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Edited Transcript of ROXG earnings conference call or presentation 6-Mar-20 3:00pm GMT

Q4 2019 Roxgold Inc Earnings Call

VANCOUVER Mar 27, 2020 (Thomson StreetEvents) -- Edited Transcript of Roxgold Inc earnings conference call or presentation Friday, March 6, 2020 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Graeme Douglas Jennings

Roxgold Inc. - VP of IR

* John Andrew Dorward

Roxgold Inc. - President, CEO & Director

* Paul Weedon

Roxgold Inc. - Vice-President of Exploration

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Conference Call Participants

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* Geordie Mark

Haywood Securities Inc., Research Division - Co-Head Mining Research

* Wayne Lam

RBC Capital Markets, Research Division - Analyst

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Presentation

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Operator [1]

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Good morning, and welcome to Roxgold's 2019 Fourth Quarter and Full Year Earnings Results Conference Call. My name is Julianne, and I will be your conference operator today. (Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I will now turn the call over to Graeme Jennings, Vice President, Investor Relations. Graeme, please go ahead.

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Graeme Douglas Jennings, Roxgold Inc. - VP of IR [2]

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Thank you, operator. Good morning, everyone, and welcome to Roxgold's 2019 Fourth Quarter and Full Year Results Conference Call. Today on the call, we have John Dorward, President and CEO; Vince Sapuppo, Chief Financial Officer; Paul Weedon, Vice President, Exploration; and Eric Pick, Vice President, Corporate Development, all of whom will be available for questions following the presentation. Please note that certain statements made on today's call may contain forward-looking information subject to known and unknown risks, uncertainties and other factors. For more information, we refer you to our detailed cautionary note within last night's press release. Also, please note that all amounts are in U.S. dollars unless otherwise stated.

I will now turn the call over to John to take you through our results.

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John Andrew Dorward, Roxgold Inc. - President, CEO & Director [3]

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Thank you, Graeme, and good morning, everyone. Thank you for joining our 2019 fourth quarter and full year results conference call today. 2019 was another strong year at Yaramoko, as the operation once again achieved record mine tonnage, throughput tonnage and ounces produced, both in the fourth quarter and for the full year. This resulted in 142,204 ounces produced for the year at an average head grade of 9.5 grams per tonne and a recovery rate of 98.2%. This is driven by continued outperformance of the processing plant at Yaramoko, operating 16% above nameplate capacity for the year and 30% above nameplate capacity for the quarter. I'm pleased to report, our strong safety performance continued at site with no lost time injuries reported in 2019.

Our operations in Southwest Burkina Faso continued to operate without incidents, although we are continuously working to improve our safety measures and practices at site and in our communities. Accordingly, we are in the midst of building an airstrip at Yaramoko, which we anticipate will be completed in the second half of the year. This will allow us to fly in and out all of our employees and contractors that come to site from Ouagadougou, reinforcing the mandate that the health and safety of our employees is a primary priority for our company.

Turning to the financial results. Roxgold realized a cash operating cost of $489 per ounce produced and an all-in sustaining cost of $844 per ounce sold in 2019. Part of the increased all-in sustaining costs can be attributed to higher royalties due to the higher gold price and recently introduced community levy, which combined to add approximately $30 per ounce. Combined with record operational performance, this resulted in excellent cash flow at Yaramoko with total annual cash flow from operations of $98 million, representing USD 0.27 per share and adjusted EBITDA of $83 million, representing a 43% margin.

Operating cost savings continued to be a theme in the fourth quarter, resulting in cash operating costs of $149 per tonne for the year compared to $184 per tonne in 2018. The operating cost improvement, combined with the improving gold price resulted in record realized margins of $903 per ounce in the fourth quarter, an increase of 22% from the period prior. We expect the cost improvement trend will continue as there are several opportunities that have been identified to improve mine productivity as well as identifying sustainable cost reductions across our business, which we will continue to pursue over the coming quarters.

Yaramoko generated free cash flow before growth spend of $60 million in 2019, enabling us to finish the year with $41.8 million in cash and in a net cash position of $16 million. Importantly, we strengthened our balance sheet, whilst we continued to fund our accretive growth opportunities, acquiring the Séguéla project for $20 million, spending $18 million on preproduction capital at Bagassi South and $16 million on exploration. Additionally, we repaid $12.8 million of debt and spent $3 million buying our shares back under our normal course issuer bid.

