Semafo Inc (SMF-T)

You have seen the price of gold starting to stabilize and then a number of gold companies have started to outperform, on a technical basis, the price of gold.

It is a gold producer and so has seasonal strength right now. Last year was phenomenal. Seasonal strength is mid-July until at least the beginning of October, when you will want to take profits.

Located in Burkina Faso. Because gold is $1250, it is going to be volatile, and he is not really looking at producers, he is looking at guys that find quality assets to feed the next cycle.

(Market Call Minute.) This is a Hold, but it is getting to his Buy point.

They have good assets. He sold recently with the threat of increasing interest rates. He feels gold is going to soften here. Gold holdings have been increasing dramatically this year. We are not seeing a lot of inflation right now.

One of the lower cost producers in gold, with all-in costs at about $900 an ounce and cash costs about $600-$700. It screens well when you look at the margins and the cost of production. Trading at about 1.3X NAV, which is roughly in line with where African producers are trading. Average value and above average assets. The real selling point would be free cash flow. Looking at all the metrics it looks like it is one of the standouts in the West African producers space.

One of his Top 10 holdings now. Thinks they are doing the right things. Tried to expand too fast and were cutting some corners. Brought in new management which seems to be doing the right things. Now getting into a bit of a sweet spot, their Siou mine which they are operating. On a long term basis, this mine is going to continue to operate well. Have a large land package, which ultimately they can continue to look forward to. If you want to own, Buy a little bit now and, if there is a pullback, add to it.

Produces about 200,000 ounces a year out of Burkina Faso. One of the best mines in West Africa. Recently discovered a new zone called the CU zone, which has 1 million ounces of much higher grade gold and will add 5 years of mine life. When they get into that zone we will see free cash flow rise, production go up and costs go down. Q1 disappointed a little. As they get into the new asset, and as CU comes on line midyear, you will see the financial results start to improve, and the share price should rise as a result. Trading around fair value of $3.25-$3.50. He trimmed some of his position at $4, but at this price he is not trimming any more.

(Market Call Minute.) To him this has 2 strikes against it. Gold and Africa.

Looks quite good against West African Companies. Prefers B2 Gold.

(Market Call Minute) Hopes it buys ROX Gold.

Problem is that it is in Africa. You have to consider the political situation. Stock has started a new up leg and may very well do what the others are doing. But the base building was so short that it might support a move only toward $4.

Sold his holdings a few years ago when he thought it got expensive. Started looking at this again and has built up a very big position. New management looks a lot more prudent and conservative. Have a new development program in Siou, Burkina Faso. Regarding geopolitical risks, he likes to diversify his portfolios because you can get surprised by events. Currently he is comfortable with this country.