Teranga Gold (TSX: TGZ; ASX: TGZ) aims to build its Banfora gold mine in Burkina Faso, which would become its second West African gold mine, with construction expected to start later this year.
Teranga currently operates its Sabodala gold mine in Senegal, where it is guiding 2017 gold production of 205,000 to 225,000 oz. at all-in sustaining costs of US$1,000 to US$1,075 per ounce. Last year, Sabodala cranked out a record 216,735 oz. at all-in sustaining costs of US$929 per oz., following mill improvements.
With a decent year anticipated from Sabodala, Teranga is dividing its efforts between getting Banfora ready for construction and on company-wide exploration.
“We expect to have a strong year. The year from a production standpoint should be similar or maybe a little bit better. We will generate more free cash flow from Sabodala this year, as we have lower capital expenses at the mine site,” Teranga’s CEO Richard Young says.
“The two key areas of focus will be delivering a positive feasibility study for Banfora, which we expect by mid-year, and, assuming that the economics are attractive enough … seeking board approval for construction and financing. The third area we’re focused on is exploration.”
Teranga picked up the permitted, open-pit Banfora gold project last October in an all-share takeover of Gryphon Minerals. Before the acquisition closed, Teranga funded a resource conversion program and plant redesign studies through a US$3.4-million private placement in exchange for a 5% interest in the Australia-based junior.
Gryphon previously calculated that Banfora had Joint Ore Reserves Committee-compliant reserves of 1.05 million oz. (16.7 million tonnes at 1.39 grams gold per tonne) contained within four pits as part of its 2013 feasibility study on a 2-million-tonne-per-year, carbon-in-leach operation.
While Teranga intends to publish a reserve update as part of its feasibility study, Teranga’s chief operating officer Paul Chawrun notes that Banfora — initially half the size of Sabodala — is similar in terms of geology, ore type, processing and metallurgy. “We bring along core expertise,” he says.
Teranga estimates Banfora could produce between 100,000 and 150,000 oz. a year over a 10- to 15-year mine life, with a projected start-up cost of US$200 million to US$250 million. Those numbers will be confirmed in the upcoming feasibility study, Young says.
Teranga intends to fund Banfora’s development through existing cash and debt. “We have got $100 million in cash on the balance sheet today. Sabodala is generating free cash flow, and we are looking at a $100-million debt facility. We’ve reached out to a dozen possible lenders,” Young says. Once the economic study is out, Teranga plans to advance discussions.
If all goes to plan, the company will break ground at Banfora in the third quarter, with major construction in the fourth quarter. This would put the project on track for its first gold pour by June 2019.
Meanwhile, the firm has budgeted up to US$15 million on exploration this year. “We got some really exciting exploration programs underway in all three jurisdictions,” Young says.
Teranga expanded its reach from Senegal to Burkina Faso and Côte d’Ivoire through two acquisitions last year, including Gryphon, where it scooped a 90% interest in Banfora and a 51% joint-venture interest in the Golden Hill and Gourma exploration properties in Burkina Faso. The country’s government owns the rest of Banfora, while Boss Resources (ASX: BOE) holds the rest of the exploration projects.
Earlier that year, Teranga signed an exploration agreement with Miminvest, a private company controlled by David Mimran, Teranga’s largest investor at 19.2%. Mimran is also the CEO of his family’s Mimran Group. The conglomerate has operated in Côte d’Ivoire since 1963 and owns the country’s largest flour producer.
Under the exploration agreement, Miminvest gave Teranga five early-stage exploration projects covering more than 1,800 sq. km in Côte d’Ivoire, in exchange for a 3% net smelter return royalty.
Teranga plans to spend US$500,000 exploring those targets this year, but notes that most of its 2017 exploration dollars will go towards its assets in Senegal and Burkina Faso.
Teranga has allocated around US$4 million for drilling its Sabodala mine licence, and another US$2 million on regional exploration in Senegal.
The nearby Niakafiri deposit, containing 600,000 measured and indicated oz., including half in reserves, has been the focus. The company has completed 10,000 metres of the planned 12,000 metres of drilling at Niakafiri this year, where promising results have shown higher grades.
While Niakafiri is already in Sabodala’s 13.5-year mine plan, the results will allow Teranga to resequence pit development and improve near-term production and cash flow from the operation, Young says.
However, accessing the Niakafiri deposit earlier would mean Teranga would push up its plans of relocating the nearby 3,000-person village. A move, Young says, the community is “looking forward to,” as it would mean an upgrade in housing and access to electricity, which it lacks. The estimated relocation cost is US$25 million.
In Burkina Faso, Teranga has budgeted up to US$4 million on Banfora, noting completed exploration work has identified more mineralization. It has allocated another US$3 million to explore Golden Hill, sitting 200 km northeast of Banfora, where it intends to complete a preliminary drill program on four targets. Depending on the results, it may follow up with more drilling, Chawrun says.
Meanwhile, the company is also evaluating merger and acquisition opportunities. “There are a number of junior explorers and developers that are looking to determine the best path forward. As we stand today, the equity markets are largely closed for the junior explorers and developers. So there may be additional opportunities, like the Gryphon transaction … that will help us grow the company in a strong mid-tier West African gold company,” Young reveals.
Teranga closed April 20 at 71¢ per share, down 21% since the start of the year. The stock has a 52-week trading range of 63¢ to $1.40.