Teranga Gold President and CEO Richard Young on Mining in Senegal and Expanding Production in West Africa

James West

Teranga Gold Corporation (TSE:TGZ) (OTCMKTS:TGCDF) (FRA:0TGA) currently averages gold production of 200,000 ounces at the Sabodola mine in Senegal. President and CEO Richard Young talks about the new Banfora mine (expected to be ready by 2019) in Burkina Faso, which the company predicts will bring production to a total of 500,000 ounces a year.



James West:     Richard, thank you for joining us today.

Richard Young:     James, it’s a pleasure to be here.

James West:     Richard, let’s start with an overview of exactly what Teranga Gold is up to in Senegal.

Richard Young:     Well, Teranga operates the only commercial gold mine in the country. Came into production in 2009. We just released an updated technical report for the project in July, and it increased reserves to 2.7 million ounces. We have a remaining mine life of 14 years, all-in sustaining costs sub-$900 an ounce, which we believe is quite competitive.

Over the next five years, we will average 200,000 ounces per year, and 176 life of mine – and there’s still a lot of exploration potential both on the mine license and our regional land package. So we expect to continue to add reserves to Sabodala, and would target to be able to maintain 200,000 ounces per year beyond the next five years.

James West:     Okay, so one of the first questions that pops into anybody’s mine when they hear about anywhere in Africa is, what’s the political climate like there in terms of stability and insurgent activity, if any?

Richard Young:     Well, Senegal is possibly the most democratic country in Africa. Since it gained independence from France in 1960, there have been peaceful elections. In 2012, on the tail end of the Arab Spring, there was an election which the incumbent president was running for a third term, and he lost, and he had peacefully handed over control of the government to the incoming president, and the rule of law is followed.

Senegal and all of French West Africa is very closely aligned with France, Europe and North America, and it’s very easy to do business. In terms of insurgencies, whether it’s Senegal or anywhere else in West Africa, it’s quite limited to tourist locations, and there have been a few instances in West Africa – again, it’s all focused on tourist locations similar to what we’ve seen in London and Paris. But otherwise, Senegal, as well as elsewhere in French West Africa, is pretty safe and stable.

James West:     Sure. Okay, well, that’s relieving! Tell us a bit about the geology that you’re dealing with there, and what does it mean for the future of the company in the larger context of a continental potential?

Richard Young:     So for I think a lot of your listeners, they would be very familiar with Northern Ontario and Quebec, the greenstone belt here in Canada. And the geology of West Africa is virtually identical. Now, you look back at how prospective and how many discoveries have been made over the last hundred years and continue to be made in Ontario and Quebec, and then you compare that against French West Africa, where we’ve only started exploring really in the last quarter-century, and in the last quarter-century, French West Africa or West Africa, has been one of the five fastest-growing regions for production in the world.

Production in West Africa is now approaching North America, something that I never would have believed when I came into this industry nearly 30 years ago. So we’re at the early stages, and there’s going to be significant discoveries made, not just by ourselves but by others. This region will likely become one of the largest gold-producing regions in the world over the next 5 to 10 years.

James West:     That’s interesting. So in terms of achieving 200,000 ounces per year, is that going to take any additional investment in the plant?

Richard Young:     No, we’ve been producing 200,000 ounces a year since 2012 at Sabodala. We recently expanded the plant and did some further optimization in 2016, and that’s working out better than we expected. So the infrastructure is largely built as we move forward. There isn’t a lot of capital left to invest until we go underground, so it’s a project that’s going to generate, at 1250 gold, after tax, about $230 million over the next five years, and it’s a very robust project for us.

James West:     Sure. Okay, so is it – is Banfora, then, something that’s going to be the focus of development efforts going forward?

Richard Young:     Absolutely. Banfora for us is a game-changer. First of all, it diversifies not only our production and cash flows, but it gives us another growth asset. So with Banfora, we just announced a feasibility study yesterday; we expect once it’s completed in 2019 that it will increase production by 50 percent, taking Teranga to a production level of somewhere between 300,000 and 350,000 ounces per year. Banfora will also reduce our all-in sustaining costs, because it’s a lower-cost asset than Sabodala. We expect that it will generate free cash flow over the first five-plus year in excess of $50 million a year at 1250 gold.

