Burkina Faso

Burkina Faso

One of the largest gold producing regions in Africa

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Non-IFRS Financial Measures

This Interactive Data Centre includes measures that do have a standard meaning under International Financial Reporting Standards (“IFRS”) to serve as supplementary information that management believes may be useful to investors to explain Teranga’s financial results. These measures are intended to provide additional information only and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. Such non-IFRS measures include, “total cash costs”, “total cash costs per ounce sold”, “all-in sustaining costs” (“AISC”), “AISC (excluding cash / (non-cash) inventory movements and amortized advanced royalty costs)”, “AISC per ounce”, “AISC (excluding cash / (non-cash) inventory movements and amortized advanced royalty costs) per ounce”, “average realized gold price”, “earnings before interest, taxes, depreciation and amortization” (“EBITDA”), “free cash flow”, “adjusted net profit attributable to shareholders” and “adjusted basic earnings per share”. The measures are not necessarily indicative of operating profit or cash flow from operations as determined under IFRS. Other companies may calculate these measures differently.

Beginning in the second quarter of 2013, we adopted an “all-in sustaining costs” measure consistent with the guidance issued by the World Gold Council (“WGC”) on June 27, 2013. Teranga believes that the use of all-in sustaining costs is helpful to analysts, investors and other stakeholders of Teranga in assessing its operating performance, its ability to generate free cash flow from current operations and its overall value. This measure is helpful to governments and local communities in understanding the economics of gold mining. The “all-in sustaining costs” is an extension of existing “cash cost” metrics and incorporate costs related to sustaining production.

“Total cash costs per ounce sold” is a common financial performance measure in the gold mining industry but has no standard meaning under IFRS. Teranga reports total cash costs on a sales basis. We believe that, in addition to conventional measures prepared in accordance with IFRS, certain investors use this information to evaluate Teranga’s performance and ability to generate cash flow. Accordingly, it is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. The measure, along with sales, is considered to be a key indicator of a Company’s ability to generate operating profits and cash flow from its mining operations.

Total cash costs figures are calculated in accordance with a standard developed by The Gold Institute, which was a worldwide association of suppliers of gold and gold products and included leading North American gold producers. The Gold Institute ceased operations in 2002, but the standard is considered the accepted standard of reporting cash cost of production in North America. Adoption of the standard is voluntary and the cost measures presented may not be comparable to other similarly titled measure of other companies.

The WGC definition of all-in sustaining costs seeks to extend the definition of total cash costs by adding corporate general and administrative costs, reclamation and remediation costs (including accretion and amortization), exploration and study costs (capital and expensed), capitalized stripping costs and sustaining capital expenditures and represents the total costs of producing gold from current operations. All-in sustaining costs exclude income tax payments, interest costs, costs related to business acquisitions and items needed to normalize profits. Consequently, this measure is not representative of all of Teranga’s cash expenditures. In addition, the calculation of all-in sustaining costs and all in costs does not include depreciation expense as it does not reflect the impact of expenditures incurred in prior periods. Therefore, it is not indicative of Teranga’s overall profitability.

Teranga also expands upon the WGC definition of all-in sustaining costs by presenting an additional measure of “all-in sustaining costs (excluding cash / (non-cash) inventory movements and amortized advanced royalty costs)”. This measure excludes cash and non-cash inventory movements and amortized advanced royalty costs which management does not believe to be true cash costs and are not fully indicative of performance for the period.

“Total cash costs per ounce”, “all-in sustaining costs per ounce” and “all-in sustaining costs (excluding cash / (noncash) inventory movements and amortized advanced royalty costs)” are intended to provide additional information only and do not have any standardized definition under IFRS and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. The measures are not necessarily indicative of operating profit or cash flow from operations as determined under IFRS. Other companies may calculate these measures differently. The following tables reconcile these non-IFRS measures to the most directly comparable IFRS measure.

“Average realized price” is a financial measure with no standard meaning under IFRS. Management uses this measure to better understand the price realized in each reporting period for gold and silver sales. Average realized price is calculated on revenue and ounces sold to all customers, except Franco-Nevada, as gold ounces sold to Franco-Nevada is recognized in revenue at 20 percent of the prevailing gold spot price on the date of delivery and 80 percent at $1,250 per ounce. The average realized price is intended to provide additional information only and does not have any standardized definition under IFRS; it should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. Other companies may calculate this measure differently.

