Teranga Gold

Multi-jurisdictional West African gold producer reaching for mid-tier status

 


 

Teranga Gold went to IPO in 2010 under the guidance of Alan Hill and Richard Young – two veterans from the formative years of the world’s largest gold mining company, Barrick Gold. The pair have worked together for 30 years, striking up a symbiotic relationship since their days at Barrick, with Hill providing the technical and operational graft and Young the financial and strategic know-how. Back in 2010, the experienced pair were looking to build a new gold company in a high growth region of the world, and West Africa contained all the ingredients they were searching for. Thus, Teranga was born with a view to leveraging its initial asset, the Sabodala Gold Mine in Senegal, into something much bigger.

 

With Hill in the role of chairman at Teranga and Young as President and CEO, the company laid out ambitious plans to become a mid-tier, multi-jurisdictional gold producer in West Africa.

 

Sabodala first commenced production in 2009, although Teranga spent the next few years optimising the mine’s output before expanding the company’s presence into Burkina Faso with the acquisition of Gryphon Minerals in 2016. This was swiftly followed by Teranga’s entry into Ivory Coast via two joint ventures, the first in 2016 and the second in 2017.

 

This expansion of the company’s organic growth pipeline demonstrates Teranga’s position as a multi-jurisdictional company in one of the highest growth regions in the world for gold mining and is paving the way for its evolution to mid-tier status.

 

Over the last two decades, West Africa has transformed into one of the premier regions for gold exploration and extraction in the world, with many great geological formations, modern mining codes and increasingly receptive governments – an enticing prospect for foreign investors and mining firms.

 

“It’s been one of the fastest growing regions for gold production over the last quarter century,” says Young. “West Africa has gone from almost no production to having a production profile that is closer to North America, which I never thought would’ve occurred when I started in this industry.”

 

This unprecedented growth in the West African gold mining sector has been driven by a willingness to see industrial development by leaders and governments, along with a clear but fair caveat that the rules are followed, and the benefits of responsible mining shared equally.

 

What’s in a name?

 

With this in mind, it was quickly decided that corporate social responsibility (CSR) would form the basis of Teranga’s modus operandi in West Africa. In fact, this attitude has been fossilised into the business through its name Teranga – which means hospitality and friendliness in Wolof, the main local language of Senegal.

 

Senegal is the company’s original host country in the region and hosts a section of the West African Birimian gold belt, a sweeping geological formation that has provided a steady stream of world-class gold deposits across multiple jurisdictions, including the Sabodala mine.

 

Sabodala is located approximately 650 km Southeast of the capital city Dakar and is the largest-scale gold mine and mill in Senegal, although the industry is still in its nascency and the Senegalese government recently revealed aims to become one of Africa’s top seven exporters of gold by 2035.

 

At the outset, Sabodala was producing around 130,000 ounces (oz) of gold per annum, however, Teranga was intent on boosting its production profile and following the expansion of its processing plant in 2012, has averaged annual production of more than 200,000 oz.

 

The company also completed a mill optimisation project in 2015 and the results were tangible in the company’s subsequent output figures. “The Sabodala mine had a record year last year, following on a record year in the previous year,” confirms Young.

 

During FY 2017 Sabodala produced 233,000 oz of gold, almost double its original output figures, and while the operation has matured Teranga’s unit mining and processing costs have fallen to the lowest in company history.

 

“These [improvements] are a reflection of the investment we’ve made in training programmes for our Senegalese nationals. We’ve moved from 10-15% of our workforce being ex-pats at the time of IPO to between 5-6% today and really benefitted from the investment made in our employees.”

 

Furthermore, the optimisation of operations at Sabodala has allowed Teranga to increase its free cash flow, which has played an integral role in Teranga’s broader expansion plans. Since 2013 the company has finalised four deals in the region, an impressive achievement given the downturn in gold prices at that time.

 

Young hopes that of these four deals – two acquisitions and two JVs – in Burkina Faso and Ivory Coast, at least three (if not all four) can be advanced into producing mines. This, along with the optimised performance of the Sabodala mine, should comfortably take the company into mid-tier production status.

 

“We are very pleased with these transactions,” says Young. “They set us up very well for the future, not only as gold prices rise but as we see an increase rise in our production profile in tandem.”

A benchmark for responsible mining

 

Although Teranga has been highly focused on attaining that coveted mid-tier status over the last few years, that hasn’t diminished the company’s philosophy with regards to setting the benchmark for responsible gold mining in West Africa.

