Mr. Paul Criddle reports
ROXGOLD REPORTS FINANCIAL RESULTS FOR PERIOD ENDED SEPTEMBER 30, 2016
Roxgold Inc. has released its financial results for the three- and nine-month periods ended Sept. 30, 2016.
For complete details of the unaudited condensed interim consolidated financial statements and associated management's discussion and analysis (MD&A) please refer to the company's filings on SEDAR or the company's website. All amounts are in U.S. dollars unless otherwise indicated.
Highlights
For the three-month period ended Sept. 30, 2016, the company:
- Achieved one million hours free of lost-time injuries (LTI) in August;
- Precommercial production of 32,990 ounces of gold;
- Sold 34,590 ounces of gold totalling precommercial production revenue of $46,181,000;
- Incurred a cash operating cost (1) of $348 per ounce produced for a total cash cost (2) of $417 per ounce sold and an all-in sustaining cost (3) of $702 per ounce sold, including additional investment to advance underground development 46 per cent ahead of the initial mine plan;
- Generated precommercial production cash flow from operations (4) totalling $29,482,000 for cash flow per share (5) of eight cents per share (10 Canadian cents per share);
- Mined 49,270 tonnes of ore at an average grade of 17.0 grams per tonne (g/t) including two stopes with an overall dilution of 10.7 per cent and 17.9 per cent, respectively, which compares favourably with the company's feasibility study (FS) assumption of 20.5 per cent;
- Deep drilling program resumed at 55 zone, with results expected to be included in mineral resource estimate planned for the first quarter of 2017;
- Received $9-million from the early exercise of all outstanding warrants, held by International Finance Corp. (IFC);
- Declared commercial production as of Oct. 1, 2016;
- Was awarded the Prix Responsabilite Sociale des Entreprises minieres 2016 or 2016 CSR award of mining companies from Redevabilite in Burkina Faso.
Notes
(1) Cash operating cost is a non-international financial reporting standards 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 company's 2016 third quarter 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) All-in sustaining cost is a non-IFRS financial performance measure with no standard definition under IFRS. See the non-IFRS financial performance measures section of the company's 2016 third quarter MD&A.
(4) Precommercial production cash flow from operations is a non-IFRS financial performance measure with no standard definition under IFRS. See the non-IFRS financial performance measures section of the company's 2016 third quarter MD&A.
(5) Cash flow per share is a non-IFRS financial performance measure with no standard definition under IFRS. See the non-IFRS financial performance measures section of the company's 2016 third quarter MD&A.
Precommercial production
The company considers that precommercial production operations at the Yaramoko gold mine commenced in June, 2016, as the construction of the processing plant and associated infrastructure was completed, the contractual performance test associated with the engineering, procurement and construction (EPC) lump sum contract with DRA/Group Five joint venture was passed and a first gold shipment was exported and refined. Ramp-up of precommercial production continued during the third quarter ended Sept. 30, 2016, with higher productivity from the mine being realized month over month.
The company has combined the month of June, 2016, and the third quarter precommercial production financial operating results in the financial performance section table as the company believes that this grouping more accurately represents its overall activities during the ramp-up period, leading to the declaration of commercial production on Oct. 1, 2016.
Three months Four months
June, ended Sept. ended Sept.
2016 30, 2016 30, 2016
Operating data
Ore mined (tonnes) 11,770 49,270 61,040
Ore processed (tonnes) 21,710 60,880 82,590
Head grade (g/t) 14.9 17.0 16.4
Recovery (%) 97.7 98.7 98.4
Gold ounces produced 12,400 32,990 45,390
Gold ounces sold 8,250 34,590 42,840
Financial data (in thousands of dollars)
Precommercial production revenues -- gold sales $10,445 $46,181 $56,625
Mining operating expenses
(excluding government royalties) 2,616 12,112 14,728
Government royalties 410 2,320 2,730
Sustainability and other in-country costs 160 300 460
Investment in underground development 2,400 8,697 11,097
Statistics (in dollars)
Average realized selling price (per ounce) 1,265 1,335 1,322
Cash operating cost (per ounce produced) (1) 355 348 350
Cash operating cost (per tonne processed) (1) 202 189 192
Total cash cost (per ounce sold) (2) 367 417 408
Sustaining capital cost (per ounce sold) (3) 291 251 259
All-in sustaining cost (per ounce sold) (4) 729 702 707
Notes
(1) Cash operating cost is a non-IFRS 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 company's
2016 third quarter 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) Sustaining capital cost per ounce sold is a non-IFRS financial performance
measure with no standard definition under IFRS and represents the investment
in underground development per ounce sold.
