Banro Corporation (NYSEMKT:BAA)
Q3 2015 Earnings Conference Call
November 12, 2015 11:00 AM ET
Executives
John Clarke – President and Chief Executive Officer
Kevin Jennings – Chief Financial Officer
Analysts
Travis Hogan – Riva Ridge
Presentation
Operator
Good morning, ladies and gentlemen. And welcome to Banro Corporation Third Quarter 2015 Financial Results Conference Call. After the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time. Please note that this call is being recorded today, Thursday, November 12, 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, Mr. Clarke.
John Clarke
Thank you, Melissa, and thanks to everyone for joining us here today. Before we get started, as normal I would like to emphasize that some of the information discussed in this call, particularly our targets for 2015 and beyond, and our forward-looking plan, is based on information as of today, November 12. 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 2015 MD&A. During today’s call, I’ll provide a broad overview of the third 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 position subsequently.
At the Twangiza mine, our operations in Q3 2015 represented a steady continuity in delivering production above expectations with reducing operating costs. The third quarter contributed approximately 35,000 ounces of gold at a cash cost of $501 per ounce to year-to-date production of approximately 105,000 ounces of gold at a cash cost of $539 per ounce.
This was achieved with a mix of oxide and non-oxide ores in accordance with mining programs outlined in our June 2015 update of mineral resources and mineral reserves. As you remember, the updates provided reserve growth of Twangiza extend the mine life of the current installed operations to 14 years and provide a foundation for future optimization and the possible future growth of this existing Twangiza operations. We tested those opportunities during Q3 2015 by initiating trials to test the ability to process 100% non-oxide ores, that has been pre-crushed; the trials were successful and will be repeated to test future growth opportunities.
We did not manage to ramp up on the Namoya operations during Q3 2015 sufficiently need to achieve commercial production in the third quarter. But the receipt of the larger mining fleet by the end of the quarter which is currently progressing through commissioning, is expected to permit the ramp up to commercial levels of operations to be achieved by year-end.
Now I’ll hand the call over to the Banro CFO, Kevin Jennings. He can give an overview of our Q3 2015 financial results.
Kevin Jennings
Thank you, John and good morning to all. Since most of you have read the financial results press release and filings, I will go over them briefly and provide you with some commentary on our Q3 and year-to-date results and some of our expectations for the remainder of H2 2015.
In Q3 at Twangiza we report 35,000 ounces of gold and revenues of $38.5 million, were generated from the sale of 34,000 ounces at an average price of $1,117 per ounce. This compares to 27,000 ounces produced in Q3 of 2014 for revenues of $33.3 million from the sale of 27,000 ounces at an average price of $1,233 per ounce. This is an increase of 28% in gold sold over the same quarter of 2014 with an increase in revenues of more than 15.6% over Q3 2014 despite the gold price being $116 per ounce lower in the prior year’s quarter.
In terms of the key revenue drivers from Q2 to Q3, we saw the Twangiza increased the quarterly mill throughout in Q3 to a record 442,000 tons of ore milled. The head grade increased slightly from 3.01 grams per ton to 3.07 grams per ton, but was partly offset by reduced recoveries from 82% to 80%, as the operation continues to fine-tune the plant balancing throughput recoveries and the appropriate blend of oxide and non-oxide materials.
In Q3 cash costs were $501 per ounce a large improvement from the previous year and 15% lower than the Q2, primarily due to higher gold production of 500 ounces over Q2 and a non-recurring inventory adjustment in the prior quarter, offsets partly by higher processing costs due to the higher mill throughput.
Q3 year-to-date cash costs were $539 per ounce, significantly below the original 2015 cost guidance of $650 to $750 per ounce. This cost improvement has been primarily the result of higher ounce production versus our original plan from a more robust mind schedule incorporating the increased mine reserves announced in the June NI 43-101 reserve update.
Q3 Twangiza all-in sustaining cost of $608 per ounce and the Q3 year-to-date all-in sustaining cost of $631 per ounce is a function of the improved cash cost trend and the sustaining capital in line with the budget. For this reason, the full year 2015 Twangiza cash cost are expected to be below the $600 per ounce and all-in sustaining cost are expected to be below $700 per ounce. The company generated $20 million in EBITDA for the quarter and $54 million for the Q3 year-to-date, which was $6 million higher than the EBITDA of $14 million in Q3 of 2014.
