Mr. Richard Young reports
TERANGA GOLD REPORTS STRONG FREE CASH FLOW PER OUNCE OF $144 DRIVEN BY RECORD FIRST QUARTER PRODUCTION
Teranga Gold Corp. has released its financial and operating results for the first quarter ended March 31, 2016.
All amounts are in U.S. dollars unless otherwise stated.
First quarter 2016 financial and operating highlights
-
Net profit attributable to shareholders of $7.8-million or two cents per share;
- Record first quarter gold production of 70,727 ounces driven by record
high mill throughput;
-
7-per-cent improvement in cash costs underlie low all-in sustaining costs
per ounce of $824(1);
-
More than 960 days worked without a lost-time incident;
-
Reduced corporate expenses by $1-million compared with original plan;
-
Strengthened senior management team, appointing chief operating officer and vice-president of exploration;
-
Cash balance of $53.5-million at March 31, 2016, an increase of $9.1-million from the start of the year; pro forma cash balance of $70-million including VAT (value-added tax) certificates received to date and VAT recoverable.
"Our first quarter results were strong, driven by last year's production deferral, record high mill throughput and our lower long-term cost structure," stated Richard Young, president and chief executive officer of Teranga. "Based on this strong start to the year, we are on track to achieve our 2016 production guidance of between 200,000 and 215,000 ounces of gold."
Three months ended March 31,
2016 2015
Revenue ($ millions) 79.2 68.5
EBITDA(2) ($ millions) 29.0 32.8
Net profit attributable to
shareholders ($ millions) 7.8 13.0
Per share ($/share) 0.02 0.04
Operating cash flow ($ millions) 24.1 16.6
Free cash flow(3) ($ millions) 9.8 7.3
Free cash flow per ounce sold(3) ($/oz) 144 131
Gold production(4) (oz) 70,727 48,643
Gold sold (oz) 67,672 56,223
Average realized gold price ($/oz) 1,169 1,217
Total cash costs per ounce sold(1) ($/oz) 567 609
All-in sustaining costs per ounce
sold(1) ($/oz) 824 841
"With a large and growing cash balance and strong liquidity, we are in a solid financial position," stated Navin Dyal, vice-president and chief financial officer of Teranga. "Maximizing free cash flow remains our top priority and we continued to streamline our cost structure in the first quarter, trimming 2016 corporate expenses by $1-million from our original budget. As outlined in our updated technical report, which was filed in March, we expect to generate cash flow of $549-million(5) over the life of mine at gold prices significantly lower than today's prices."
Outlook 2016
The company expects to produce between 200,000 and 215,000 ounces(6) of gold in 2016. Production for the balance of 2016 is expected to range between 40,000 and 55,000 ounces per quarter, with third quarter production expected to be the lowest due to the anticipated effect of the rainy season on mining and processing rates.
David Mallo has been appointed to the new position of vice-president of exploration. With this new position, and with encouraging exploration results this year, the company's 2016 exploration spending has been increased to $12-million from the company's original outlook for exploration spending, which was $8-million. This amount could increase further if a significant discovery is made.
As part of the Teranga's continuing business improvement program, during the first quarter the company streamlined its corporate office, reducing head count and general and administrative expenses by approximately $1-million compared with the budget. Additionally, in order to align with its peers, corporate social responsibility (CSR) costs, which totalled $2.9-million in 2015, will now be shown as a separate line item on the financial statements. Further, regional administration costs (including Dakar office costs), which totalled $2-million in 2015, will be included within cost of sales. To reflect the savings and reclassifications, the company is reducing its original 2016 administration cost guidance from a range of $15-million to $16-million to a range of $8-million to $9-million. CSR costs are expected to be in the range of $3-million to $3.5-million, and regional administration costs are expected to be approximately $2-million.
All other guidance remains unchanged from what was originally published on Jan. 28, 2016.