(4) All-in sustaining cost is a non-IFRS financial performance measure with
no standard definition under IFRS. See the non-IFRS financial performance
measures section of the company's 2016 third quarter MD&A.
Operational performance
During the three-month period ended Sept. 30, 2016, 49,270 tonnes of ore were extracted from the underground mine as stoping operations were established, resulting with the successful mining and extraction of the first three stoping panels. Mining extraction was effective with clean hangingwall contacts observed and the overall dilution was 10.7 per cent and 17.9 per cent for the first and second stope, respectively, which compared favourably with the company's feasibility study (FS) assumption of 20.5 per cent.
During the reporting period, a full gold reconciliation for the project to date at the 55 zone was completed. Over all, the reconciliation compared with the FS model shows good global accuracy as the reconciled gold contained in ore mined to date is within 5.1 per cent of the FS model prediction of the contained gold in those corresponding areas mined to date. This is well within the expected accuracy of an indicated-resource-level (probable reserve) model. Eighty-five per cent of this comparison was based on development ore. Since the commencement of stoping in recent months, a positive trend has been observed whereby the contained gold reconciled in the three stopes to Sept. 30, 2016, was positively reconciled by a cumulative amount of 14.83 per cent. The positive variation is supported by a 15-per-cent reduction in tonnes when compared with the FS model due to mining a more discrete vein with less dilution, offset by a 35-per-cent overperformance in grade.
As of Sept. 30, 2016, in the underground operation, four sublevels were fully developed throughout the eastern, central and western extents of the resource, representing 1,878 metres of ore development. During the third quarter of 2016, the company took advantage of high productivity rates from the underground mining contractor. As a result, the company is 46 per cent ahead of the initial mine plan and is, as such, benefiting from additional flexibility.
Since commissioning commenced, the processing plant continues to operate well with high availabilities. The processing plant processed an average throughput of 676 tonnes per day (tpd) in the third quarter. During the month of June, the processing plant performed for seven consecutive days at throughputs of over 750 tpd milled, including a record day of 819 tpd. The average gold recovery rate of 98.7 per cent, during the third quarter of 2016, has been above the FS assumption of 96.9 per cent in all months with over 99.1-per-cent recovery experienced in August. The plant team continues to observe improved operating performance in the gravity circuit as the gravity circuit contribution to overall recovery was 59 per cent in September.
For the three-month period ended Sept. 30, 2016, 60,880 tonnes were milled to produce 32,990 ounces of gold. As at Sept. 30, 2016, there were approximately 2,182 contained ounces of gold in circuit, with an additional 4,583 ounces in gold dore poured in the gold room ready to be shipped and refined.
In the coming months, the focus of the operations team at site is to continue to ramp up mine productivity to take advantage of mill capacity. The company expects to increase the proportion of production ore from stoping activities as more active stopes become established.
Financial performance
Based on the company's accounting policy (refer to Note 2 of the financial statements for the period), commercial production was declared on Oct. 1, 2016, as the Yaramoko gold mine had reached the intended levels of operating capacity as of Sept. 30, 2016. Accordingly, precommercial production revenue totalling $56,625,000 (third quarter 2016: $46,181,000) has been offset against mine operating costs, totalling $14,728,000 (third quarter 2016: $12,112,000), and other capitalized costs, including previously capitalized development costs, on the statement of financial position.
During the four-month precommercial production period ended Sept. 30, 2016, a total of 42,840 ounces of gold (third quarter 2016: 34,590 ounces) was sold resulting in precommercial production revenues of $56.6-million (third quarter 2016: $46.2-million) at an average realized gold price of $1,322 per ounce sold (third quarter 2016: $1,335 per ounce sold). This amount was recorded to mineral properties under development within property, plant and equipment during the nine-month period ended Sept. 30, 2016.
Mining operating expenses represent mining, processing, and mine site-related general and administrative expenses. Cash operating cost (1) per tonne processed totalled $192 per tonne (third quarter 2016: $189 per tonne), which is slightly higher than the $182-per-tonne-processed cost included in the FS for the first six months of commercial production. The higher cost per tonne processed is mainly due to higher operational costs typically associated with a ramp-up period and as a result of higher energy costs because the high-voltage (HV) power line is not yet in operation. The cash operating cost (1) per ounce produced totalled $350 per ounce, for the four-month period ended Sept. 30, 2016 (third quarter 2016: $348 per ounce), compared with the life-of-mine cash operating cost (1) per ounce produced of $402 per ounce included in the FS. The lower cash operating cost (1) per ounce is the result of higher-grade and lower reagent consumption, offset by higher energy costs when compared with the FS's assumptions.
