Teranga Gold Corporation: March 2011 Quarter Report

TORONTO, ONTARIO--(Marketwire - May 10, 2011) - Teranga Gold Corporation ("Teranga" or "the Company") (TSX:TGX)(ASX:TGZ) is pleased to provide an update on the quarter ended March 31, 2011. Operations had a strong quarter, with both production and costs coming in better than plan while guidance for this calendar year and next show higher production and lower costs. In addition to increasing proven and probable reserves, the Company is moving its high-grade Gora deposit on its Regional Land Package into development while producing encouraging preliminary exploration results from both its Mine License and its Regional Land Package.

• High-grade Gora deposit on Regional Land Package moving from an exploration to a development project as early results identified inferred resource of 100,000+ contained ounces of gold at 6 grams per tonne (gpt) – deposit remains open in all directions.

• Sabodala proven and probable reserves increased by 123,000 ounces to 1.51 million ounces of gold at December 31, 2010¹. The Company believes there is potential to expand proven and probable reserves to 2 to 3 million ounces of gold, at similar grade to the current reserve (1.5 gpt) from the Mine License over the next 12 to 24 months – increasing the mine life to approximately 10 to 15 years.

• 12 drill rigs were on the Mine License and Regional Land Package during the quarter. An additional 2 to 4 drill rigs are being sourced to complete the mine site and regional exploration programs outlined for 2011, which are expected to total $25 million for calendar 2011.

• Preliminary exploration results from the Mine License and Regional Land Package are very encouraging.

• Gold production for the three months ended March 31, 2011 was 36,402 ounces at total cash costs of $655 per ounce sold.

• Based on a pit redesign, higher production and lower cash costs are expected for calendar 2011 and 2012.

• For calendar 2011, Sabodala is expected to produce 140,000 ounces of gold at total cash costs of $750 to $775 per ounce. This revised estimate anticipates higher gold production (8 percent higher) and lower cash cost (6 percent lower) over previous guidance.

• For calendar 2012, Sabodala is expected to produce 220,000 of gold at total cash costs of $575 to $625 per ounce about 10 percent higher production than previous guidance.

• The plant expansion from 2.0 Mtpa to approximately 4.0 Mtpa is underway and is expected to be completed during the first quarter of 2012.

"While the Gora Project has not been fully delineated, exploration results to date confirm the potential for high-grade deposits on the Regional Land Package that will allow us to leverage our existing processing facilities by putting higher grade material through the mill, increasing production and potentially lowering our cost profile at the same time," said Alan R. Hill, Chairman and CEO. "I am very pleased with our operating performance and the early stage results of our exploration program, and believe we have a very exciting road ahead."

• Board of Directors passed a resolution setting the financial year end of the Company at December 31st.

• Net income for the three months ended March 31, 2011 totalled $10.7 million or $0.04 per share, while net income for the six months totalled $6.3 million or $0.03 per share.

• Cash and cash equivalents including short term investments and restricted cash increased to $93.8 million at quarter end.

• Revenue of $47.3 million for the three months ended March 31, 2011 represents a shipment of 39,490 ounces of gold, out of which 14,000 ounces were delivered into forward sales contracts at $845 per ounce and 25,490 ounces were sold into the spot market at an average price of $1,393 per ounce resulting in an average realized price for the quarter of $1,199 per ounce.

• Deliveries into gold hedge contracts during the six months ended March 31, 2011 totalled 25,000 ounces reducing the balance outstanding to 221,500 ounces of gold.

• The unrealized mark-to-market loss of the remaining 221,500 ounces of gold under gold hedge contracts decreased to $132.8 million as the average forward price of the remaining contracts of $833 per ounce is marked to the period end spot price of $1,439.

• Capital expenditures for the quarter ended March 31, 2011 were $8.8 million. Capital expenditures for the balance of calendar 2011 are expected to total $50.7 million, primarily for the mill expansion and mine site exploration costs.

"We are very fortunate that with our strong balance sheet we expect to be able to self fund our exploration and development programs" said Richard S. Young, President and CFO. "Now that we have fully ramped up our exploration program, we expect to have a lot of drill results to report as we move forward."

Reserves

• The design for the open pit limits, related phasing and long term planning for the Sabodala open pit were updated as at December 31, 2010. As a result, 123,000 ounces of gold were added to proven and probable reserves while all parameters were maintained as per the Company's NI 43-101 report with the exception of the average long term gold price which was increased from $900 per ounce to $1,000 per ounce. The updated reserves do not yet reflect any of the results of the current drill program underway.

The total proven and probable mineral reserves for the Sabodala and Niakafiri at December 31, 2010 are set forth in the table below:

• The Company believes there is potential to expand proven and probable reserves from 1.51 million ounces of gold to 2 to 3 million ounces of gold, at similar grade to the current reserve (1.5gpt) from the Mine License over the next 12 to 24 months, which would increase the mine life to approximately 10 to 15 years, providing a solid production base to build on through the regional exploration program. In order to increase reserves on the Mine License a total of 5 drill rigs will be testing new targets as well as converting existing resources to reserves at an estimated cost of $8 million in 2011 as part of the $25 million exploration program for the year.

