TORONTO, ONTARIO--(Marketwire - Feb. 21, 2012) - Teranga Gold Corporation (TSX:TGZ)(ASX:TGZ) -
For a full explanation of Operating, Financial and Exploration results please see the Financial Statements and Management's Discussion & Analysis at www.terangagold.com.
Operating Highlights
2011 Positions Company to Increase Production and Lower Costs in 2012
-- Gold production for fiscal 2011 (from IPO November 23, 2010) was 147,728
ounces, while gold sales totalled 153,728 ounces at total cash cost per
ounce sold of $872.
-- Gold production for calendar 2011 was 131,461 ounces, while gold sales
totalled 137,136 ounces at total cash cost per ounce sold of $900, in
line with revised guidance.
-- Mill expansion on schedule for completion at the end of the first
quarter 2012.
-- For calendar 2012, with the mill expansion complete, Sabodala is
expected to produce 210,000 - 225,000 ounces of gold, an increase of 65
percent over 2011. Total cash costs are also expected to decline by over
20 percent to between $600-$650(1) per ounce for the year.
-- During 2011, the Company implemented a number of changes to the
operation to lower operating risk and ensure that both physical and
financial targets are met. These changes included a mill expansion and
automated controls to better blend materials to increase throughput, a
second access ramp to the pit, better drilling, blasting and maintenance
of mobile fleet in the mine to increase the mining rate, as well as
changes to employee compensation including higher base pay and benefits
as well as a bonus plan designed to incentivize and retain employees.
The Company believes that these changes will help improve operating
performance over the short and longer term. The impact of these changes,
many of which were not budgeted in 2011, increased costs in all areas of
the operation but are expected to result in a better operation overall.
"We have just completed a transitional year and we can now look forward to higher production and lower cash costs as we move forward. As we reduce our costs we can see considerable margin expansion providing us with the cash flow to self-fund our extensive exploration program. We are very encouraged by both the high grades and significant widths of mineralization seen in our recent drill results on the Mine License. These results make us confident that we will be able to double our gold inventory on the Mine License and this is before we take into account the promising results we are seeing from our Regional Exploration Program," said Alan R. Hill, Chairman and CEO.
(1) For 2012 onward, the Company will report cash costs of sales after adjusting for inventory movement, in line with its accounting policies and reported cost of sales in the financial statements and in line with industry standards. As a result, total cash costs for 2012 are expected to be between $600-$650 per ounce, or $675 - $725 per ounce under the previous calculation a decrease of 20 percent over 2011.
Reserves - Reserves increase 420,000 ounces from date of IPO in late 2010
-- As at December 31, 2011, proven and probable reserves increased to
1.66 million ounces of gold included in measured and indicated
resources of 2.14 million ounces of gold and inferred mineral
resources of 1.51 million ounces of gold, reserves increased 422,000
ounces net of production since the Initial Public Offering ("IPO") in
late 2010. See reserve table.
Exploration and Development Highlights - Mine License ("ML") drilling to expand current pit, Regional program ("RLP") to test over 40 targets
-- Exploration drilling on both the ML and RLP continues to reveal
encouraging results.
-- As previously announced, exploration at the Sabodala Pit confirms
the potential for higher grades in an expanded pit to depth and to
the north - drilling intersected significant widths of
mineralization outside the current pit design, including holes
SBDH160DD of 70 metres at 3.0 grams of gold per tonne ("gpt") and
SBDH157D of 53 metres at 4.5 gpt, both on the Main Flat Extension
("MFE") - the deposit remains open down plunge and to the northwest.
These grades are twice the average reserve grade of 1.5 gpt at
Sabodala.
-- Also previously announced, a deeper zone, the Lower Flat Zone
("LFZ") is taking shape with 46 metres at 9.8 gpt from hole
SBDH171DD, 34 metres at 6.3 gpt from hole SBDH170DD and 27 metres at
3.6 gpt in the lower portion of hole SBDH160DD
-- At Masato, drilling in 2011 confirmed a mineralized strike length of
500 metres and a dip extent of 200 metres on the ML. The Masato
deposit remains open to depth and along strike and is currently
being tested in both directions by two drills. Management expects
that continued positive drilling results will lead to the defining
of a significantly larger body of gold mineralization
-- In calendar 2011 the company spent $46M on exploration, $14.4M on
the ML and $31.7M on the RLP for a total of 194,000 metres of reverse
circulation ("RC") and diamond drilling ("DD") and 151,000 metres of
rotary air blast ("RAB") drilling.
-- The Company's 2012 exploration budget of $40M, is split equally between
the ML and RLP, with a total of 167,000m of DD and RC drilling planned,
and an addition 140,000m of RAB.
-- In December 2011, the Company's wholly-owned exploration subsidiary,
Sabodala Mining Company SARL ("SMC") entered into a JV agreement to
acquire a 75 percent interest in the 50 km2 Garaboureya North
exploration permit in eastern Senegal, approximately 65km from the
Company's mill on the ML.
Financial highlights
-- For the fifteen months ended December 31, 2011 the consolidated loss
totalled $15.8 million or $0.09 per share largely due to the impact of
the Company's gold hedge book put in place as a requirement for the
Project Finance Facility to construct the mine. Deliveries under gold
hedge agreements reduced revenue and operating profit by $49.7 million.
The loss for the fifteen months ended December 31, 2011 was also
impacted by lower than expected ounces sold and higher than expected
operating costs, as well as, high exploration costs and stock based
compensation expense.
-- Cash and cash equivalents including short term investments and
restricted cash declined to $11 million at December 31, 2011, primarily
due to the shortfall in production in the December quarter. In order to
manage its cash balance the Company elected to defer first quarter gold
hedge book deliveries until the second half of 2012 and sell all gold
production at the higher spot gold prices to build up the cash balance,
which was $26.5 million at the end of January 2012.
-- The obligations under the hedge contracts are expected to be
extinguished by August 2013 or earlier if the Company chooses to
accelerate deliveries which at year-end total 174,500 ounces
representing approximately 8 percent of our resource base.
-- During the quarter ended December 31, 2011, the Company finalized the
expansion of the mobile equipment loan by an additional $12.8 million to
fund the acquisition of mobile equipment for the development of the Gora
deposit.
-- Capital expenditures for 2012 are expected to total approximately $30
million primarily for the completion of the mill expansion, additional
mining equipment and construction of a new tailings management facility,
not including ML exploration costs to of $20 million.
Review of Financial Results for the December Quarter
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Period from
November 23,
2010
2011 to
------------------------------------ December 31,
Q4 Q3 Q2 Q1 2010
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Operating
results
Ore mined ('000t) 1,715 1,008 759 491 547
Waste mined ('000t) 4,736 5,085 5,538 6,460 2,057
Total mined ('000t) 6,451 6,093 6,297 6,951 2,604
Ore processed ('000t) 604 582 650 608 222
Gold produced (oz) 36,695 27,082 33,388 34,296 16,267
Gold sold (oz) 34,665 27,574 35,407 39,490 16,592
Average price
received $/oz 1,482 1,174 1,083 1,199 1,029
Cash cost $/oz sold 902 1,156 879 655 704
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Financial
results
(US$'000)
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Revenue 51,519 32,462 38,487 47,534 17,139
Profit/(Loss)
for the
period 12,550 (24,953) (9,730) 10,698 (4,414)
Operating cash
flow 6,548 (12,254) (10,071) 19,816 (224)
Profit/Loss
per share 0.09 (0.10) (0.04) 0.04 (0.04)
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Revenue of $51.5 million for the three months ended December 31, 2011 represents gold sales of 34,665 ounces of gold, out of which 7,385 ounces were delivered into gold hedge contracts at $846 per ounce and 27,280 ounces were sold into the spot market at an average price of $1,654 per ounce resulting in an average realized price for the three months ended December 31, 2011 of $1,482 per ounce.
Cost of sales for the quarter ended December 31, 2011 totalled $40.7 million consisting of mine production costs, realized gains on oil hedge contracts, depreciation and amortization, royalties, rehabilitation costs and inventory movement costs.
Gold production for the three months ended December 31, 2011 was 36,695 ounces. While it was the highest quarterly production of calendar 2011, it was 18 percent lower than plan due to a delay in accessing higher grade zones. Access to the higher grade zones scheduled for December occurred later in the month than anticipated, resulting in approximately 17,000 ounces of gold at 2.37 grams per tonne being stockpiled rather than processed before the end of 2011. The high grade stockpiles are expected to be processed in the first quarter of 2012.
Gold sold for the three months ended December 31, 2011 totalled 34,665 ounces at a total cash cost of $902 per ounce sold. Total cash costs decreased by $254 per ounce compared to the September quarter due an increase in production by 9,600 ounces.
Net profit for the three months ended December 31, 2011 totalled $12.6 million or $0.09 per share largely due to gold hedge unrealized gain, higher production and a higher average realized gold price as a lower percentage of gold sales were delivered into the hedge book compared to prior quarters.
Capital expenditures for the three months ended December 31, 2011 totalled $27.3 million, primarily for the mill expansion, mobile equipment and capitalized mine site exploration.
Review of Financial Results for the Fiscal Year
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(US$000's) 15 months ended
December 31, 2011
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Revenue 187,141
Cost of sales (151,033)
------------------------
Gross profit 36,108
Other income 848
Administration expenses (12,043)
Stock-based compensation (12,411)
Exploration and evaluation expenditures (31,659)
Net foreign exchange gains 4,486
Gold hedge unrealized gains 1,789
Oil hedge unrealized losses (113)
------------------------
Loss before tax (15,941)
Income tax 92
------------------------
Loss for the period (15,849)
Profit attributable to non-controlling interest 3,023
------------------------
Loss attributable to owners of the parent (18,872)
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Loss for the Period
For the fifteen months ended December 31, 2011 the consolidated loss totaled $15.8 million or $0.09 per share largely due to the impact of the Company's gold hedge book. Deliveries under gold hedge agreements reduced revenue and operating profit by $49.7 million. The loss for the fifteen months ended December 31, 2011 was also impacted by lower than expected ounces sold and higher than expected operating costs, as well as, high exploration costs and stock based compensation expense.
Revenue / Average realized Gold Price
Revenue of $187 million for the fifteen months ended December 31, 2011 represents gold sales of 153,728 ounces. Seventy-two thousand ounces were delivered into gold hedge contracts at $846 per ounce, representing 47 percent of gold sales for the fiscal year, and 81,728 ounces of gold were sold into the spot market at an average price of $1,537 per ounce resulting in an average realized price for the fiscal year of $1,213 per ounce.
The obligations under the hedge contracts are expected to be extinguished by August 2013 or earlier if the Company chooses to accelerate deliveries which at year-end total 174,500 ounces representing approximately 8 percent of our resource base.
Cost of Sales
Cost of sales for the fifteen months ended December 31, 2011 totalled $151 million consisting of mine production costs, realized gains on oil hedge contracts, depreciation and amortization, royalties, rehabilitation costs and inventory movement costs.
Mine production costs totalled $127.5 million for the fifteen months ended December 31, 2011. Mine production costs for 2012 are expected to increase mainly due to higher mining costs due to higher drilling, blasting and fuel costs and processing costs resulting from the expansion of the mill, doubling milling capacity.
