Banro Corp. fka BAA

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BAA's full Earnings Call Transcript



Banro's (BAA) CEO John Clarke on Q1 2015 Results - Earnings Call Transcript


May. 14, 2015 2:55 PM ET | About: Banro Corporation (BAA)

Operator

Good morning, ladies and gentlemen. Welcome to Banro's Corporation First Quarter 2015 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, Thursday, May 14, 2015 at 11 AM Eastern Time.

I would now like to turn the meeting over to John Clarke, Banro's President and CEO. Please go ahead.
John Clarke - President and CEO

Thank you, operator. And thanks to everyone for joining us today. In today's call, I'll provide Board overview of the first quarter 2015 together with an operations update for both Twangiza and Namoya.

Kevin Jennings, Banro's CFO will provide an update on Banro's financial situation. And in concluding comments near the close of the call, I will repeat the key objectives that we've set for ourselves for 2015 in order to maximize value to shareholders, outline those that we have achieved and those that are still work in progress.

Before we get started, we would like to emphasize that some of the information discussed in this call, particularly our revenue and production targets for 2015 and beyond, and our forward-looking plan, is based on information as of today, May 14. 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 Q1 2015 MD&A.

Before we address the Q1 financial results, I'd like to repeat a few general remarks from our last call. Twangiza has continued to reduce cash costs and reduce all-in sustaining costs driven by increased gold productions.

At year-end 2014, mill throughputs at Twangiza had reached near design capacity and we sustained those levels through Q1 of 2015. Namoya continues to operate and produce gold and we're still targeting commercial production rates for early in the second half of 2015.

Now I will hand you over to Banro's CFO, Kevin Jennings for an overview of our Q1 2015 financial results.
Kevin Jennings - SVP and CFO

Thank you, John. And good morning to all. Since most of you have read the financial results, press release, and filings, I'll go over them briefly and provide you with a commentary on our Q1 results and some of our expectations for 2015.

In Q1 at Twangiza, we reported 36,000 ounces of gold for revenue of $41 million, generated from the sale of 34,000 ounces at an average price of $1,208 per ounce. This compares with to 24,000 ounces produced in Q1 of 2014, for revenue of $30.4 million from the sale of 20,000 ounces at an average price of $1,246 per ounce.

This is an increase of 39% in gold sold over the same quarter of 2014 with an increase in revenues of more than 35% over Q1 2014, despite the gold price being $38 per ounce lower than the previous period.

This higher ounce production combined with slightly lower production costs at $18 million drove the cash cost per ounce down from $819 in Q1 2014 to $527 per ounce in Q1 2015. This means that for the last two quarters, Twangiza has averaged at cash cost per ounce of approximately $560 per ounce.

With Twangiza's quarterly mill throughput achieving 101% of the annualized design capacity of 1.7 million tonnes per annum in Q1, focus has been on building up spares at the plant and with the mobile equipment to ensure we maintain this level of throughput.

We've only received partial benefit of the lower fuel prices in Q1 as we carried higher levels of fuel during the wet season that we will drive down as we move through the dry season, getting that benefit.

The company realized a net income of $6.8 million, that's equivalent to approximately $0.03 per share Q1 compared to a net loss of $700,000 in Q1 of 2014. This was driven primarily by the gross earnings from the operations which increased 170%, moving from $6 million in the previous period's quarter to $16.7 million in Q1 2015.

This was partially offset by higher administrative and financing expenses resulting from higher financing levels and regional corporate costs now being allocated to the operations as we transition from an exploration company to an operating company.

EBITDA was $19 million for the quarter, and that was up 176% from Q1 2014 and 21% higher from the previous quarter, Q4 2014 of $16 million. Operating cash flows for Twangiza before working capital was approximately $16 million and much of this money was used to support Namoya and its ramp up, plus debt servicing and capital expenditures.

As mentioned in the previous press release, we will be working to optimize these indirect costs and cost at our operations as we move from ramp up into full production mode post Q3 after the commissioning of Namoya.