REVIEW OF OPERATING RESULTS
Three months ended
March 31,
Operating results 2016 2015
Ore mined (000s t) 905 2,246
Waste mined -- operating (000s t) 7,000 3,619
Waste mined -- capitalized (000s t) 661 2,841
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Total mined (000s t) 8,566 8,706
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Grade mined (g/t) 2.16 1.17
Ounces mined (oz) 62,813 84,379
Strip ratio (waste/ore) 8.5 2.9
Ore milled (000s t) 1,052 861
Head grade (g/t) 2.23 1.90
Recovery rate (%) 93.7 92.6
Gold produced(4) (oz) 70,727 48,643
Gold sold (oz) 67,672 56,223
Average realized price ($/oz) 1,169 1,217
Total cash costs (incl.
royalties)(1) ($/oz sold) 567 609
All-in sustaining costs(1) ($/oz sold) 824 841
Mining ($/t mined) 2.15 2.06
Mining long haul ($/t hauled) 5.08 -
Milling ($/t milled) 10.77 14.64
G&A ($/t milled) 4.02 4.9
Three months ended March 31, 2016
Masato Gora Golouma Total
Ore mined (000s t) 455 272 178 905
Waste mined -- operating (000s t) 166 3,949 2,885 7,000
Waste mined -- capitalized (000s t) - 661 - 661
------ ------ ------ ------
Total mined (000s t) 621 4,881 3,064 8,566
------ ------ ------ ------
Grade mined (g/t) 1.16 3.16 3.19 2.16
Ounces mined (oz) 16,969 27,560 18,284 62,813
First quarter operating results
Mining
Mining activities in the first quarter were focused on Gora phases 1 and 2, the first production benches of Golouma South, and the completion of the lower benches of Masato phases 1 and 2. Over all, mining has shifted focus from operating in near-mine deposits with a shorter haul distance, to satellite deposits, requiring the use of a long-haul ore contractor.
Processing
The amount of ore tonnes milled for the first quarter was a record for the company, with throughput rates benefiting from a soft blend of oxide and fresh ore feed. The amount of ore tonnes milled for the three months was 22 per cent higher than the prior-year period, due to lower moisture content in the oxide ore added to the blend and design improvements in the SAG (semi-autogenous grinding) discharge made in late 2015. In the prior-year period, crusher rates were negatively affected by soft, wet ore processed from Masato. Part of the orebody at Masato encountered a near-surface perched water table in the soft oxide ore, which created material handling challenges that negatively affected throughput rates in the prior-year period.
Costs -- site operations
The company is focused on expanding cash margins by improving productivity. Both the mine and mill areas continue to make significant strides in lowering unit operating costs.
Total mining costs for the three months were $18.4-million, 3 per cent higher than the prior-year period. The increase is mainly due to higher customs and duties on imported spare parts during the first quarter, a cost that was not incurred until after the end of the tax holiday in May, 2015. This increase was partially offset by lower fuel prices and mine optimization to improve productivity and lower costs, including improved drill and blast productivities and lower costs for tires due to reduced wear. On a unit basis, while mining costs for the three months were 4 per cent higher than the prior year mainly due to lower material movement, they were the second lowest in company history.
Total processing costs for the quarter decreased to $11.3-million, 10 per cent lower than the prior-year period, mainly due to lower fuel and reagent prices, partly offset by higher fuel and reagent consumption due to higher throughput rates. Accordingly, unit processing costs for the first quarter were a record best at $10.77 per tonne milled, 26 per cent better than the prior-year period.
Total cash costs improved by 7 per cent to $567(1) per ounce for the three months, compared with the prior-year period, mainly due to lower unit costs and higher grades processed.
All-in sustaining costs per ounce decreased by 2 per cent to $824(1) per ounce, due to lower total cash costs per ounce and lower capitalized deferred stripping costs, partly offset by higher growth capital expenditures related to the mill optimization project and development costs.
