Teranga aims to boost Sabodala with Oromin bid

VANCOUVER — Toronto-based producer Teranga Gold (TGZ-T, TGZ-A) is taking a second swing at Vancouver-based junior Oromin Explorations (OLE-T) with an all-share acquisition offer. Teranga’s target is Oromin’s 43.5% stake in the 212 sq. km OJVG gold project, which lies adjacent to the producer’s multi-million ounce Sabodala gold mine, 650 km southeast of Dakar, Senegal, in westernmost Africa.

Oromin owns OJVG in a partnership with private companies Badr Investment & Finance and Bendon International, which hold 13% and 43.5% stakes in the project. Teranga has amassed a 14% equity stake in Oromin, while Canadian gold miner Iamgold (IMG-T, IAG-N) owns 16 million shares for a 12% equity interest.

According to details released by Teranga, the company was in advanced negotiations with Oromin in December 2011, but any agreement was subject to a waiver from Senegalese regulators pursuant to an option for a local subsidiary to acquire a 25% stake in OJVG’s mining concessions.

Since the waiver could not be obtained, Teranga took a step back and started up negotiations with government officials to buy national participation rights on deposits outside Teranga’s mining licence that would be processed through the Sabodala mill.

Teranga nailed down an agreement with the Senegalese government in April and approached Oromin and its partners in May, but Bendon shot down the attempt, citing a lack of cash consideration. Teranga came back with its current offer a week later on May 24, and was rebuffed by Oromin, which declined to provide due diligence access. The bid expired on May 31.

After signing a global agreement with the Senegal government, Teranga solidified a lock-up contract that would see it acquire Iamgold’s 12% stake in Oromin, which would bring Teranga’s share in the junior to 25.3%. Teranga reinstated its initial offer to Oromin with the intention of working with Bendon and Badr to develop and process the OJVG deposits.

Pursuant to Teranga’s offer, Oromin shareholders would receive 0.582 of a Teranga share for every Oromin share held. The offer represents a 50% premium on Oromin’s 20-day, volume-weighted average, and a 68.7% premium to its closing price on May 31. The offer would result in issuing 69 million Teranga shares, which at press time were trading at around 78¢ and would carry an estimated value of $54 million.

“Our [offer] provides Oromin shareholders with significant and immediate value for their shares, and the opportunity to participate in developing the OJVG deposits,” says Teranga chairman Alan Hill.

“The [combination] would result in a company that is expected to have increased production from Teranga’s interest in the OJVG’s open-pit reserves, higher earnings and higher free cash flow per share,” says president and CEO Richard Young.

Oromin responded to Teranga’s offer on June 3 but didn’t comment on its intentions, citing the need for a review by its board of directors. Like many juniors Oromin has struggled on the market to start 2013, with its share price plummeting 69%, or 56¢, to 24.5¢ per share at the time of Teranga’s bid.

Following news of the offer Oromin shares jumped 55%, or 14¢, to bring it to a 39.5¢-per-share valuation at press time. With 132 million shares outstanding, that gives Oromin a market capitalization that brings the value of its potential holding in Teranga shares to $53.5 million.

OJVG is hosted in an orogenic greenstone belt comprising metavolcanics, sediments and lesser intrusives. These rocks are part of the Kedougou-Kinieba inlier and are locally crosscut by splays of the Kakadian-Kerekoto shear zone. This type of structural and geological setting is similar to various gold camps in West Africa and Canada.

The project holds reserves totalling 28 million probable tonnes grading 2.59 grams gold for 2.34 million contained oz. across its Golouma and Masato deposits, as well as indicated resources totalling 75 million tonnes grading 1.56 grams gold per tonne for 3.8 million contained oz. OJVG’s resource also includes 16.5 million tonnes of heap-leach material at an average grade of 0.84 gram gold.

In late January Oromin released feasibility studies on a carbon-in-leach (CIL) operation and heap-leach addition at OJVG.

The CIL component would include both open-pit and underground mining over a 17-year life, and carry an upfront cost of US$297 million. At a US$1,550 gold price the project would generate a US$740-million pre-tax net present value (NPV) and 27.7% internal rate of return (IRR) at a 5% discount rate. The mine would crank out 144,000 oz. gold annually at operating cash costs of US$654 per oz., and carry a two-year payback.

Oromin’s proposed heap-leach operation was included to capitalize on OJVG’s lower-grade material, while improving the CIL process value. The development would carry a US$54-million start-up cost and add 27,000 oz. gold annually at cash costs of US$760 per oz. Under the same economic parameters, the heap-leach mine would generate a US$98-million after-tax NPV and a 36% IRR with a two-year payback period.

Teranga would focus on OJVG’s open-pit reserves, which total 21.9 million probable tonnes grading 2.05 grams gold for 1.45 million contained oz. gold.

The company intends to blend ores across multiple deposits to enhance its cost profile, and estimates that the acquisition could result in a 50% free cash-flow jump, 50% net asset value increase and 300% rise in earnings at a US$1,400 per oz. gold price.