Teranga is a Canadian-based gold company which operates the Sabodala gold mine and is currently exploring ten exploration permits encompassing approximately 1,055km² of land surrounding the Sabodala Mine License (33km² exploitation permit).
The Sabodala gold mine, which came into operation in 2009, is located 650 kilometres southeast of the capital of Senegal, Dakar within the West African Birimian geological belt in Senegal where approximately 11 million ounces of gold resources have been discovered over the past six years, and lies about 90 kilometres from major gold mines in Mali.
As of June 30, 2013, the Sabodala gold mine had proven and probable reserves of approximately 1.40 million ounces of gold included in measured and indicated resources of 2.89 million ounces of gold and inferred mineral resources of 1.87 million ounces of gold.
With the recent completion of the Oromin acquisition, Teranga is a 43.5% partner to the Oromin Joint Venture Group (“OJVG”), holder of the OJVG Golouma Gold Project. The OJVG Golouma Gold Project encompasses approximately 212.6km² of land in the Tambacounda region of south-eastern Senegal.
The combination of assets and multiple deposits creates significant value for all shareholders and is expected to result in both capital and operating synergies. Teranga continues to work with its joint venture partners to agree on development of the OJVG satellite deposits, which have an estimated 1.45 million ounces of gold in open pittable reserves.
Teranga means hospitality and friendliness in Wolof, the main local language of Senegal. The Company wanted a name that would reflect its actions and vision of becoming the benchmark for responsible gold mining in the country.
The Company has outlined a two-stage growth plan.
Phase 1: Become a mid-tier gold producer in Senegal with 250,000 to 350,000 ounces of annual gold production leveraging off existing infrastructure.
Phase 2: Increase annual gold production to 400,000 to 500,000 ounces
The Company’s objective is to increase reserves and production which in turn should increase earnings and cash flow per share, through both internal exploration discoveries and strategic acquisitions. The Company has and will continue to devote significant resources to exploring its land package with a view of leveraging the existing mill and infrastructure, which was recently expanded from a nominal capacity of 2 million tonnes per annum (“Mtpa”) to approximately 4 Mtpa. The Company expects to produce between 190,000 to 210,000 ounces in 2013, confirming the 200,000 ounce production base crucial to the Company’s growth trajectory.
Acquisition of Oromin Explorations Ltd. / Oromin Technical Integration
On July 22nd, Teranga Gold and Oromin Explorations Ltd. announced a friendly transaction whereby Teranga offered to acquire all of the outstanding shares of Oromin. On August 27th, together with Oromin, Teranga announced that the Companies entered into an arrangement agreement to acquire the remaining Oromin shares that were not tendered to the original offer. A plan of arrangement is a court approved process whereby Teranga could acquire the remaining shares in Oromin that it does not already own. This plan was approved by a special meeting of Oromin shareholders which took place on October 2, 2013.
On October 4, 2013, Teranga and Oromin announced that Teranga had completed the acquisition of all of the issued and outstanding common shares of Oromin that it did not already own. Under the terms of the arrangement, former shareholders of Oromin are entitled to receive the same consideration of 0.60 of a common share of Teranga for each Oromin Share as was offered under Teranga’s prior offer that was completed on August 6, 2013.
Oromin became a wholly-owned (100%) subsidiary of Teranga as of October 4, 2013. Teranga is a 43.5% partner to the Oromin Joint Venture Group (OJVG), holder of the OJVG Golouma project which has defined mineral reserves and is contiguous to the Sabodala mine license.
The Oromin acquisition creates significant value for all shareholders. The proximity of the deposits to the current Sabodala mill and infrastructure allows for a seamless integration and is expected to result in both capital and operating synergies. Additionally, the processing of OJVG ore is expected to increase the mine life and establish Sabodala as a mid-tier producer. Multiple deposits allows for operational flexibility due to an optimal sequencing of deposits based on grade, ore hardness, distance to mill or incremental capital requirements. The combination of assets is expected to result in higher free cash flow, net asset value and earnings.
Oromin Technical Integration:
The acquisition of Oromin in August 2013 provided access to the OJVG technical data. Since then, management has been evaluating the geological and technical databases to be able to develop an integrated mine plan that will support a NI 43-101 compliant resources and reserves technical report, targeted for Q1 2014.
The ongoing technical work for the OJVG integrated mine plan includes:
• A comprehensive due diligence review of the Golouma and Masato resource models. This includes re-logging and re-assay of key drill intercepts, QA/QC reviews and detailed interpretation for the updated resource models;
• Economic Lerchs-Grossman (LG) pit optimization and detailed pit designs;
• Preliminary Life of Mine (LOM) mine planning schedules for optimized cash flow analysis, dilution analysis, pit designs, mine operating and capital estimates;
• An updated tailings deposition and water balance model;
• Analysis of the metallurgical test results for ore characterization studies that will increase understanding from Feasibility Study level and optimize feed and gold recovery to the Sabodala mill; and
• Environmental and social impact reviews for a reduced footprint using the Sabodala operations.
