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Message to Shareholders

2014 Third Quarter Financial and Operational Results

Driven by the performance of the recently ramped-up Siou and Fofina high-grade deposits and the third quarter operating results, SEMAFO raised its 2014 production guidance from between 200,000 and 225,000 ounces to between 230,000 and 235,000 ounces of gold, representing a 9% increase at midpoint. Considering the revised production level for the Mana Mine, we lowered our full-year guidance for total cash costs1,2 from between $695 and $745 to between $660 and $675 per ounce. Additionally, due to the increase in the 2014 production guidance, capital expenditures were revised upward to $58.5 million from $48.5 million, reflecting mainly higher capitalized stripping costs.

  • Gold production of 64,700 ounces at a total cash cost1 of $555 per ounce compared to 38,700 ounces at $799 per ounce for the same period in 2013

  • Gold sales of $84.5 million, a 71% increase compared to the same period in 2013

  • Operating income of $25.5 million, compared to an operating loss of $2.9 million for the same period in 2013

  • Net income attributable to equity shareholders of $11.2 million or $0.04 per share compared to net loss from continuing operations of $0.8 million for the same period in 2013

  • Cash flow from operating activities3 of $40.6 million or $0.15 per share4 compared to $16.2 million or $0.06 per share for the same period in 2013

  • Acquisition of four new permits in the Banfora Gold Belt

During the third quarter, we achieved gold production of 64,700 ounces at the Mana Mine at a cash operating cost5 of $549 per ounce produced and a total cash cost1 of $555 per ounce sold.

1 Total cash cost is a non-IFRS financial performance measure with no standard definition under IFRS and represents the mining operation expenses and government royalties per ounce sold.
2 Assumptions used to forecast total cash costs for the remainder of 2014 include $1,200 US dollars per ounce of gold; a price of fuel of $1.43 US dollars per litre; an exchange rate of $0.89 US dollars to the Canadian dollar; and an exchange rate of $1.26 US dollars to the Euro.
3 Cash flow from operating activities excludes changes in non-cash working capital items.
4 Operating cash flow per share is a non-IFRS financial performance measure with no standard definition under IFRS and is calculated using ounces produced. See the ''Non-IFRS financial performance measures'' section of the Corporation's MD&A.
5 Cash operating cost is a non-IFRS performance measure with no standard definition under IFRS and is calculated using ounces produced. See the "Non-IFRS financial performance measures" section of the Corporation's MD&A.

Mining Operations
Mana, Burkina Faso

 
Three-month period ended September 30, Nine-month period ended September 30,
2014  20134 Variation 2014 20134 Variation
Operating Data
Ore mined (tonnes) 516,900  618,500 (16%) 1,601,800 2,034,800 (21%)
Ore processed (tonnes) 750,300 714,400 5% 2,116,200 2,138,400 (1%)
Waste mined (tonnes) 4,038,000  2,326,200 74% 12,024,400 6,754,700 78%
Operational stripping ratio 7.8  3.8 105% 7.5 3.3 127%
Head grade (g/t) 2.91  1.82 60% 2.77 2.01 38%
Recovery (%) 92 85 8% 91 87 5% 
Gold ounces produced 64,700  38,700 67% 172,500 122,900 40%
Gold ounces sold 67,100  36,900 82% 164,700 121,200 36% 
Statistics (in dollars)
Average realized selling price (per ounce) 1,260 1,341 (6%) 1,280  1,451 (12%)
Cash operating cost (per ounce produced)1 549 746 (26%) 600 654 (8%)
Cash operating cost (per tonne processed)1 47 41 15% 49 38 29%
Total cash cost (per ounce sold)2 555 799 (31%) 670 725 (8%)
Depreciation (per ounce sold)3 269 443 (39%) 300 363 (17%)

 

1Cash operating cost is a non-IFRS financial performance measure with no standard definition under IFRS and is calculated using ounces produced and tonnes processed. See the "Non-IFRS financial performance measures" section of the Corporation's MD&A.
2 Total cash cost is a non-IFRS financial performance measure with no standard definition under IFRS and represents the mining operation expenses and the government royalties per ounce sold.
3 Depreciation per ounce sold is a non-IFRS financial performance measure with no standard definition under IFRS and represents the depreciation expense per ounce sold
4 Amounts have been restated for the adoption of IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine.

The 60% increase in head grade in the third quarter of 2014 reflects the higher grade extracted from our two new pits, Siou and Fofina, and is partially offset by lower-grade stockpiles. For the corresponding period in 2013, ore was sourced exclusively from the Wona-Kona pit. The 67% increase in gold ounces produced and 82% increase in gold ounces sold directly result from the higher head grade and higher gold recovery from the Siou and Fofina pits. The 8% increase in the recovery rate is due to the processing of ore sourced from Siou and Fofina compared to bedrock from the Wona-Kona pit during the third quarter of 2013.


Exploration at Mana

The Corporation continues to focus on exploration in the vicinity of the Mana processing plant, more specifically on the Siou sector, Pompoi Nord, Pompoi and in the north, on the Bilakongo and Kana permits. An exploration budget of $18.5 million has been allocated for these areas, including $4.5 million for an infill core drilling program at Siou.