“Earnings before interest, taxes, depreciation and amortization” (“EBITDA”) is a non-IFRS financial measure, which excludes income tax, finance costs (before accretion expense), interest income and depreciation and amortization from net profits. EBITDA is intended to provide additional information to investors and analysts and do not have any standardized definition under IFRS and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. Management believes that EBITDA is a valuable indicator of our ability to generate liquidity by producing operating cash flow to: fund working capital needs, service debt obligations, and fund capital expenditures.

“Free cash flow” is a non-IFRS financial measure. Teranga calculates free cash flow as net cash flow provided by operating activities less sustaining capital expenditures. Teranga believes this to be a useful indicator of our ability generate cash for growth initiatives. Other companies may calculate this measure differently.

Starting in 2018, Teranga adopted “adjusted net profit attributable to shareholders” and “adjusted basic earnings per share” as new non-IFRS financial measures. These non-IFRS financial measures are used by management and investors to measure the underlying operating performance of Teranga. Presenting these measures from period to period is expected to help management and investors evaluate earnings trends more readily in comparison with results from prior periods.

Teranga calculates “adjusted net profit attributable to shareholders” as net profit attributable to shareholders adjusted to exclude specific items that are significant, but not reflective of the underlying operations of Teranga, including: the impact of unrealized and realized foreign exchange gains and losses, gains and losses on derivative instruments, accretion expense on long-term obligations, impairment provisions and reversals thereof, and other unusual or non-recurring items. During the second quarter of 2018, Teranga also excluded the impact of foreign exchange movements on deferred taxes and other non-cash fair value changes from adjusted net profit attributable to shareholders as management does not believe these factors to be reflective of the underlying performance of Teranga.

“Adjusted basic earnings per share” is calculated using the weighted average number of shares outstanding under the basic method of earnings per share as determined under IFRS.

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Overview

Teranga currently holds the fully permitted Wahgnion gold project and two regional exploration joint venture properties in Burkina Faso: Golden Hill and Gourma, acquired in October 2016 as part of the acquisition of Gryphon Minerals.

Burkina Faso represents a significant portion of the West African Birimian greenstone belt exposure (approximately 22%). The country is host to a number of producing gold mines which is anticipated to increase given current levels of mineral exploration and government support for the mining industry and modern mining code. 11 mines have been developed in Burkina over the last 10 years.

Teranga’s 2018 exploration budget for Burkina Faso is approximately $9-$10 million.

Regional Geology

The geology of Burkina Faso is dominated by the Proterozoic Baoulé-Mossi Domain, which corresponds to the eastern portion of the West African Craton. Neoproterozoic to Paleozoic sedimentary rocks cover the west and southeast of the country. The Baoulé-Mossi Eburnean orogenic domain contains Birimian (Lower Proterozoic) volcanosedimentary units arranged in elongated belts and relics of the Archean basement. The belts generally trend north-northeast but form arcuate belts to the north of Ouagadougou. They are bounded by older granite gneiss terrains and have been intruded by syn-to late tectonic granite bodies.

The Birimian Supergroup has been divided into a Lower sequence comprised of wacke, argillite, and volcaniclastic rock, and an Upper sequence of basalt with interflow sedimentary rock. Post- Eburnean marine and continental sedimentary rocks unconformably overlie the Lower Proterozoic sequences.

Local Geology

The oldest greenstone rocks in southwestern Burkina Faso, and in much of the Birimian Belt, are tholeiitic to calc‐alkaline volcanic rocks, which are predominantly extrusive volcanic units that are geochemically similar to rocks from present day volcanic island arc environments. Birimian sedimentary basins are abundant across the whole Baoulé‐Mossi domain and are thought to unconformably overlie the older greenstone basement rocks.

Voluminous granitic and gneissic rocks surround the greenstone belts and are, in general, tonalites or granodiorites with a trondhjemitic affinity. More potassic, often biotite‐bearing granitic rocks were intruded later which in places have evolved to more alkaline syenitic rocks. Early Proterozoic rocks within the concession area, are interpreted to be tholeiitic to calcalkaline basalts, andesites, and volcaniclastic sediments. These units include pillow basalts, bomb agglomerates, and associated extrusive volcanic and occasional basaltic flows. These rocks probably correlate with the basal sequences in the adjacent Banfora, Houndé, and Boromo greenstone belts.

Predominantly mafic, volcano‐sedimentary packages dominate the younger parts of the local stratigraphy. Metamorphic conditions appear to have peaked at greenschist facies with occasional amphibolite facies rocks outcropping in contact aureoles around some of the intrusive rocks.