As a company, we pride ourselves on our disciplined approach to capital management. Over the last 3 years, we have continued to maintain a strong balance sheet by maintaining a net cash position, whilst funding over $100 million in value-accretive growth opportunities.

Looking ahead at Yaramoko, with both 55 Zone and Bagassi South in operation, we have guided production to be between 120,000 to 130,000 ounces in 2020. We continue to be vigilant, while actively managing costs and have guided to a cash operating cost between the range of $520 to $580 per ounce produced and an all-in sustaining cost between the range of $930 to $990 per ounce sold. The increase in all-in sustaining costs this year will be temporary as the Bagassi South decline development will be completed later this year, after which our all-in sustaining costs are expected to return to a steady-state level of $750 to $850 per ounce.

Our exploration budget for the year is expected to be within the range of $15 million to $20 million, which is an increase from prior guidance as we look to follow up on our exemplary results at Séguéla and push the project forward while initiating an underground drill campaign at Yaramoko. By the midpoint of this year, our decline will reach the 4,700 level, which is approximately 600 meters below surface. This will allow us to conduct our second comprehensive underground drill campaign in the second half of the year towards the goal of converting and upgrading our resources and extending the deposited depth where the ore body remains open.

Modeling, in conjunction with a growing data set from drilling and mapping of the development drives, is highlighting the structural repetition of the high grade shoots down the 55 Zone ore body. Some of our best holes have been at depth, as highlighted by Hole 426, which returned a broad intersection of nearly 24 meters at 20 grams. Additionally, the underground drill platforms will allow us to conduct some brownfields exploration as we expect to test the footwall of the 55 Zone for potential additional structures, which have never been tested.

Turning to Séguéla. Last year was a pivotal year for Roxgold as we acquired the project in April for $20 million and with an initial resource of 430,000 inferred ounces of the Antenna deposit. We have since followed that up in January, this year, with an updated resource, totaling 529,000 ounces of indicated and 471,000 ounces of inferred from a combination of the Antenna, Boulder, Agouti and Ancien deposits. When we initially acquired the project, the Antenna deposit was perceived to be the keystone deposit at the project, but we have quickly seen the satellite deposits increasing importance at -- as drilling at Ancien, Agouti and Boulder has returned numerous broad intersections of high grade mineralization and resulted in meaningful resources on all 3 deposits. The Séguéla preliminary economic assessment is on track for early in the second quarter of this year. We intend to continue to advance the Séguéla forward with permitting expected to start on the back of the PEA and the feasibility report expected in late 2020 or early 2021.

The PEA will be based on the recently updated resource estimate, but we expect to see resources continue to increase as exploration continues at the project. We currently have 4 rigs drilling at Séguéla with 3 currently working at Ancien and one testing the new target between Agouti and Boulder.

Looking at Antenna. During 2019, infill and extension drilling was very successful in defining additional mineral resources at Antenna. This resulted in an upgraded indicated resource at Antenna of 529,000 ounces at a grade of 2.3 grams per tonne and an additional 64,000 ounces of inferred resource at a grade of 2.2 grams per tonne. Mineralization is now being delineated over a strike length of 1.7 kilometers at Antenna. At Agouti and Boulder, located less than 2 kilometers to the east of Antenna, we have completed approximately 15,000 meters of drilling, resulting in amazing inferred resource of a combined 182,000 ounces.

Infill drilling to increase resource confidence to indicated will be completed in the current quarter, with recent results highlighting several high grade veins at Agouti, including 16 meters of 13.5 grams per tonne from 16 meters and 8 meters of 23.9 grams per tonne from 91 meters. Both deposits remain open along strike and at depth. And as I mentioned, we have initiated drilling in the highly prospective corridor between Boulder and Agouti. This 1.2 kilometer zone has seen aircore testing previously with indications of mineralization that may connect the 2 deposits.

One of the highlights last year was the discovery of consistent high grade mineralization at Ancien, located approximately 6 kilometers south of Antenna. A maiden open pit inferred resource of 224,000 ounces at a grade of 6.6 grams per tonne has been defined, and we expect this to grow further as the deposit remains open along strike and at depth. Mineralization at Ancien is very similar to that seen at Agouti and Boulder, some 8 kilometers along strike to the north along the same structure and where little previous exploration has taken place. We have 3 rigs currently turning at Ancien focused on infill and extension testing at depth.