In Burkina Faso, all gold shipments with gold spot prices lower or equal to $1,000 per ounce are subject to a royalty rate of 3 per cent while a 4-per-cent rate is applied to all shipments with gold spot prices between $1,000 and $1,300 per ounce, and a 5-per-cent royalty rate is applied to all shipments with a gold spot price greater than $1,300 per ounce. During the four-month precommercial period ended Sept. 30, 2016, the company was subject to a royalty rate of 4 per cent and 5 per cent which was calculated using the retail market value of gold ounces sold at the time of shipment.
In-country and corporate social responsibility expenses refer to expenditures incurred to maintain Roxgold's current licence to operate in Burkina Faso, as well as investments made in sustainability and community projects related to current operations.
During the four-month period ending Sept. 30, 2016, Roxgold invested $11.1-million in underground mine development (third quarter 2016: $8.7-million), representing a sustaining capital cost (2) per ounce sold of $259 per ounce compared with the life-of-mine average cost of $101 per ounce included in the FS. It was expected that there would be a higher sustaining capital cost (2) per ounce as the FS anticipated that the underground mine development would be completed in the first 48 months of the eight-year mine life and then reducing thereafter. Accordingly, the average sustaining capital cost (2) per ounce sold for the first four years was estimated to be $176 per ounce sold. Another factor influencing the sustaining capital cost (2) per ounce is the underground development progress to the end of the third quarter of 2016 represents 146 per cent of the anticipated mine development for the same period. The investment in the additional metres of development was made to provide for greater operational flexibility and resilience as well as the opportunity to benefit from the high availabilities of the mill.
Based on the foregoing, $35,936,000 (third quarter 2016: $29,482,000) of precommercial production cash flow from operations (3) was generated during the four-month precommercial production period while the all-in sustaining cost (4) totalled $707 and $702 per ounce sold for the four- and three-month period ended Sept. 30, 2016, respectively.
Development update
As the majority of project activities was completed during the second quarter of 2016, with the exception of the HV power line which is based on lump-sum contracts, the final project capital cost estimate is forecasted to be approximately $107-million (U.S.). This is approximately 3 per cent below the company's earlier project capital cost estimate of $110.8-million (U.S.) (for more information on the capital cost estimate, please refer to the company's press release dated April 7, 2015, available on SEDAR).
Work continues to progress on the connection to the HV national electricity grid in Burkina Faso. The transmission line construction is complete and Eiffage, the substation contractor, has established civil works for the substation.
Progress is positive and the company anticipates drawing on the power supply in the first quarter of 2017.
Financing activities
Project finance
The credit facility, which has a six-year term and will bear interest at a rate of LIBOR (London interbank offered rate) plus 4.75-per-cent precompletion and 4.25-per-cent postcompletion, was fully drawn during the second quarter ended June 30, 2016, as the project was being completed. During the three-month period ended Sept. 30, 2016, the company has not had to utilize funds from its equity-financed $15-million cost overrun facility, as required by the credit facility, and does not anticipate using it as commercial production was declared on Oct. 1, 2016.
Equity
On July 14, 2016, IFC exercised the 12.9 million warrants issued to it on Sept. 9, 2015, exercisable for one additional common share of the company, at a conversion price equal to 90 cents per share, 14 months prior to the warrants' expiry date of Sept. 9, 2017. This represented approximately $9-million of total proceeds for the company. These proceeds will be invested to support organic growth initiatives, such as expansion drilling at the 55 zone, which started to delineate potential extension to strike below the floor of the current mine plan at 430 metres, as well as further drilling at the QV1 and QV zones at Bagassi South to further delineate and define the recently released maiden resource.
Exploration activities
55 zone
During the third quarter of 2016, the company resumed drilling at the 55 zone following the end of the rainy season in September. Drilling commenced with one diamond drill rig on Sept. 8, followed by a second diamond drill rig on Sept. 24. The drilling program aims at testing the 55 zone at vertical depths between 550 m and 975 m, a total of 2,722 metres was drilled during the period and two holes, YRM-16-DD-422A and 423, were completed.
The drilling program is expected to continue at the 55 zone until the end of 2016, the results of which will be included in an updated mineral resource estimate planned for the end of the first quarter of 2017.
Bagassi South
There were no exploration activities at Bagassi South during the period under review due to the rainy season. A drilling program has been planned for Bagassi South for the end of the fourth quarter which consists of approximately 4,000 metres of drilling targeting the QV structure.