In addition to development of an integrated LOM, the Oromin technical team has been engaged with the Teranga technical teams both at site in Senegal and the corporate offices.
Next steps are anticipated to be:
• Negotiating a toll milling agreement or come to terms on sale of their interest in the Joint Venture with the Joint Venture Partners (Bendon and Badr);
• Integrating and developing the OJVG deposits into Teranga’s operations; and
• Increasing production and generating greater free cash flow.
Strategy and Mine Plan
In the first quarter of 2013, gold equities came under pressure. Significant downward movements in gold prices followed and in light of this we took steps in the first quarter to reduce 2013 discretionary spending in all areas without impacting our production guidance, including lowering waste stripping to lower mining costs, reduce exploration and reserve development expenditures, sustaining and new project development expenditures as well as corporate overheads. This was all done before the most recent decline in the gold price in late June 2013.
During the second quarter the exploration team was consolidated into one exploration facility, a revised organizational design was applied and the necessary staff personnel were reduced to gain in efficiencies. As well, technical work continued to support Sabodala operations including optimization of the resource through modelling and grade control, evaluating geotechnical opportunities for waste reduction in the pit wall design and waste dump designs for improved mine operating costs.
During the third quarter, as part of the Company's ongoing effort to maximize free cash flows during this period of lower and more volatile gold prices, management designed a new mine plan on a standalone basis maximizing gold production while minimizing operating, sustaining, new project development, corporate and other costs. In early October, this new mine plan was filed as part of a National Instrument 43-101 (“NI 43-101”) compliant Sabodala Technical Report on Sedar (www.sedar.com) and ASX (www.asx.com.au).
The new optimized mine plan has been designed to provide earlier access to higher grade material within the Sabodala pit and reduce overall waste material moved, freeing up mobile equipment for the development of satellite deposits, including those within the OJVG and Gora. The new mine plan is expected to deliver between 210,000 and 240,000 ounces of annual gold production over the period 2014 to 2016 at all-in sustaining cash cost estimated at between $800 and $1,000 per ounce. As a result, at $1,350 per ounce gold, the Company expects to generate between $150 and $200 million in free cash flow after $80 million in capital expenditures and $85 million in debt repayments over the period.
Another key element of this new mine plan is sequencing the commencement of Gora development to late 2014. This allows us to utilize mobile equipment from Sabodala, which is expected to result in $20 to $25 million in reduced capital costs for mobile equipment compared to our previous mine plan. Under this revised mine plan, Gora production start-up is now anticipated in early 2015.
The optimized mine plan results in a reduction of reserves of approximately 214,000 ounces of marginal gold or 13 percent of reserves as of March 31, 2013. The reduction in reserves at Sabodala maximizes near term cash flows over the period 2014 to 2016 by removing high cost ounces that have a higher strip ratio of approximately 15:1 (waste to ore).
Agreement with the Republic of Senegal
The Company signed a definitive global agreement (“Agreement”) with the Republic of Senegal in late May 2013, which was the execution of the long-term comprehensive Agreement in Principle signed in April with the Republic of Senegal. The Agreement includes amendments to the Company's 90 percent held Sabodala Mining Convention, certain of its exploration permits, and also includes a financial settlement agreement that addresses most of the outstanding tax assessments (associated with the years 2007 through 2010) as well as future royalty and other payments to the Republic of Senegal. Collectively, the definitive documentation constitutes a global agreement that sets out a predictable and stable fiscal operating environment for the Company's future investment in exploration, acquisitions and development to increase reserves and production in Senegal.
The Republic of Senegal has agreed to support the Company in its plan for further development, notably:
• Setting a price and formula to allow for the acquisition of the Republic's additional participation option on deposits not on the Company's Mine License and to incorporate these into the Company's existing Mining Convention and fiscal regime;
• Supporting drilling of the Niakafiri deposit on the Mine License;
• Extending the term of our renewable Mine License by five years to 2022 and extending five key exploration licences by a further 18 months beyond current expiry periods;
• Working with the Company to ensure full access to exploration targets currently occupied by artisanal miners; and
• Resolving the Special Contribution Tax of 5% by increasing the royalty rate from 3 to 5%, and prepaying dividends, that are otherwise payable under our mining convention, based on expected performance over the period 2013 to 2015.
The Company has agreed to the following:
• To increase the royalty rate on sales from 3% to 5% effective January 1, 2013;
• During the second quarter of 2013, the Company made a payment of $2.7 million related to accrued dividends to the Republic of Senegal in respect of its existing 10% minority interest. A payment of $2.7 million will be required once drilling activities recommence at Niakafiri. The Company has also agreed to advance a further $8.0 million of accrued dividends to be paid in 2014 and 2015, based on a gold price of $1,600 per ounce.