Looking ahead, our exploration program in Q1 will turn to testing several of the remaining 22 prospects at Séguéla, including the area between Boulder and Agouti and also potential strike extensions immediately to the south of Ancien where active artisanal workings have recently been located. In addition, broad-spaced geochemical surveys will be carried out in the southern portion of the permit to generate additional targets.

Turning to the Boussoura project in Burkina Faso. We recently announced a new high grade discovery at Galgouli and excellent results following up on historic drilling at Fofora. This project is located in the southern portion of the prolific Houndé Greenstone Belt, which is host to several gold mines, including Roxgold's Yaramoko mine 100 kilometers to the north as well as SEMAFO's Mana project and Endeavors' Hounde mine.

Field work at Boussoura indicate -- identified several areas of anomalism along with several extensive areas of artisanal mining with further follow-up work planned for the 2020 field season. We currently have 2 drill rigs working in this area. Drilling at Fofora has identified a core of high grade mineralization over a strike length of 500 meters and to a depth of 200 meters hosted within a 1 kilometer of vein set. Gold mineralization is associated with several quartz-carbonate-pyrite veins with coarse visible gold quite common.

Fofora is one of several elongated vein sets associated with an extensive 3 by 3 kilometer artisanal field, which remain untested at depth through along strike and which will be the focus of ongoing exploration in the first half of this year. Recent results from Fofora include 14.9 meters at 9.8 grams per tonne from 67 meters and 5.8 meters at 11.1 grams per tonne from 69.7 meters. Drilling is continuing to step out along strike and at depth where the mineralization remains open.

At Galgouli, drilling along a 1 kilometer long trend has identified a 600-meter zone of high-grade mineralization with drilling to a vertical depth of approximately 250 meters. High-grade mineralization is associated with a series of steeply dipping quartz-chlorite-carbonate-pyrite veins with coarse gold common. Veining is hosted by variably altered and sheared porphyritic andesites with 5- to 10-meter wide alteration zones hosting lower grade halos.

Recent drill results highlights include 3 meters at 15.8 grams from 175 meters; 3 meters at 13.7 grams per ton from 187 meters; and 10 meters at 8.7 grams per tonne from 158 meters. Mineralization remains open along strike and at depth with drilling continuing to infill and extend the strike extent where artisanal workings are indicative of further high-grade extensions. While it is still early days at Boussoura, we are excited to have a third advanced project in the company.

There is no doubt that 2020 Roxgold is very different from 2019 Roxgold. In the last year, we have transformed the company with a bolstered project pipeline. We look forward to continuing to grow the company as we bring our assets up the value chain in order to turn Roxgold into West Africa's next multi-asset, multi-jurisdictional producer.

Thank you for your time this morning, and we would now like to welcome any questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Geordie Mark from Haywood Securities.

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Geordie Mark, Haywood Securities Inc., Research Division - Co-Head Mining Research [2]

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Yes. So if I may just have a chat over few things. Perhaps starting with Yaramoko and Bagassi South. Just thinking in terms of -- are you able to break down sort of mining costs at Yaramoko through 55 Zone and Bagassi South for Q4? And then also looking to 2020, how you expect that to normalize, given your advance into a greater proportion of stope-derived tonnes?

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John Andrew Dorward, Roxgold Inc. - President, CEO & Director [3]

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Sure, Geordie. We don't tend to sort of split out the mining cost for both the Bagassi South and 55 Zone. We look at it sort of as one project, largely due to the fact that we've got the -- sort of the fixed cost that's sort of applied to both mines. The mining costs sort of did trend down, obviously, over the year. Mining costs per tonne for Q4 were $100, which compare, I think, pretty well to 2018.

Going forward, for 2020, we are in discussions with our mining contractor AUMS, and we are looking to potentially extend the mine life. And that's really as a result of last year's resource and reserve update, which we published, which effectively, I think, was very successful in extending the mine life. So we'll sort of maintain that 7-year mine life at Yaramoko, which gives us the opportunity to go back to them and say, look, for a longer period, what's the -- what's sort of the operating costs that we're looking at. So we expect to make some savings there as a lot of the infrastructure has now been amortized over the original term. So those discussions are still ongoing, but we are optimistic that we'll see an improvement. I'm probably not in a position to quantify that as yet, that we'll move towards it.