Depreciation and amortization for the fifteen months ended December 31, 2011 totalled $37.4 million or $244 per ounce sold. Depreciation and amortization expense for 2012 is expected to increase to approximately $45 million, or approximately $200 per ounce sold due to an increase in gold sales and higher amortization associated with the mill expansion.
Royalties for the fifteen months ended December 31, 2011 totalled $7 million. Royalties are calculated based on three percent of the average spot price of gold rather than the average price realized by the Company. Royalties were higher than planned due to higher spot gold prices.
Administrative Expenses
Administration expenses of $12 million for the fifteen months ended December 31, 2011 comprise $4.2 million for corporate employee costs, $2.9 million for audit and legal fees and $4.9 million for other administration costs. Administration expense, which includes costs of the corporate and Dakar offices are expected to total approximately $2.5 to $3.0 million per quarter or $10 to $12 million for 2012.
Stock Based Compensation
During the fifteen months ended December 31, 2011 a total of 17,980,000 common share stock options were granted to directors, officers, employees and consultants, of which 362,778 were cancelled during the same period. No stock options were exercised during the fifteen month period ended December 31, 2011. For 2012, stock based compensation expense is expected to include approximately 70 percent of any new grants in 2012 and 25 percent of the cost of stock options awarded in the fifteen month period ended December 31, 2011.
Net Foreign Exchange Gains
The Company generated foreign exchange gains of $4.5 million for the fifteen months ended December 31, 2011 primarily related to realized gains from the Sabodala gold mine operating costs recorded in the local currency and translated into the US dollar functional currency.
Net Change in Unrealized Gain on Gold Hedge
The unrealized non-cash gain of $1.8 million for the fifteen months ended December 31, 2011 resulted from a reduction in our financial derivative liability due to 72,000 ounces delivered into hedge contracts during the period partially offset by an increase in the spot price of gold from November 23, 2010 by $207 per ounce of gold. As a result, the total mark-to-market loss of the remaining 174,500 ounces of gold under gold hedge contracts recorded as a financial derivative liability decreased to $129.6 million as the average forward price of the remaining contracts of $826 per ounce is marked to the yearend spot price of $1,566 per ounce.
Net Change in Unrealized Loss on Oil Hedge
The unrealized oil hedge losses of $0.1 million for the fifteen months ended December 31, 2011 resulted from a decrease in financial derivative asset due to 100,000 barrels delivered into oil hedge contracts during the fifteen months ended December 31, 2011 partially offset by an increase of $18 per barrel over the November 23, 2010 spot price of oil. The overall non-cash mark-to-market gain of the remaining 100,000 barrels of fuel oil outstanding at a hedge price of $70 per barrel compared to a $99 per barrel spot price at yearend, recorded as a financial derivative asset, totalled $2.8 million at December 31, 2011.
Finance Costs
Finance costs for the fifteen months ended December 31, 2011 of $2.9 million reflect interest costs related to the mobile equipment loan outstanding, amortization of capitalized borrowing costs, political risk insurance relating to project finance facility and bank charges. Finance costs for 2012 are expected to increase marginally due to higher political risk insurance coverage.
Exploration and Evaluation Expenditures
Exploration and evaluation expenditures for the fifteen months ended December 31, 2011 totalled $31.7 million reflecting regional exploration costs incurred during the period related to drill programs as well as target identification work underway. Exploration and evaluation expenditures for 2012 are expected to total approximately $20 million.
Outlook
With the completion of the mill expansion, gold production for 2012 is expected to total between 210,000 to 225,000 ounces, an increase of 65 percent over 2011. For 2012 onward, the Company will report cash costs of sales after adjusting for inventory movement, in line with its accounting policies and reported cost of sales in the financial statements and in line with industry standards. As a result, total cash costs for 2012 are expected to be between $600 to $650 per ounce, or $675 to $725 under the previous calculation, a decrease of approximately 20 percent over 2011.
The decline in cash costs expected in 2012 is largely due to lower mining cost per ounce, which is expected to decline from $430 per ounce in 2011 to approximately $300 per ounce in 2012 and to lower per ounce processing and administration costs, due to the higher production rate.
The regional exploration budget for calendar 2012 is expected to total approximately $20 million. In total, between capitalized mine site exploration and regional exploration expenditures, the Company expects to spend approximately $40 million in calendar 2012.
Capital expenditures for 2012 are expected to total approximately $30 million, primarily for the completion of the mill expansion, additional mining equipment and construction of a new tailings management facility as well as an additional $20 million for capitalized ML exploration costs.
Liquidity and Capital Resources
At December 31, 2011, the Company had cash, cash equivalents and short term investment including restricted cash of $11 million. This cash balance is lower than budget due to shortfall in December production as well as due to timing difference of 10,500 ounces sold at the end of the year for which cash of $17 million was received at the beginning of January 2012. Management believes that the cash and cash equivalents at December 31, 2011, together with expected future cash flows from operations is sufficient to support the Company's liquidity requirements. To provide additional financial flexibility, in December 2011, the Company reached an agreement with Macquarie Bank Limited to defer 28,000 ounces that were due for delivery in the hedge contracts on February 17, 2012 until later in 2012. The deferral of scheduled first quarter deliveries into hedge contracts allows the Company to sell all of its first quarter gold production at higher spot gold prices, allowing the Company to rebuild its cash balance. Once the mill expansion is complete, the production rate is expected to rise and cash cost of production are expected to fall improving cash margins. The improved cash margins combined with expected higher production should allow the Company to increase its cash balance through the year.
Review of Operations
Gold sold from November 23, 2010, the date the Company acquired the Sabodala mine, to December 31, 2011 totalled 153,728 ounces. Total cash costs per ounce of gold sold totalled $872 per ounce for the period from November 23, 2010 to December 31, 2011. Gold sold for the calendar year totalled 137,136 ounces at total cash costs of $900 per ounce. Production was lower and total cash costs were higher than plan. Production was lower than budget due to the delay in accessing high grade material in the December 2011 quarter. The higher than budget cash costs were primarily a result of lower than planned production as well as higher fuel, labour and maintenance costs. The higher cash cost per ounce during 2011 also reflect higher mining costs related to additional stripping required as part of the mill expansion that added approximately $120 per ounce to cash costs.