Net income before non-cash asset impairments was $11 million and the net loss of $12 million in the quarter after the non-cash asset impairment. $23 million non-cash asset impairment was taken on the mine under construction balance at Namoya. This was result of the aggregate adverse impact of lower consensus long term gold pricing as of Q3 and the build-up of capitalized borrowing cost and pre-commercial operating losses from the extended ramp up, due to the delayed financing and the redesign of the plant.
Cash on hand at the end of the quarter was approximately $4 million, compared to $1 million at the end of 2014. And we have reduced trade and other payables from $86 million to $63 million over the course of the year. The capital expenditures recorded for Q3 relates to the commissioning of the mobile fleet at Namoya and the construction of the Tailings Management Facility at Twangiza.
That concludes my summary of the financial highlights and I’d like to pass you back to John for the operations review.
John Clarke
Well thank you Kevin. I’ll recap some of the key statistics and I will comment on operational highlights of our combined operations. In Q3 2015, the combined Twangiza and Namoya operations reduced approximately 47,000 ounces of gold with 35,000 ounces of those coming from Twangiza. This brings a combined year-to-date Q1 through to Q3 production from Twangiza and Nomaya to approximately 137,000 ounces of gold with 105,000 ounces of those coming from Twangiza. The combined ounces reaffirmed the previous dated consolidated gold production guidance for our operations at 175,000 to 195,000 ounces at calendar year 2015.
Twangiza Q3 2015 cash costs per ounce of $501 per ounce can be compared, as stated by Kevin, with the $618 per ounce achieved in Q3 2014. We update cash cost per ounce of $539 that stabilizes a year-to-date gold margin at $634 per ounce on the realized average selling price of $1,173 per ounce.
On the Q3 2015 all-in sustaining costs of $608 per ounce brings the year-to-date all-in sustaining costs to $631 per ounce, which is a 24% decrease year-on-year when compared with the $827 per ounce for the same periods in 2014. Twangiza is proving to be a very stable and reliable operation having achieved more than a year of strong production. The ability to post that significant level of non-oxide material as high overall throughput levels also indicates the potential for continued incremental improvements with the existing plants.
Meanwhile, Twangiza management is continuing to identify and explore new opportunities for operational growth. I am very pleased to report on behalf of Twangiza team, the Twangiza was loss time injury free in Q3 2015, progressing during the quarter to over 21 months and 8.9 million loss time incident free hours.
With continued success in stabilizing production of design capacity, Twangiza management focused in the third quarter on evaluating the processing capabilities of the currently installed plants. This included the processing of ore plants with increased levels of non-oxide material while maintaining or exceeding throughput at design capacity.
Multiday trial was conducted during the quarter to test the ability to run the plant at higher than design throughputs using 100% non-oxide ore that had been pre-crushed. The results demonstrated that throughputs greater than design capacity may be achievable with the pre-crushed non-oxide material. As expected, the recovery rates for non-oxide feed were lower than those being regularly achieved with the blended ores and this testing did contribute to lower overall recoveries in the Q3 2015. Further trials will continue to evaluate this potential throughput enhancement and evaluate throughput enhancements to the existing plants.
During third quarter 2015 the plant at the Twangiza mine processed 441,579 tons of ore compared to the 309 – 394,500 tons during the third quarter 2014. The indicated head grade of the ore processed during the third quarter of 2015 was 3.07 grams per ton compared to 2.60 grams per ton gold during third quarter 2014.
The process recovery rates for Q3 was 79.84% compared to the 82.2% during the third quarter of 2014. The lower recovery reflecting the ore mix available during the quarter, as well as the non-oxide milling trials commented on earlier. Q3 2015 gold production it was approximately 35,000 ounces of gold compared to 27,000 ounces during third quarter 2014.
Capital spending at Twangiza during Q3 2015 was focused on continued upgrades to the mobile fleet and continued construction of the Tailings Management Facility. During the quarter, the Twangiza team continued the planning of a new Tailings Facility appropriate to new extended mine life afforded by the increased mine reserves reported during Q2 2015.
The new tailings facility for the longer mine life will provide a lower tailings management facility sustaining cost of operations open mine life and will allow the current higher sustaining cost tailings facility to eventually become a long life water storage facility.
