Overview: Teranga Gold Corporation (“Teranga”, “the Company”) is a Canadian company focused on gold mining in Africa. Its primary asset is the Sadiola Gold Mine in Senegal, which was commissioned in 2009. Sadiola hosts a 3.5Million tonne (Mt) pa processing mill and produced 212,000oz during 2014 at the all-in sustaining cost of $865/oz (“AISC”). Proven and Probable Reserves are 59Mt grading 1.36g/t for 2.6million oz. These Reserves are contained within Measured, Indicated, and Inferred Resource estimates totaling 8.4million ounces.
Catalysts: Free cash flow has risen for the past two consecutive years amid a weakening gold price regime, providing a platform for counter-cyclical acquisitions. Supported by a ‘first mover’ advantage in Senegal, and a regional land package exceeding 1000km2, opportunities have been identified to more than double production in the medium term.
Hurdles: Development of the high-grade Gora deposit is scheduled to see AISC rise in 2015. Last year’s streaming deal to finance its acquisition of the Oromin Joint Venture requires delivery of 22,500oz for the next six years, and 6 percent for the balance of mine life at 20 percent of the spot price.
Investment View: Teranga offers profitable exposure to the gold mining industry. We are attracted to its recent operating performance, financial position, and organic growth potential over the medium term. Scalability of the Sadiola operation is expected to mitigate costs associated with last year’s streaming transaction and current development works. With the Company well placed to benefit from any cyclical recovery in the gold market, we initiate coverage with a ‘speculative buy’ recommendation.
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