During 2011, the Company implemented a number of changes to the operation to lower operating risk and ensure that both physical and financial targets are met. These changes include a mill expansion and automated controls to better blend materials to increase throughput, a second access ramp to the pit, better drilling, blasting and maintenance of mobile fleet in the mine to increase the mining rate, as well as changes to employee compensation including higher base pay and benefits as well as a bonus plan designed to incentivize and retain employees. The Company believes that these changes will help improve operating performance over the short and longer term. The impact of these changes, many of which were not budgeted in 2011, increased costs in all areas of the operation but are expected to result in a better operation overall.
Production Statistics
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Period from
November 23,
12 months ended 2010 to
December 31, December 31,
2011 2011
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Operating results (1)
Ore mined ('000t) 3,973 4,520
Waste mined ('000t) 21,818 23,876
Total mined ('000t) 25,791 28,396
Strip ratio waste/ore 5.5 5.3
Ore processed ('000t) 2,444 2,666
Head grade (g/t) 1.87 1.92
Recovery rate % 89.5 89.8
Gold produced (1) (oz) 131,461 147,728
Gold sold (oz) 137,136 153,728
Average price received $/oz 1,236 1,213
Total cash cost (incl. royalties) $/oz sold 900 872
Mining (cost/t mined) 2.3 2.3
Milling (cost/t milled) 16.8 16.7
G&A (cost/t milled) 5.8 5.7
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Note (1): Gold produced is change in gold in circuit inventory plus gold
recovered during the period.
Mining
Total tonnes mined for the period from November 23, 2010 to December 31, 2011 was 4 percent lower than budget primarily due to a 5 percent decrease in waste tonnes mined. The decrease in total tonnes mined was mainly due to lower than planned drilling and loading availability in the quarter ended December 31, 2011. Management recognized the drilling issue and ordered three new blast hole drill rigs. Two drill rigs arrived on site at the beginning of January with a third scheduled to arrive in February 2012, too late to benefit the 2011 mining rate. To address loading and hauling rates, management has increased the capital spares inventory to improve availability of the mobile equipment.
Unit mining costs for the period from November 23, 2010 to December 31, 2011 were higher than budget. The increase in unit mining costs for the period compared to budget reflects the impact of higher fuel, labour and maintenance costs and lower tonnes mined than budgeted during the period. While the Company budgeted $110 per barrel fuel oil, a combination of higher in country transportation charges, higher Brent crude oil spot prices than budgeted and lower West Texas Intermediate crude oil prices, which reduce the amount of hedge benefit of the higher oil price, were primarily responsible for the higher unit mining costs. Unit mining costs for 2012 are expected to increase marginally due to higher fuel costs budgeted at $120 per barrel of diesel fuel oil as well as a full year of higher fuel transportation costs.
Milling
Mill throughput for the period from November 23, 2010 to December 31, 2011 was 4 percent higher than budget due to the implementation of an automated control system which helps optimize the blending of ore. The milling rate is also benefiting from better blasting procedures that are resulting in increased fragmentation of ore delivered to the mill. Higher throughput partially offset lower grades processed than planned due to the delayed access to higher grade zones in the December quarter of 2011.
Unit processing costs for the period from November 23, 2010 to December 31, 2011 were higher than budget. The increase in unit processing costs for the period compared to budget reflects the impact of higher fuel costs, required to self-generate power, than budgeted, as well as higher labour and maintenance costs, partially offset by the higher throughput rate. Unit processing costs are expected to be similar to 2011 benefiting from the expansion of the mill, scheduled for completion in the first quarter of 2012, partially offset by higher power and reagent costs.
Gold Production
Gold production for the period from November 23, 2010 to December 31, 2011 was 147,728 ounces, which was 5 percent lower than budget due to delayed access to higher grade zones in the quarter ended December 31, 2011. Gold production for the calendar year totalled 131,461 ounces, 6 percent lower than budget. Access to the higher grade ore scheduled for December occurred later in the month than anticipated, resulting in approximately 17,000 ounces of gold at 2.37 grams per tonne of ore being stockpiled rather than processed before the end of 2011. The high grade stockpiles are expected to be processed in the first quarter of 2012.
Average Realized Gold Price
During the period from November 23, 2010 to December 31, 2011, 72,000 ounces were delivered into gold hedge contracts at $846 per ounce, representing 47 percent of gold sales for the fiscal year, and 81,728 ounces of gold were sold into the spot market at an average price of $1,537 per ounce resulting in an average realized price for the fiscal year of $1,213 per ounce. For calendar year 2011, 61,000 ounces were delivered into gold hedge contracts at $846 per ounce, representing 44 percent of gold sales for the calendar year, and 76,136 ounces of gold were sold into the spot market at an average price of $1,548 per ounce resulting in an average realized price for the calendar year of $1,236 per ounce. Remaining gold sales subject to existing hedge contracts total 174,500 ounces or approximately 8 percent of our resource base.
Total Cash Costs
Total cash costs for the period from November 23, 2010 to December 31, 2011 were $134 million or 6 percent higher than budget mainly due to higher fuel, labour and maintenance costs. On a per ounce sold basis for the fiscal year total cash costs were $872 per ounce or 11 percent higher than budget due to higher than planned costs and lower than planned production. Total cash costs for calendar year 2011 were $123.5 million or 8 percent higher than budget. On a per ounce sold basis for the calendar year total cash costs were $900 per ounce or 13 percent higher than budget.
Plant Expansion
The Sabodala gold plant expansion is underway to increase capacity from 2 Mtpa to approximately 4 Mtpa. Once expanded, the mine is expected to produce a base of 200,000 ounces of gold per annum up from 131,461 ounces produced in calendar 2011.
The plant expansion is expected to be completed by the end of the first quarter of 2012. The estimated capital cost for the plant expansion is expected to total approximately $62 million, which is 10 percent higher than budget mainly due to project scope changes, an increase in price for structural steel fabrication and higher foreign currency costs.
Plant expansion expenditures to December 31, 2011 totaled $47.6 million. The balance of capital expenditures totaling $14.4 million is expected to be spent in the first half of 2012.
Mine License Exploration
Exploration results in 2011 support management's belief of the potential to expand upon existing gold mineralization by an additional 20 to 30 million tonnes at grades between 1.5 and 2.0 gpt for a total inventory of 2.5 to 3.5 million ounces from the Company's 33km2 Sabodala ML over the next 12 to 18 months . The larger gold inventory is expected to result from the success of deepening the Sabodala pit to the north along the Main Flat Extension, extension of the Masato deposit onto the ML and conversion of Niakafiri resources to reserves.
On the ML alone, this would increase the mine life to approximately 15 years at a run rate of about 200,000 ounces of gold produced annually and provide a solid production base to build on through the Regional Exploration Program. In order to increase reserves on the ML a minimum of 6 drill rigs are expected to be testing new targets as well as seeking to convert existing resources to reserves at a cost of $20 million in 2012. While management has confidence in its projections based on exploration work done to date, the potential quantity and grade disclosed herein is conceptual in nature, and there has been insufficient exploration in most areas to define a mineral resource, therefore it is uncertain if further exploration will result in the targets being delineated as a mineral resource.
Highlights of drilling during the year 2011 on the ML include the intersection of significant widths of high grade mineralization outside the Sabodala ultimate pit limit as part of the Main Flat Extension drill program which is expected to lead to an expansion of the final pit design and increased reserves, the successful intersection and extension of the Masato deposit down dip 200 metres onto the ML and 500 metres along strike with potentially underground mineable high-grade ore, as well as discovery of multiple high-grade zones in the Lower Flat Zone ("LFZ") at depth at Sabodala.
During 2011 Reverse Circulation ("RC") and Diamond drilling ("DD") on the ML totalled 79,200 metres from 5 drills at cost of $14.4 million. The aggressive investment in drilling has resulted in significant advances in understanding the structural controls on gold mineralization on the ML and throughout the Sabodala district. There are 7 drills operating on the ML at the present time (6 DD and 1 RC) and pending rig availability this number may increase to expedite resource expansion and reserve definition drilling through the 2012.
Main Flat Extension ("MFE")
The Main Flat Zone is one of the principal gold hosts in the Sabodala deposit. In the southern part of the deposit this structure dips shallowly to the west, rolls flat and then rolls to a moderate northerly dip as it exits the ultimate pit. The MFE drill program is designed to test the continuity of this structure to the north beginning with in-filling holes in the deepest part of the current mine design then stepping out to the north.
Drilling targeting the MFE immediately adjacent to the current ultimate pit, as well as the LFZ located below and to the north of the MFE, confirms the continuation of the mineralized zone with further drilling planned. The MFE and LFZ remain open down plunge and to the northwest. The drill program for the MFE for the first half of 2012 is designed to convert inferred resources north of the current ultimate pit to reserves; extend the MFE zone measured and indicated resource down dip to the west; additional deep drilling is required to develop the LFZ minable resource to depth; test for extensions of the LFZ to the east; and test for parallel zones beneath the Sabodala pit.
The goal of the MFE/LFZ programs is to add 250,000 to 500,000 ounces of gold to the open pit mineable gold inventory at an average grade between 1.5 - 2.0 gpt, as well as potentially a similar amount to lower/underground at an average grade between 3.0 and 4.0 gpt, in 2012.
Corridor and Ayoub's Target Area
Drilling along the Corridor northeast of the Sabodala pit intersected mineralization along the Ayoub's portion of the target area. The system, although low grade, is continuous and is showing Sabodala style albitic alteration to the north where the target remains open down dip and along strike. The position of the Ayoub's mineralization in the Corridor lends itself to sharing stripping for including deeper MFE mineralization into the ultimate pit.
Masato
The Masato deposit outcrops on the neighbouring Oromin Joint Venture Group ("OJVG") property to the east of the ML approximately 2 km from the Sabodala mill. The OJVG has defined an open pit mineable reserve of 0.5 million ounces at Masato. The deposit has a strike length of over 2 km. Gold is hosted in a shear zone that strikes north and sits immediately east of the Teranga/OJVG property boundary in the main deposit area. To the north the Masato deposit inflects and strikes to the NE away from the Teranga property boundary. To the south the Masato deposit strikes onto the Teranga ML but had not been drill tested.
Drilling in 2011 confirmed a mineralized strike length of 500 metres and a dip extent of 200 metres on the ML. The Masato deposit remains open to depth and along strike and is currently being tested in both directions by two drills.
The objectives for Masato for 2012 include in-filling the 200 metre by 500 metres zone identified in the first pass 2011 drilling in preparation for a resource estimate, further definition drilling on the high-grade pod of gold mineralization located on the north end of the deposit as well as to locate the southern extension of Masato that strikes onto the ML.
Management expects that continued positive drilling results will lead to the defining of a significantly larger body of gold mineralization at Masato on the ML in 2012.
Niakafiri
A drill program is planned at the Niakafiri deposit immediately below the current open pit reserve where the deposit remains open below the 200 metres depth. Drilling is planned to begin the second half of 2012 pending community discussions. Expectations are to increase reserves and resources in 2012 at Niakafiri.