• The drilling has intersected wide widths of alteration similar to Sabodala and Niakafiri deposits and the on-site aqua regia based laboratory has confirmed the presence of gold over mineable widths. Sample intervals are being selected for fire assay at an independent laboratory for confirmation. Drill holes have been spaced at 20 metres centres, so given the proximity of this mineralization along Ayoub's Thrust to the existing open pit at Sabodala and its near surface position, management expects that resources defined here will be converted to reserves in 2011. The program will continue with step out drilling to the north and the west along trend where the mineralization remains open. True widths are to be determined.

• The Masato deposit, discovered on a property contiguous with our Mine License and which is dipping onto the Mine License one kilometre east of the Sabodala open pit is being tested initially over a 500 metre strike length by 20 drill holes totalling 6,150 metres of drilling. Initial results from Masato are very encouraging. Management expects that new resources will be defined this calendar year on Masato. Aqua regia assay results at the site laboratory from the first drill hole SMRC055 drilled vertically intersected 11 metres of 1.08gpt mineralization from 234 metres down the hole and 20 metres of 3.53gpt from 267 metres down the hole. SMRC055 bottomed in gold mineralization and will be extended with core as part of the continuation of the current drill program.

• Numerous significant intercepts were drilled at Sutuba. Drilling on the target is focused on defining gold mineralization in high grade NW-trending zones. The close proximity of this mineralization to the Sabodala pit and to the surface makes it an opportunity in the short-term for higher grade mill feed.

• A total of 10 targets are expected to be drilled on the Sabodala Mine License in 2011 to expand reserves and resources.

• 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 intends to pursue 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.

• Initial exploration results from the Gora Project, located 22km from the Company's Sabodala mine confirm a high-grade gold deposit. As a result of the exploration success to date, the Company is increasing its exploration budget for the Gora Project for 2011 to complete exploration drilling at depth as well as along strike as the deposit remains open in all directions. In addition, the Company is beginning a feasibility study and permitting. A resource estimate is expected later this calendar year once the current phase of drilling is complete with a goal of processing the high-grade ore through the Sabodala mill as soon as late 2012.

• There are 27 targets that have been identified on the Company's 1,455km2 regional land package, all within trucking distance of the mill, that are expected to be drill tested through the end of calendar 2011. Exploration drilling on the regional land holding commenced during the December quarter. Three drill rigs were utilized in the start up phase of this program and during the quarter a total of nine rigs were on the regional exploration permits. By the end of the March quarter the Company completed 14,400 metres of DD and RC and 34,600 metres of rotary air blast (RAB) drilling.

• In total, 10 drill rigs are expected to be active on the Regional Land Package in 2011 at a total cost of approximately $17 million. Extensive RAB drilling completed to date has confirmed that a large proportion of the surface gold anomalies can be traced back to gold bearing structures in the bedrock. Thorough testing evaluation of these structures requires RC and DD. During the quarter first pass RC and DD testing has commenced on 5 of the twenty-seven target areas identified on the regional land package.

About TERANGA

Teranga Gold Corporation is a Canadian-based gold company listed on the Toronto Stock Exchange (TSX:TGZ) and Australian Securities Exchange (ASX:TGZ). Teranga is principally engaged in the production and sale of gold, as well as related activities such as exploration and mine development.

Teranga was created to acquire indirectly the Sabodala gold mine and a large regional exploration land package, located in Senegal, West Africa, from Mineral Deposits Limited. Management believes the mine operation, together with the Company's prospective 1,488 km2 land package, provides the basis for growth in reserves, production, earnings and cash flow as new discoveries are made and processed through the Company's existing mill.

The Sabodala Gold Operation, which came into operation in 2009, is located 650 kilometres east of the capital Dakar within the West African Birimian geological belt in Senegal, and about 90 kilometres from major gold mines and discoveries in Mali.

The Company's mission is to create value for all of its stakeholders through responsible mining. Its vision is to explore, discover and develop gold mines in West Africa, in accordance with the highest international standards, and to be a catalyst for sustainable economic, environmental and community development. All of its actions from exploration, through development, operations and closure will be based on the best available techniques.

Forward Looking Statements

Certain information included in this press release, 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.

¹ See Mineral Reserves table page 3

MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE THREE-AND-SIX MONTHS ENDED MARCH 31, 2011

This Management's Discussion and Analysis ("MD&A") provides a discussion and analysis of the financial condition and results of operations to enable a reader to assess material changes in the financial condition and results of operations as at and for the three-and-six months ended March 31, 2011. The MD&A should be read in conjunction with the unaudited consolidated financial statements and notes thereto ("Statements") of Teranga Gold Corporation ("Teranga" or the "Company") as at and for the three-and-six months ended March 31, 2011 and the prospectus of the Company dated November 11, 2010. The Company's Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards ("IFRS").