Reverse-circulation (RC) and auger drilling programs were briefly halted during the quarter due to the rainy season. Currently, one auger rig, four RC rigs and two core rigs are in operation on these properties.


Reverse-Circulation Drilling Program at Siou

During the third quarter, two RC drill rigs continued to test a number of targets within trucking distance of the Mana processing plant. Due to the rainy season, both rigs were stopped for a one-month period. A total of 172 RC holes in 23,170 meters were completed during the quarter principally within the Siou sector. As of October 1, 2014, 553 holes in 64,780 meters were completed. Part of the RC meterage was to expand results obtained previously along the east contact of the intrusive and within the South Apex (hole MRC14-3615 with 6.45 g/t Au over 4 meters and hole MRC14-3724 with 3.12 g/t Au over 8 meters). Although significant gold values were generated by the follow-up program (including MRC14-3775 with 5.12 g/t Au over 8 meters), further drilling will be required to better understand the geological controls and continuity of the mineralization. Recent intersections obtained elsewhere within the intrusive include hole MRC14-3787, which returned 3.58 g/t Au over 4 meters. Now that the rainy season is over, the RC drilling program has recommenced.


Auger Drilling Program at Siou

Auger drilling principally concentrated on areas within the North Apex of the Siou intrusive. Infill lines were completed in order to better define the anomalous trends for RC testing later in 2014. To date, a total of 245,890 meters have been completed, 32,470 meters of which were carried out in the quarter, generating 18,500 new sample points on the Mana property.


Infill Drilling Program at Siou

Infill core drilling at Siou continued throughout the rainy season. Four rigs were active in the quarter, completing 25 holes in 6,700 meters (for a year-to-date total of 93 holes in 23,680 meters).

Results continue to better define the grades and continuity of the mineralization between 180 and 225 meters vertically within the in-pit resources shell with the objective of replacing and increasing the reserves base at Siou by year-end. Results are in line with expectations. The south ore shoot at depth within Zone 9 has returned excellent results that will allow holes WDC-873 (14.46 g/t Au over 18.0 meters) and WDC-864 (6.75 g/t over 14.1 meters) to be added to the resource base. Both holes have extended the strike length of a wide, high-grade shoot at approximately 230 meters deep vertically. Deeper drilling was also conducted along an interpreted shallow south plunge below this ore shoot. Although no high-grade intervals were obtained, hole WDC-829 (2.09 g/t over 4.0 meters) indicates that the mineralized zone remains open at depth. Further drilling will be required to test this mineralization.

In the northern portion of the deposit, deep drilling also returned priority targets for follow up within the Zone 9, including hole WDC-866, which returned 4.74 g/t Au over 8.0 meters.

A number of significant results were also obtained at depth along the Siou Zone. Recently, holes WDC-831 (6.03 g/t over 9.1 meters) and WDC-859 (14.29 g/t over 2.6 meters) were drilled at 250 meters and 300 meters below surface, respectively. The results point to a prospective strike length of more than 600 meters within the Siou Zone at depth and to the north. Further drilling is scheduled as part of the deep exploration program at Siou.


Other Exploration - Outside of Mana

During the third quarter, the Corporation acquired four new permits in the Banfora Gold Belt from two private companies. The Yeya 1, 2, and 3 permits, along with the Kongoroba permit, add 240 square kilometers to the Banfora project, which now totals 1,463 square kilometers in 14 permits. Currently, one auger drill is on site on the northern portion of the permits, and drill results are expected in the fourth quarter.

Consolidated Results and Mining Operations from Continuing Operations

 
Three-month period ended September 30, Nine-month period ended September 30,
2014  20133 Variation 2014 20133 Variation
Gold ounces produced 64,700 38,700 67% 172,500 122,900 40%
Gold ounces sold ) 67,100 36,900 82% 164,700 121,200 36%
(in thousands of dollars, except amounts per ounce, per tonne and per share)
Revenues – Gold sales 84,524 49,488 71% 210,758 175,847 20%
Mining operation expenses
(excluding government royalties)
33,354  27,130 23% 100,863 79,134 27%
Government royalties 3,909 2,355 66%  9,422 8,781 7%
Operating income (loss) 25,500 (2,935) 31,486 27,349 15%
Impairment of investment in GoviEx 19,600
Income tax expense (recovery) 9,852 (1,735) 13,878 6,177 125%
Net income (loss) from continuing operations
attributable to equity shareholders
11,172 (815) 11,203 (2,130)
Basic earnings (loss) per share
from continuing operations
0.04 0.04 (0.01)
Diluted earnings (loss) per share
from continuing operations
0.04 0.04 (0.01)
Cash flow from operating activities
from continuing operations1 
40,554 16,158 151%  80,314 65,390 23%
Operating cash flow per share
from continuing operations2 
0.15 0.06 150% 0.29 0.24 21%

 

1 Cash flow from operating activities from continuing operations excludes changes in non-cash working capital items.
2 Operating cash flow per share from continuing operations is a non-IFRS financial performance measure with no standard definition under IFRS. See the "Non-IFRS financial performance measures" section of the Corporation's MD&A.
3 Amounts have been adjusted for the adoption of IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine.