Montreal, Quebec, September 30, 2019 - SEMAFO Inc. (TSX, OMX: SMF) is pleased to announce positive results from a preliminary economic assessment ("PEA") for its Nabanga project in Burkina Faso.
Highlights
Pre-tax NPV of $147 million and after-tax NPV of $100 million, using a 5% discount rate
LoM gold production of 571,000 ounces at AISC of $760/oz and a gold recovery of 92% during the 8 years of operations
Pre-production capital expenditure of $84 million, including 20% contingency, and $56 million in LoM sustaining capital
Project economics (base case at $1,300/oz gold price):
After-tax 5% NPV: $100 million
After-tax IRR: 22.6%
Payback period: 4.4 years
Preferred mining method - open-pit/ underground mining on the upper and at-depth portions of the ore zone, respectively
Opportunities exist to improve returns through an increase in resources and additional cost saving measures in the mining operations and development
Benoit Desormeaux, President and CEO, stated, "The results in today's PEA highlight attractive economics for Nabanga including how the project can be developed with modest initial capital by combining open-pit and underground mining operations. The goal of the PEA study was to assess the initial economic viability and to identify areas for improvement to rank Nabanga within SEMAFO's development pipeline. We believe we can improve the project economics through additional work on mining cost optimization for open-pit operations, underground operations, and underground capital development expenditures. Furthermore, there remains potential to extend resources through additional exploration drilling as some mineralized zones remain open and further exploration potential exists on the property. As we move beyond the PEA, we will be looking to maximise the potential to generate shareholder value."
Mineral Resources
The PEA is based on mineral resources estimated on December 31, 2018 for the Nabanga deposit.
+--------+----------+------+------+------+
|Category|          |Tonnes|Au g/t|Ounces|
|        |          |  Mt  |      | K oz |
+--------+----------+------+------+------+
|Inferred resources1| 3.4  | 7.7  | 840  |
+--------+----------+------+------+------+
1          Nabanga mineral resource is reported above a cut-off grade of 3.0 g/t Au.
Mineralization
The mineralization at the Nabanga deposit is predominately hosted within a granodiorite intrusive. The gold mineralization is associated with quartz veining and a distinctive sheared alteration zone developed around the central quartz filled structure. The mineralized structure dips approximately 65 degrees towards the northwest and has an average horizontal thickness of 4 meters.
Exploration Potential
On the exploration front, the Nabanga deposit remains open to the north and many of the ore shoots are open at depth. Hole NADD18 0005, drilled on the northernmost section, to date returned 5.17 g/t Au over 3.4 meters along the plunge direction, confirming the continuity of the mineralized shoot. In addition, the remainder of the 800-km2property is largely underexplored with many untested soil and auger anomalies within trucking distance of the deposit. More specifically, auger drilling carried out in 2019 within a 10-kilometer radius of the deposit identified gold geochemical anomalies that could offer proximal satellite zones of gold mineralization.
Gold Price Sensitivity Analysis
The Nabanga project sensitivity analysis was performed using a $100 variation from the base case gold price as illustrated in the following table:
Base Case     $1,400 oz gold  $1,500 oz gold
$1,300 oz gold
After-tax 5% NPV ($M)        $100            $130            $160
After-tax IRR (%)             23              28              32
Payback period (years)       4.4             3.8             3.4
Mining
The PEA envisions a combination of contract-operated open pit and underground mining methods for the Nabanga deposit. The top portion of the mineralized zone is projected to be recovered by conventional truck & shovel open-pit mining down to a maximum depth of 60 to 70 meters. Open-pit production is contemplated at a rate of 16,000 tonnes per day (tpd) for a total of 14.7 million tonnes of material, including 616,000 tonnes of mineralized material at an average grade of 6.45 g/t Au. Drill and blast will be required almost at the beginning of the excavation work because there is almost no overburden. The open-pit operation is planned over a period of 2.5 years, including the pre-production period.
Below the open pit, recovery of the mineralized zone is foreseen using an underground mining method (sublevel long hole stoping) with the use of cemented rock fill. In the scenario presented in the PEA, development of the underground mine would commence in the second year of operations, starting from one of the small satellite pits located towards the central portion of the Nabanga deposit. More than 9,600 meters of underground development are planned over the project LOM to unlock the different mineralized zones. Approximately 2,365 million tonnes of material with an average head-grade of 6.48 g/t Au are projected to be mined from underground operations at an average of 1,000 tpd during the seven-year projected LoM.
Over the project LOM, combined open-pit and underground production is estimated at 2.98 million tonnes at an average grade of 6.47 g/t Au. A cut-off grade of 2 g/t Au has been used for the open-pit mineralized material while a cut-off grade of 3.7 g/t Au has been used for the underground mineralization.
+----------------------------------+------+--------+------+
|                                  |Tonnes|Au grade|Ounces|
|                                  |  Kt  |  g/t   | K oz |
+----------------------------------+------+--------+------+
|PEA open pit mineralization1      | 616  |  6.45  | 128  |
+----------------------------------+------+--------+------+
|PEA underground mineralization2   |2,365 |  6.48  | 498  |
+----------------------------------+------+--------+------+
|Total PEA (OP & UG) mineralization|2,980 |  6.47  | 626  |
+----------------------------------+------+--------+------+
1          Nabanga PEA open pit mineralization is reported above a cut-off grade of 2.0 g/t Au and includes 12% dilution.
2          Nabanga PEA underground mineralization is reported above a cut-off grade of 3.7 g/t Au and includes 0.5 meters of dilution in both the hanging wall and foot wall of the mineralization.
Metallurgy and Processing
The Nabanga process plant will be based on a conventional crushing and grinding circuit, with the crushing circuit composed of a single-stage jaw crusher. Crushed ore will then be conveyed to the grinding circuit using a SAG mill and ball mill circuit. Following that, a flotation circuit is expected to recover some 80% of the gold-bearing minerals, with the remaining 20% treated in CIL leach tanks. The flotation concentrate will pass to the regrind mill to reduce the particle size, before being sent to an intensive leach reactor. The CIL stream will undergo pressure elution, after which both pregnant solutions will be sent to electrowinning cells for gold recovery.
A gold recovery of approximately 92% is expected in fresh ore and 90% in oxide ore based on metallurgical test results obtained by Orbis Gold Limited in 2013 and 2014.
Capital expenditures
Initial capital costs are estimated at $84 million with LoM sustaining capital expenditure estimated at $56 million. See below for more detail.
+----------------------------------+----+
|Pre-production Expenditures       |$M  |
+----------------------------------+----+
|                                  |    |
+----------------------------------+----+
|OP mine development               |8.7 |
+----------------------------------+----+
|Surface infrastructure            |7.1 |
+----------------------------------+----+
|Process plant                     |27.6|
+----------------------------------+----+
|Tailings & water management       |2.4 |
+----------------------------------+----+
|Power plant & distribution        |6.6 |
+----------------------------------+----+
|Indirect costs                    |17.2|
+----------------------------------+----+
|Contingency                       |13.9|
+----------------------------------+----+
|Total initial capital expenditures|84  |
+----------------------------------+----+
Pre-production Expenditures per Year
+---------------------------+------+------+
|In millions of $           |Year 1|Year 2|
+---------------------------+------+------+
|Pre-production expenditures|17    |67    |
+---------------------------+------+------+
LoM Total Cash and All-in Sustaining Costs
The table below gives the LoM AISC per tonne processed at Nabanga, which includes the government royalties and sustaining capital expenditures.
+-------------------------------+-----+--------+
|                               | $M  |  $/oz  |
|                               |     |produced|
+-------------------------------+-----+--------+
|Mining                         |154.6|  271   |
+-------------------------------+-----+--------+
|Processing                     |139.1|  244   |
+-------------------------------+-----+--------+
|General & administration costs |39.9 |   70   |
+-------------------------------+-----+--------+
|Government royalties           |44.4 |   78   |
+-------------------------------+-----+--------+
|Sustaining capital expenditures|55.9 |   98   |
+-------------------------------+-----+--------+
|All-in sustaining cost (AISC)  |433.9|  760   |
+-------------------------------+-----+--------+
Next Steps
Recommended next steps in the PEA include drilling the mineral resources up to the measured and indicated categories and launching a feasibility study to demonstrate the anticipated economic and technical parameters. From a corporate perspective, we will evaluate the best alternative to generate shareholder value.
Qualified Persons & Technical Report
The Nabanga deposit PEA is preliminary in nature and includes inferred mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves. There is no guarantee that inferred resources can be converted to indicated or measured resources and as such, there is no certainty that the PEA will be realized. A technical report for the PEA prepared in accordance with National Instrument 43-101 will be filed at www.sedar.com within 45 days of this news release.
The PEA was conducted by the firm DRA Met-Chem and revised by Patrick Moryoussef, Eng., Vice-President, Mining Operations, SEMAFO and Qualified Person, as defined by National Instrument 43-101. Patrick Moryoussef has reviewed this press release for accuracy and compliance with National Instrument 43-101. The PEA is based on SEMAFO's technical report on the resources of the Nabanga gold deposit as at December 31, 2018, available on SEDAR at www.sedar.com.
CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
This press release contains forward-looking statements. All statements other than statements of present or historical facts are forward-looking. Forward-looking statements involve known and unknown risks, uncertainties and assumptions and accordingly, actual results and future events could differ materially from those expressed or implied in such statements. You are hence cautioned not to place undue reliance on forward-looking statements. Forward-looking statements include words or expressions such as "preliminary", "payback period", "opportunities", "improve", "increase", "initial", "development", "pipeline", "believe", "potential", "expand", "additional", "move beyond", "will", "maximise", "generate", "remainder", "could", "contemplated", "planned", "LOM", "estimated", "expected", "initial", "next steps", "launching", "demonstrate", "evaluate", "committed", "building", "leveraging", and other similar words or expressions. Factors that could cause future results or events to differ materially from current expectations expressed or implied by the forward-looking statements include the ability to (i) deliver the results of the Nabanga PEA, including its highlights, (ii) capitalize on Nabanga's exploration potential, (iii) meet Nabanga's expected mining, metallurgy and processing methods, capital expenditures, pre-production expenditures, LOM and AISC, (iv) be in line with all assumptions contained in the PEA, (v) execute on our strategic focus, fluctuation in the price of currencies, gold or operating costs, mining industry risks, uncertainty as to calculation of mineral reserves and resources, delays, political and social stability in Africa (including our ability to maintain or renew licenses and permits) and other risks described in SEMAFO's documents filed with Canadian securities regulatory authorities. You can find further information with respect to these and other risks in SEMAFO's 2018 Annual MD&A, as updated in SEMAFO's 2019 First Quarter MD&A and 2019 Second Quarter MD&A and other filings made with Canadian securities regulatory authorities and available at www.sedar.com. These documents are also available on our website at www.semafo.com. SEMAFO disclaims any obligation to update or revise these forward-looking statements, except as required by applicable law.
TABLE 1 - NABANGA LOM PLAN AND CASH FLOW
  Total or  Construction           Year          Year          Year          Year           Year           Year           Year          Year           Year
Average
LoM        Period              1             2             3             4              5              6              7             8              9
MINE SCHEDULE
Open-pit ore       615,974       88,067         308,251       219,657
(t)
Open-pit grade          6.45          6.20           6.33          6.70
(g/t)
Open-pit waste                   2,894,907      5,401,199     5,762,218
(t)
Underground     2,364,459                                     88,411       359,981       358,593        360,361        360,726        391,598       360,883         83,907
ore (t)
Underground          6,48                                       6.96          5.75          6.87           7.14           6.81           5.51          6.67           6.96
grade (g/t)
Total ore     2,980,434        88,067        308,251       308,068       359,981       358,593        360,361        360,726        391,598       360,883         83,907
mined (t) 
Ore grade          6.47          6.20           6.33          6.78          5.75          6.87           7.14           6.81           5.51          6.67           6.96
(g/t)
PROCESSING
SCHEDULE
Ore processed     2,980,434                      330,000       360,000       360,000       360,000        360,000        360,000        360,000       360,000        130,434
Grade                                        6.3          6.69          5.79          6.83           7.13           6.82           5.55          6.54           6.81
processed
(g/t)
Recovery (%)            92                          92            92            92            92             92             92             92             92             92
Production                                     61,531        71,263        61,602        72,750         75,897         72,649         59,151        69,656         26,268
(oz)
REVENUES (in                               79,806,232     92 427 652    79 897 446    94 357 380    98,438,174     94,226,215     76,718,696     90 344 453    34,069,843  
$)
OPERATING                              (40,893,017)        (46 773       (48 473       (44 778  (46,829,207)   (49,732,430)   (44,887,293)        (42 833  (12,734,303) 
COSTS (in $)                                                    854)          535)          921)                                                       341) 
EBITDA (in $)                               38,913,215     45 653 798    31 423 911    49 578 459    51,608,968     44,493,785     31,831,403    47,511,113     21,335,540  
                                                                                                                      
Accounts                                9,975,779     11,553,457    9,987,181     11,794,672    12,304,772     11,778,277      9,589,837     11,293,057     4,258,730  
receivable (in
$)
Accounts                               (3,407,751)   (3,897,821)   (4,039,461)   (3,731,577)    (3,902,434)    (4,144,369)    (3,740,608)   (3,569,445)    (1,061,192) 
payable (in $)
Working                                  6,568,028     7,655,635     5,947,720     8,063,096      8,402,338      7,633,908      5,849,229     7,723,612      3,197,538
capital (in $)
Change in                 (6,568,028)    (1,087,608)     1,707,916   (2,115,376)     (339,242)        768,430      1,784,678    (1,874,382)     4,526,073      3,197,538
working
capital
(in $)
Initial capex  (83,695,551)  (83,695,551)
Sustaining  (55,914,520)                                19,500,314    13,722,562    13,730,456     7,357,276      1,047,095  
capex                                   556,818 
Capitalized  (13,923,466)  (13,923,466)
stripping
activity (part
of initial
capex)
Rehabilitation   (5,000,000)                                                                                                        (1,250,000)   (1,250,000)    (2,500,000) 
& closure
costs
CASH FLOW                (90,263,579)     37,268,790    27,861,401    15,585,973    35,508,761     45,020,122     45,231,369     28,707,020    50,787,186     22,033,079
Total cash           662                          665           656           787           616            617            685            759           615            485
cost /oz
All-in           760                          665           664         1,103           804            798            786            777           615            485
sustaining
cost /oz