Teranga Gold (TSX: TGZ) has produced more than 1.2 million oz. gold from its Sabodala mine in Senegal since 2009, and expects its flagship operation will produce another 1 million oz. of the metal over the next five years.
“If we don’t put another drill hole in, we’ve got a further 14 years remaining at Sabodala, with production averaging 176,000 oz. a year at all-in sustaining costs (AISCs) of less than US$900 per ounce,” says the company’s president and CEO, Richard Young.
In July, the company announced that it had increased Sabodala’s proven and probable reserves to 2.7 million oz. gold — an increase of 400,000 oz. over the previous reserve estimate — and forecast gold production between 2018 and 2022 should generate US$230 million in total free cash flow. This year the mine is on track to churn out between 205,000 and 225,000 oz. gold.
But the mid-tier gold producer has a broader vision of its future in West Africa that extends its footprint beyond Senegal and into Burkina Faso. The company expects to build a second gold mine at its Banfora project in the second half of next year, with the first gold pour in 2019.
Once Banfora is up and running, Young says, it should increase Teranga’s total gold production by 50% to between 300,000 and 350,000 oz. a year. During the first five years, at US$1,250 per oz. gold, Banfora should generate US$55 million in free cash flow annually.
“Banfora, for us, is a really important step in our growth as a company,” Young tells The Northern Miner in an interview after the company released a feasibility study on the development project. “It takes us from being a single-asset company to a multi-jurisdiction, multi-asset company, and certainly what we’re hearing from shareholders is that they prefer diversified companies that are diversified geographically, as well as operationally.”
Based on initial gold reserves from four deposits and a US$1,250 per oz. gold price, the feasibility study outlines a nine-year mine life producing 119,000 oz. gold annually, at average AISCs of US$843 per ounce.
During the first five and a half years, Banfora would produce 131,000 oz. gold at AISCs of US$807 per ounce. The mine could be built at a cost of US$232 million. With an after-tax net present value of US$90 million and after-tax internal rate of return (IRR) of 15%, the payback would take four years.
Young says that while the feasibility study is “solid,” it “will improve.”
“This is a project that isn’t fully drilled out, so we expect the IRR to increase materially as we continue to convert resources to reserves, and we also believe that gold prices are going to move above US$1,250 per oz., which we used for this analysis,” Young says. “At today’s gold price the IRR is about 20%.
“People need to think about the fact that we are building a project that we think is going to last 15 to 20 years, and the current economics are based on nine years.”
The company plans to update reserves in the first half of next year and is halfway through a 65,000-metre infill drilling program that is increasing drill-hole density in the in-pit areas classified as inferred resources. Young says he expects anywhere from 25% to 50% of the inferred resources will be upgraded to the indicated category and converted to reserves.
The company is also working on regional exploration and has more than a dozen targets on its 1,000 sq. km property. Teranga will spend US$8 million this year on infill and exploration drilling.
“The current feasibility is only based on four deposits, and we’ve got more than a dozen priority targets that we’ll be drilling as part of a multi-year drill program,” he says. “Beyond this infill drill program to increase reserves above 1.2 million ounces, we expect further additions from this regional exploration land package over the next few years.”
The project is less than 10 km from Burkina Faso’s border with Côte d’Ivoire and within the Birimian Senoufo belt, which also hosts Randgold Resources’ Tongon deposit, 150 km away.
The feasibility study envisions a 2.4-million-tonne-per-year, carbon-in-leach processing facility that will be modelled after Teranga’s Sabodala operation. The average mill grade is expected to be 1.88 grams gold per tonne.
“This is a replica of our Sabodala operation, so, for us, both from a mining and processing standpoint, this is going to look very similar,” Young says. The company will use Lycopodium Ltd., an Australia-headquartered engineering and project management consultancy that has built a dozen gold projects in West Africa, and completed a mill optimization at Sabodala last year that increased throughput by more than 10% from 3.8 million tonnes per year to 4.4 million tonnes per year, and cut costs by 5%.
“Lycopodium has built a number of projects in West Africa and knows the region well, so we’re quite comfortable with our preproduction capital estimate of US$232 million, and we’re quite comfortable that the project will be able to operate as advertised in the feasibility study,” Young says.
Teranga has deferred the start of plant construction by a quarter to allow for developing an optimal financing plan and has already begun talks with lenders.
“Our goal is to minimize equity dilution, and we’re going to try to put a plan together that does that,” he says. “We’ve received term sheets from a number of lending institutions, and we will move in to negotiate and pick a lender this fall.”
Teranga reported cash and equivalents of US$80 million at the end of June. With anticipated cash flow from Sabodala of more than US$80 million over the next two years, Teranga says it is unlikely that project financing would add more than US$150 million.
Teranga added Banfora to its West African portfolio of projects last year when it acquired Gryphon Minerals for US$50 million. In addition to Banfora, the Gryphon acquisition gave Teranga two other advanced exploration properties in Burkina Faso: Golden Hill and Gourma.
Golden Hill is a 468 sq. km permit 200 km northeast of Banfora, within the central part of the Houndé greenstone belt. Golden Hill is contiguous to the Houndé deposit owned by Endeavour Mining (TSX: EDV) and just 70 km south of Roxgold’s (TSX: ROXG; US-OTC: ROGFF) Yaramoko deposit.
Gourma covers 1,300 sq. km in eastern Burkina Faso’s Fada N’Gourma greenstone belt. Gourma is 250 km southwest of Ouagadougou and 80 km south of Samira Hill, the largest gold deposit in Niger. Teranga is earning into both projects.
Is Teranga going to be the next Randgold?