables.
Operator
Your next question comes from the line of [Phil Larsen of North Street Capital] [ph]. Your line is now open.
Unidentified Analyst
I was just wondering if you have any kind of projected timeline for the installation of the agglomeration drum at Namoya.
John Clarke - President and CEO
We expect that in place during Q1 of 2015.
Operator
[Operator Instructions] As there are no further questions in queue, I would turn the call back to Ms. Nemeth.
Naomi Nemeth - VP, Investor Relations
Thank you, operator, and thanks to all our participants. I would remind you that this call is available for replay for two weeks. The numbers can be found at the end of yesterday's press release and on the Banro Web-site. If you have any additional questions or if we did not get to your questions in time this morning, please contact us at ir@banro.com. Thank you very much.
Operator
This concludes today's conference call and you may now disconnect.
Nov. 12, 2014 2:34 PM ET
Q3 2014 Earnings Conference Call
Executives
Naomi Nemeth - VP, Investor Relations
John Clarke - President and CEO
Kevin Jennings - SVP and CFO
Analysts
Lawrence Lepard - Equity Management Associates
Daniel McConvey - Rossport Investments
Operator
Good morning, ladies and gentlemen. Welcome to Banro Corporation's Q3 2014 Financial Results Conference Call. After the presentation, we will conduct a question-and-answer session. Instructions will be given at that time. Please note that this call is being recorded today, Wednesday, November 12th at 11 AM Eastern Time. I would now like to turn the meeting over to Naomi Nemeth, Banro's Vice President, Investor Relations. Please go ahead.
Naomi Nemeth - VP, Investor Relations
Thank you, operator, and thanks to everyone for joining us today. During today's call, Banro's CEO, John Clarke, will provide a broad overview of the quarter and an operations update for both Twangiza and Namoya mines, while CFO, Kevin Jennings, will provide an update on Banro's financial situation. Along with us today as well is Banro's Chairman, Richard Brissenden. Following our commentary, we'll go to a Q&A session.
But before we get started, we'd like to emphasize that some of the information discussed in this call, particularly our revenue and production targets for 2014 and beyond, and our forward-looking plan, is based on information as of today, November 12, 2014. As well, our commentary contains forward-looking statements that involve risk and uncertainty.
Actual results may differ materially from those contained in these statements. For a discussion of these risks and uncertainties, please look at the forward-looking statements disclosure in the financial results press release issued yesterday and in Banro's regulatory filings, including the Q3 2014 MD&A.
I'll turn the call over to CEO, John Clarke.
John Clarke - President and CEO
Thank you, Naomi, and thanks to all of you for joining us today. Before we address the third quarter financial results, I'd like to make a few general remarks about the quarter. Twangiza had a good quarter with cash costs and all-in sustaining costs decreasing over the previous quarter. Mill throughputs at Twangiza have reached their near design capacity and we are sustaining those levels. We'll go into specifics on costs and tonnage in a few minutes.
We are back into rainier part of the year and the covered door handling area has significantly mitigated the difficulties we experienced in the previous rainy season. We are now able to maintain a stockpile of approximately 7 to 10 days worth of dry ore, immediately adjacent to the primary crusher. We'll be focusing more on recoveries in the upcoming months as we continue to make the small ongoing adjustments to the plant which will create incremental efficiencies.
We'll go into more detail on Namoya shortly but we want to remind you that Namoya continues to operate and produce gold and we are targeting commercial production late in the second half of 2015.
Now I'll hand the call over to Banro's CFO, Kevin Jennings, for a brief overview of our Q3 2014 financial results.
Kevin Jennings - SVP and CFO
Thank you, John, and good morning to all on the phone. Since most of you have read the financial results press release and filings, I'll go over them briefly and provide you with some commentary on our Q3 results and some of our expectations for Q4.
In Q3 at Twangiza, we reported 27,171 ounces of gold for revenue of $33.3 million, generating sales of approximately 27,000 ounces at an average price of $1,233 per ounce. This compares to 20,784 ounces produced in Q3 of 2013 for a revenue of $27.1 million from the sales of approximately 20,400 ounces at an average price of $1,329 per ounce. This is an increase of 30.7% in gold produced over the same quarter of 2013 versus the prior quarter and revenues of 23% higher, despite the gold price being $100 lower than Q3 2013.
