RE:RE:RE:RE:RE:Q & A El Joro,
While Mr. Mimran's investment in Teranga Gold is impressive, his purchase price doesn't put a floor underneath the stock, no more than Rob McEwen's 25 percent ownership in MUX and that stock still tanked from $4 down to under a dollar last year.
I agree with you that TGZ is a proxy on the price of gold, and if the price of gold goes up so will the price of TGZ stock. However, after reading Teranga's Q3 MD&A, I see the following red flags:
- Teranga has fallen behind on its mining plan. The plan called for 700,000 tonnes of ore at 4.0 g/t at Gora, and actual results are 576,000 tonnes at 2.73 g/t. At Golouma, the plan called for 1,200,000 tonnes at 3.08 g/t, and they have only mined 568,000 tonnes at 3.58 g/t, so they may end the year 400,000 tonnes of ore short of their production goal.
- Life of mine mining cost for 2016 was supposed to be $2.24 USD/t, and the Q3 number was $2.59 USD/t, so mining costs are rising, and I suspect the culprit may be the 99 cent per liter cost of diesel in Senegal, and fuel costs may be rising faster than the POG.
- The Q3 MD&A states that "Pre-stripping activities have commenced at both Gora Phase 3 and Kerekounda." The mine plan calls for 3.6 Mt being stripped in 2016, so it looks like that $9.3 million dollar cost may hit the balance sheet in Q4. Teranga has about 4000 ounces of unsold gold from this quarter that will no doubt be reported next quarter and used to offset the Kerekounda pre-stripping cost.
- Financial Engineering from page 20 of the MD&A: "At the end of February 2016, the Company entered into zero cost collars with Macquarie Bank. The agreements provide a guaranteed floor price of $1,150 per ounce and also provide exposure to the gold price up to an average of $1,312 per ounce. These agreements cover 15,000 ounces of production between October and December 2016." So why be long in a stock where the management has made a deal with the bankers to cap your returns at $1312 gold?
Based on the information from the Q3 MD&A, the best case is that Teranga Gold produces 52,500 ounces of gold in Q4 and has sales of 58,500 ounces. That would give them a revenue of $73 million dollars and a net income of $7.7 million dollars. That's assuming that ore production recovers from 331k tonnes to 480k tonnes, strip ratio increasing from 23 to 25, and mining cost returning to $2.37 USD/t. At a $2.59 USD/t mining cost, you can take $3 million off net income estimate, so with the extra drag from Gryphon in Q4, IMHO, the TGZ EPS goes down in Q4 2016, the only question is how much?