REVIEW OF FINANCIAL RESULTS
(in thousands of U.S. dollars, except where indicated)
Three months ended March 31,
2016 2015
Revenue $ 79,198 $ 68,491
Cost of sales(1) (52,531) (48,773)
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Gross profit 26,667 19,718
Exploration and evaluation expenditures (1,413) (809)
Administration expense(1) (1,573) (2,991)
Corporate social responsibility expense1 (967) (474)
Share-based compensation (948) (327)
Finance costs (1,071) (649)
Net foreign exchange gains (losses) (1,483) 1,291
Other income (expense) (4,960) 1,783
--------- ---------
Profit before income tax 14,252 17,542
Income tax expense (4,909) (2,772)
--------- ---------
Profit for the period 9,343 14,770
Profit attributable to non-controlling
interests (1,531) (1,783)
--------- ---------
Profit attributable to shareholders of
Teranga 7,812 12,987
Basic earnings per share 0.02 0.04
(1) For 2016, in order to better align costs with industry peers, the
company has reclassified regional administration costs directly relating
to cost of sales activities from administration expenses to cost of
sales and corporate social responsibility costs to a separate line in
the financial statements for the current and prior period. The three
months ended March 31, 2015, include the effect of restating the
deferred income tax expenses related to temporary timing differences.
First quarter financial results
Revenue
Revenue for the three months ended March 31, 2016, increased by $10.7-million over the prior-year period, primarily due to increased sales volume, partly offset by lower average realized gold prices in the current period. Gains and losses on gold forward sales contracts have been classified within other income (expense).
Cost of sales
For the three months ended March 31, 2016, total cost of sales increased by $3.8-million over the prior-year period to $52.5-million, primarily due to higher royalties and depreciation and amortization expense.
Exploration and evaluation
Exploration and evaluation expenditures for the three months ended March 31, 2016, were $1.4-million, $600,000 higher than the prior-year period. The company continues to take a systematic and disciplined approach to exploration. Please see the "Regional exploration" section for additional information.
Administration expense
In order to better align costs with industry peers, the company has reclassified CSR expense to a separate line item in the financial statements and regional administration expenses to cost of sales. The comparative figures have been restated accordingly.
Administration expense for the three months ended March 31, 2016, was $1.6-million, compared with $3-million in the prior-year period, resulting in lower costs of $1.4-million. Lower administration expense in the current quarter is mainly due to lower employee costs and the effect of a 10-per-cent appreciation of the U.S. dollar against the Canadian dollar compared with the prior period.
Finance costs
Finance costs increased by $400,000 to $1.1-million for the three months ended March 31, 2016, mainly due to higher interest expense on borrowings.
Net foreign exchange gains (losses)
Net foreign exchange losses of $1.5-million were realized by the company in the three months ended March 31, 2016, primarily due to realized and unrealized foreign exchange losses recorded as the euro appreciated relative to the U.S. dollar since the start of the year.
Income tax expense
For the three months ended March 31, 2016, the company recorded income tax expense of $4.9-million, comprising current income tax expense of $5.1-million net of a recovery of deferred income taxes of $200,000.
Other income (expense)
Other expense for the three months ended March 31, 2016, was $5-million, compared with other income of $1.8-million in the prior year. Other expense in the current quarter included $2.5-million for business taxes, $1-million related to registration fees to merge the Sabodala and Golouma mining concessions as part of the acquisition of the Oromin joint venture group (OJVG), $900,000 in unrealized losses on gold forward sales contracts that were entered into at an average price of $1,201 per ounce, and $700,000 for consulting fees related to supporting the company's continuing business improvement program. Other income in the prior-year quarter relates to realized gains on gold forward sales contracts.
Net profit
Consolidated net profit attributable to shareholders for the three months ended March 31, 2016, was $7.8-million (two cents per share), compared with consolidated net profit of $13-million (four cents per share) in the prior-year period. The decrease in profit in the current quarter is primarily due to higher other expenses, net foreign exchange losses and higher income taxes, partly offset by higher gross profit from higher revenues and lower administration expenses.
Business and project development
Golouma development
Mining at the satellite Golouma South pit commenced in January, 2016. Temporary infrastructure to support mine operating activities, including a 10-kilometre access road, was completed prior to mining. Completion of permanent mine support facilities for equipment maintenance and technical support for the Golouma area is nearly complete, with full functionality expected in the second quarter.
Mill optimization
A mill optimization project was launched in mid-2015, which will add a second primary jaw crusher, screen and conveyor assembly to tie into the company's existing facility when it is completed in the fourth quarter of 2016.