All amounts included in this MD&A are in United States dollars, unless otherwise specified. This report is dated as of May 10, 2011. All references to the Company include its subsidiaries unless the context requires otherwise. The Company's public filings can be reviewed on the SEDAR website (www.sedar.com) and on the Company's website at www.terangagold.com.

The MD&A contains references to Teranga using the words "we", "us", "our" and similar words and the reader is referred to using the words "you", "your" and similar words.

OVERVIEW OF THE BUSINESS

Teranga is a Canadian-based gold company which was created to acquire the Sabodala gold mine and a large regional exploration land package, located in Senegal, West Africa, along with shares held in Oromin Explorations Ltd. ("Oromin") from Mineral Deposits Limited ("MDL"), collectively referred to as the Sabodala Gold Assets. Management believes the mine operation, together with the Company's prospective 1,488 km² land package, provides the basis for growth in reserves, production, earnings and cash flow as new discoveries are made and processed through the Company's milling facilities.

The Sabodala gold mine, which came into operation in 2009, is located 650 kilometres east of the capital of Senegal, Dakar within the West African Birimian geological belt in Senegal, and about 90 kilometres from major gold mines in Mali. Sabodala gold mine proven and probable reserves increased to 1.51 million ounces of gold, as the Company added 123,000 ounces of gold to reserves over the previous estimate in June 2010. Measured and indicated resources total 2.3 million ounces of gold and inferred mineral resources total 0.77 million ounces of gold at December 31, 2010. In addition, the Company holds one of the largest exploration land positions in south eastern Senegal consisting of ten exploration permits comprising 1,455 km².

The Company's mission is to create value for all of its stakeholders through responsible mining. Its vision is to explore, discover and develop gold mines in West Africa, in accordance with the highest international standards, and to be a catalyst for sustainable economic, environmental and community development. All of its actions from exploration, through development, operations and closure will be based on the best available techniques.

GROWTH STRATEGY

The Company's goal is to grow reserves, production, earnings and cash flow both through internal exploration discoveries and strategic acquisitions. The Company is devoting significant resources to exploring its land package with a view of leveraging the existing infrastructure and processing plant which is currently being expanded from a nominal capacity of 2.0 Mtpa to approximately 4.0 Mtpa. Once expanded, the Sabodala mine is expected to produce approximately 200,000 ounces of gold per annum.

The Company believes there is potential to expand proven and probable reserves from the current 1.51 million ounces of gold to 2 to 3 million ounces of gold, at similar grade to the current reserve (1.5 grams per tonne), from the Sabodala mining license over the next 12 to 24 months, which would increase the mine life to approximately 10 to 15 years, providing a solid production base to build on through the regional exploration program. In order to increase reserves on the Sabodala mine license a total of five drill rigs will be testing new targets as well as converting existing resources to reserves at an estimated cost of $8 million in 2011.

In addition to the exploration program on the Company's 33km² Sabodala mining license, the Company has active drill programs underway on targets located on the Company's exploration permits that management believes have strong potential. There are 27 targets that have been identified on the Company's 1,455 km² regional land package that are expected to be drill tested through the end of calendar 2011. In total, 10 drill rigs are expected to be active on the regional land package in 2011 costing a total of about $17 million. The first of the regional exploration targets, referred to as Gora, has been moved from an exploration project to a development project as exploration drilling has confirmed at least a small high-grade pit. Management is targeting permitting and development of Gora to be completed as early as late 2012, which could help to increase production beyond the current 220,000 ounce estimate for 2012.

Management believes that the regional land package has significant prospective potential for at least smaller high-grade deposits similar to Gora as well as the potential for world-class (+ 5 million ounce) discoveries similar to those found on the same gold belt in Mali approximately 90 km from the Sabodala mine and therefore intends to pursue 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.

Beyond the current regional land package, the Company is focused on acquiring additional exploration licenses in Senegal. The Company also expects to augment its internal growth by strategic acquisitions of companies or assets including operating assets that have growth potential or attractive exploration packages in West Africa.

Management believes the operating team at Sabodala has created the template for developing and operating modern mines in Africa by focusing on creating value for all stakeholders through: job creation; the advancement and integration of the local workforce into the management and operations of the Company; and, working with all levels of government to assist in community development initiatives that are driven by a bottom up approach to both community and sustainable development initiatives.

QUARTER HIGHLIGHTS

• Sabodala proven and probable reserves increased by 123,000 ounces to 1.51 million ounces of gold at December 31, 2010. The Company believes there is potential to expand proven and probable reserves to 2 to 3 million ounces of gold, at similar grade to the current reserve (1.5 gpt) from the Mine License over the next 12 to 24 months – increasing the mine life to approximately 10 to 15 years.