Niakafiri West and Soukhoto
A drill program is also planned across the Niakafiri West and Soukhoto deposits to both in-fill and extend the current resources that are separated by 500 metres of undrilled strike length. Gold mineralization in both deposits is hosted in multiple shallow dipping zones with more steeply dipping high-grade zones located in crossing structures. The drill program is expected to run throughout the 2012 campaign with resources updated at year end.
Dinkokhono
Located 1km north of the Niakafiri deposit and 1km south of the Sambaya Hill anomaly on the Niakafiri shear system Dinkokhono is expected to be the target of 12,000 metres of drilling in 2012. Previous drilling identified low-grade mineralization within the Niakafiri shear from surface to a depth of 100 metres. Re-interpretation of the Dinkokhono structural controls on gold mineralization and the discovery of the Mamasato deposit on OJVG ground less than 1km to the east have contributed to a new approach to drilling this deposit. The program is expected to test for North West and North East high-grade crossing structures in known mineralized zones and is expected to test for the extension of the Mamasato deposit onto the Teranga ML. Pending results, management believes the program will add resources by mid-2012 and add to open pit mineable reserves at year end.
Regional Exploration
In addition to the exploration program on the Company's 33km2 ML, management believes that the Regional Land Package has significant prospective potential for satellite high-grade deposits similar to Gora as we know it today, as well as the potential for world-class (+ 5 million ounces) discoveries similar to those found on the same gold belt in Mali, approximately 90km from the Sabodala mine. Therefore, management is pursuing an extensive multi-year exploration program designed to test a number of targets that have already been identified as requiring additional analysis, as well as identify new targets for testing.
Not including the recently acquired interest in the Garaboureya North exploration permit, there are currently 40 targets that have been identified on the Regional Land Package, all within trucking distance of the mill. All of the 40 targets are expected to be drill tested through the end of 2012. With the addition of Garaboureya North the Regional Land Package increases to over 1,500km2 with additional targets to be identified and tested in 2012.
In 2011 the Company completed approximately 151,000 metres of Rotary Air Blast (RAB) drilling, 86,000 metres of RC and 29,000 metres of DD drilling at cost of $31.7 million. There were 11 drill rigs on the Regional Land Package during the quarter ended December 31, 2011. The exploration cost for the Regional Exploration Program is estimated at $20 million for 2012 consisting of 90,000 metres of RC/DD and 140,000 metres of RAB. There is expected to be a reduction in DD in favour of more RAB and RC rigs, as the resource drilling at Gora is completed and more first pass testing of targets takes place during the first half of 2012.
Gora
The Company is running a number of processes in parallel to efficiently develop Gora as quickly as possible, including the ongoing exploration program, permitting and feasibility level economic analysis with the objective of having production in early 2013, permitting dependent.
The Company has identified a reserve of 114,000 ounces at a grade of 5.01 gpt Au. This estimate is based on data to the end of December 2011. Resource drilling at Gora was completed in November 2011.
The vein system has been intersected for an additional 200 metres to the north with some isolated high grade intersection just outside the resource drill area.
To the south west at least two mineralized quartz veins can be traced along strike from the Gora resource drilling, and these correlate well with veins 1 and 2 and are close to coincident with some linear features interpreted from the IP. The drilling results received so far, extend the strike length of mineralization by 200 metres to the south west, while the associated IP trends can be traced for at least 1,300 metres along strike. Exploration drilling along this trend continued during the last quarter of 2011.
Diadiako
Additional diamond drilling during the last quarter of 2011 and detailed interpretation of the geological sections resulted in the definition of an inferred resource at Diadiako. The mineralized system at Diadiako is continuous and predictable with drilling intersecting the structure in a predictable fashion over a strike length of 900 metres and down dip to a vertical depth of at least 200 metres. Manual calculation resulted in an inferred resource estimate of 2.92 Mt at 1.49 gpt gold for a total of 119,000 ounces. A cut-off of 0.2 gpt gold and no top cap were used in this exercise, while volumes were kept to a conservative extent.
The mineralization consists of two sub-parallel north east and moderately south east dipping (30 degrees ) structures. The upper zone, referred to as the main zone, has strike continuity of 900 metres and down dip continuity to a vertical depth of 200 metres, and at a 0.2 gpt Au cut-off averages 1.08 gpt Au, has an average thickness of 3.1 metres and is open to the north east and down dip. The main zone hosts around 90 percent of the inferred resource.
The lower zone is separated by 14 to 50 metres of wall rock and sits in the foot wall of the Main zone. This zone hosts 10 percent of the resource and has strike continuity over at least 400 metres, averages 2.39 gpt Au and is on average 2 metres wide. Mineralization remains open along strike to the north east and down dip past a vertical depth of 200 metres.
Computer based modelling and calculations are in progress and strategically placed infill drilling may be carried out during 2012. Structural review of the core indicates that high grade shoots are likely to occur in this system. A review is underway to target these shoots with minimal drilling.
Recent RAB drilling to the North East identified over 1,000 metres of strike continuation of these structures with several sub-parallel zones. These are expected to be drill tested during 2012.
Toumboumba (Sabodala NW) and Majiva Central/North (Makana Permit)
These two projects drilled in 2011 are currently undergoing interpretation and three-dimensional modelling to allow a preliminary estimate of mineralized rock volumes. It is anticipated that this work will be completed in February, after which additional drilling maybe required.
Majiva represents a low-grade, bulk tonnage target on the same structure that hosts the Niakafiri deposit on the ML, as well as a number of similar discoveries on the intervening ground.
Toumboumba is a shear vein system hosted in the Falombou granite and has potential for a small, shallow, oxide resource, located 10km to the north west of the Sabodala mill.