 

“The board has given us a very clear mission and that is to share the benefits of responsible mining with all of our stakeholders. From a shareholder perspective, that means our ability to operate and grow our business without issue, and for the local and regional communities, it is about ensuring they are better off after we leave.”

 

Having been active in Senegal for over eight years, Teranga has established a broad range of CSR programmes, which is typified by the growth of its CSR group in the country. In 2010 the company had two individuals on the team, today there is about 50.

 

“To start off with, we addressed historic stakeholder grievances,” reveals Young. “Then we began engaging with the local and regional communities to understand what their vision was and how we could participate in that.”

 

After liaising with the local and regional communities over an extended period, Teranga was able to identify some clear priority areas, with the most pressing concerns being agriculture and food security.

 

“That’s an area where we think we’ve done a tremendous job. This is a region which has a distinct rainy season, but when that ends there is absolutely no precipitation, meaning it’s a very short growing season.

 

“So, we installed pumps with drip irrigation and have created 12 market gardens to date, which has allowed the women in this region to create sustainable livelihoods.”

 

The market gardens have given nearly 1,000 women vital food security and economic assurance, while improving the health of families in the region that didn’t previously have access to fresh fruits and vegetables.

 

Teranga has also focused on youth and education, giving over 200 students from local communities the opportunity to attend colleges and universities in Dakar and crucially covering the fees associated with those courses.

 

In addition, Teranga offers training programmes at site to those in the region, bringing in casual labour, teaching trades and key skills that can be used locally, regionally or at national level.

 

“In terms of sustainable economic development, we are also really focused on small business enterprises and looking to help to grow those enterprises in the region. We think all of these programmes are going to help sustain this region long after we are gone.”

 

Development pipeline

 

Teranga’s social sustainability outlook is also being implemented across its development stage projects in the other West African countries where it operates. This been epitomised by the company’s decision to change the name of a project in Burkina Faso, on the request of the community.

 

The company received the Banfora Gold Project as part of its acquisition of Gryphon Minerals in 2016, however Banfora is actually the name of a large town about 90 km away from the mine site and so the name did not give the local community the pride in the mine that they were looking for.

 

Consequently, the project was renamed Wahgnion, which means ‘together we will succeed’. Since then Teranga has made swift progress in advancing the mine through the development stages. A feasibility study was completed in late 2017, full construction work began in Q1 2018 and financing has recently been concluded.

 

Teranga secured US$165 million in funding from Taurus Funds Management for the Wahgnion project, a sum that Young describes as pivotal to the company’s financing plans.

 

Another significant development within the company came with the de-listing of the stock on the ASX in December 2017. When the company first listed, it did so out of an Australian outfit. But being a Canadian-headquartered company, the stock largely migrated back to the world’s largest mining and resource exchange (the TSX) and liquidity declined materially on the ASX.

 

Therefore, the significant cost of the dual listing no longer made sense anymore and the decision was made. Overall, Teranga’s shareholders have been overwhelmingly supportive of its growth strategy, particularly prominent board member David Mimram.

 

“David is our largest shareholder with 22% of the company. He’s also on our board and is the largest private employer in two of the countries in which we operate. He believes in our vision and is helping us execute that vision.”

 

The future looks bright for Teranga with the Wahgnion project on track to pour first gold next year, which will increase the overall production profile by 50% and potentially double the company’s free cash flow generation.

 

“We’ll have an updated reserve out mid-year, which we believe will show increased reserves and better economics for Wahgnion. On this project we are just getting started,” proclaims Young. Wahgnion currently has a nine-year mine life but the company hopes to extend this to between 11 and 13 years with this updated reserve.

 

The company also has an advanced exploration project, Golden Hill, situated on the prolific Hounde belt in Burkina Faso. Work at Golden Hill is advancing rapidly and Teranga is investing $8 million in Golden Hill drill programmes in 2018.

 

Teranga plans to release an initial resource for the project’s most advanced prospects by year end. Preliminary metallurgical test work programmes are underway and base line environmental studies are planned for later this year.

 

“Taurus also provided an additional $25 million to take our Golden Hill exploration project through to feasibility, assuming that the drill results continue to be as positive as they’ve been. We’re very pleased with their confidence in the project.

 

“Golden Hill is moving forward faster than we could have ever anticipated and beyond that, we’ve done two joint ventures in Ivory Coast which we are really excited about. With one producing mine, a second one on target to come on line next year and Golden Hill, an advanced exploration project, we have an attractive organic growth pipeline.”

 

With all this in mind, Teranga will certainly become a mid-tier gold producer in West Africa, and with responsible mining at the core of its philosophy, the firm is creating a positive legacy wherever it goes in the region.