So it’s a really solid asset, and it’s got tremendous growth potential over and above the base case we announced yesterday.

James West:     Right. So is Teranga focused on expansion through acquisition of new, high-quality projects like Banfora, or are you more or less trying to stay focused on just these two big projects?

Richard Young:     No, James, we’re looking to build a growth company here through the bear market. We’ve already made two acquisitions during this bear market, and our focus over the next 12-24 months will be several-fold. One is, beyond Banfora, we’ve got an exploration project called Golden Hill. It’s also located in Burkina Faso. It came through an acquisition we completed last year. We have had very encouraging results to date; we started drilling that property earlier this year. We’re getting very high grades, we’re getting very good widths in a number of deposits, and what it looks like is, it may be a carbon copy to both Sabodala and Banfora.

So that is our near-term focus, is moving that project along, defining resources. Ultimately, if that exploration program works out, moving it through a PEA into pre-feas, and ultimately look to permit and build that project if it is what we think it is. And that’s something that would be coming along, assuming the exploration program worked out and it is what we think it is, we’d be taking that to the Board in 2020 for construction in late 2020. So that would follow on Banfora, and that could potentially take us to that mid-tier status of about 500,000 ounces.

But beyond that, because we’ve been in this five year bear market, there’s a lot of companies that got seeded and have made discoveries and moved projects forward, but the market just doesn’t care. So there’s opportunities both for acquisitions as well in earn-ins, and we’re focused on the three countries in which we operate that allow us to build a pipeline of projects well beyond Golden Hill and some of the other projects that we currently have. We’re really looking to put together a company where we could see adding beyond Banfora, at least one, if not two or three, mines over the next five to ten years. And that work’s got to start today, because of the long lead time that it takes to make discoveries and bring projects through feasibility, permitting, construction and operation.

James West:     Okay, so let me just ask you, Richard: at this point, does your current valuation, according to your market cap, is it appropriate, or would you consider it under-valued?

Richard Young:     Well, not just ourselves, but I think that the analysts that cover the company would say that we’re under-valued. I think that we just came out with the Banfora feasibility study yesterday; it’s going to take time for the market to absorb that, absorb the opportunities that we have with that project. We just put out the updated technical report for Sabodala, which is much improved over our previous report.

So I think now that the summer’s over, and investors and analysts are back, I think as they start to look more closely at the company, they’ll realize all the good work that’s really taken place this year, and will start to update their models for us. As we move forward with Golden Hill, we expect to have another press release out shortly. And again, we expect to continue to have very good exploration results at Golden Hill. As the market sees that project move forward and sees the potential of another mine, I think that’s going to quickly help to add to the value of the company as we move forward.

We are undervalued, and we have provided, and will be providing, with the Banfora tech report, which will be filed shortly, the technical means for investors to evaluate and value us, and what they will see is that we are clearly undervalued.

James West:     Okay. Finally, Richard, are you seeing an increase in interest institutionally or from the retail community in gold generally, and in emerging producers or mid-tier producers like Teranga more so in the last, since sort of the prices began to strengthen in the last couple of quarters?

Richard Young:     You know, James, to be honest with you, I think not only when you look at ourselves but you look at the industry as a whole, there has been investor apathy. You look at where gold prices are today at close to 1350, you know, the valuations throughout the sector don’t really reflect that. I think the ETFs have had a significant influence on that, particularly with the rebalancing of the GDXJ, which impacted us in the second quarter along with a lot of our peers. I think that the market is taking a ‘wait and see’ in terms of investing in equities. I think that we need to see gold prices hang in at current levels or above 1300. I think as we move through the balance of the year, you’ll start to see investors, both institutional and retail, who have been sitting on the sidelines and looking at the sector, start to come back in.

James West:     Right. Okay, that’s great, Richard. Let’s leave it there for now. We’ll come back to you in a couple of quarters’ time and see how you’re making out. Thank you very much for your time today.

Richard Young:     James, thank you very much.

James West

James West

Editor and Publisher

I employ a Capital Efficiency Model that dictates money should never be exposed for longer than is absolutely necessary to the possibility of being lost. Thus, I routinely sell half my position when a stock doubles from my entry price, and I sell stocks that lose 20%, unless there are...
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