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Teranga cash surge could speed growth

Teranga Gold has put itself in a strong position to organically fund its third gold mine in West Africa, and maybe leap straight over its five-year goal of being a 500,000oz-a-year producer by trumping rivals in a certain Senegal asset divestment process, CEO Richard Young said at the Beaver Creek Precious Metals Summit in Colorado.
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Teranga Gold CEO Richard Young speaks at the 2019 Beaver Creek Precious Metals Summit

Richard Roberts in Beaver Creek, Colorado

Young said successful commissioning of the US$240 million Wahgnion mine in southern Burkina Faso this year, added to the flagship Sabodala in Senegal, gave Teranga a platform to produce 300,000-350,000ozpa in 2020 and generate more than $100 million of free cash flow at a $1,250/oz gold price.

Golden Hill on Burkina's prolific Hounde gold belt is earmarked as mine number three for Teranga and while the company is just starting a 27,000m drill program to expand the 1Moz resource and is a few months away from applying for a mining licence, indications are Teranga is targeting a similar-size project to the 2.5Mtpa/130,000ozpa Wahgnion.

Young said the last big surge in the gold price from 2011-2013 came at a time when the Euro was worth about US1.60 and oil was at $150/barrel. "Back in that period 40-50% of our costs were Euro-denominated," he said. "Now the Euro is worth US$1.10 and oil is $60. Fuel is our second biggest cost. So at these gold prices we're going to put a lot of capital on the balance sheet. That combined with maybe a revolving credit facility or some project debt at the time would allow us to move forward with that project [Golden Hill]."

Young was asked (again) about Barrick Gold's 83.25%-owned Massawa gold development project in Senegal, next to Sabodala, previously described by Barrick CEO Mark Bristow as the best undeveloped gold project in Africa but one nonetheless that wouldn't meet the gold major's investment hurdles (it wouldn't have met those of Bristow-led Randgold Resources).

Massawa remains an attractive project with 20.9Mt grading 3.94gpt for 2.6Moz of reserves in its 2018 feasibility, using $1,200/oz openpit reserve pricing. It could be explored further to take reserves past the 3Moz mark Barrick would be seeking, and the company could find ways to push internal rates of return past 20% over the life of a mine (including using a LOM gold price above the old $1,000/oz Randgold standard).

Barrick is said to be targeting $1.5 billion of asset sales through 2020 and could get $350-500 million for Massawa.

Young said earlier this year Massawa didn't appear to meet Barrick's project-development hurdle rates and would present significant Sabodala synergies. Leveraging its infrastructure and operating footprint could deliver cost advantages Teranga needs to justify a price on Massawa that trumps a bid from the likes of another neighbour, IAMGOLD.

"They're currently in a permitting process, they ultimately will decide whether it's non-core and if they want to sell it, and if they choose to sell it we would certainly look at it," Young said at Beaver Creek.

"But at the end of the day while it makes strategic sense it's got to be for both a price and a form of consideration that makes sense for Teranga shareholders."