RE:RE:RE:Q & A Highwired7,
Frist of all, I purchased most of my Teranga Gold shares in the January to February time frame when nobody wanted this stock, and there was a very good tactical reason to buy because Teranga had mined a lot of high grade ore in Q4 2015 on which they deferred milling into 2016.
The stock had been pushed down to the bottom of the trading range and that was a good place to buy from a risk to reward standpoint. In January, there was harmony between the stock fundamentals and the technical picture.
So, what I am looking at on the monthly chart is the February 2014 monthly swing high at $1.22. That high was made on volume of 77.15 million shares. In August 2016 TGZ spiked that high went to a higher high at $1.39 on monthly volume of 53.86 million shares. Then, in September they rang the cash register on this stock when it spiked to $1.40, on 94.316 million shares, and then it closed below the February swing high at $1.22. In October the stock hasn't been able to get above $1.21, which it should have done on Friday, if the stock was doing an ABC up. Then you have the high volume untested monthly swing low from February at 38 cents which will get retested in the next 2 years. So as I read the technical chart on TGZ it is a range play that oscillates between 38 cents and $1.40.
That technical view of the stock was confirmed when I went through the mining plan and did a detailed production and cash flow model out through 2021. With gold at $1300 USD and based on the current mining plan, quarterly revenue tops out at $75 million USD in 2017 and quarterly net income is at best $3.7 million USD, and then declines from there unless they can find and develop new sources of feed for Sabodala.
Based on Teranga's updated guidance contained in slide 30 of the quarterly earnings results presentation, my estimate for Q4 is that they mine 480,000 tonnes of ore at a head grade of 2.27 grams per tonne, and 10,025,000 tonnes of waste for a strip ratio of around 21. That gives them around 39,000 ounces of gold mined. Mining cost should be about $2 million dollars higher than Q3, and if they can run the mill at 970,000 tonnes in Q4, they should be able to produce 52,000 ounces of gold. The revenue from that gold production at $1260 USD per ounce comes out to $65 million which is slightly better than Q3 2016, but then the additional exploration and G&A costs from the Gryphon acquisition hit the balance sheet in Q4 with the result that net income drops to around $3.0 million dollars.
So the technicals say this is a range bound stock rather than a growth play, and the financials are telling me the same thing, and the only thing that would change the story is a big breakout in the gold price. So I sold all of my TGZ shares except for 50 token shares that I will put a buy alert on the next time this name gets to 38 cents.