• High-grade Gora deposit on Regional Land Package is moving from an exploration to a development project as early results identified inferred resource of 100,000+ contained ounces of gold at 6 grams per tonne. Deposit remains open in all directions.

• Gold production for the three months ended March 31, 2011 was 36,402 ounces at total cash costs of $655 per ounce sold.

• For calendar 2011, Sabodala is expected to produce 140,000 ounces of gold at total cash costs of $750 to $775 per ounce. This revised estimate anticipates higher gold production (8 percent higher) and lower cash cost (6 percent lower) over previous guidance.

• For calendar 2012, Sabodala is expected to produce 220,000 of gold at total cash costs of $575 to $625 per ounce about 10 percent higher production than previous guidance.

• 12 drill rigs were on the mine license and regional land package during the quarter. An additional 2 to 4 drill rigs are being sourced to complete the mine site and regional exploration programs outlined for 2011, which are expected to total $25 million for calendar 2011.

• The plant expansion from 2.0 Mtpa to approximately 4.0 Mtpa is underway and is expected to be completed during the first quarter of 2012.

• Board of Directors passed a resolution setting the financial year end of the Company at December 31st.

• Net income for the three months ended March 31, 2011 totalled $10.7 million or $0.04 per share, while net income for the six months totalled $6.3 million or $0.03 per share.

• Cash and cash equivalents including short term investments and restricted cash increased to $93.8 million at quarter end.

• Revenue of $47.3 million for the three months ended March 31, 2011 represents a shipment of 39,490 ounces of gold, out of which 14,000 ounces were delivered into forward sales contracts at $845 per ounce and 25,490 ounces were sold into the spot market at an average price of $1,393 per ounce resulting in an average realized price for the quarter of $1,199 per ounce.

• Deliveries into gold hedge contracts during the quarter ended March 31, 2011 reduced the balance outstanding to 221,500 ounces of gold.

• Capital expenditures for the quarter ended March 31, 2011 were $8.8 million. Capital expenditures for the balance of calendar 2011 are expected to total $50.7 million, primarily for the mill expansion and mine site exploration costs.

DEMERGER FROM MINERAL DEPOSITS LIMITED ("Demerger")

On November 23, 2010, Teranga completed the acquisition of the Sabodala gold mine and a regional exploration package by way of a demerger from MDL. As part of the demerger certain assets consisting of all of the issued and outstanding shares of Sabodala Gold (Mauritius) Limited, which holds a 90% interest in the Sabodala Gold Operations SA ("SGO"), the holder of the Sabodala gold mine, and a 100% interest in the Sabodala Mining Company SARL, an exploration entity which holds the regional land package; all of the issued and outstanding shares of SGML (Capital) Limited; and 18,699,500 common shares of Oromin Exploration Ltd., originally held by MDL; were transferred to Teranga in consideration for the issuance of 200,000,000 common shares of Teranga to MDL (approximately 160,000,000 of such common shares were then in specie distributed to MDL's shareholders) and the assumption of a C$50 million promissory note owing to MDL. Following the completion of the Demerger, the C$50 million promissory note owing to MDL was repaid by Teranga from the IPO proceeds.

Basis of presentation

The transfer of the Sabodala Gold Assets into the Company is considered a transaction between entities under common control. As such, the Company has presented its financial results on a continuity-of-interests basis whereby the carrying amounts of the Sabodala Gold Assets reflect those previously reported in the financial statements of MDL. Accordingly, the consolidated statement of comprehensive income for the three-and-six months ended March 31, 2011 reflects the corporate activities since incorporation of Teranga on October 1, 2010 and the operations of SGO from November 23, 2010. The comparable period for 2009 is not presented. The production statistics in this MD&A reflect operating results for the full three-and-six-month periods ended March 31, 2011.

CHANGE IN FINANCIAL YEAR

On May 10, 2011 the Board of Directors passed a resolution setting the financial year end of the Company at December 31st. The Board felt this change would better synchronize its financial reporting with that of comparable companies within the mining sector as well as better align its financial reporting with its business planning cycle. As a result, the Company's next fiscal reporting period ending June 30th 2011 will now constitute an interim reporting period as opposed to a fiscal year end, subject to approval of the regulators which we expect in the near term. For further information on the details of this change, and how it will impact subsequent reporting and comparative periods, please refer to the Notice of Change of Year End report to be filed by the Company on SEDAR pursuant to Section 4.8 of National Instrument 51-102.

Review of Financial Results

Profit for the Period

For the three months ended March 31, 2011, the consolidated net profit of the Company was $10.7 million, while for the six months ended March 31, 2011 the consolidated net profit totalled $6.3 million. The net profit for the quarter was largely due to a gross profit of $14.7 million and unrealized gains from gold and oil hedges of $6.4 million, partially offset by $3.9 million of stock based compensation expense, expensed exploration expenditures of $3 million, finance costs of $0.9 million and administration expenses of $2.6 million. The net profit for the six months ended March 31, 2011 mainly represents a gross profit of $19.5 million, and unrealized gains on oil hedge contracts of $2.9 million partially offset by $5.6 million of stock based compensation expense, expensed exploration expenditures of $4.3 million, unrealized losses on gold hedge contracts of $1.5 million, finance costs of $1.1 million and administration expenses of $3.6 million.

