Banro Corporation (NYSEMKT:BAA)
Q4 2015 Earnings Conference Call
March 29, 2016 11:00 AM ET
Executives
John Clarke – President and Chief Executive Officer
Kevin Jennings – Senior Vice President and Chief Financial Officer
Analysts
Ross Carden – Polygon
Phil Larson – Millstreet Capital
Presentation
Operator
Good day, ladies and gentlemen. Welcome to Banro Corporation’s Year End 2015 Financial Results Conference Call. I would now like to turn the meeting over to John Clarke, Banro’s President and CEO.
John Clarke
Thank you, Melissa, and thanks to everyone for joining us today. Before we get started, we’d like to emphasize that some of the information discussed in this call, particularly our targets for 2016 and beyond, and our forward-looking plan, is based on information as of today, March 29. As well, our commentary contains forward-looking information that involves risk and uncertainty.
Actual results could differ materially from a conclusion, forecast or projection in the forward-looking information. And certain material factors or assumptions were applied in drawing such a conclusion or making such a forecast and projection. Additional information about the material factors that could cause actual results to differ materially from such a conclusion, forecast or projection and the material factors or assumptions were applied in drawing such a conclusion or making such a forecast or projection is contained in Banro’s regulatory filings, including Banro’s year-end 2015 MD&A and the annual information form.
During today I will provide a broad overview of 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.
At the Twangiza mine, our operations for 2015 represented a steady continuity in delivering production above expectations with reducing operating costs. The fourth quarter contributed approximately 30,400 ounces of gold at a cash cost of $601 per ounce, to the 2015 production of approximately 135,500 ounces of gold at a cash cost per ounce of $553 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, which provided reserve growth at Twangiza, extending the mine life of the current installed operations to 14 years as of 31 December, 2014.
We focused during the past year an evaluation of future optimization and possible future growth of the existing Twangiza operations. We commented in our last call that we have tested those opportunities during Q3 2015 by initiating trials to test the ability to process 100% non-oxide ores that have been pre-crushed. We’ve also evaluated the opportunity to incremental increases in the throughput capacity of Twangiza and will install during 2016 some additional, fine crushing capacity to take Twangiza’s interim capacity through the – 1.85 million tonnes per year from its current 1.7 million tonnes per year design.
With the successful commissioning of the new CAT 777s and associated equipment at Namoya in Q4 2015, we were able to declare commercial production at Namoya, effective 1 January, 2016.
Now I’ll hand the call over to the Banro’s CFO, Kevin Jennings, for an overview of year-end 2015 financial results.
Kevin Jennings
Thank you, John and good morning to all. Since most of you have read the financial results in the press release and the filings, I will go over them briefly and provide you with some commentary on our Q4 and full year-to-date results and some of our expectations for 2016.
In Q4 at Twangiza, we report 30,000 ounces of gold and revenues of just under $35 million were generated from the sales of 31,000 ounces at an average price of $1,106 per ounce. This compares to 29,000 ounces produced in Q4 of 2014 for revenues of $35 million from the sale of 29,000 ounces at an average of $1,202 per ounce. This is an increase of 7% in gold sold over the same quarter of 2014 with a decrease in revenues of 2% over the Q4 2014, primarily due to the gold price being $96 per ounce lower in Q4 2014.
In terms of the key revenue drivers from Q4 to Q3, we saw that has guided in Q3 the Twangiza quarterly mill throughput Q4 was 415,000 tonnes of ore, lower from the record of 440,000 tonnes in Q3. The head grade decreased slightly from 3.07 grams per ton to 2.82 grams per ton, but was partly offset by increased recoveries from 80% to 81%, as the operation loss some of the ability in the mining operations from heavy rains, and the requirement to move more waste to free up available ore faces.
In Q4 cash costs were $601 per ounce and 20% higher than the third quarter of $501 per ounce, primarily due to lower gold production of 4,000 ounces in Q3, while 80% more material was mined in the quarter. 2015 cash costs were $553 per ounce, significantly below the original 2015 cost guidance of $650 to $750 per ounce. And as mentioned before, this cost improvement has primarily been the result of higher ounce production versus our original plan from a more robust mine schedule incorporated with the increased mine reserves announced in the June NI 43-101 reserve update.