The Yaramoko exploration permit expired in September, 2016. The company has submitted an application for a new permit and has received confirmation from the Burkina Faso authorities that the new permit is pending and will be delivered in due course.
Houko permit
There were no exploration activities at Houko during the period under review due to the rainy season.
Corporate social responsibilities activities
In line with its suitability strategy and based on Roxgold's participative approach with the adjacent communities, a list of multiple corporate social responsibility projects and initiatives has been established for completion during the 12-month period to be ending Dec. 31, 2016. All the selected projects originated from the community and focus on education, water supply, women's entrepreneurship, assistance for the physically disabled and health. These projects will impact approximately 10,000 people.
More specifically, the solar electrification of three health centres in small villages (Kahin, Pahin, Vy), currently with no electricity, will support the improvement of services that can be offered to the community. In addition, Roxgold is attending to the solar electrification of three schools. There are also projects that focus on training and providing equipment for weaving leather goods, rehabilitation of 20 boreholes in the Bagassi municipality and three projects aimed at empowering women with the establishment of a pigsty, a cattle-fattening project and the opening of a new soap production unit.
Roxgold has also developed programs to enhance local procurement and employment to improve the environment (village reforestation) with the goal of leaving a legacy of positive socio-economic and environmental impacts in the areas in which the company operates.
During the three-month period ended Sept. 30, 2016, the initiatives realized have been part of the 2016 livelihood restoration program and involved the distribution of NPK and urea fertilizer in favour of the population affected by the mine to improve the production of their crops. The solar electrification of the health facility was also completed during period while training to improve the local suppliers' capacity was continuing. In addition, the rehabilitation of the main Bagassi road started after the rainy season.
On Aug. 17, 2016, the company was awarded the Prix Responsabilite Sociale des Entreprises minieres 2016 or 2016 CSR award of mining companies from Redevabilite in Burkina Faso. This civil society group comprises multiple groups, including:
- The Africa Youth Network (RAJ);
-
The Centre for Research and Intervention in Gender and Development (CRIGED);
-
The Centre for Citizens' Monitoring and Analysis of Public Policy (CDCAP);
-
Partners of the economic and social justice program NGO Diakonia.
Events subsequent to Sept. 30, 2016
As a result of the successful mining and extraction rates achieved since commencing stoping in August and September, 2016, together with high processing plant availabilities and gold recoveries above FS assumptions, the company declared commercial production at its Yaramoko gold mine effective Oct. 1, 2016.
Conference call information
The company will also host a conference call today, Monday, Nov. 14, 2016, at 11 a.m. Eastern Standard Time to discuss the 2016 third quarter financial results.
Participants in Canada and the U.S. can call in by dialling 888-231-8191 and participants outside North America can dial in by calling 647-427-7450.
A recorded playback of the 2016 third quarter results call will be available two hours after the call for 90 days by dialling 416-849-0833 and entering the call-back pass code 7604515.
SELECTED FINANCIAL DATA
Three-month period Nine-month
ended Sept. 30, period ended Sept. 30,
2016 2015 2016 2015
Cost of operations
General and administrative expenses $851,000 $585,000 $2,510,000 $2,006,000
Exploration and evaluation expenses 1,083,000 475,000 3,501,000 1,739,000
Share-based payments 1,094,000 855,000 1,966,000 1,518,000
Depreciation 148,000 44,000 427,000 148,000
---------- ---------- ---------- ----------
Operating loss for the period 3,176,000 1,959,000 8,404,000 5,411,000
Other expenses (income)
Interest (income) (15,000) (2,000) (24,000) (52,000)
Standby fees 35,000 349,000 175,000 349,000
Change in fair value of derivative
Instruments (income) (272,000) 5,528,000 14,474,000 5,528,000
Unrealized foreign exchange loss/(gain) (493,000) (1,276,000) 1,652,000 (2,846,000)
Indirect tax 31,000 34,000 92,000 109,000
---------- ---------- ---------- ----------
(Loss) before income taxes (2,462,000) (6,592,000) (24,773,000) (8,499,000)
Deferred income tax (expense)/income - - - -
Net (loss) for the period (2,462,000) (6,592,000) (24,773,000) (8,499,000)
---------- ---------- ---------- ----------
(Loss) per share (basic and diluted) (0.01) (0.02) (0.07) (0.03)
Third quarter of 2016 versus third quarter of 2015
Cost of operations
General and administrative expenses for the three-month period ended Sept. 30, 2016, increased compared with the same period in 2015. The net increase is mainly due to higher salary costs as a result of the enhancement of the corporate team since 2015, in anticipation of becoming a gold producer, combined with an intensification of investor relations activities as the company transitioned from development to the precommercial production stage of operations. There was also an increase in consulting expenses during the period due to the hiring of external consultants for special projects associated with the transition from development to production. The company does not expect these to be recurring expenses.
