VANCOUVER — Teranga Gold (TSX: TGZ; ASX: TGZ) aims to expand its production profile in West Africa, and it found an opportunity in Australia-based Gryphon Minerals (ASX: GRY) and the fully permitted Banfora gold project in southwestern Burkina Faso.
On June 19, the companies announced a friendly, all-share agreement worth US$63 million. Under the deal, Gryphon investors would receive 0.169 of a share in Teranga.
The offer represents a 45% premium over Gryphon’s 20-day, volume-weighted average share price at the time of signing.
Teranga expects to issue 68 million shares for the acquisition, which is scheduled to close in early October.
Teranga’s sole operation is the Sabodala carbon-in-leach (CIL) open-pit gold mine, 650 km southeast of Dakar, Senegal, which cranked out 70,727 oz. gold in the first quarter at all-in sustaining cash costs of US$824 per oz. gold.
Bringing Banfora into production could boost Teranga’s annual output to between 275,000 and 325,000 oz. gold by mid-2019, at an estimated US$900 per oz. all-in sustaining cash cost.
“The acquisition aligns with our goal to diversify and grow within West Africa, and we now have the potential to increase our gold production 50% starting in mid-2019,” Teranga president and CEO Richard Young said during a conference call.
“Senegal and Burkina Faso share many characteristics, including language and currency, and they’re both mining-friendly jurisdictions where we expect to have strong government support. I always liken mining to real estate because location is everything, and both countries are really under-explored and highly prospective,” he added.
Teranga intends to optimize a 2-million-tonne-per-year CIL operation at Banfora that was modelled in a feasibility study released in early 2013.
The mine would require capital expenses of US$208 million, and crank out 151,000 oz. gold annually over an eight-year mine life.
The plan is based on reserves of 16.7 million tonnes grading 1.95 grams gold per tonne for 1.05 million contained oz. gold.
Banfora does have greater property-wide upside, however, with measured and indicated resources consisting of 72 million tonnes grading 1.5 grams gold for 3.5 million contained oz. gold.
Resource and reserve statements were calculated under Australia’s Joint Ore Reserves Committee guidelines, and are derived from the four main prospect areas, namely: the Nogbele, Fourkoura, Samavogo and Stinger deposits.
Banfora ores are non-refractory and typically free-milling, with a high gold recovery by cyanidation leach and low to moderate reagent consumption. Gryphon’s design assumes 92% gold recoveries.
“Miners tend to like a single large pit, so the concept of having multiple pits tends to be viewed as not exactly ideal. That’s where we come in, because we’re very comfortable with that,” Young said. “When we sat down and looked at the project there are a number of targets with a material amount of drilling, and they just needed the capital to continue with the programs. We believe there’s going to be more deposits discovered here, similar to Sabodala, and it’s going to be a very nice operation for us.”
Scotiabank analyst Ovais Habib called the transaction a “prudent move for Teranga,” and noted it “adds diversification, scale and another growth project with reasonable [capital expense] requirements.” Scotiabank maintains a “sector perform” rating on the company along with a one-year price target of $1 per share.
Teranga has traded within a 52-week range of 38¢ to $1.23 per share, and closed at $1.07 at press time. The company has 392 million shares outstanding for a $389-million market capitalization, and would have an US$80-million cash balance after acquiring Gryphon.
In connection with the transaction, Teranga’s largest shareholder, Tablo Corp., has agreed to keep its 13% anti-dilution right by subscribing for a $9-million equity placement.
“The great thing about our situation is that Sabodala is generating a lot of free cash flow, and we have a strong cash balance that gives us a lot of flexibility,” Young said.
“We don’t have any concern in terms of financing development at Banfora, and that’s one of the primary reasons the Gryphon board is so supportive of this transaction. We have the balance sheet to support the development, and beyond that I’d say we have strong cornerstone investors if we need to raise equity moving ahead.”