Monday 10th December 2018

Resource Clips

Self-Funding In Senegal

Teranga Seeks 500K Gold Oz Annually

By Ted Niles

It is a testament to the Sabodala Gold Mine that when Mineral Deposits TSX:MDM decided in 2010 to spin off the project into its own company—Teranga Gold Corp TSX:TGZ—it drew the attention of so seasoned a management team. Most notable amongst them is Chairman and CEO Alan Hill, the former Executive VP of Development for Barrick Gold TSX:ABX. From 1983 to 2003, Hill oversaw the evaluation, acquisition and development of many of that company’s mines. “What we initially knew about Sabodala,” says Teranga’s VP of Investor Relations Kathy Sipos—also a Barrick alumnus—”was that it was an operating mine that had a very short reserve life but had a fabulous operation built to a Barrick standard.”

Located on the prolific Birimian Greenstone Belt—well known for its Mali, Ghana and Burkina Faso gold deposits—Sabodala is Senegal’s first large-scale gold mine. Sipos explains that Senegal is virgin territory. “The mining code came in 2003, and it’s only been since 2005 that people have been going in and exploring. They’ve already found 10 million ounces of gold on the Senegal side. Across the border, Mali has been open for mining for closer to 20 years and has found 40 million ounces. So it’s a very prolific new area. And the President and the CEO say that Senegal has one of the best mining codes they’ve ever seen.”

Teranga Seeks 500K Gold Oz Annually

Sabodala consists of 1,488 square kilometres in two parts: the Mine License and the Regional Land Package. The project has NI 43-101 proven and probable reserves of 1.51 million ounces gold and resources of 2.25 million ounces in the measured and indicated categories, all in the Mine License area, which makes up only 33 square kilometres of the project. While Sipos admits that it is the 1,455 square kilometres of the Regional Land Package that most interests the company, exploration drilling at the smaller part is yielding promising results. She says, “Generally the excitement we’re seeing right now is on the Mine License. Which is fantastic because these ounces are already permitted; they’re around the mill and therefore can go straight into the mill.”

November 23 Mine License assays included

  • 1.2 grams per tonne gold over 130 metres
  • 1.6 g/t over 45 metres
  • 1.1 g/t over 160 metres
  • 1.2 g/t over 67 metres
  • 1.3 g/t over 80 metres
  • 1.6 g/t over 36 metres

November 2 results included

  • 7.28 g/t over 21 metres
  • 3.69 g/t over 34 metres
  • 2.03 g/t over 53 metres
  • 3.32 g/t over 27 metres
  • 5.63 g/t over 15 metres
  • 3.48 g/t over 24 metres

Sipos comments, “What the drilling is showing is that the pit we have is going to get much bigger. We’re seeing similar grades to our reserve grade, and the pit looks like it’s going to pull 50 to 100 metres below where we originally thought. It’s also going to pull to the north. We are now very confident that we can double our reserves on the Mine License alone from the current 1.5 million ounces to 3 million ounces over the next 12 to 18 months.”

Teranga is targeting about 60,000 metres of drilling on the Mine License this year with seven rigs and another 90,000 metres on the Regional Land Package with 11 rigs. Due to a backlog of assays, results from the latter still haven’t been released. “Mineral Deposits Ltd did virtually no exploration, so we have a lot of opportunity,” Sipos reports. “We’ve got about 28 targets on the regional program of which we’ve drilled nine. We thought we’d get through all 28 this year, and I guess the good news is we haven’t thrown any of them out. Instead of dropping targets, we’ve added targets.”

As for mining operations, the Sabodala mill has a maximum capacity of two million tonnes of ore per year and is being expanded to accommodate a maximum of four million tonnes. The expansion is expected to be complete by 1Q 2012. Teranga anticipates that production will increase next year from its 2011 target of 140,000 ounces gold to 220,000 ounces at a cash cost of between $625 to $675 per ounce. However, due to “delayed access to high-grade zones,” Teranga announced December 7 that it would fall short of its 2011 target of 140,000 ounces by 5,000 to 10,000 ounces—and that its costs per ounce will increase from between $850 and $875 to between $875 and $925. The company expects to gain access to the zones later this month and has ordered three new rigs.

We are now very confident that we can double our reserves on the Mine License alone from the current 1.5 million ounces to 3 million ounces over the next 12 to 18 months —Kathy Sipos

As a producer, Teranga is in the enviable position of being able to fund its own exploration—this year estimated at approximately $35 million and expected to be in the same range next year. Its stock, however, remains depressed. Sipos attributes this in part to the backlog of assays that resulted in delayed news flow, but also to the hedge book the company inherited from Mineral Deposits. This hedge entails the delivery of a total of 399,000 ounces gold at quarterly intervals at a flat forward price of $846 per ounce. Because of this, Sipos says, “If you are a short-sighted investor and more skittish, as I think is quite prevalent right now, you are not going to be able to see the value that we see in the company.” Teranga continues to deliver into the hedge book at the scheduled rate and expects its hedge position to be at 174,500 ounces by yearend.

Sipos concludes, “We have a tremendous asset, and we’re fortunate to be in a country that is a welcoming host to mining. We have a tremendous amount of upside and, fortunately, the financial capability to be able to realize that value. We see ourselves being able to double our reserve, at a minimum, over the next 12 to 18 months. Hopefully, over the next several years we’ll get up to a 350,000-ounce producer. At which point, if we find more reserves, we’ll contemplate an expansion and go to the 500,000 level. But our first order of business is to find those reserves, increase our mine life to at least 10 million ounces, and go from there.”

At press time, Teranga Gold had 245.6 million shares trading at $2.26 for a market cap of $555.1 million.

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