Recently the company has downgraded 2017 guidance twice after misinterpreting the technical parameters of the current mining zone at the Mana mine.  This has resulted in less recoverable gold than anticipated. The share price has been unfairly punished and management has reiterated that this is purely an H1 2017, after which gold recoveries will improve to be in-line with previous expectations.

Looking into 2018, Semafo will commence production at the Natougou mine which will provide significant growth and another catalyst for value increase, in addition to the resolution of current production challenges at the Mana mine.

Key Mining Assets:

• Mana: Mill start-up at Mana took place in February 2008 with a 2ktpd ball mill. The mill was subsequently expanded to a 4ktpd ball mill in June 2008. In February 2011, SMF launched a Phase IV plant expansion to increase throughput to 8ktpd in blended ore, or 7.2ktpd in bedrock. SMF discovered the Siou zone in 2012 through its systematic auger drilling exploration program. Siou added ~1.1Moz at 4.40g/t of open-pit material to Mana's mine plan for a development cost of US$21M, driving significant NAV accretion.

• Natougou: SMF acquired a 100% interest in the Natougou gold project through its acquisition of Orbis Gold Limited in March 2015. The deal started as a A$0.65/sh hostile bid in October 2014 and was ultimately completed for A$0.713/sh cash on a friendly basis, for US$155M total consideration. A feasibility study for Natougou was released in February 2016. The deal has driven significant NAV accretion for SMF.

Summary of Opportunity:

• Recent Share Price Decline: The stock has traded off due to downgrading 2017 guidance twice after misinterpreting the current mining zone

• Management has stated that this is an H1 2017 issue with no negative implications after the current zone is complete – sell-side analysts and the market is skeptical that this is truly a H1 only issue and taking a “wait and see” approach (hence the opportunity)

• Management: Management has addressed the issue very poorly and been quite non-communicative about the problems and how they are being addressed

• Management is not technically savvy and background is more financial-based (i.e. accounting)

• Quebec-based management, with “head-in-the-sand” approach to IR and the problem in general

• Management has lost some credibility with investors due to this issue but overall has a strong track record of delivery and prudence

• Capitalization: ~US$700m market cap with net cash of ~$220m, which will be used for development of Natougou

• Very healthy balance sheet with no funding concerns

• Operating Outlook: Looking beyond the short term production challenges at the Mana mine, the company will be increasing production materially from introduction of the Natougou mine in H2 2018.  Combined with its current Mana mine, Natougou drives 80% production growth by 2019 to 400koz+ from two mines.

• Valuation: the company is cheap on nearly all metrics:

• P/NAV of 0.65x

• EV/EBITDA of 3.3x 2 years forward

• Maximum plausible downside to C$2.00/sh assuming Mana is worth zero and applying a developer P/NAV multiple of 0.7x

• Returns: Similar to valuation point above, strong returns should be expected with upside of +100% and limited downside -12%

• This assumes that the gold price does not collapse and that the production issue are in fact resolved as management has continued to emphasize

• Other Considerations & Reasons for the Opportunity:

• GDXJ selling – Changes to the GDXJ means that Van Eck needs to sell 2.3x days of trading volume, or about 5% of the shares – this is likely also pressuring shares to the downside; the GDXJ transactions will likely be finished in June/July

• Shareholders – The large, big-$$ shareholders have lost interest in the name and will likely only come back to the revisit the name when trust in management is rebuilt

• Trading flows – Current buyers are shorter-term traders (hedge funds) looking for small but quick returns on a share price rebound, however, are not large longer-term holders

• Take-out candidate – At a certain point SMF could be a takeout candidate with Endeavor, Randgold and B2gold being the most likely acquirors – partner with stronger technical background could be a win-win, however, this is not currently being viewed as probable by the market

DCF Valuation

• Significant Net Asset Value Per Share (NAVPS) and target prices from brokers, despite many brokers having a neutral rating (“wait and see”)

• However, as a worst-case scenario, assuming zero value for Mana, SMF is trading at 1.0x P/NAV – applying a developer P/NAV multiple of 0.7x (as per BMO’s comps), this would be a downside to C$2.00/sh, this however is a very extreme scenario

Trading Comps (all based on consensus estimates for comparison)

• Semafo trades in line with the “lower quality” peers that have either a) always traded at a discount, or b) are facing specific challenges.

• Semafo has a much better balance sheet than most peers trading at lower multiples