Revenue

During the quarter ended March 31, 2011, 14,000 ounces were delivered into gold hedge contracts at $845 per ounce and 25,490 ounces of gold were sold into the spot market at an average price of $1,393 per ounce resulting in an average realized price for the quarter of $1,199 per ounce. During the six months ended March 31, 2011, 25,000 ounces were delivered into gold hedge contracts at $845 per ounce and 31,082 ounces of gold were sold into the spot market at an average price of $1,392 per ounce resulting in an average realized price for the six months of $1,148 per ounce.

Cost of Sales

Cost of sales for the three-and-six months ended March 31, 2011 totalled $32.8 million and $45.2(1) million respectively, consisting of mine production costs, realized gains on oil hedge contracts, depreciation and amortization, royalties, rehabilitation costs and inventory costs.

Mine production costs totalled $25 million for the three months ended March 31, 2011 while for the six months ended March 31, 2011 mine production costs totalled $35.2¹ million.

Depreciation and amortization for the three-and-six months ended March 31, 2011 totalled $10.8 million and $14.4 million respectively or $275 per ounce for the quarter and $257 per ounce for the six months ended March 31, 2011.

The realized gain on oil hedge contracts totalled $0.5 million for the three months ended March 31, 2011 and $0.8 million for the six months ended March 31, 2011 as oil prices increased to $85 and $95 per barrel respectively at the date of delivery of December 31, 2010 and March 31, 2011 which was $15 and $25 above our oil hedge contract price of $70 per barrel. The Company has hedged 20,000 barrels per quarter through March 31, 2013 representing approximately 40 percent of quarterly consumption.

Royalties for the three-and-six months ended March 31, 2011 totalled $1.6 million and $2.2 million respectively. Royalties are calculated based on three percent of the average spot price of gold rather than the average price realized by the Company.

Administrative Expenses

Administration expenses of $2.6 million for the three months ended March 31, 2011 comprise $0.9 million for corporate employee costs, $0.5 million for audit and legal fees and $1.2 million for other administration costs including rent for both Toronto and Dakar office. For the six months ended March 31, 2011 corporate administration costs of $3.6 million represent mainly $1 million for corporate employee costs, $0.7 million for audit and legal fees, and $1.9 million for other administration costs. Corporate administration expenses are expected to average about $2 million per quarter.

Stock Based Compensation

During the three months ended March 31, 2011 a total of 725,000 common share stock options were granted to employees and consultants of the Company. For the six months ended March 31, 2011 a total of 14,530,000 common share stock options were granted to directors, officers, employees and consultants. During the three-and-six months ended March 31, 2011, a total of 160,000 options were cancelled. No stock options were exercised during the three-and-six month period ended March 31, 2011.

The estimated fair value of stock options is amortized over the period in which the options vest which is normally three years.

All of the options granted during the three-and-six months ended March 31, 2011, vest over a three-year period.

Net Foreign Exchange Loss

The Company generated foreign exchange losses of 0.4 million for the quarter ended March 31, 2011 and of $0.5 million for the six months ended March 31, 2011 primarily related to realized losses from the Sabodala gold mine operating costs recorded in the local currency and translated into the US dollar functional currency.

Gold Hedging Unrealized Gain

The unrealized non-cash gain on gold hedge contracts of $4.8 million for the quarter ended March 31, 2011 resulted from 14,000 ounces delivered in gold hedge contracts during the quarter partially offset by an increase in the spot price of gold from the previous quarter end of $31 per ounce. As a result, the total mark-to-market loss of the remaining 221,500 ounces of gold under gold hedge contracts decreased to $132.8 million as the average forward price of the remaining contracts of $833 per ounce is marked to the period end spot price of $1,439. The unrealized non-cash loss for the six months ended March 31, 2011 resulted from the increase in the spot price of gold from the previous period end of $59 per ounce which was partially offset by few ounces delivered under gold hedge contracts.

Oil Hedging Unrealized Gain

Unrealized oil hedge gains totalled $1.6 million for the three months ended March 31, 2011 resulted from the increase in the spot price of oil from the previous quarter end of $16 per barrel over the remaining 160,000 barrels of fuel oil outstanding. While the unrealized oil hedge gains of $2.9 million for the six months ended March 31, 2011 resulted from an increase of $25 per barrel over the period end spot price of oil. The overall non-cash mark-to-market gain of the remaining 160,000 barrels of fuel oil outstanding at a hedge price of $70 per barrel compared to a $106.7 per barrel spot price at quarter end totalled $5.8 million at the end of the quarter.