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Geordie Mark, Haywood Securities Inc., Research Division - Co-Head Mining Research [4]

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Okay. Maybe perhaps on grade then. Any -- what expectations on Bagassi South are you expecting for dilution, I guess, from the actual in Q4 '19 to -- coming into 2020?

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John Andrew Dorward, Roxgold Inc. - President, CEO & Director [5]

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Sure. So -- yes, so I mean, I think basically, Bagassi -- 55 Zone's been sort of continuing to sort of chunk along in a very reliable fashion. Bagassi South, we have had a few challenges over the course of the last year in terms of dilution, certainly on the footwall, it's a bit more variable in width. So the team's put quite a lot of work into that. So we have seen improvements on that. And since we started into 2020, Bagassi South grades have certainly come up. So we sort of -- I think for the balance of the year, we sort of anticipate grades being in the 8 to 9 gram per tonne range.

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Geordie Mark, Haywood Securities Inc., Research Division - Co-Head Mining Research [6]

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Okay. Great. And maybe I'll rotate into Côte d'Ivoire with Ancien in particular. When did you move the, I guess, the third rig on -- into Ancien? And just thinking in terms of upcoming PEA versus existing drilling versus the maiden resource -- I mean how many additional rigs or how many holes do you think will be -- will make it into the PEA versus the maiden resource? And I guess now, how many holes have you completed since the maiden resource till now?

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John Andrew Dorward, Roxgold Inc. - President, CEO & Director [7]

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Sure. I'll let Paul tackle some of the questions on -- in terms of the drilling in that. But the resource that we released in January will have a slight alteration, slight pickup and a little bit of additional drilling that we're able to fit in from Ancien, which extended that. So there's been an incremental -- you can expect an incremental gain on that resource when we come to put the mine plan together, which is good. I think what we're in the middle of doing now is really 2 prongs to our plan, which is to keep extending the existing deposits. And that's really both Boulder, Agouti -- between Bolder and Agouti as well, that Boulder-Agouti zone and Ancien and then also infilling. So that's sort of part of the -- the mission is to keeping infilling, and Boulder Agouti are largely infill drilled and that's -- that resource won't be part of -- or that resource update might be part of the PEA, but it will form part of the feasibility study. The infill drilling and extension that we're having at Ancien now will, again -- won't be in this current PEA beyond what I've just mentioned at the start but will feature in the feasibility study. So we're trying to sort of serve 2 primary aims, which is to increase the confidence so we can get as much into the feeds as we can as well as get the PEA done in a timely fashion to really showcase the value.

But I'll let Paul sort of talk a little bit about the drilling and where we are with that.

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Paul Weedon, Roxgold Inc. - Vice-President of Exploration [8]

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Yes. Thanks, John. So at Ancien at the moment, we've got 3 rigs turning. We've had 2 rigs running there for most of last quarter, then moving into January, we got ready for the third rig, which started in February. Of those 3, 2 are essentially now focused on infill and the third rig is focused on doing some deep core extensions. So we're down around about 300, 350 meter mark to see what else is down there. I don't have the number of holes off the top of my head that's gone into the total resource. But we'll be -- as John said, we've got a couple of extra additional holes that extended the resource at depth that will go into the PEA model as opposed to the published resource.

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Geordie Mark, Haywood Securities Inc., Research Division - Co-Head Mining Research [9]

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Okay. And in that sense, I guess, those just sort of laterally are just pushing out on another fence, I guess? Is that pushing you to step out, I guess?

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Paul Weedon, Roxgold Inc. - Vice-President of Exploration [10]

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Yes, it's stepping at down the plunge. So we've taken a series of 50- and 100-meter increments down plunge on the one rig that's chasing extensions and the other 2 rigs that are stepping back through to 25 -- roughly 25 by 25 spacing to infill.

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Operator [11]

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Your next question comes from Wayne Lam from RBC.

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Wayne Lam, RBC Capital Markets, Research Division - Analyst [12]

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Just wanted to ask at Bagassi South how the grade has kind of reconciled the plan over the past couple of quarters as you started up? And when you kind of expect to see the ramp-up to reserve grade there?

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Paul Weedon, Roxgold Inc. - Vice-President of Exploration [13]

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Yes, Wayne, it's -- the development grades have been coming back pretty much in keeping what we expected from the grade control model. We've had a couple of issues around a little bit of dilution in some of the earlier stopes, but that's been quite isolated. And we've started to identify where those are. So it's essentially just some structures that were close to the footwall that we didn't pick up -- very short-range structures, we didn't pick up on the original resource drilling. We know where they are now, and so we've adjusted the mining style slightly to accommodate a lot of that. So we'd expect to see this year going forward -- the rest of this year and into next year, the stoping will be approaching back to what reserve grade is. We've had a lot of influence on development grade for the first 12 months there.

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John Andrew Dorward, Roxgold Inc. - President, CEO & Director [14]

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I think fair to say, in terms of reconciliation, we've seen ounces in line with expectations, slightly more tonnes due to that dilution that Paul mentioned. But I think in terms of assuming that, that starts to mine the shapes that we plan, which is the indication certainly in the last couple of months, we expect the reconciliations will continue to be very good.

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Wayne Lam, RBC Capital Markets, Research Division - Analyst [15]

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Okay. And then just in terms of getting into the greater proportion of stoping ore, should we expect that kind of to ramp up as we move along through the year?

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John Andrew Dorward, Roxgold Inc. - President, CEO & Director [16]

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Yes. I mean if you look -- I mean I was looking at our monthly report for our development plan of Bagassi South. And I mean a lot of the level developments were probably, I think, developed across 6 levels now and sort of pushing the ramp -- as we said earlier, the ramp finishes up this year. So we've got it opened up on, I think, 6 levels. So the stoping ramping up, I think, to sort of 70% to 80% of the feed for the sort of -- for the last 3 quarters, if my memory serves me correctly. So similar pattern to what we saw at 55 Zone.

Obviously, every preponderance of development ore at the start when you start to sort of feed more stopes in, but the development's essentially largely in now. So I think we'll sort of see that ramping up. And then going into 2021 effectively 100% from stopes. So ramping up to that 2021, where we'll be 100% from about probably 70% this quarter.

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Wayne Lam, RBC Capital Markets, Research Division - Analyst [17]

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Okay. That's really helpful. And then just wondering at Boussoura, how much is budgeted for this year? And what's the distance between Fofora and Galgouli?

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Paul Weedon, Roxgold Inc. - Vice-President of Exploration [18]

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Sure. Wayne, so this year, for Boussoura, we've budgeted just under $4 million, which will be spent primarily in the first half of the year because we obviously have rainy season to deal with. I hope I can go back and ask some more after that. The distance between the 2 is about 12 kilometers.

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Wayne Lam, RBC Capital Markets, Research Division - Analyst [19]

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Okay. And then just last one. Previously kind of when the shares were around this level, you guys had utilized the buyback option. I'm just wondering, in terms of capital allocation, would that be kind of under consideration? Or is the focus kind of spending or allocating most of the capital towards Séguéla and the greenfields exploration?

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John Andrew Dorward, Roxgold Inc. - President, CEO & Director [20]

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Look, it's a very pertinent question that we're following. We had a Board meeting yesterday, where this was a pretty good topic of conversation. I think we are very comfortable with our ability to finance Séguéla as it stands. Today with the balance sheet we have, the borrowing capacity that we would -- we could have against Yaramoko. So I mean, basically, we've paid Yaramoko down from $75 million to $25 million, and that will continue to be repaid this year. And we've managed to sort of maintain that mine life. So indications from our project finance banks are that we could essentially borrow -- reborrow at Yaramoko to sort of what we had initially. And then with the feasibility study in the [Cairns] at the end of this year, for Séguéla, the borrowing capacity for that will obviously be quite significant we expect from early indication. So from cash on hand, cash flow over the next 18 months and a modest increase in our debt facilities, I think we're very comfortable that we can pay that. So in terms of the -- what I find rather offensive share price to be perfectly honest, my finger's itching over the trigger to be honest. But we are sort of in a -- seem to be in perpetual blackouts all the time. And we've got a pretty significant document coming down the pike with the PEA. So my legal friends tell me that we're sort of hamstrung a little. But if -- not to telegraph our moves too much, but if we release a jaw-dropping PEA soon and nothing happens, I'm going to -- we might have to take matters into our own hands.

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Operator [21]

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We have no further questions. I would like to turn the call back over to Mr. John Dorward for closing remarks.

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John Andrew Dorward, Roxgold Inc. - President, CEO & Director [22]

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I'd like to thank everybody for joining the call today. Any follow-up questions, please feel free to address in either through myself or Graeme, and we look forward to speaking to you again as we report our Q1 results. Have a good day, everyone. Thank you.

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Operator [23]

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Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.