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Markus Aarnio
Markus Aarnio
Articles (48) 

Semafo Trading Below Net Asset Value

August 10, 2013 | About:

The Market Vectors Gold Miners ETF (GDX) was trading as high as $66.98 in September 2011. The index is currently trading at $26.73 or 60.1% below the September 2011 peak. In this article, I will feature one gold mining company that is trading below net asset value.

Semafo (SEMFF.PK) is a Canadian-based mining company with gold production and exploration activities in West Africa.

The company has currently a market cap of $505.6 million and an enterprise value of $389.2 million. The company's net asset value was $528.4 million or $1.94 per share as of June 30. The stock is currently trading at a 4.6% discount to its net asset value.

The company operates three gold mines: the Mana mine in Burkina Faso, the Samira Hill mine in Niger and the Kiniero mine in Guinea.


The Mana property is located approximately 200 kilometers west of Ouagadougou, the capital city of Burkina Faso. It is host to Semafo's flagship Mana mine, an open-pit mining operation inaugurated in mid-2008. Permitted property at Mana currently covers 2,119 km2 of land over the prospective Houndé belt.

During the first six months of 2013 the Mana mine produced 84,200 ounces of gold with total cash costs of $693 per ounce. The Mana property has 1.86 million gold ounces in reserves and 3.02 million ounces in resources.

The company continues to focus on organic growth at Mana. Based on the excellent results from the Siou sector, Semafo's entire 2013 exploration budget of $22 million has been allocated to Mana. The main exploration focus will be within the 20-kilometer radius of the Mana processing plant.

Semafo's short-term priorities in the Siou sector include issuing the reserve and resources estimate and mine plan in the third quarter of 2013. Moving forward with permitting process, being in a position to commence stripping activities in the third quarter of 2014 and continuing exploration within 20 kilometer radius of the Mana processing plant.

Samira Hill

The Samira Hill mine is located on the 50-kilometer gold belt commonly referred to as the Samira Horizon. It is approximately 90 kilometers west of Niamey, the capital of Niger.

During the first six months of 2013 the Samira Hill mine produced 24,500 ounces of gold with total cash costs of $1,002 per ounce. The Samira Hill property has 317,900 gold ounces in reserves and 539,400 ounces in resources.

In July, Semafo entered into a heads of agreement for the sale of its interest in the Samira Hill mine. Several conditions will have to be met prior to the closing of the transaction, which is scheduled to take place prior to September 30, 2013.


The Kiniero mine, is located in central Guinea, approximately 650 kilometers east of the capital of Conakry.

During the first six months of 2013 the Kiniero mine produced 9,600 ounces of gold with total cash costs of $908 per ounce. The Kiniero property has 271,300 gold ounces in reserves and 633,900 ounces in resources.

Insiders are buying

Here is a table of Semafo's insider trading activity by calendar month.

MonthInsider buying / sharesInsider selling / shares
June 201314,7000
May 201300
April 201355,0000
March 201310,0000
February 201300
January 201300

There have been 79,700 shares purchased and there have been zero shares sold by the insiders this year.


The company reported the second-quarter financial results on August 7 with the following highlights:

Revenue$71.1 million
Net loss$46.5 million
Adjusted net income$12.8 million
Cash flow from operating activities$24.3 million
Cash$116.4 million
Net assets$528.4 million
Net assets per share$1.94
Gold production58,600 ounces
Total cash cost$752 per ounce

The company made non-cash impairment charges of $67.1 million on non-core assets during the second quarter.


Semafo is maintaining its annual production and total cash cost guidance of between 153,000 - 168,000 ounces at a total cash cost of $805 - $855 per ounce at the Mana mine. Guidance will not be maintained for the Kiniero and Samira Hill mines, as the company winds down operations to an eventual care and maintenance status at these two non-core assets.


The two biggest risks for the stock are the country risk and the commodity price risk. Semafo's operations are located in West Africa, which has a relatively high country risk.

The company is targeting gold production of 153,000 - 168,000 ounces with a total cash cost of $805 - $855 per ounce for 2013. Semafo's total gold reserves and resources are 6.6 million ounces.

There are currently 12 analyst buy ratings, three neutral ratings and zero sell ratings with an average target price of $3.07. The stock is trading at a forward P/E ratio of 18.20.

Insiders have been buying the shares during the past six months. I believe the stock could be a good pick below the net asset value of $1.94 per share.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

About the author:

Markus Aarnio
I have 15 years of investing experience. I have traded stocks, commodities and Forex markets.

Rating: 3.3/5 (3 votes)


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GuruFocus has detected 3 Warning Signs with Semafo Inc $SEMFF.PK.
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