Finance costs

Finance costs for the three-and-six months ended March 31, 2011 of $0.9 million and $1 million respectively reflect interest costs related to the equipment loan outstanding, amortization of capitalized borrowing costs, political risk insurance relating to gold hedge contracts and bank charges.

Exploration and Evaluation Expenditures

Exploration and evaluation expenditures for the three-and-six months ended March 31, 2011 totalled $3 million and $4.3 million respectively reflecting regional exploration costs incurred during the periods related to drill programs as well as target identification work underway.

Outlook

Gold production for the 2011 calendar year is revised to an estimated total 140,000 ounces of gold, an increase of 10,000 ounces, at total cash cost of $750 to $775 per ounce, down from the original guidance of $800 to $825 per ounce. Gold production for 2012 is expected to total 220,000 ounces of gold at total cash costs of $575 to $625 per ounce. The higher production and lower costs are due to changes in the mine plan to mine higher grade material earlier than under the previous mine plan.

For calendar 2011, capital expenditures are expected to total approximately $60 million, primarily for the plant expansion and capitalized mine site exploration costs of $8 million, all of which is in line with earlier guidance. The regional exploration budget for calendar 2011 is expected to total $17 million. In total, between capitalized mine site exploration and regional exploration expenditures, the Company expects to spend approximately $25 million in calendar 2011, in line with earlier guidance. The mine site and regional exploration budgets could be increased if results warrant additional activities. For calendar 2011, corporate overheads, including setting up a Dakar, Senegal office are expected to total $8 million.

Review of Operations

Gold production for the for the Sabodala gold mine for the quarter ended March 31, 2011 was 36,402 ounces of gold at total cash costs of $655 per ounce while gold production for the six months ended March 31, 2011 was 70,050 ounces of gold at total cash costs of $713 per ounce. Gold production year-to-date, from July 1, 2010 to March 31, 2011, was 105,153 ounces of gold at total cash costs of $671 per ounce. Gold production through June 30, 2011 (former fiscal year) is on track to produce 130,000 ounces of gold at lower cash costs of $725 per ounce, which is about 5 percent lower than previous guidance. Lower production and higher costs are expected in the June 30, 2011 quarter as mining takes place in a lower grade area of pit.

Gold production for the period from November 23, 2010, the date of Demerger from MDL, to March 31, 2011 was 53,322 ounces at total cash costs of $645 per ounce.

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 NI 43-101 report as of June 30, 2010. The design for the open pit limits, related phasing and long term planning for the Sabodala open pit were updated as at December 31, 2010. As a result, 123,000 ounces of gold were added to proven and probable reserves while all parameters were maintained as per the Company's NI 43-101 report with the exception of the average long term gold price which was increased from $900 per ounce to $1,000 per ounce. The updated reserves do not yet reflect any of the results of the current drill program underway. No redesign was done in the Niakafiri pit, but slightly lower cut-off grades, which reflect the higher metal decision price used to estimate the reserve within the same pit. As a result, an additional 5,000 oz were added to the reserves.

After the redesign of the Sabodala pit, the new pit limit is larger by approximately 22 million tonnes compared to the previous design. The new design provides a secondary ramp access to ensure flexibility and improved productivity. New mining phases were designed and the mine sequencing was modified with the objectives of mining the softer oxide material preferentially in the dry season, deepening the pit bottom in the dry season, minimizing interaction of operations between successive phases and presenting the higher grade, lower stripping ratio portion of the reserve as early as possible. As a result, gold production from the Sabodala mine should increase by an additional 10,000 ounces in calendar 2011 (production est. 140,000 ounces) and 20,000 ounces in 2012 (production est. 220,000 ounces) at lower costs than provided in the guidance included in the prospectus filed with the Initial Public Offering last fall.

The total proven and probable mineral reserves for the Sabodala and Niakafiri at December 31, 2010 are set forth in the table below.

Dr. A. Ebrahimi, P.Eng. of AnoMine Tech, and a sub consultant to AMC Mining, who is independent of Teranga, and is a "qualified person" (within the meaning of NI 43-101) has reviewed and accepts responsibility for the reserve estimate contained in the Technical Report filed in November, 2011. Mr. Bruce Van Brunt is not independent of Teranga, and is a "qualified person" (within the meaning of NI 43-101) who has reviewed and accepts responsibility for the increased reserve estimate contained in Table 3 above. Mr. Van Brunt is a member 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". Mr. Van Brunt has consented to the inclusion of this information in the form and context in which it appears in this release. Mr. Van Brunt is a full-time employee of Teranga.