Q4 Twangiza all-in sustaining cost of $745 per ounce, increased in the quarter due to higher TMF construction cost and lower production, gold production. The 2015 all-in sustaining cost of $657 per ounce, versus $781 per ounce in 2014 was a function of the improved cash cost performance and the sustaining capital kept in line with the original budget.
The company generated $2 million in EBITDA for the quarter and $56 million for the full-year, in which the quarter was impacted by lower gross margins from lower production and higher mining activity in the quarter. DRC tax assessments levied late in the quarter and higher transaction costs from a Baiyin financing signed at year-end.
2015 net income before non-cash asset impairment was $11 million and the net loss of $74 million for the full year after the non-cash impairment. A total of $84.3 million non-cash asset impairment was taken on the mine under construction balance for the full-year at Namoya, which was an $11 million increase from the previous quarter. This was result of the aggregate adverse impact of lower consensus long-term gold price outlook at year-end, which saw spot prices reaches lowest level for the year and the build-up of capitalized borrowing cost and pre-commercial operating costs from the extended ramp up.
With the improved gold price outlook emerging for 2016, we do not expect any further write downs in the near future. In February, we closed the comprehensive $98.75 million financing, which can be described as a $67.5 million proceeds from a gold streaming agreement for approximately 11% of the Twangiza’s life of mine reserves receiving $150 per ounce. This interest would be reduced by 50% for any incremental reserves and an embedded buyback option for the company after three years.
Also it was a term-loan of $22.5 million at 8.5% interest rates with two subsequent annual renewal periods and $8.75 million equity investment in new common shares providing Baiyin non-IFRS with a 16.6% interest in Banro Corporation. In a private transaction, Baiyin purchased $40 million of the outstanding senior secured notes and $20 million of the outstanding convertible preferred shares. With these two transactions, we have created a new strategic investor in all levels of the Banro capital structure with aligned interest in the profitable growth of the company.
For 2016, the company expects an annual gold production from both Twangiza, Namoya to total 210,000 to 230,000 ounces with the production weighted at approximately 40% in H1 and 60% in H2. At this production level, the company expects consolidated cash costs in the range of $700 to $800 per ounce with cash costs in the higher range in H1 and following below the lower range in H2 consistent with the production volumes stated above.
The site all-in sustaining costs expected to be in the range of $800 to $900 per ounce with the consolidated all-in sustaining costs in the range of $875 to $950 per ounce. The capital requirements for 2016 will be limited primarily to the expansion of the primary crushing at Twangiza, the construction of existing TMF list at Twangiza, phase 1 of the new TMF construction with the completion of the environmental and engineering studies, and preliminary infrastructure to access the TMF site. And lastly the heap leach pad expansion at Namoya and some auxiliary equipment to support mine production.
That concludes my summary of the financial results and I’d like to pass you back to John for his operations’ review.
John Clarke
Thank you, Kevin. Operational highlights, in Q4 2015, the combined Twangiza and Namoya operations produced 46,341 ounces of gold, contributing to the full-year 2015 combined Twangiza and Nomoya operations of 183,369 ounces, which was well within our consolidated production guidance. Twangiza Q4 2015 production of 30,440 ounces contributed to Twangiza’s 2015 annual production with 135,532 ounces, which represented a 38% increase in Twangiza compared to the 2014 annual production. The Namoya Q4 production of 15,901 ounces contributed to Namoya’s 2015 annual production of 47,837 ounces of gold.
Operationally Twangiza Q4 2015 cash costs per ounce was $601 contributing to full-year 2015 cash cost per ounce of $553 and the gold margin of $604 per ounce on the realized average selling price of $1,157 per ounce. The 2015 cash cost represented a 19% reduction compared to the 2014, the results of being able to run Twangiza at or above design capacity. The Q4 2015 all-in sustaining costs of $745 per ounce brings the 2015 full-year all-in sustaining cost of $657 per ounce, a 16% decrease compared to the full-year 2014.
