Teranga CEO Upbeat About West African Projects, Price Of Gold
(Kitco News) - Teranga Gold Corp. (TSX, ASX: TGZ) is aiming to become a mid-tier gold producer in West Africa, with the company’s chief executive describing the region as a mining-friendly jurisdiction.
Further, Richard Young said, the Central Bank of West Africa States has expressed an interest in accumulating gold – one of the forms of demand that leaves him upbeat about the prospect for gold prices.
Teranga earlier this month released a feasibility study for the Banfora gold project in Burkina Faso, West Africa, showing potential to increase the company’s annual gold production by 50%. Teranga reported initial Banfora gold reserves of 1.2 million ounces and “solid project economics” with a 15% internal rate of return at $1,250-per-ounce gold.
“Our focus is becoming the next West Africa mid-tier gold producer. We currently have a production base of about 200,000 ounces,” said Young, president and chief executive officer, in an interview with Kitco News. “With Banfora coming on stream in 2019, that moves us into the 300,000- to 350,000-ounce range. And with Golden Hill and some of the other projects we have, we’re looking to develop the next mine that would follow that, which could potentially take us toward that half-million-ounces threshold and mid-tier status.”
Construction at Banfora is expected to begin in the second quarter of 2018 and will take about 18 months. The company will spend the next half year on site preparation, as well as developing an “optimal financing plan” not just for Banfora but other growth initiatives, Young said. In the meantime, an infill drill program is under way at Banfora and should be completed by the end of the year. The company expects updated reserve numbers to mean “improved economics” for the project, the CEO added.
“By virtue of deferring plant construction by a quarter, not only are we building more cash from our Sabodala Mine [in Senegal], but it should allow us to put a better financing plan together with the lenders,” Young said. “That should put us in a very strong position not only to afford construction of Banfora, but our other growth initiatives.”
Earlier this month, Teranga also announced encouraging drill results on the Golden Hill advanced-exploration property, also located in Burkina Faso.
Banfora is expected to cost nearly $240 million. Teranga had $80 million in the bank as of the end of June. At $1,250-an-ounce gold, Teranga expected to generate another $80 million in free cash from Sabodala during 2018-19, with Young noting that this should improve to some $100 million after a recent announcement that Teranga has hedged 50% of its production over the next five quarters at an average price of $1,336. The company is currently working with several lenders to secure a project debt facility of up to $150 million.
West Africa ‘Friendly’ To Mining Companies
Young described West Africa as a mining-friendly jurisdiction. A number of producers have run into problems with governments in other nations during the last year, including Tanzania and Guatemala. Young even recounted that he once found out what it was like to deal with a “not friendly” mining country when he worked with Gabriel Resources, which was trying to redesign a project for what could have been a “world-class asset,” only to be stifled by Romanian government decisions.
When pursing projects, Teranga officials look for prospective geology, a strong mining code in a country and a government that is “friendly” to mining and follows the rule of law, Young explained.
“That’s what you get with West Africa,” he said. “West Africa is colonial countries, primarily to France. There is a strong rule of law. There is a very strong geologic background in West Africa. For example, the president of Senegal is a geologist. They are a very mining friendly region of the world.”
The CEO is upbeat about the future of gold prices, commenting that demand appears to be rising above supplies. In fact, he said, the Central Bank of West Africa States recently approached mining companies about purchasing gold.
“The central bank hasn’t bought gold since 2004, and now they’re looking to start to accumulate a gold position, so we view that as encouraging and really supportive of our thesis that as we move forward, we will see demand outstrip supply, which fundamentally will lead to higher prices,” Young said.