Semafo Inc. Finds Mining Success in Africa

There are plenty of reasons to choose West African miner Semafo Inc. (TSX:SMF) over more popular names such as Barrick Gold Corp. (TSX:ABX)(NYSE:ABX) or Goldcorp Inc. (TSX:G)(NYSE:GG).

| More on:
The Motley Fool

While bigger miners such as Barrick Gold Corp. (TSX:ABX)(NYSE:ABX) and Goldcorp Inc. (TSX:G)(NYSE:GG) seem to get all the attention, one smaller, more nimble gold miner in West Africa has bucked the industry trend of declining share prices. Both Barrick and Goldcorp have seen their stocks decline by over 50% over the past three years.

Semafo Inc. (TSX:SMF), meanwhile, with its $1.1 billion market cap, has actually risen by 35% over the same time period.

What’s its secret?

Low costs

With the multi-year price collapse of gold (which is down 30% in three years), profit margins have been squeezed at most major miners. In 2015 both Goldcorp and Barrick had all-in sustaining costs of production around $950 an ounce, leaving fairly little room for further price declines. IAMGOLD Corp. actually has production costs nearing $1,200 an ounce, implying a loss this year if things don’t improve.

It’s not often pointed out, but Semafo’s cost profile is lower than nearly every other miner in the world; its 2016 guidance is just $720-760 an ounce. Not only does this have to do with its high-quality ore base, but management has been very successful at limiting corporate costs.

In 2012 general and administrative costs totaled roughly $22 million. Since then these overhead costs were reduced every year and ended 2015 at just $14 million, a total decrease of 37%. For 2016 management anticipates a further reduction.

Significant financial flexibility

Most miners tacked on a significant amount of debt during the last boom cycle, spending billions on new projects in anticipation of continued high prices. With gold down to just $1,150 an ounce, many operators are stuck with legacy debt loads, all while fighting collapsing earnings and losses.

With such a narrow expansion focus, Semafo was able to avoid these troubles that have plagued the rest of the industry. It ended last year with debt levels that were equal to just 15% of equity. Barrick, by example, has debt that’s equal to roughly 100% of its equity. Clearly, Semafo has plenty of margin to withstand lower commodity prices.

Additionally, Semafo has a strong cash position of $167 million, heavily outweighing its total debt of just $90 million. If it wanted, it could pay off its entire debt load tomorrow. The competition isn’t so lucky.

A leader amid turmoil

Semafo looks like the gold miner everyone had hoped to build. It has a portfolio of high-quality, low-cost assets, all while maintaining a clean balance sheet with the financial flexibility to withstand the inevitable swings in commodities markets. Management has proven its ability to control costs, boost production, and avoid overspending.

If you’re looking for gold exposure but get queasy looking at the wild stock fluctuations of most miners, Semafo may be a viable alternative.


This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Ryan Vanzo has no position in any stocks mentioned.

More on Metals and Mining Stocks

silver metal
Metals and Mining Stocks

1 Reeling Silver Stock to Consider Today

Aya Gold & Silver (TSX:AYA) is a Montreal-based company that is engaged in the acquisition, exploration, evaluation, and development of …

Read more »

Woman has an idea
Metals and Mining Stocks

Want High Growth? 3 Under-$7 Stocks Could Climb 100%

The TSX extended its losing streak to five trading days on January 24, 2022. Canada’s main equities benchmark is now …

Read more »

TSX Today
Metals and Mining Stocks

TSX Today: What to Watch for in Stocks on Thursday, January 27

The stock market continued with high volatility on Wednesday, as expected on the day of key monetary policy announcements. While …

Read more »

gold stocks gold mining
Metals and Mining Stocks

3 Stocks to Buy as Gold Hit Fresh Highs

Gold has always been an attractive investment option during political and economic uncertainties. With growing concerns over multi-decade high inflation, …

Read more »

A miner down a mine shaft
Metals and Mining Stocks

Why This Mining TSX Stock Shot Up 15% Yesterday

Turquoise Hill (TSX:TRQ)(NYSE:TRQ) is a Montreal-based mining company. It owns a majority stake in a Mongolia-based copper and gold mine. …

Read more »

grow dividends
Metals and Mining Stocks

Why Did Turquoise Hill Stock Soar 18% on Tuesday?

Turquoise Hill Resources (TSX:TRQ)(NYSE:TRQ) shares climbed as high as 18% in early Tuesday trading. This came after news that a …

Read more »

stock research, analyze data
Metals and Mining Stocks

Forget Tesla (NASDAQ:TSLA): Buy This Lithium Stock Instead

Tesla (NASDAQ:TSLA) is dropping like a rock this year. Investor sentiment about tech companies with hyped-up valuations has clearly turned. …

Read more »

happy new year 2022
Metals and Mining Stocks

1 Canadian ETF to Help Your Portfolio Thrive in a Volatile 2022

The volatile start to 2022 may or may not be a sign of what to expect for the remainder of …

Read more »