The successes of the Regional Exploration Program during 2011 has shown that the systematic, geosciences-driven approach to the regional exploration permits leads to a pipeline of exploration opportunities moving through from anomalies, to drill targets, discovery of new prospects and ultimately additional resources. At least two new gold resources have been defined during 2011 at Gora and Diadiako. Gora is progressing to a satellite pit mining project, while Diadiako is expected to undergo further exploration drilling in 2012. Two additional prospects are advanced enough to undergo evaluation for their resource potential in the first quarter of 2012. This systematic approach has resulted in several discoveries and, management believes may in time lead to bigger discoveries on its regional ground holdings.
Tourokhoto
During the quarter ended December 31, 2011, an RC program commenced at Tourokhoto which is designed to systematically test the gold mineralised trends identified from the RAB drilling. The drilling to date identified a substantial, gold mineralisation system, which has potential to host ore-grade shoots within it. This first pass drilling program is designed to test for a large, near surface open-pitable resource, drilling is about 60 percent complete with most assays and interpretation pending.
In addition the positive RAB results at Tourokhoto-Marougou, which was only a second order surface anomaly, demonstrate the value in systematically screening coherent anomalies in favourable geological settings. As a result, further RAB testing of second and third order surface gold anomalies at Tourokhoto is expected to continue in 2012.
Diegoun North ("the Donut")
Drilling at Jam and Honey has identified in almost all holes, wide zones of altered and gold mineralized intrusive rocks. The results indicate large mineralizing hydrothermal systems, within a complex structural setting. The first pass RC drilling was oriented to test for mineralized structures parallel to the regional North East trends. Recent work has focused on testing North West oriented structures which could control the ore-grade portions of the larger mineralized system evident from the drilling to date. Drilling and mapping in early 2012 is expected to focus on understanding the ore-grade structural controls and orientations at Jam and Honey, which is anticipated to lead to a breakthrough in drill targeting on this large 4km by 7km prospect.
The Company plans to proceed to drill test 40 targets and prospects during 2012, with the view to identifying additional resources. In parallel pre-drilling field work is expected to be carried out on at least 20 gold anomalous areas on the Regional Land Package, all of which have previously had little or no attention. Significant potential remains and this work is expected to add to the list of drill targets, thus adding to the pipeline of opportunities throughout 2012. Resources are expected to be allocated according to technical and operational priorities.
Reserves
The proven and probable mineral reserves for the Sabodala and Niakafiri deposits were based on the measured and indicated resources that fall within the designed pits. The bases for the reserves are consistent with the Canadian Securities Administrators National Instrument 43-101 ("NI 43-101") report. The design for the open pit limits, related phasing and long term planning for the Sabodala open pit were updated as at September 30, 2011. An updated resource block model was also used, which included minor local modifications as the majority of the drill hole database was unchanged from the previous resource block model.
The updated Sabodala pit design is larger than the 2010 design. The new design provides a secondary ramp access to ensure flexibility and improved productivity. The new design also adopted slightly steeper pit wall angles. New mining phases were designed and the mine sequencing was modified with the objectives of mining the softer oxide material preferentially and deepening the pit bottom in the dry season, while minimizing interaction of operations between successive phases and presenting the higher grade, lower stripping ratio portion of the reserve as early as possible.
The Niakafiri pit is unchanged from 2010, however a slightly lower cut-off grade, reflecting the higher metal price assumption, was applied and marginally more ounces were added to the mineral reserve estimate.
Compared to the Company's NI 43-101 report, dated September 2010, input parameters for both Sabodala and Niakafiri were adjusted to reflect updated economic parameters such as recent cost escalation and, more significantly, the change in the average long term gold price assumption from $900 per ounce to $1,200 per ounce. The most recent success of the drill program to the north of the Sabodala ultimate pit was modeled and a new final pit limit was consequently designed using a $1,250 per ounce price. This additional reserve is also reported below.
The total proven and probable mineral reserves at December 31, 2011 are set forth in the table below.
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Mineral Proven Probable Proven and Probable
reserves --------------------- --------------------- ---------------------
Grade Grade Grade
M g/t M oz M g/t M oz M g/t M oz
tonnes Au Au tonnes Au Au tonnes Au Au
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Sabodala 14.515 1.51 0.704 5.375 1.63 0.283 19.89 1.54 0.987
Niakafiri 0.231 1.69 0.013 7.583 1.12 0.274 7.814 1.14 0.287
Stockpile 4.211 0.94 0.128 - - - 4.211 0.94 0.128
Subtotal 18.957 1.39 0.845 12.958 1.33 0.557 31.915 1.37 1.402
Sutuba - - - 0.353 1.06 0.012 0.353 1.06 0.012
Gora - - - 0.83 4.1 0.11 0.83 4.1 0.11
Total 18.957 1.39 0.845 14.141 1.49 0.679 33.098 1.43 1.524
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Julia Martin, PEng, MAusIMM (CP), with AMC Mining Consultants (Canada), who is independent of Teranga, is a "qualified person" as defined in NI 43-101 and as a "competent person" as defined in the 2004 Edition of the "Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves". Ms Martin has reviewed and accepts responsibility for the reserve estimate associated with the Sabodala and Niakafiri pits and stockpiles disclosed above. Ms Martin has consented to the inclusion of this information in the form and context in which it appears in this press release.
The technical information contained in this press release relating to exploration activities within the ML, along with the reserves statements for Sutuba, Gora and the additional reserves from the Sabodala pit using $1,250 per ounce are based on information compiled by Mr. Bruce Van Brunt, who is a Fellow of The Australasian Institute of Mining and Metallurgy and is also a registered professional geologist in the State of Washington, USA. He is also qualified as a Competent Person as defined in the 2004 Edition of the "Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves" and is a "qualified person" as defined in NI43-101. Mr. Van Brunt has consented to the inclusion of this information in the form and context in which it appears in this press release. Mr. Van Brunt is a full-time employee of Teranga and not considered to be independent of Teranga.