Twangiza continue to be a very stable and reliable operation. The ability to process significant levels of non-oxide material as high overall throughput levels also indicates support for the potential for continued incremental improvements for the existing plants. Our focus at Twangiza remains swatting the existing asset base to generate incremental improvements in throughput and operational efficiencies through relatively limited capital injections. I’m very pleased to report on behalf of the Twangiza team that Twangiza’s loss time injury free in 2015 having achieved over 10 million loss time incident free hours.
We reported in our Q3 update, the testing of processing ore plants with increased levels of non-oxide material while maintaining or exceeding throughput of design capacity. Results demonstrated that throughput is greater than design capacity maybe achievable with pre-crushed non-oxide material. The work resulted in management’s decision to purchase additional mobile fine crushing capacity to have been able to save the Twangiza mills with a finer crushed feed to increase Twangiza’s throughput signed efficiencies. The equipment has been selective and is expected to be operational mid-2016.
During the fourth quarter 2015, the plant of the Twangiza mine processed 415,509 tons of ore compared to 370,882 tons during the fourth quarter of 2014. Indicated head grade of ore processed during the fourth quarter of 2015 was 2.82 grams per ton gold compared to 3.01 grams per ton during the fourth quarter of 2014. Process recovery rate for Q4 was 81% compared with 81.4% during the fourth quarter of 2014.
Q4 2015 gold production was 30,440 ounces compared with 29,445 ounces during the fourth quarter of 2014. Throughout 2015 capital spending at Twangiza was focused on upgrades to mobile fleet and the continued construction of the TMF. Mobile fleet upgrades during the year increased the purchased of secondary equipments for mining operations, load maintenance and the TMF construction. TMF construction occurred throughout the year with increased levels of activities in the second half of the year. TMF construction costs benefited from lower diesel costs and replacing daily high rental companies with owner-operated equipment.
The Twangiza team continued the planning of a new tailings facility appropriate to the new extended mine life afforded by the increased mine reserves reported during Q2 of 2015. A new tailings facility for the longer mine life will provide a lower TMF sustaining cost of operations over the mine life and will allow the current higher sustaining cost tailings facility to eventually become a long-life water storage facility. At year-end, the company was in the process of processing the competitive bids from internationally recognized engineers for the design and build of the new tailings facilities and for the continued third-party reviews of building the existing facilities.
Moving on to Nomaya, Nomaya declared commercial production effective January 1, 2016. During 2016, the Namoya Mine produced 47,837 ounces of gold from a total of 1,416,179 tons of ore, stacked and sprayed on heap leach pads, at an indicated head grade of 1.88 grams per ton. During the first two quarters of 2015, Namoya implemented a number of process design changes, which converted the hybrid CIL/heap leach circuit into agglomerated heap leach. Following the commissioning of the agglomeration drum in the first quarter of 2015, Namoya implemented process upgrades to increase throughput and stacking capabilities, which came online in stages from late in the second quarter to the end of the year.
These upgrades led to daily stacking rates that incrementally increased and stabilized. However, the utilization of the processed circuit in the second half of the year was restricted due to the lack of ore delivery from mining operations. This led to stacked ore volumes being supplemented by low grade ore stockpile material, which decreased the average head grade of ore stacked.
Ore delivery from mining operations in the third quarter was adversely impacted by low excavator availability. Excavator availability improved in September with the commissioning of the first component of the larger mining fleet. The remainder of the larger mining fleet, the CAT 777s were commissioned in phases throughout November with the full mine fleet operational in early December. Commissioning of the larger mining fleet has contributed to improving mining productivity and representing the final step towards Namoya operating in a manner consistent with management expectations.
On exploration, throughout 2015 as the Company focused on the development of Namoya and incremental operational achievements at Twangiza, exploration activities were limited to near mine resource development at Twangiza and Namoya together with low level exploration and ground maintenance activities in the Twangiza Regional, Kamituga, Lugushwa and Namoya Regional projects.