Cash and cash equivalents at the end of the third quarter were $3 million compared to $1 million at the end of Q4 2014. The cash position will improve with the funds from the additional Twangiza gold for sale agreement and the streaming transaction.

With the closing of the gold sale agreement and the streaming transaction, the required mobile fleet has been procured and we expect first delivery of the CAT 777s in the beginning of Q3. In the interim smaller 40 ton trucks have been acquired on a rental basis for Namoya to increase tonnes moved until the larger fleet arrives.

As you're aware from our earnings call from the previous quarters, we have been closely managing our trade payables which stood at $67 million at the end of Q1, roughly one third of this balance is with five major suppliers who represented both 70%, of the over 90-day payables and we've been working very productively at arranging payment plans for these amounts.

A large portion of the $40 million gold forward sale agreement and cash flow from Twangiza will be used for debt servicing and reducing our overall accounts payable to acceptable levels and the funding from the Namoya gold streaming will be used for debt repayment of the backstop facility, plus repayment of some local debt due, building up some cash cushion for future debt servicing and repayments of preferred dividends.

The capital expenditure guidance for 2015, will increase by $10 million for Namoya, financed by a gold sale agreement with the third party. This is a result of an operating decision to move from a mark and rental structure for the mobile fleet at Namoya to an owner operated model.

As mentioned before, the capital requirements for H1 will be limited primarily to the mobile trucking fleet for waste movement at Namoya, and the ongoing TMF construction at Twangiza.

At April 30, we closed the second tranche of the Twangiza gold forward sale agreement for $20 million and $50 million Namoya streaming agreement for 8.33% of gold deliveries from Namoya. This transaction improves the maturities of debt repayment by replacing the backstop facility and treat payables with longer term liabilities.

The focus will be to refinance other debts due such as some of the local DRC in the remainder of next year or simply to pay them off with the operating cash flows.

Now, I'll pass it back to John.
John Clarke - President and CEO

Thank you, Kevin. I'll cover the Company's Q1 operational highlights and if necessity I will be repeating some of the key statistics on Kevin's financial overview.

As reported in April, Twangiza and Nomaya produced 45,197 ounces of gold combined in Q1 of 2015, with 35,943 of those ounces coming from Twangiza, representing a third consecutive quarter of record production.

The Twangiza production of 35,943 ounces in the first quarter of 2015 represents a 78% increase over Q1 of 2014 and a 22% increase on Q4 of 2014 successfully managing the adverse impact of the rainy season and significantly above the 2015 monthly average guidance of plus 9,000 ounces per month.

During the first quarter of 2015, Twangiza was loss time injury free progressed with our LTI ratio being of good international standard progressing to over one year and 6 million loss time incident free hours since the last recorded incident. Our management teams were part of that safety record at both of our operations.

During the first quarter 2015, the plant at the Twangiza Mine processed 428,844 tonnes of ore compared to 252,691 tonnes during the first quarter of 2014 achieving 101% of design capacity.

This improvement was due to better management of the seasonal weather conditions and the full benefit of the upgrade project that was completed in Q3 of 2014. Ore was processed at an indicated head grade of 3.21grams per ton with a recovery rate of 81.7% to produce this 35,943 ounces of gold declared.

During the first quarter of 2015, Twangiza processed up to 28% of transition material in it's all stream to assist with the feed blend, even though this material is not included in the Company's mineral reserves.

This material performed well when mixed with the oxide reserves and provides the basis for non-oxide material to be incorporated into the ongoing updated NI 43-101 reserves and resources statement that is expected to be released shortly.

As we ramped up at Twangiza and introduced transition materials to you feed, we did record reduced gold recoveries. Site management has been focused on improving this situation from the basis of the steady operations that we’re now achieving and we do expect to be able to show improvements in gold recovery as we report future quarters.

As Kevin pointed out Q1 of 2015 production at Twangiza was achieved at the cash cost of $527 per ounce, a reduction of 11% compared with Q4 2014 as continued production achievements built on consistent financial performance.