The technical information contained in the MD&A relating to the regional exploration is based on information compiled by Mr. Martin Pawlitschek, who is a member of the Australian Institute of Geoscientist. He is qualified as a Competent Person as defined in the 2004 Edition of the "Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves" and is a "qualified person" as defined in NI43-101. Mr. Pawlitschek has consented to the inclusion of this information in the form and context in which it appears in this press release. Mr. Pawlitschek is a full-time employee of Teranga and not considered to be independent of Teranga.
Compared to the total company's reserves as of December 31, 2010 of 31.973 Mt at 1.47 g/t or 1.512 Moz it is shown that last year depleted reserve has been more than replenished.
NON-IFRS FINANCIAL MEASURES
The Company provides some non-IFRS measures as supplementary information that management believes may be useful to investors to explain Teranga's financial results.
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Period from
12 months Nov 23, 2010
ended to
December 31, December 31,
2011 2011
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Gold produced oz 131,461 147,728
Gold sold oz 137,136 153,729
Cost of sales ($'000) 138,645 151,033
Less: depreciation and
amortization ($'000) (33,885) (37,442)
Less: rehabilitation ($'000) (473) (530)
Add: inventory movement ($'000) 19,188 20,973
Other adjustments ($'000) - -
-------------- --------------
Total cash cost of sales ($'000) 123,475 134,034
Total cash cost of sales per ounce
sold (1) U.S.$/oz 900 872
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CORPORATE DIRECTORY
Directors
Alan Hill, Chairman and CEO
Richard Young, President and CFO
Christopher Lattanzi, Non-Executive Director
Oliver Lennox-King, Non-Executive Director
Alan Thomas, Non-Executive Director
Frank Wheatley, Non-Executive Director
Senior Management
Alan Hill, Chairman and CEO
Richard Young, President and CFO
Yani Roditis, Vice President Operations
Kathy Sipos, Vice President Investor and Stakeholder Relations
David Savarie, Vice President, General Counsel and Corporate Secretary
Macoumba Diop, General Manager and Government Relations Manager, SGO
Mark English, Operations Manager, SGO
Martin Pawlitschek, Regional Exploration Manager, SMC
Bruce Van Brunt, Business Development Manager, SGO
Registered Office
121 King Street West, Suite 2600
Toronto, Ontario, M5H 3T9, Canada
T:+1 416-594-0000
F: +1 416-594-0088
E: generalmailbox@terangagold.com
W: www.terangagold.com
Senegal Office
2K Plaza
Suite B4, 1er Etage
sis la Route due Meridien President
Dakar Almadies
T: +221 338 693 181
F: +221 338 603 683
Auditor
Deloitte & Touche LLP
Share Registries
Canada: Computershare Trust Company of Canada
T: +1 800 564 6253
Australia: Computershare Investor Services Pty Ltd
T: 1 300 850 505
Stock Exchange Listings
Toronto Stock Exchange, TSX symbol: TGZ
Australian Securities Exchange, ASX symbol: TGZ
FORWARD LOOKING STATEMENTS
Certain information included in this management discussion and analysis, including any information as to the Company's strategy, projects, exploration programs, joint venture ownership positions, plans, future financial or operating performance and other statements that express management's expectations or estimates of future performance, constitute "forward-looking statements". The words "believe", "expect", "will", "intend", "anticipate", "project", "plan", "estimate", "on track" and similar expressions identify forward looking statements. Such forward-looking statements are necessarily based upon a number of estimates, assumptions, opinions and analysis made by management in light of its experience that, while considered reasonable, may turn out to be incorrect and involve known and unknown risks, uncertainties and other factors, in each case that may cause the actual financial results, performance or achievements of the Company to be materially different from the Company's estimated future results, performance or achievements expressed or implied by those forward-looking statements. Such forward-looking statements are not guarantees of future performance.
These assumptions, risks, uncertainties and other factors include, but are not limited to: assumptions regarding general business and economic conditions; conditions in financial markets and the future financial performance of the company; the impact of global liquidity and credit availability on the timing of cash flows and the values of assets and liabilities based on projected future cash flows; the supply and demand for, deliveries of, and the level and volatility of the worldwide price of gold or certain other commodities (such as silver, fuel and electricity); fluctuations in currency markets, including changes in U.S. dollar and CFA Franc interest rates; risks arising from holding derivative instruments; adverse changes in our credit rating; level of indebtedness and liquidity; ability to successfully complete announced transactions and integrate acquired assets; legislative, political or economic developments in the jurisdictions in which the Company carries on business; operating or technical difficulties in connection with mining or development activities; employee relations; availability and costs associated with mining inputs and labor; the speculative nature of exploration and development, including the risks of obtaining necessary licenses and permits and diminishing quantities or grades of reserves; changes in costs and estimates associated with our projects; the accuracy of our reserve estimates (including with respect to size, grade and recoverability) and the geological, operational and price assumptions on which these are based; contests over title to properties, particularly title to undeveloped properties; the risks involved in the exploration, development and mining business, as well as other risks and uncertainties which are more fully described in the Company's prospectus dated November 11, 2010 and in other Company filings with securities and regulatory authorities which are available at www.sedar.com. Accordingly, readers should not place undue reliance on such forward looking statements. Teranga expressly disclaims any intention or obligation to update or revise any forward looking statements, whether as a result of new information, future events or otherwise, except in accordance with applicable securities laws.
Contact Information:
Kathy Sipos
Vice-President, Investor & Stakeholder Relations
+1 416-594-0000
+1 416-594-0088 (FAX)
ksipos@terangagold.com
www.terangagold.com