Ticking all the boxes on its inexorable rise to becoming a mid-tier gold producer, Teranga Gold Corporation (TSX:TGZ; OTCQX:TGCDF) provided investors with an early Christmas present in its recent announcement of a game-changing acquisition: the high-grade Massawa gold project in Senegal, West Africa.
Pursuant to a definitive agreement with Barrick Gold, Teranga is acquiring a 90% interest in one of the highest-grade undeveloped open-pit mines in Africa, at the same time attracting the attention of the global gold sector. The Government of Senegal will hold the remaining 10%.
The Massawa project, which is located within trucking distance of Teranga’s flagship Sabodala gold mine in Senegal, creates the opportunity for significant capital and operating synergies. The proximity of the projects and the combination of Sabodala’s mill and Massawa’s high-grade ore are expected to scale Sabodala into a top tier asset.
Teranga’s President and Chief Executive Officer, Richard Young, said the Massawa project is the perfect addition to the company’s growing presence in West Africa – including Sabodala, the largest producing gold mine in Senegal, and the Wahgnion gold mine in Burkina Faso, which began commercial production on November 1, 2019.
While Teranga had already stamped itself as a West African gold miner on the move, it is the acquisition of the Massawa gold project, with historical mineral reserves of 2.6Moz from 20.9Mt at 3.94 g/t Au and significant exploration potential, that is creating excitement.
“The Massawa acquisition is transformational for Teranga. The combination of Sabodala and Massawa creates the first top tier gold complex in the country – an important milestone for the gold mining industry in Senegal,” Mr. Young said.
Massawa’s deposits are within 30 kilometres of Sabodala, and Teranga plans to integrate the high-grade ore from the Massawa deposits into an optimized combined mine plan for Sabodala, leveraging its existing infrastructure, plant, mobile, equipment and personnel.
Teranga will acquire its 90% interest in Massawa for US$380 million upfront plus a gold price-linked contingent payment. The acquisition is expected to close in the first quarter of 2020.
Barrick will ultimately become one of Teranga’s largest shareholders after the deal is completed, holding 11.45% of Teranga common shares.
The Massawa deal, hot-on-the-heels of the start-up of commercial production at Wahgnion, was welcomed by investors, with the company’s recently completed successful public offering raising C$140 million. The equity offering was three times oversubscribed. The company will use a portion of the net proceeds from the offering to fund part of the Massawa acquisition with the balance of proceeds to be used for a range of activities, including exploration drilling across Teranga’s portfolio.
Mr. Young said ultimately the acquisition and expected higher production and lower cost synergies will enable Teranga to transform into a mid-tier producer with higher annual production and reduced per-ounce costs.
“We anticipate that production from the Sabodala-Massawa complex and Wahgnion will increase Teranga’s targeted consolidated annual gold production and accelerate our repositioning as the next multi-asset, low-cost, mid-tier gold producer in West Africa, one of the world’s premier gold mining regions,” he added.
Including 241koz in 2019, the Sabodala mine has produced more than 2.0Moz since the first gold pour in 2009.
Adding to Teranga’s strong growth position, its newest mine Wahgnion surpassed the upper end of its 2019 production guidance of 30koz to 40koz of gold with more than 47koz ounces produced after achieving first pour in late August. The construction of Wahgnion came in below budget and ahead of schedule.
Teranga’s Chief Operating Officer, Paul Chawrun, said that following the accomplishment of the significant commercial production milestone, the company’s attention at Wahgnion is now focused on a reserve development programme aimed at optimising the mine plan and adding resources to extend the current 13-year mine life.
Teranga is not slowing down at Wahgnion, and plans to launch a multi-year drilling program in 2020. There are approximately one dozen regional drill-ready targets within trucking distance of the mill that have the potential to become resources.
Wahgnion is currently estimated to contain 1.61Moz proven and probable gold reserves and 2.4Moz measured & indicated gold resources.
However, Massawa, Sabodala and Wahgnion are not the only chapters in the exciting Teranga story.
The company has high expectations for Golden Hill, Teranga’s most advanced stage exploration property. Following a solid initial resource estimate, it is currently the focus of a 27,000-metre drilling and exploration campaign.
One of West Africa’s most exciting and rapidly advancing gold exploration projects, Golden Hill is uniquely situated on the Houndé belt in Burkina Faso. Numerous high-grade, near-surface and deeper gold discoveries indicate district-scale potential. The company is increasingly confident that Golden Hill could ultimately represent Teranga’s third gold mine.
Mr. Young described Teranga as a rapidly transforming company, growing from a single-asset producer in Senegal to a multi-asset, multi-jurisdiction gold company in just three years.
“The company’s assent to mid-tier status is being driven both by the Massawa acquisition as well as disciplined advancement of our strong organic growth pipeline. We are laser-focused on building a low-cost, mid-tier producer and are expecting to have the highest growth rate of our peers,” Mr. Young said.
When asked if the company plans to make any further acquisitions, Mr. Young replied that, “At this time, we are looking to grow through the drill bit, and we have the exploration plans in place to achieve this.”
With two successful gold mines in production, the acquisition of a stand-out asset at Massawa and exciting exploration upside, Teranga is certainly ticking all the boxes to create a golden future.
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