I’d made some comments about Namoya. During the third quarter 2015, Namoya’s ramp up towards commercial production progressed with stacking levels averaging 149,000 tons per month to a total of 447,000 tons for the quarter. This represents a 35% increase in ore stacked over the second quarter of 2015.
Ore stacked during the quarter was below the design rate of 190,000 tons per month due to lower excavator availability. The low availability of ore from mining activities in the quarter, the opportunity was taken to process ore from low grade stockpiles. This resulted in an average stacked head grade of 1.67 grams per ton of gold. The contained gold stacked on the heap leach increased to approximately 24,000 ounces or approximately 48% over the previous quarter. Due to heap leach operations requiring several months of percolation to fully recover the leachable gold, gold production in the quarter increased by approximately 15% with a total of approximately 12,000 ounces of gold in the third quarter of 2015.
Excavator availability improved in September with the commissioning of the first component of the larger mining fleet, which will significantly improve waste removal activities. The commissioning process of the CAT 777s has been occurring in phases and is well underway. The commissioning process is expected to be completed before the end the month.
Full commissioning of the larger mining fleets along with the continued support from the pre-existing mining fleet is expected to significantly improve mining productivity levels. With increased ore availability at Namoya, stacking levels and grades are expected to increase to commercial production levels in the fourth quarter of 2015. The CIL circuit was not utilized during the third quarter of 2015 as the focus of the operations continues to be the improvements to the heap leach processing circuit.
On the exploration front, exploration activities during the third quarter of 2015 focused on near mine exploration at Namoya, as well as small exploration teams continuing to focus on the new oxide target generation activities in Lugushwa and Kamituga through BLEG and ground maintenance activities.
The near mine exploration at Namoya yielded high grade drill results intersecting significant mineralization, included 16 meters grading 5.35 grams per ton – gold, 15 meters grading 5 grams per ton, and 24.00 meters grading 2.77 grams per ton. The drill program that has yielded these significant mineralized results is ongoing and has been integrated with production related drilling activities to effectively utilize the available resources. Additional drill results in the ongoing drill program are expected in the fourth quarter 2015.
I’d like now to make some closing comments. We will continue to focus on increasing gold production from our operations and containing costs while we increase the company’s mineral resources to potentially enhance the life of our mines thereby increasing shareholder value.
In Q3, our management team at Twangiza has continued to demonstrate our ability to build and operate efficient low-cost gold operations capable of accommodating the current difficult gold markets. We look forward to its similar achievements of Namoya as we focused on bringing Namoya into commercial production while we are also testing resource and reserve expansion opportunities to unlock Namoya’s great potential for the further growth and to do so in a safe working environment.
I would like to thank you all for joining us today and I will turn the call back to our operator to open up for questions. Thank you, Melissa.
Question-and-Answer Session
Operator
[Operator Instructions] Your first question comes from the line of [indiscernible]. Your line is open.
Unidentified Analyst
Yes, Dr. Clarke, I don’t precisely 400,000 shares of Banro. I am quite pleased with this quarter’s report. You have maintained a gold margin with approximately $600 per ounce will passed obviously we’ll see volatile gold price environment and is also closed, I believe, it’s about $116 million in non-diluted financing in 2015. I think it’s obvious, you have a big management team and you will eventually get Namoya when you move this [ph] to Twangiza, yet the equity still trades at severely depressed levels with a market capitalization around $30 million.
On the last conference call, you said that Banro had operational flexibility don’t folded in any gold price environment. I emphasize you said any gold price environment. My question is this given your current visibility on the flexibility of operations and if you hold all input variables constant where they are today. What’s sustained lower gold price could this company handle were in the common shares remaining CATs. Could Banro will handle a year at 950 gold to be precise what gold price would cause you not to be able to make your March 1 bond payment?
John Clarke
That’s a lot of questions. To maintain continued flexibility at such continuing the increasing gold prices. We, like the rest of the industry, would have to increase our production rates. And we would do whatever we need to do and the benefits of increased production rates [indiscernible] for us is the major component of our operating cost being fixed and on a very broad basis for every $10 or so of cost like six or seven of those are fixed.