During the second half of 2015, exploration activities increased with near mine exploration drilling at Namoya. High grade drill results intersecting significant mineralization were declared from the first stage of the follow up drill program at the Namoya Summit footwall zone, which borders the Filon B target. And for that I would refer you to Banro’s September 18, 2015 press release for details. In addition, further high grade results from the second phase of the program resulted in the discovery of new mineralization at the Namoya hanging wall area and Filon C in the north eastern and eastern regions of the summit. Again I’d refer you to Banro’s February 24, 2016 press release for details on that.
And closing comments, we will continue to focus on increasing gold production from our operations and containing costs, while increasing the company’s mineral resources to potentially enhance the life of mines, thereby increasing shareholder value.
Throughout 2015, our management team at Twangiza continued to demonstrate our ability to build and operate efficient, low-cost gold operations capable of accommodating the current difficult gold markets.
With Namoya, now in commercial production we expect similar achievements from the Namoya management team. The team looks forward to testing resource and reserve expansion opportunities along strike to debt and within the cost structures close to existing pits to continue to unlock Namoya’s great potential to significant growth and to do so in a safe working environment.
Thank you again for joining us today. I’ll turn the call back to the operator to open this call up for questions. Thank you.
Question-and-Answer Session
Operator
[Operator Instructions] Your first question comes from Ross Carden with Polygon your line is open.
Ross Carden
Hi yes. I just got a couple of questions on Namoya. Is it possible to get a little bit more detail on the mine plan despite 2016 guidance, I’m just really thinking about the grade, recoveries, throughput, just so we can then build that up. Thank you.
John Clarke
Very shortly you’re going to see our Q1 results, which will give you a lead into that. But now, Q1 is a build-up to steady states and then we move through for the rest of the year. That’s about it for now.
Ross Carden
All right. So how can you – but you’re not willing to provide a breakdown of what’s actually behind the guidance?
John Clarke
I would like to provide that when we’ve got Q1 as a part of the program. Go ahead Kevin.
Ross Carden
That didn’t make sense
Kevin Jennings
Yes so what we are looking at is Namoya’s production obviously is a bit back weighted to H2. We would see kind of a cash cost in H1 kind of in the range of $1,000 per ounce to $1,100 per ounce, dropping to H2 between $650 per ounce and $750 per ounce. That is kind of the weighted average of Namoya. So the production is a weighted to Q3 and Q4 as we finish the heap leach pad expansion in the first part of the year and we’ll see the increasing grades in Q3 and Q4 as we also ramp up the mining activity. Obviously, our mining production is ramping up to management expectations.
Ross Carden
But you must know that, you’ve got guidance out, you must know what the, like behind that there’s tons, grade and recovery. And I would have thought that, you will be able to tell us what those are otherwise it’s hard to have any confidence in that, how can we believe those numbers if you’re saying we’ve got to wait till you have the Q1 numbers out before you can even tell us how that looked? I’m struggling to understand that why you’re not providing it?
Kevin Jennings
Yes, you know for the full-year, we anticipate that throughput is at 2.35 million tons per annum and the grade will be above reserve grade which was the reserve grade is 1.9 grams per ton. And that grade will come as we clear some of the waste stripping that maybe we’re a little bit behind last year and get any into access to some of that better grade that we will be putting on in basically mid to second half of the year.
Ross Carden
Okay. I will let somebody else jump on and then I have some follow-ups, but that’s okay for now. Thank you.
John Clarke
Thanks.
Operator
[Operator Instructions] Your next question comes from Phil Larson with Millstreet Capital. Your line is open.
Phil Larson
Hi, guys. Congratulations on the good quarter, and getting the financing done and all that. I had a couple questions on the financing for you.
First off, I was wondering just going through the press release, it looks like you used [ph] about $32 million to pay off the Twangiza forward sales with another $26 million of those proceeds for the Escrow for the bond payments. So I was wondering if you could walk us through the plans for the remaining about $40 million of proceeds.
Kevin Jennings
Okay, yes and we also – we paid off some short-term loans, Escrow bank loan for another $4 million. We cleaned up some of our major project AP [ph] suppliers that was about approximately about $12 million. We are also investing in the crusher expansion project that would be roughly about $4 million for the year.