Expenses for drilling and geological work for the three-month period ended Sept. 30, 2016, increased when compared with the same period in 2015. The increase is primarily due to the 2,722 metres of drilling competed in September, 2016, as part of the drilling program at the 55 zone which aims at testing the 55 zone at vertical depths between 550 m and 975 m compared with the drilling done at Bagassi South on the south side of the dike in July, 2015.
Economic evaluations costs reflect expenditures associated with assessing the potential for an underground operation at Bagassi South. Owners' costs are expenditures incurred to support the exploration team in country.
Share-based compensation expense for the three months ended Sept. 30, 2016, reflects, primarily, the valuation of the annual grant of deferred share units and restricted share units recently granted. The increase compared with the same period in the prior year is attributable to the significant increase in the company's share price during the year.
Other expenses
The variation in other expenses is mainly due to the change in the fair value of the gold forward sale contracts, which were entered into in July, 2015, as a condition precedent to be able to access funds available through the credit facility. During the three-month period ended Sept. 30, 2016, the decrease in the market gold price relative to the sale price in the forward sale contracts resulted in a decrease to the liability relating to the forward sale contracts when compared with June 30, 2016.
As a result, the company's net loss for the three-month period ended Sept. 30, 2016, totalled $2,462,000 compared with net loss of $6,592,000 for the three-month period ended Sept. 30, 2015. Consequently, the company recorded a loss per share of one cent and loss per share of two cents per share for the three-month periods ended Sept. 30, 2016, and 2015, respectively.
Notes
(1) Cash operating cost is a non-IFRS 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 company's 2016 third quarter 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) All-in sustaining cost is a non-IFRS financial performance measure with no standard definition under IFRS. See the non-IFRS financial performance measures section of the company's 2016 third quarter MD&A.
(4) Precommercial production cash flow from operations is a non-IFRS financial performance measure with no standard definition under IFRS. See the non-IFRS financial performance measures section of the company's 2016 third quarter MD&A.
(5) Cash flow per share is a non-IFRS financial performance measure with no standard definition under IFRS. See the non-IFRS financial performance measures section of the company's 2016 third quarter MD&A.
Qualified persons
Paul Criddle, FAusIMM, chief operating officer for Roxgold, a qualified person within the meaning of National Instrument 43-101, has verified and approved the technical disclosure contained in this press release.
Yan Bourassa, PGeo, vice-president, geology, for Roxgold, a qualified person within the meaning of National Instrument 43-101, has verified and approved the technical disclosure contained in this press release.
About Roxgold
All-in sustaining cost
In June, 2013, the World Gold Council, a non-regulatory association of the world's leading gold mining companies, established to promote the use of gold to industry, consumers and investors, provided guidance for the calculation of the measure all-in sustaining cost per gold ounce, which has no standard meaning under IFRS. These standards became effective Jan. 1, 2014. Management believes that the all-in-sustaining-cost-per-gold-ounce measure provides additional insight into the costs of producing gold by capturing all of the expenditures required for the discovery, development and sustaining of gold production and allows the company to assess its ability to support capital expenditures to sustain future production from the generation of operating cash flows. Management also believes that, in addition to conventional measures prepared in accordance with IFRS, certain investors use this information to evaluate the company's performance. However, it is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS and is not necessarily indicative of cash flow from operations under IFRS or operating costs presented under IFRS. It should also be noted that the adoption of the standard is voluntary and the cost measures presented may not be comparable with other similarly titled measures of other companies. Other companies may calculate these measures differently.
Consistent with guidance announced in 2013 by the World Gold Council, Roxgold defines all-in sustaining cost per ounce as the sum of total cash cost, underground development that is sustaining in nature, corporate general and administrative costs, in-country and corporate social responsibility expenditures related to current operations, and reclamation liability accretion, all divided by the total gold ounces produced to arrive at a per-ounce figure.
As this measure intends to represent the cost of selling gold from current operations, it does not include capital expenditures attributable to development projects or mine expansions including economic evaluation for such projects, non-cash share-based payments, exploration expenses that are not sustainable in nature, income tax payments, working capital defined as current assets less current liabilities (except for inventory adjustments) or interest costs.
We seek Safe Harbor.
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