Today we look at a Canadian penny stock that focuses its efforts on western Africa. Semafo explores for gold, and is also an established producer, forecasting production of up to 275,000 ounces in 2015. This year the company made a major acquisition with the purchase of Orbis Gold and its Natougou project in Burkina Faso.
Responding to a request from a Member of his Inner Circle, Pat McKeough balances the political risk of this acquisition against Semafo’s steady production, cash flow and manageable debt.
Semafo (symbol SMF on Toronto; www.semafo.com) is a Canadian mining company that produces and explores for gold in western Africa. Semafo operates the Mana mine in Burkina Faso, which includes the high-grade Siou and Fofina deposits.
To add growth prospects, the company completed its $138.2-million acquisition of Orbis Gold earlier this year. Orbis’s Natougou project, also in Burkina Faso, holds as much as 1.1 million ounces of gold. Semafo is now conducting a feasibility study on the economics of building a mine at the site.
Orbis also owns the Nabaga project, 250 kilometres south of Natougou.
In the three months ended March 31, 2015, Semafo’s revenue nearly doubled, to $74.0 million from $38.5 million a year earlier. Cash flow was $32.6 million, or $0.12 a share, up sharply from $2.1 million, or $0.01. The gains came from mining the Siou and Fofina deposits at the Mana mine; a year ago, the company only mined ore from Mana’s Wona-Kona deposit.
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Penny stocks: With steady cash flow and manageable debt. Semafo well positioned for further acquisitions
In the latest quarter, Semafo produced 65,200 ounces of gold, up sharply from 35,100 ounces a year earlier. The company sold its gold for an average of $1,221 an ounce in the latest quarter, down 6.7% from $1,309 a year earlier. It forecasts 2015 production of 245,000 to 275,000 ounces.
Semafo holds cash of $114.8 million, or $0.39 a share. Its total debt of $87.5 million is a low 9% of its market cap.
The company’s focus on western Africa entails political risk. As well, like most gold firms, its shares will be heavily influenced by the direction of gold prices. But on the plus side, Semafo should be able to use its steady production and cash flow to fund exploration around its mine sites; it’s also well positioned to make more acquisitions.
Inner Circle recommendation: HOLD for highly aggressive investors
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