Found the following on Oromin; not sure what it really means if anything but all comments appreciated.
TORONTO (miningweekly.com) - TSX-listed Teranga Gold, which was spun out of Mineral Deposits and listed on the TSX and ASX in December, has an enviable position in Senegal, but needs to find more high-grade gold, an analyst said on Friday.
The company owns the producing Sabodala gold mine in Eastern Senegal, about 90 km from major mines in Mali.
“Sabodala, right now, is a little underwhelming,” said the analyst, who didn’t want to be named ahead of a site visit Teranga is hosting for the financial community in February.
But he added that there was a good chance of the company making more discoveries: “It’s a fascinating region. It’s not been actively explored on the Senegal side.”
Teranga’s Sabodala mine, which poured its first gold in 2009, will produce 130 000 oz this financial year, increasing to 200 000 oz/y once a $56-million mill expansion is completed at the end of 2011.
Companies, including NYSE- and LSE-listed Randgold Resources, Teranga and TSX-listed Oromin, have discovered over ten-million ounces of gold in the Sabodala region over the last three years.
The region forms part of the same gold belt where AngloGold Ashanti, Randgold Resources and Canada’s Iamgold have mines.
Alan Hill, who returned from the site the day he spoke to Mining Weekly Online, said the opportunity for discovery was “mouthwatering”.
“I’ve never seen an opportunity for finding small deposits,” he added.
Since splitting from Mineral Deposits, Teranga has raised about C$135-million in its initial public offering, the company has a C$19-million exploration budget.
Teranga CFO Richard Young said there had been three drill rigs turning on the company’s 1 488 m2 exploration tenement before the listing, and the goal was to have 15 drill rigs up and running by March.
The company is feeding ore grading at around 1,6 g/t to 1,8 g/t through the mill, Hill said.
This would produce some 200 000 oz/y of gold once the mill’s doubling is complete later this year.
Young noted that if Teranga were to find higher grade ore of 4 g/t to 4,5 g/t, this would lift production to 400 000 oz/y at a cost of around $250/oz.
OROMIN OPPORTUNITY
Meanwhile, the analyst said that it was almost inevitable that Teranga would end up merging with its Canadian peer, Oromin, which has exploration assets next door to Sabodala.
“Our investment thesis is that Teranga has the mill, but the real value is to put it together with Oromin, and that’s when the majors start getting interested,” he said.
In fact, Hill conceded that prior to Teranga’s unbundling, Mineral Deposits had considered this, but decided against it.
He pointed out that Oromin only owned 43,5% of its exploration tenements (with Saudi Arabia’s Bendon International holding the same amount), making the company an expensive acquisition target for Teranga, which already owns 15% of Oromin.
According to a presentation dated August 2010, Iamgold also owns 15% of Oromin.
The TSX-listed company had an estimated 3,5-million ounce total combined mineral resource.
The company was trading at C$1,15 a share on Friday afternoon, giving it a market capitalisation of $155-million.
“I can buy ounces a damn sight cheaper,” said Hill.
Teranga was trading at C$2,74 for a market capitalisation of C$660-million.
HEDGE
The analyst said that Teranga’s hedge book might deter investors.
“If you’re buying a gold company shares then you have a bullish view on the gold price – why would invest in a company with a hedge book?” he asked.
Teranga has a 246 500-oz gold hedge.
“This is something we’ve got to monitor,” said Young, adding it would cost $125-million to buy it out today.
“Maybe we will accelerate delivery into the hedge, the sooner it’s gone the better.”
Edited by: Liezel Hill