Upon completion, the mill optimization is expected to increase throughput by up to 15 per cent on an annualized basis for fresh ore; however, there may be potential to increase throughput further based on optimization of the grinding circuit once steady state has been achieved. In addition to higher production, unit processing costs are expected to decrease by approximately 5 per cent.
The project has been in full construction during the quarter for the civil, structural and electrical areas, and remains on schedule for completion in the third quarter, with commissioning and full ramp-up during the fourth quarter of 2016. To date, the project remains on budget.
Approximately $4.3-million was spent during the first quarter of 2016, for a total project-to-date spend of approximately $11.6-million of the $20-million budgeted, with the remainder of costs expected to be incurred in 2016.
Heap-leach project
In the fourth quarter, the company completed its prefeasibility study (PFS), which concluded that heap leaching is technically viable for processing its low-grade ore. The finalized capital costs are estimated to be $50-million, with 20-per-cent contingency and operating costs in the range of $7 to $8 per tonne. Further reductions in the capital and operating costs exist by evaluating materials-handling design opportunities and additional integration streamlining into the existing plant.
A decision to proceed will require the conversion of additional oxide resources to reserves and finalized project economics that exceed the company's 20-per-cent minimum hurdle rate. If a decision is made to go ahead with the heap-leaching project, it is estimated that it will take approximately 24 months to permit and construct. Based on current assumptions, the company estimates that heap leach could account for an incremental 10 to 20 per cent of annual production once fully operational.
Exploration highlights
Two exploration prospects on the mine lease -- Golouma North and Goumbati West -- have yielded encouraging results thus far during the continuing 2016 trenching and diamond drilling program. In addition, there are a number of regional exploration targets that, although not quite as advanced as the mine lease prospects, have also returned favourable trenching and drilling results. A more detailed geologic summary of the first quarter 2016 exploration results is available on the company's website under "Exploration."
Sabodala mine licence reserve development
The objective of this multiyear development program is to add higher-grade material earmarked for the mill and to add lower-grade for a potential heap-leach pad.
Golouma North prospect
The Golouma North prospect is located approximately one kilometre north-northeast of the northernmost Golouma pit and half a kilometre northwest of the Kerekounda deposit.
In the first half of 2015, several gold zones, including the Golouma North prospect, were identified during a rotary air blast (RAB) drilling program completed in the areas adjacent to the Golouma South and Kerekounda deposits. During the fourth quarter of 2015 and the first quarter of 2016, 26 additional trenches were excavated in the Golouma-Kerekounda region and six diamond drill holes totalling 400 metres were drilled along the northeast trend of Golouma North as identified by the trenching results, with encouraging results. All of the assay results are available on the company's website under "Exploration."
During the second quarter of 2016, additional trenching and an expanded drilling program will be undertaken to test for extensions along strike to the northeast and southwest, as well as to depth. The goal of this drilling program is to move toward achieving initial resource classification for this prospect.
Goumbati West prospect
The Goumbati West prospect is situated one kilometre southwest of the Kobokoto gold deposit and roughly 14 kilometres south-southwest of the Sabodala mill, within the regional north-northeast-trending Masato-Niakafiri structural corridor. During the fourth quarter of 2015, four reconnaissance diamond drill holes totalling 350 metres targeted the quartz vein system associated with gold mineralization at surface, with positive results.
In the first quarter of 2016, six trenches were excavated across the gold-in-soil anomalies to the west (Goumbati West-West) and a further five diamond drill holes totalling 500 metres were drilled along strike of the 2015 holes. The gold mineralized zone at Goumbati West has been intersected by this drilling at depths ranging from 11 to 24 metres below surface over a combined strike length of 400 metres, with encouraging results. All of the assay results are available on the company's website under "Exploration."
Additional trenching and diamond drilling will be undertaken in the second quarter of 2016 to test the open-ended strike and depth extensions to the Goumbati West mineralized zone. The coming drilling program at Goumbati West has the same goal as for the drilling at Golouma North, that being achieving initial resource classification for this prospect.