The all-in sustaining cost of the same period at Twangiza was $581 per ounce. We will continue to focus on recoveries and creating additional efficiencies where possible to keep both cash costs and all-in sustaining cost as well as possible to highest sustained production lengths. Our annual gold for Twangiza production in 2015 is 100,000 to 110,000 ounces average an approximately 9,000 ounces per month.

Now let's just focus on Namoya in Q1 2015. The key objective for Namoya management remains to position itself to reach commercial completion early in the second half of 2015. There was a significant improvement in heap leach stacked tons and in the quality of agglomeration feed of the heap leach pad during the first quarter of 2015 as the agglomeration circuit was brought on stream.

During the first quarter of 2015, the Namoya mine produced 9,234 ounces of gold from a total of 255,323 tonnes of ore stacked in spate on the heap leach pads as an integrated head grade of 1.97 grams per tonne.

Now that the financing has been completed, the mine fleet can be expanded to increase the waste stripping and ore mining to meet the planned stacking rates required for commercial production.

With the commissioning of the agglomeration drum, Namoya's focus is on ore delivery in order to increase the stacking rate towards commercial levels, as well as optimizing the stacking process with the agglomerated heap leach in order to improve percolation and gold extraction. Management will continually assess the optimal utilization of the Carbon-In-Leach CIL circuit.

With the commissioning of the agglomeration circuit in Q1 2015 and with the ongoing debottlenecking of the operations, it is anticipated that gold production profile for Namoya operations will rise incrementally from its Q1 2015 levels of approximately 3,000 ounces per month.

With heap leach operations taking several months of continuous percolation to fully recover the leachable gold, the full benefits of the improvements to the heap leach circuit are expected to build up during Q2 and into Q3 of 2015.

On the exploration front, consistent with 2014 during the first quarter of 2015 exploration activities were limited as the company focused on the development at Namoya and incremental operation achievements at Twangiza.

I'd like now to make some closing comments the same as we did in our last call reminding us of the key objectives of the management here. In our last call to shareholders we outlined a number of key objectives for 2015. These objectives were aimed at increasing gold production, while containing costs and increase in this company's mineral resources to potentially prolong the life of its mines, thereby increasing shareholder value.

The five key objectives include, completing the installation and commissioning of the agglomeration drum at the Namoya Mine in the first quarter 2015 with a target of achieving commercial production earlier in the third quarter of 2015.

The second was to ramp up to a steady production at Namoya with a focus on the heap leach operations and utilizing the CIL for enhanced recoveries on higher grade fine ore and improve the quality of heap leach material.

Third objective was to maintain steady state production levels at Twangiza, while continuing to optimize the plant and rationalize costs. Then four was mine plan optimization of Twangiza's current reserves and measured and indicated resources.

And finally but not least is focusing exploration initiatives on identifying high value near-mine targets to enhance near-term production and to replace Mineral Resources through near-mine delineation drilling at Namoya and Twangiza. While we undertake limited, but focused regional exploration at Kamituga and Lugushwa.

Of these the agglomeration circuit is working well, Twangiza has already achieved steady state operations and is achieving low cash costs, and the new Twangiza reserve optimization is nearing completion.

Thank you all for joining us today. I would like now to turn the call back to the operator to open up for questions. Thank you very much.


Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Phil Larson with Millstreet Capital. Your line is open.
Phil Larson - Millstreet Capital

Hey guys congrats on a fantastic quarter. I was just hoping if you could give us an update on where kind of cash and payables balances stand today or more recently after closing the second tranche of the forward sale and the Namoya streaming agreement?
John Clarke - President and CEO

Yes, the currently rate now after Tranche 2 we should be in the $50 million to $55 million zone in terms of the accounts payable. And like we said, we have a certain amount that we are negotiating payment plans with that are over kind of a more than a 12 months, basically a 24 month period with some of those major suppliers.