Mining

Total tonnes mined were 3 percent higher than budget for the quarter due to a 4 percent increase in waste tonnes mined and 2 percent lower ore tonnes mined as compared to budget. The mining rate for the March quarter was 35 percent higher than the previous December quarter due to higher productivity implementation measures, improved operating conditions during the dry season and the fully commissioned fleet of additional equipment introduced during the latter part of 2010 as part of the overall mine/mill expansion. The stripping ratio for the March quarter was 13.2:1 (waste to ore), 6 percent above budget due to the change in mine plan. The stripping ratio to is expected to decrease below 5:1 by the end of the fiscal 2011. Also during the quarter, the mine transitioned a new explosives contractor to break rock for the mining operations. The new contractor is now fully operational and it is expected that the new contractor should help to improve productivity and lower mining costs in the open pit.

Total tonnes mined for the six months ended March 31, 2011 was 2 percent lower than budget due to a 7 percent decrease in waste tonnes mined as compared to budget. The lower mining rate was partially offset by a 52 percent increase in ore tonnes mined compared to budget, as mining in a higher grade ore zone of phase 2 deferred from the September 2010 quarter was mined during the six month period. The stripping ratio for the last six months was 7.3:1 (waste to ore), 39 percent lower than budget due to lower waste tonnes mined during the quarter.

Milling

Mill throughput for the three-and-six months ended March 31, 2011 though above nameplate capacity, was marginally lower (3 percent) than budget due to the harder nature of the ore. The lower throughput was more than offset by the higher grade of the hard ore mined from the high grade area of the pit which increased the mill feed grade above budget (18 percent for the quarter and 15 percent for the six months ended March 31, 2011). The recovery rate was marginally ahead of budget due to higher gold grades processed.

Gold Production

Gold production for the three months ended March 31, 2011 was 22 percent higher than budget due to higher ore grades processed during the quarter, while for the six month period, gold production was 12 percent higher than budget due as well to higher grades processed.

Realized Gold Price

During the quarter ended March 31, 2011, 14,000 ounces were delivered into gold hedge contracts at $845 per ounce and 25,490 ounces of gold were sold into the spot market at an average price of $1,393 per ounce resulting in an average realized price for the quarter of $1,199 per ounce. During the six months ended March 31, 2011, 25,000 ounces were delivered into gold hedge contracts at $845 per ounce and 31,082 ounces of gold were sold into the spot market at an average price of $1,392 per ounce resulting in an average realized price for the period of $1,148 per ounce.

Total Cash Costs

Total cash costs (including royalties) of $655 per ounce for the quarter were 30 percent lower than budget primarily due to a 22 percent increase in ounces sold during the quarter. Total cash costs (including royalties) of $713 per ounce for the six months were 19 percent lower than budget due a 12 percent increase in ounces sold during the period. Total cash costs (including royalties) for the period from November 23, 2010, the date of Demerger from MDL, were $645 per ounce. The lower total cash costs for the period reflect an increase in ounces sold during the period over 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 approximately 200,000 ounces of gold per annum up from the expected 140,000 ounces in calendar 2011.

Additions to the processing plant will include a partial secondary crushing facility and new stockpile/reclaim facilities to debottleneck the semi-autogenous mill, a second ball mill and additional carbon-in-leach capacity. The Sabodala power station will be expanded to 36 Mw capacity with the addition of one new 6 Mw unit. The requirements include cooling and exhaust pipe work, fuel delivery pipe work and a step-down transformer.

The plant expansion is expected to be completed early in the first quarter of calendar 2012. The completion was pushed back from December 31, 2011 due to a four week delay in the delivery of the ball mill from the manufacturer. The estimated capital costs for the plant expansion total $55.9 million.

During the six months ended March 31, 2011, the Company increased its mining capacity ahead of the proposed expansion of the Sabodala gold plant. The additional mining equipment arrived at site early in the period and most of the equipment was operational by the end of November 2010. This equipment, costing approximately $15 million, was financed by an increase in the fleet lease facility with Société Générale.

Mine License Exploration

The Company believes there is potential to expand proven and probable reserves from 1.51 million ounces of gold to 2 to 3 million ounces of gold, at similar grade to the current reserve (1.5gpt) from the Mine License over the next 12 to 24 months, which would increase the mine life to approximately 10 to 15 years, providing a solid production base to build on through the regional exploration program. In order to increase reserves on the Mine License a total of 5 drill rigs will be testing new targets as well as converting existing resources to reserves at an estimated cost of $8 million in 2011 as part of the $25 million exploration program for the calendar year.

During the quarter, the focus was on "the Corridor", the northerly extension of the structural system that defines the limits of the Sabodala gold deposit and the down dip extension of the Masato deposit positioned less than one kilometre east from the Sabodala mine.

"The Corridor"

Drilling continued in the structural corridor progressing outward and north from the Sabodala open pit. It produced ore grade near surface results along Ayoub's Thrust, a feature that defines the western limit of the Corridor. Mineralization has been traced more than 100 metres north of the existing Sabodala open pit along trend and remains open to the north and west. The orientation of the mineralization is understood to be flat and stacked in multiple zones.