With the completion of the plant upgrade, the Twangiza operation is focusing on operating efficiency and containing production costs at these new levels of throughput. Keeping production costs flat while increasing ounces produced drove the cash costs down from $834 per ounce in Q3 2013 to $615 per ounce in Q3 2014.
Overall, the operating costs were slightly lower in this quarter when compared to Q3 2013, that being $16.6 million versus $17.3 million. That essentially exemplifies the fixed cost nature of this operation. We had lower mining costs from lower strip ratio in the quarter, while processing and administrative costs were maintained at the same levels.
The Company realized a net income of $3.7 million, equivalent to $0.01 per share, compared to a net loss of $3.6 million in Q3 of 2013. This was driven by the improved gross earnings from operations at Twangiza and also a gain on the change of the fair market value of financial instruments on some preferred shares.
The cash and cash equivalents at the end of the third quarter were $2.1 million compared to approximately $15 million at the end of Q3 2013. This cash position will improve with the funds from the $41 million Twangiza gold sale agreement that we're currently, imminently closing.
In the light of the current gold price, management is reviewing all opportunities to reduce costs at both the mines and corporate levels that we built into our planning for 2015. A key focus for us, our primary focus is to ramp up Namoya to sufficient production to breakeven on a cash flow basis by the end of the year, and full production by Q3 2015 as a [long low life cost] [ph] mine.
The Company's estimates of production and cash operating profile at full production remains the same as we stated at the end of 2013 for Namoya. At full production, we expect Namoya will run at an annualized rate above 110,000 ounces with a cash cost between $700 and $800 per ounce.
As you are aware from our earnings calls from previous quarters, we have been closely managing our trade payables which stood at approximately $70 million at the end of Q3. Roughly $36 million of this is older than 90 days. A large portion of the $41 million gold sale agreement for Twangiza and the cash flow from Twangiza will be used to reduce our overall accounts payable to acceptable limits.
The funding from the Namoya gold streaming will be used for cleaning up any remaining AP, for debt repayment, building up an appropriate cash cushion, and for dealing with some high-priority capital items. Going forward, the capital requirements will be limited primarily to the purchase and installation of the agglomeration drum at Namoya, to be approximately $2 million, mobile trucking fleet for waste movement at Namoya, and we are looking to buy CAT 777s and move our belt trucks to Twangiza or continue with belt trucks depending on the different truck financing alternatives we look at, and finally the ongoing construction of the TMF at Twangiza.
Finances' attention will then turn to closing the second tranche of the Gold Holding financing which could be described as an $80 million gold streaming agreement for 10% of the Namoya life of mine production up to a maximum of 12,000 ounces per year. Gold Holding would pay $300 per ounce, increasing to $350 per ounce after the delivery of the first 200,000 ounces of production. Gold Holding also has an option to purchase an additional 10% of gold at spot prices. And finally, any ounces mined within the 20 kilometer radius would be subject to this agreement.
So now I'll pass it back to John for the operational review.
John Clarke - President and CEO
Thank you, Kevin. In terms of operations, at Twangiza in Q3 approximately 1 million tons of material was mined with roughly 590,000 tons of ore, with an average strip ratio of 0.7. The Twangiza plant milled approximately 395,000 tons of ore with an average head grade of 2.6 grams per ton and an average recovery of 82.2%. This led to production of 27,171 ounces of gold at a cash cost of $615 per ounce for this quarter.
In comparison, in Q3 of 2013, the cash cost was $834 per ounce for the 20,784 ounces produced, a decrease of 26% in cash costs from the year ago. Cash costs were lower due to increased mine and plant productivity. Simply Twangiza's high production numbers resulted in lower cash costs due to the higher fixed cost element.
Recoveries during Q3 were relatively unchanged compared to the same period in 2013 going from 82.9% to 82.2%. As we're going to talk about our costs, please keep in mind that we calculate our costs on a production basis not a sales basis, although we do report both.
All-in sustaining cost of $698 per ounce was significantly lower than the $1,072 per ounce in the same quarter last year. This is primarily due to the lower cash costs as we just mentioned and partially to the fact that less sustaining capital was spent in Q3 2014 than was necessary to spend in the same quarter last year. Please recall that at Twangiza the main difference between the cash cost and the all-in sustaining cost is the cost associated with the ongoing buildup of Tailings Management Facility.