Other mine lease prospects
Currently, there are additional mine lease prospects at an early stage of exploration, including the Maleko and Koulouqwinde prospects. An eight-hole diamond drilling program will commence at Maleko during the second quarter of 2016 to follow up on a broad, 500-metre-long, northwest-southeast-trending gold-in-soil anomaly identified during an earlier geochemical soil sampling program. At Koulouqwinde, a trenching program will be initiated early in the second quarter of 2016 to follow up a 400-metre-long zone, parallel to the northeast-southwest-trending regional shear structures, with coincident gold-in-soil anomalies.
Regional exploration
For 2016, the company has been focused on four regional targets: the Marougou, Nienienko, Doughnut and Branson prospects.
All drill hole assay data for the company's regional exploration programs, including drill hole locations and location maps, are available on the company's website under "Exploration." Additional trenching and diamond drilling will be undertaken in the second quarter of 2016 to test for strike and downdip extensions to the mineralized zones.
Marougou Main prospect
The Marougou Main prospect, originally defined by termite mound soil geochemistry, is situated 35 kilometres northwest of the Sabodala mill. The Marougou Main prospect was further defined by RAB drilling, followed by reverse circulation (RC) drilling in 2013. This drilling identified a series of north-northeast-trending, steeply dipping auriferous quartz vein lenses, with disseminated pyrite, developed over a 1,200-metre strike length down to depths of 170 metres below surface. The recent diamond drilling completed in the fourth quarter of 2015 and the first quarter of 2016 indicates that gold mineralization is associated with quartz veins and stringers developed in medium- to coarse-grained immature sandstones and felsic intrusive sills.
Four trenches were excavated in the first quarter of 2016. Three diamond drill holes totalling 400 metres were completed in the fourth quarter of 2015, with six additional diamond drill holes totalling 650 metres completed in the first quarter of 2016. Drilling and trenching results are currently being assessed to provide structural information on the orientation of the mineralized zones, which will assist with follow-up drilling programs throughout the Marougou area. The results to date are encouraging, but remain early stage. All of the assay results are available on the company's website under "Exploration."
Additional trenching and diamond drilling will be undertaken in the second quarter of 2016 to test for strike and downdip extensions to the mineralized zones.
Nienienko Main prospect
The Nienienko Main prospect is located 45 kilometres north-northeast of the Sabodala mill. Gold mineralization is primarily associated with flat-lying white and smoky quartz veins developed within locally brecciated granodiorite, granite and andesitic units. Gold mineralization has been traced in trenches excavated over a distance of 1,200 metres, and coincides with a termite geochemical gold anomaly extending over a minimum 2,500-metre strike length. An RC drilling program has been planned for Nienienko Main to commence in the second quarter of 2016. This RC program will entail drilling 3,300 metres to provide an initial evaluation of the economic potential of the extensive, flat-lying quartz-breccia vein system.
Other prospects
Other early-stage exploration prospects which are currently being investigated include:
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Nienienko -- Leoba, situated five kilometres southwest of the Nienienko Main
prospect, where trenching and a three-hole diamond drilling program were
completed in the first quarter of 2016. Assay results are pending;
- Nienienko -- Kodadian, where three diamond drill holes were completed in
the first quarter of 2016. Assay results are pending;
-
Doughnut -- Diegoun North Cinnamon, where detailed soil sampling and
trenching programs are under way with follow-up diamond drilling programs
planned. An initial three-hole diamond drilling program is planned for
the second quarter of 2016;
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Doughnut -- Diegoun North Honey, where detailed soil sampling and
trenching programs are under way with a follow-up, minimum eight-hole diamond
drilling program planned in the second quarter of 2016;
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Marougou -- Marougou West, where a large-scale trenching program is
under way to evaluate a strike-extensive grouping of termite mound
geochemical anomalies;
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Marougou -- Marougou North and Marougou South, where a trenching program
is planned in the second quarter of 2016;
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Marougou -- Tourokhoto, where evaluation of soil anomalies and RC and DDH (diamond drill hole) drilling programs is under way;
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KA, where additional trenching and diamond drilling programs are planned
for the second quarter of 2016.