• The Company is required to make a payment of approximately $4.2 million related to the waiver of the right for the Republic of Senegal to acquire an additional interest in the Gora project. The payment is expected to be made upon receipt of all required approvals authorizing the processing of all ore through the Sabodala plant.
• The Company has agreed to establish a social development fund targeted at $15.0 million, payable to the Republic of Senegal at the end of the mine life.
Gold production for 2013 is expected to be at the higher end of the original guidance range of 190,000 to 210,000 ounces, while total cash costs are expected to be at the lower end of our $650 to $700 per ounce guidance. All-in sustaining costs (as defined by the World Gold Council) are expected to be in the range of $1,000 to $1,100 per ounce. Gold sales are expected to exceed production for the year as gold in circuit inventory is reduced. As per the mine plan, gold production in the fourth quarter is expected to be higher than the third quarter as mining activity reaches the high grade benches in phase 3 of the Sabodala pit.
In the first quarter of 2013, the Company reduced discretionary expenditures in a number of key areas including operations, exploration and administration, as well as sustaining and development capital and as such provided new guidance for the year for these items with the Company’s first quarter results. The Company is on track to meet the revised guidance.
In total, between capitalized reserve development and regional exploration expenditures, the Company expects to spend approximately $8 million in 2013 on exploration, in line with revised guidance for the year.
Administrative expenditures which include corporate office costs, Dakar office costs and corporate social responsibility costs, but exclude depreciation, transaction and other non-recurring costs, are now expected to be $14 million, $1 million higher than our revised guidance, which was mainly due to higher corporate social responsibility costs and higher expenses out of our Dakar office.
Capitalized expenditures, including sustaining mine site expenditures, project development expenditures and capitalized deferred stripping are expected to total $65 million, in line with revised guidance for the year.
Expenditures related to the acquisition and funding of Oromin, including legal and advisory costs, loan repayment, severance and termination benefits and ongoing provision of Oromin’s share of funding of the OJVG are expected to total approximately $15 million in 2013. As at September 30, 2013, $9.6 million had been paid towards these costs.
• Reduced discretionary spending
• Eliminated out of the money hedge book
• Modified debt repayment terms
• Completed Global Investment Agreement with Republic of Senegal
• Completed acquisition of Oromin Explorations to increase reserves, production, earnings and cashflow
• Completed new Life of Mine Plan (standalone) to maximize free cash flow, filed Technical Report
• Mill operating at design capacity
• On track to meet 2013 production and cost guidance
The senior corporate, exploration and operating team have explored, discovered, built and operated gold mines in Africa, as well as North and South America and Australia for several large mining companies. Together this team brings the necessary experience, values and ethics to successfully achieve its goal: to create value for all its stakeholders through responsible mining.
Senegal passed a new Mining Code in late 2003. Since that time it has become clear that with the discoveries already made in such a short time – over 11 million ounces of gold resources – the West African Birimian geological belt in Senegal is developing into a world-class gold district for which Teranga holds a significant land position on the belt.
The Company currently has 10 exploration permits encompassing approximately 1,055km² of land surrounding the Sabodala Mine License (33km² exploitation permit).
Teranga continues to methodically explore the large Regional Land Package (RLP) and is in the process of systematically building a pipeline of prospects. Unlike other West African nations, Senegal is a relative newcomer to gold mining and exploration and the Company looks forward to discovering world-class deposits and establishing Senegal as a regional mining leader.
Teranga Gold Corporation is listed on the Toronto Stock Exchange (TSX:TGZ) and the Australian Securities Exchange (ASX:TGZ) .
¹ FORWARD LOOKING STATEMENTS
This content contains certain statements that constitute forward-looking information within the meaning of applicable securities laws ("forward-looking statements"). Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of Teranga, or developments in Teranga's business or in its industry, to differ materially from the anticipated results, performance, achievements or developments expressed or implied by such forward-looking statements. Forward-looking statements include, without limitation, all disclosure regarding possible events, conditions or results of operations that are based on assumptions about future economic conditions and courses of action. Teranga cautions you not to place undue reliance upon any such forward-looking statements, which speak only as of the date they are made. The risks and uncertainties that may affect forward-looking statements include, among others: the inherent risks involved in exploration and development of mineral properties, changes in economic conditions, changes in the worldwide price of gold and other key inputs, changes in mine plans and other factors, such as project execution delays, many of which are beyond the control of Teranga, as well as other risks and uncertainties which are more fully described in the Company's Annual Information Form dated March 27, 2013, and in other company filings with securities and regulatory authorities which are available at www.sedar.com. Forward-looking statements are based on management's current plans, estimates, projections, beliefs and opinions, and, except as required by law, Teranga does not undertake any obligation to update forward-looking statements should assumptions related to these plans, estimates, projections, beliefs and opinions change. Nothing on this page should be construed as either an offer to sell or a solicitation to buy or sell Teranga securities.