Mill throughputs at the plant at Twangiza have reached the rate of roughly 1.6 million tons per year, just slightly below the design capacity of 1.7 million. As we mentioned earlier, we will continue to focus on recoveries and creating additional efficiencies where possible to keep both cash costs and all-in sustaining costs as low as possible through higher sustained production rates. Our new goal for Twangiza remains production of plus 90,000 ounces of gold at a cash cost of $650 to $750 per ounce.
Now on to Namoya. Mining continued at the two active sites at Namoya, the Seketi and Mwendamboko pits, comprising roughly 375,000 tons of material, of which roughly 101,400 tons were ore. The approximately 50% lower mine production over the previous quarter reflects management's decision to slow down mining in July and August to match the achievable feed rate through the wet scrubbing circuit.
As you'll recall from the previous quarter, the Company and its operations advisor, Kappes Cassiday, recognized the need to introduce a traditional agglomeration drum into the circuit. This would define components of the ore to allow for efficient percolation of the cyanide solution on the agglomerated heap. This means not washing all of the ore at the front end of the process as was originally designed. Until this agglomeration drum is installed, ore going to the heap leach will continue to be semi-agglomerated on the transport conveyors to the stacker.
During the third quarter, Namoya produced 4,671 ounces of gold from 150,300 tons of ore, stacked and sprayed on the heap leach pads and processed through the CIL circuit, at an indicated head grade of 2.11 grams per ton, which has given us year-to-date 9,175 ounces. The plan for the fourth quarter is to increase the monthly stacking rate to up to 90,000 tonnes per month of available high grade ore and our full year guidance still remains in the 21,000 to 22,000 ounce range.
On to exploration, in terms of exploration activities in Q3, due to our focus on cash flow management during the completion of Namoya, exploration work was comprised mainly of preparation for programs to be carried out later this year and into 2015. We do continue to implement lower-cost activities at both Kamituga and Lugushwa with a potential for very meaningful results. We are concentrating on target areas which are easily accessible and this is a cost-effective use of funds and can be used as a solid basis for further exploration when budgets allow.
Just a quick summary, Twangiza is performing as expected and we do look forward to continuing to create efficiencies where possible with both the plant and the processes for optimum production over time. We will also continue production of Namoya from the heap leach and the existing CIL while we make the arrangements for the agglomeration drum.
Thank you all for joining us today. I'll turn this call back to the operator and open it up for questions. Thank you.
Question-and-Answer Session
Operator
[Operator Instructions] Your first question comes from the line of Lawrence Lepard of Equity Management. Your line is now open.
Lawrence Lepard - Equity Management Associates
Can you guys give me a sense of when the $41 million is going to close and when the next agreement is scheduled to close, financing-wise?
Kevin Jennings - SVP and CFO
This is Kevin Jennings. So the $41 million we would say is imminent, that is we had stated in the previous press release of November 15, and so we are working towards those stated dates. And for the $80 million, as we stated before, we put a targeted date of December 15th, and so we're also working to those dates.
Operator
Your next question comes from the line of Daniel McConvey of Rossport. Your line is now open.
Daniel McConvey - Rossport Investments
Congratulations on the profit. First question was answered. Second, just wondering with the payables, you're managing those payables, probably managing a lot of suppliers and contractors and I'm just wondering if there's any losses or consequences of the late payment?
Kevin Jennings - SVP and CFO
We are working very hard with the suppliers. They've been patient, and while we are in a working capital constrained environment, we are getting through. I guess if we were kind of at a bit higher production at Namoya, we would have probably more constraint on supplies, but we are turning over the inventories with the improvement at Twangiza in the last quarter and getting some payments out, but obviously the $41 million will get us to alleviate a lot of those long overdue payables.
Operator
Your next question comes from the line of [Phil Larsen of North Street Capital] [ph]. Your line is now open.
Unidentified Analyst
I was just wondering if you have any kind of projected timeline for the installation of the agglomeration drum at Namoya.
John Clarke - President and CEO
We expect that in place during Q1 of 2015.
Operator
[Operator Instructions] As there are no further questions in queue, I would turn the call back to Ms. Nemeth.
Naomi Nemeth - VP, Investor Relations
Thank you, operator, and thanks to all our participants. I would remind you that this call is available for replay for two weeks. The numbers can be found at the end of yesterday's press release and on the Banro Web-site. If you have any additional questions or if we did not get to your questions in time this morning, please contact us at ir@banro.com. Thank you very much.
Operator
This concludes today's conference call and you may now disconnect.
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