Financial condition review
Balance sheet review
Cash
The company's cash balance at March 31, 2016, was $53.5-million, $9.1-million higher than the balance at the start of the year, primarily due to cash flow provided by operations of $24.1-million, partly offset by capital expenditures of $14.4-million in the current-year quarter. As at March 31, 2016, $15-million was drawn from the company's $30-million revolver credit facility. Including VAT certificates received to date and VAT recoverable from the Republic of Senegal, the company's pro forma cash balance at March 31, 2016, was $70-million.
Trade and other receivables
The trade and other receivables balance of $14.8-million includes $12.3-million in VAT recoverable, which is expected to be refunded over the balance of 2016. In February, 2016, the company received an exemption for the payment and collection of refundable VAT. This exemption is governed by an amendment to the company's mining convention and is enforceable for the next six years, expiring on May 2, 2022.
First quarter 2016 conference call and webcast details
Teranga will host a conference call and audio webcast on Friday, April 29, 2016, at 8:30 a.m. ET. Mr. Young (president and CEO) and Mr. Dyal (vice-president and CFO) will review Teranga's results and discuss the quarter's highlights.
Those wishing to listen can access the live conference call and audio webcast as follows:
Date and time: Friday, April 29, 2016, at 8:30 a.m. ET
Telephone: 647-788-4919 (Toronto), 1-877-291-4570 (toll-free) or 1-647-788-4919 (international)
Please allow 10 minutes to be connected to the conference
call.
Webcast
The webcast can be accessed on Teranga's website and elsewhere on-line.
Replay
The conference call replay will be available for two weeks
after the call by dialling 416-621-4642 or toll-free 1-800-585-8367 and entering the conference code 87704954.
A slide presentation will be available for download at
Teranga's website for simultaneous viewing during the call.
Notes:
-
Total cash costs per ounce and all-in sustaining costs per ounce are
non-IFRS (international financial reporting standards) financial measures and do not have standard meanings under
IFRS. All-in sustaining costs per ounce sold include total cash costs
per ounce, administration expenses (excluding corporate depreciation
expense), regional administration expenses, capitalized deferred
stripping, capitalized reserve development, and mine site and development
capital expenditures as defined by the World Gold Council. For more
information regarding these measures, please refer to "Non-IFRS
performance measures" in the company's management's discussion and
analysis for the three months ended March 31, 2016, accessible on the
company's website.
-
Earnings before interest, taxes, depreciation and amortization
(EBITDA) is a non-IFRS performance measure and does not have a
standard meaning under IFRS.
-
Free cash flow and free cash flow per ounce are defined as operating
cash flow less capital expenditures.
-
Gold produced represents change in gold in circuit inventory plus gold
recovered during the period.
-
Cash flow is the life-of-mine net cash flow, based on the company's
most recent National Instrument 43-101 technical report filed in March,
2016, before income taxes, interest, debt repayments, closure costs,
dividends and working capital.
-
This production guidance is based on existing proven and probable
reserves only from the Sabodala mining licence as disclosed in Teranga's 2015 annual report, accessible on the company's website. In total, 22,500 ounces of production are to be
sold to Franco Nevada at 20 per cent of the spot gold price.
Statement of competent persons and qualified persons
Teranga's exploration programs are being managed by Peter Mann, FAusIMM. Mr. Mann is a full-time employee of Teranga and is not "independent" within the meaning of National Instrument 43-101. Mr. Mann has sufficient experience that is relevant to the style of mineralization and type of deposit under consideration and to the activity which he is undertaking to qualify as a competent person as defined in the 2012 edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves. Mr. Mann is a qualified person under National Instrument 43-101 (standards of disclosure for mineral projects). The technical information contained in this news release relating exploration results is based on, and fairly represents, information compiled by Mr. Mann. Mr. Mann has verified and approved the data disclosed in this release, including the sampling, analytical and test data underlying the information. The RC and initial diamond drill samples are prepared at site and assayed in the SGS laboratory located at the site. Analyses for elevated gold assays in the diamond drilling samples are sent for confirmatory fire assay analysis at ALS Johannesburg, South Africa. Mr. Mann has consented to the inclusion in this news release of the matters based on his compiled information in the form and context in which they appear herein.
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