(As originally published in The Financial Post)
Checking in with Richard Young President and CEO of Teranga Gold (T.TGZ) is always interesting. When last we spoke with Young in April 2016, Teranga’s Senegal open pit gold mine was generating free cash flow of $144 dollars per ounce of gold mined. Young was pleased with the progress Teranga had made and was very optimistic about the future. A year later, he is just as pleased and even more optimistic.
“With important steps taken in 2016, Teranga’s future is bright,” said Young. “Last year, we took a fresh look at our growth strategy. With more than five years of operating success in Senegal, we have developed some key competencies. We understand West Africa and we wanted to look for additional growth opportunities in this part of the world. It’s a very mining friendly region where mining codes were only recently modernized in the early 2000’s, boosting foreign investment,” stated Young. “Further, the culture and the language are similar to Senegal. The regulatory structures, even the currencies, are the same.”
Utilizing the Company’s rigid selection criteria, the growth opportunity that stood out was Gryphon Minerals with its fully permitted Banfora gold project in Burkina Faso. A feasibility study is currently underway which Teranga expects to complete mid-2017. If all goes as planned, management will seek Board approval to commence construction in the latter half of 2017.
The proposed mill facility for Banfora is expected to be a carbon copy of Teranga’s mill in Senegal. “We have an outstanding processing facility at Sabodala, which we are looking to replicate. We know how to build it and we know it works. Knowing these two things eliminates significant capital and operating risk from the project,” said Young.
Along with the Banfora project, the acquisition also brought in two prospective early stage exploration properties to Teranga’s portfolio. One of particular interest is Golden Hill, situated within the Houndé greenstone belt, which hosts a number of familiar Canadian gold mining names. “Golden Hill is situated close to high-grade deposits discovered by Roxgold, Semafo and Endeavour Mining,” said Young.
“Exploration is a key focus for us in 2017,” said Young. “We’re coming in with a $12 million to $15 million exploration budget with more than half of this set aside for Burkina Faso. We are very excited about our prospects in Burkina Faso and expect to have a lot of news on this front through 2017.”
Another opportunity to arise in 2016 related to an early stage exploration play covering more than 1,800km2 in Côte d’Ivoire. This came through Teranga’s largest shareholder and West African businessman, Mr. David Mimran. Teranga acquired 100% of the permits in exchange for a net smelter royalty. Randgold Resources has described Côte d’Ivoire as the #1 jurisdiction in Africa to explore for gold.
“Our ability to do business successfully in West Africa is in part due to our extensive corporate social responsibility program. We hope to replicate the successful program we have implemented in Senegal and roll it out in Burkina Faso and Côte d’Ivoire,” said Young. Teranga recently won the 2016 United Nations Global Compact Network Canada Sustainability Award and the 2017 Environmental & Social Responsibility Award by the Prospectors & Developers Association of Canada.
In only one year, Teranga has gone from a successful Senegal mining operation to a multi-jurisdictional gold company. “We have three different stories. As an operator, we are generating free cash flow from our Senegal operations. As an explorer, we have an expansive program underway in three countries. And we expect to build a mine, our second one, in one of the most prospective countries in the world for gold discoveries over the past decade.”
Teranga has positioned itself to be profitable simply on the basis of free cash flow from its Senegal operations. One of its goals is to keep adding to reserves to sustain production at that operation. With free cash flow from the Senegal mine and a strong balance sheet, Young admits it is much easier to focus on future value creation.
Young added, “Our job is to protect and create shareholder value by building high quality projects which are profitable in both lower as well as higher gold price environments. We can’t control the gold price so we are focused on locking down the things within our power.”
At time of writing Teranga was trading at $0.96 with 537 million shares outstanding for a market cap of $504.51 million Canadian dollars.
FULL DISCLOSURE: Teranga Gold Corp. is a paid client of Stockhouse Publishing.