So if you look, you take that out - our operating suppliers are all more or less current at this point in time.
Phil Larson - Millstreet Capital

Great. And then what's the current cash balance?
John Clarke - President and CEO

Yes from - as I mentioned, we built up the cash balance and it’s to take into consideration cushion for future debt servicing and some of the repayments. So we've been pretty cautious on setting a reserve in place.
Phil Larson - Millstreet Capital

Okay. Great, thank you. Congrats again on a great quarter.
John Clarke - President and CEO

Okay. Thank you.

Operator

Your next question comes from Daniel McConvey with Rossport Investments. Your line is open.
Daniel McConvey - Rossport Investments

Good morning. Congratulations on a great quarter and coming back and getting all of financings done. John it's my regular question but I - on the - you’ve been cash starved and now you get the financing and you’re in a lot better shape but my concern as you know has been the Twangiza Tailings spend, because it is so expensive. And if I go back to Simon and meeting with you directors years ago, and would you have situation now as I understand it’s expensive to build that Tailings dam up and you’re looking at a bigger Tailings dam over the course of the next while but it’s going to take two or three years to get that put in place.

In the Western world, where there is the protocol I usually use to file reports with the government, maybe there isn't an Congo my guess is supervision wouldn’t be that good and when those reports are filed with the government, they’re usually done with the third-party backing and that situation is not with the Congo and I understand now you don’t longer have the third-party consultant.

And so that it puts you in - it puts the risk in my mind in a higher degree and I know you don’t want to see anything go wrong. And I should say I have no agenda, I’ve been a shareholder in the past, I have no position in it now, I just don’t want to see anything bad happened to that Tailings dam given the area that its in, given the people maybe be at below and given the reputation, the damage would do to lot of people including you guys.

So I guess what I’m after and my worry is that it’s going to take you too long to get to certain amount of free board you can have, you are probably in decent shape now but as you get towards rainy season you might be in that free board and the temptation would be to run that free board to a level that really is beyond spec to keep Twangiza running through the next rainy season and that’s my concern.

So maybe if you can, can you just tell us what is the free board now roughly and what is the minimum it can be and where will it be in the next six to eight months and how long would it take you to build up the next level of the Twangiza mine to get it right to where it needs to be?
John Clarke - President and CEO

That's a lot of question. On the Tailings dam, Daniel you visited, you've seen the operations, the Tailings dam now being professionally managed where we do have third-party discussions on all of our future planning and indeed that is a center point of our plans to open up the second Tailings dam.

We will reduce our cost life of mine and so it’s all part and parcel with the - soon to be upgraded resources and reserves at Twangiza. The operational management of the dam is going extremely well, we are lifting the dam according to very reasonable schedule. We cannot take risk in that area and we are like any other operation, we are seeing by the whole Congolese community both government and local and we will do a first class job on it.

I do understand your concerns to work on the opportunity to show you basically what’s in place because it’s going extremely well.
Daniel McConvey - Rossport Investments

I will be delighted actually if - as I know one consultant's gone is it have you named the second consultant to take over the third-party monitor?
John Clarke - President and CEO

It’s bigger than that, we're making sure that current and our future design has got the best third party inputs. So it's not just current, it's the whole future planning of our operations as we do in every department.
Daniel McConvey - Rossport Investments

Okay. Well, it isn't [doubt] [ph] now but I would be - if I can get a later distant terms what the free board is and what the pattern you see happening over the next year or so is for the dam that would be helpful and look forward to one on one discussion. But it’s just, it’s when you see it and having lived through as you have a lot of situations that have not been pleasant and given where it is and given the cash constraints, it’s you understand my concern?
John Clarke - President and CEO

I can give out the comfort that's our management team has planning a first class observation for a long life. It is important area and we do cases for that and we’ll continue to. Thanks Daniel.
Daniel McConvey - Rossport Investments

Thank you, John.

Operator

[Operator Instructions] As there are no further questions from participants, I will turn the call back over to John Clarke.
John Clarke - President and CEO

Thanks you very much everybody. Please if you have any further requests and want feedback from the management team, just please let us know get in touch, get to our Investor Relations department and we will have great pleasure in coming back to you. And we look forward to a continuing growth in our operations as we go forward. Thanks very much.

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