There were transaction costs with the transaction and then remainder of cash we were using that to obviously fund our capital for each one. As you can see our production, our production is weighted to the second part of the year, but usually you spend your capital in the first part of the year. So that’s that will kind of cover often that funding.
Phil Larson
Okay, great and then another quick one on that. You mentioned that Baiyin purchased some bonds and shares in a private transaction, could you share with us the price of that they bought those at?
Kevin Jennings
Because it’s a private transaction that I’m not at liberty to state what that is that would be something you have to ask Gramercy here at Baiyin.
Phil Larson
Okay, that’s fine. Thanks. And then just one real quick follow-up on the guidance if you don’t mind, can you at least bring out the cash cost by mine, could you just had collocated in the news release?
Kevin Jennings
The cash costs basically between, for Namoya, between $800 and $900 cash cost. Twangiza would be cash cost basically between $600 and $650.
Phil Larson
Excellent, thank you.
Operator
Your next question comes from the line of Ross Carton with Polygon. Your line is open.
Ross Carton
Thanks for taking the follow-ups. Yes just a couple of things, there was a couple of one-off items in the financial that you mentioned there is a couple of funds some Congo as it finds. I just wanted a bit more color on that.
And then also you mentioned that there is some impact from, I think that was an issue with some artisanal miners with the disruption that happened there that definitely was there. I just wanted to know what – how we should think about that, sort of that’s my first question.
Kevin Jennings
Okay, so in terms of the DRC taxes, fines and penalties late in November of 2016, there was number of demands repayment for the DRC tax authorities. Tax assessments performed during H2 on tax years 2012, 2013 and 2014 were they have been ongoing discussions in differences in interruptive positions taken by the company historically, versus the tax authorities. So the company has set up suitable provision that we believe is prudent to cover the lightly outcomes of these discussions. And as you know, the company is not subject to new taxes under mining convention, but many of these issues relate to new tax introduced in last five years.
Ross Carton
Right, I guess. Is there any – what is the provision that you have on that, is there any – if you think about the worse case scenario, are there any potential further payment that will be made, always that cath up for that so is that the maximum possible now?
Kevin Jennings
Yes, the provision – we believe it’s the best of management’s estimate at this point so…
Ross Carton
Got it. Okay, and then the second part of that question I had was on the impact from the disruption with artisanal line is I was just curious on that really?
Kevin Jennings
Yes. I’ll pass that on to John.
John Clarke
I can take that one Ross.
Ross Carton
Thanks.
John Clarke
Yes artisanal mine is has an impact during Feb – during January beginning that sort of into February, it was short-term impact. We had some equipment that had – as on is after that incursion that’s at reserves. With medium and long-term we don’t expect any impact from what went on. And we will focus for the rest of the year on making up the limited impact that we had into January beginning of February.
Ross Carton
All right.
John Clarke
It’s something that occurred, something which has now passed us a lot of interaction between us and the relevant local authorities recognizing the importance of our operations to the region and it is resolved [indiscernible] quickly.
Ross Carton
Okay. And then the second question is how is your working capital? I know that you’ve told us in the past and it consuming around fact that brought the current working capital that you’ve got, would you consider that to be fairly normalized level or do you feel like, you still need to catch up on the payments and there needs to be some cash use to normalize or some cash allowance?
John Clarke
I think with this last financing we did make very good progress on the payables. I think most people are pretty happy. And in terms of our cash position this is the best cash position we’ve had in may be probably, since I’ve been here.
Ross Carton
Okay, all right. That’s all I had. Thank you.
Operator
As we have no further questions I will now turn the call back to John Clarke.
John Clarke
Thank you very much. Thanks to all our participants, thanks for the questions. I would like to remind you this call is available for replay over the next two weeks. Same numbers that can be found at end of yesterday’s press release. If you have any additional questions, please contact us on ir@banro.com and we will do our best to get back to you and respond. Thank you very much.
Operator
Ladies and gentlemen, this concludes today’s conference call. You may now disconnect.