So if we produce more tons maybe with a marginal change in cut-off grade we can maintain our margins at significantly lower gold prices to be absolutely fixed on a single number such as $950 or $1,000 per ounce is a little difficult because there are so many variables involved of what we can do with marginal increase in our cut-off grade and increased throughputs to produce more ounces at lower operating cost to maintain our margins.
Any other comments?
Kevin Jennings
No, I guess the, like John were saying we haven’t really gone into as you see we were currently mining Twangiza at above reserve grade but if you take into consideration lower grade stockpiling strategy we tend to have the lower grade at the end of the mine. Our first kind of decade of production in that range of kind of a grade of 2.6 grams per ton.
So at 3 grams per ton we’re mining about 10% above reserve grade if we had to basically change the cut-off and increase the grade that’s where we would get that additional production to kind of handle a lower price environment. We have not had the result of that. We just stick to our current low grade our stockpiling strategy but if that has occurred that would resolve and we would kind of increase the grade. The positive thing about Twangiza and Namoya is they’re new mines. So they’re brand new mines and you have more flexibility in terms of that.
And that’s where you’ll see with Namoya going forward now that we have the mobile fleet that is in excess of what our plan mobile fleet size would be we can may move more waste tons and get access to more grade. And obviously that is a new mine and that is what we are focusing on, especially with areas of high grade pockets that are not in our reserve that we’re trying to drill out such as the Namoya Summit and Filon B areas the have higher grade than reserve grade to kind of take advantage of that in the near term or especially next year.
Kevin Jennings
Thanks, Robert.
Unidentified Analyst
Thank you.
Operator
Okay.
Unidentified Analyst
One more question.
John Clarke
Hello.
Kevin Jennings
Go ahead.
Unidentified Analyst
Yes, with regard to the possible de-listing, another plan is to get Namoya up in commercial production and then to design capacity and then into the market will solve the problem, but say for instance the market stays irrational regardless of fixed asset Namoya. How would you handle possible de-listing, would you more likely return to single listing on TSX, or would you consider reverse split?
John Clarke
We’re continuing out listing at the moment clearly share price is a critical issue on status of listing. We’re secure in our listing and on the TSX in any case. Our job is to significantly improve the share price through production opportunities over the next three months, so that it becomes a mute issue. That’s our focus.
Unidentified Analyst
Okay, thank you very much.
Operator
[Operator Instruction] Your next question comes from Travis Hogan with Riva Ridge. Your line is open.
Travis Hogan
Hi, guys. Congrats on a good quarter, just a quick question. So what are the expectations in terms of gold production for Namoya for fourth quarter? And then can you give us some indication as to what – where you expect Namoya to ramp in 2016?
John Clarke
We’ve got long term Twangiza results in Namoya that’s 9,000 plus a month observation and we would expect to be achieving that during 2016. [Indiscernible] we’re seeing our target gold productions are combined operations in the range that we’ve already quoted.
Travis Hogan
Okay, so consistent with prior year guidance.
John Clarke
It is, yes. There is only few months…
Travis Hogan
Okay, thanks.
John Clarke
There’s clearly only few months to go and we’re working hard at it. Thanks Travis.
Operator
And there are no further questions in queue at this time. I turn the call back over to Mr. John Clarke for any closing comments. Actually, there is a question from the line of [indiscernible]. Your line is open.
Unidentified Analyst
Fabulous results out of Twangiza. I’m curious as to your total debt picture. When I’m looking at long term debt, its 166 million somewhat dollars, total assets of $869 million. Is that your total debt or do you have additional debt and how much would it be?
Kevin Jennings
Yes, if you look at the total debt, we have the notes that are $175 million. We have bank loans of approximately $17 million. We have the gold forward sales agreements which are liabilities of $52 million, so that would give you a total number of $244 million of debt on the balance sheet. Now we have preferred dividends of $72 million and we obviously – that would be your debt and preferred for a total of about $315 million to $320 million.
Unidentified Analyst
Okay. Thank you.
John Clarke
Thanks Jeff.
John Clarke
If there is no more questions, I would like to thank for your questions for asking so important questions and thank you for giving us the opportunity to present to you on this quarter the successes of our management team and the targets that they are striving to achieve going forward. Thank you very much.
Operator
This concludes today’s conference call. You may now disconnect.