Masato

The Masato deposit, discovered on a property contiguous with our Mine License and which is dipping onto the Mine License one kilometre east of the Sabodala open pit is being tested initially over a 500 metre strike length by 20 drill holes totalling 6,150 metres of drilling. Initial results from Masato are very encouraging; multiple mineralized zones have been identified with high grade intervals apparent from preliminary aqua regia assays conducted on site. Management expects that new resources will be defined this year on Masato.

Aqua regia assay results at the site laboratory from the first drill hole SMRC055 drilled vertically intersected 11 metres of 1.08gpt mineralization from 234 metres down the hole and 20 metres of 3.53gpt from 267 metres down the hole. SMRC055 bottomed in gold mineralization and will be extended with core as part of the continuation of the current drill program.

Sutuba

Numerous significant intercepts were drilled at Sutuba. Drilling on the target is focused on defining gold mineralization in high grade NW-trending zones. The close proximity of this mineralization to the Sabodala pit and to the surface makes it an opportunity in the short-term for higher grade mill feed.

A total of 10 targets are expected to be drilled on the Sabodala Mine License in 2011 to expand reserves and resources.

Management believes that all new ounces found on the Mine License can quickly be converted to production as they can be fed directly through the mill without any permitting requirements. Permitting ounces found on the Regional Land Package should also move relatively quickly as these ounces will be processed through the existing Sabodala mill.

Regional Exploration Interests

The Company has interests (ranging from 70 percent joint venture interests to 100 percent interests) in ten exploration permits that together equate to a regional land package in south eastern Senegal around Sabodala of 1,455 km².

Historically, only routine early stage exploration work has been undertaken across the exploration land package. Work done has included geochemical soil sampling, termite mound sampling, rock chip surveys, airborne magnetic and radiometric surveys, geological mapping, trenching, rotary air blast ("RAB") drilling, and some reverse circulation ("RC") and diamond drilling ("DD").

From 2007 until late 2009, no significant drilling was undertaken on the permits as the Company focused its resources on the delination of the Sabodala ore body and development of the mine and mill facility. Exploration programs on certain permits generally ramped up during the second half of the 2010 financial year.

Many geochemical anomalies have been identified from surface geochemistry and work programs are intended to evaluate if these various targets are reflective of actual mineralization within the bedrock or are just transported gold in the laterites or similar. A detailed aeromagnetic survey has also identified many structurally controlled areas to be followed up with geochemistry and drilling.

Gold anomalies in laterites and other near surface materials are not considered material until they have been confirmed by drilling into the underlying bedrock. Accordingly, a significant proportion of the current work focuses on extensive RAB drilling programs and trenching to identify bedrock targets which will then be followed up by RC and or diamond drilling where appropriate.

Initial assaying of drill samples is undertaken at the on-site SGS laboratory facility using atomic absorption spectroscopy and acid leach extraction methods. Waste bounded mineralized interval pulps are then sent to an independent lab in Kayes, Mali for fire assay as a cross-check.

Regional Exploration

During the six months ended March 31, 2011, the Company received approval for its 3 exploration permits which were under application. As such, the regional land package consists of 10 exploration permits comprising 1,455km².

The company will need to spend approximately $3.5 million over the next three years to increase its joint venture position to 80 percent on three of its exploration concessions with Axmin Inc. after Axmin gave notice towards the costs of the next phase of the exploration program for these areas. The Company expects to meet this threshold by June 30, 2011.

In addition to the exploration program on the Company's 33km² Sabodala Mine License, 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 intends to pursue 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.

There are 27 targets that have been identified on the Company's 1,455km² regional land package, all within trucking distance of the mill, that are expected to be drill tested through the end of calendar 2011. Exploration drilling on the regional land holding commenced during the December quarter. Three drill rigs were utilized in the start up phase of this program and during the quarter a total of nine rigs were on the regional exploration permits. By the end of the March quarter the Company completed 14,400 metres of DD and RC and 34,600 metres of RAB drilling. In total, 10 drill rigs are expected to be active on the Regional Land Package in 2011at a total cost of approximately $17 million. Extensive rotary air blast ("RAB") drilling completed to date has confirmed that a large proportion of the surface gold anomalies can be traced back to gold bearing structures in the bedrock. Thorough testing evaluation of these structures requires RC and DD. During the quarter first pass RC and DD testing has commenced on 5 of the twenty-seven target areas identified on the regional land package.

• A 23,000 metres RAB drill program commenced with one rig over the extensive Tourokhoto surface gold geochemical anomaly. This program will define the bedrock gold bearing zones responsible for the wide geochemical gold anomalies and provide targets for additional follow up DD and RC drilling. A total 13,000 metres of RAB drilling has been completed to date.
• Also at Tourokhoto, an initial scout diamond drilling program commenced with a program of five holes for 1,600 metres over the key structural positions on the Tourokhoto prospect area. The holes identified a significant gold-bearing structure and alteration system that will need to be further evaluated.

• A 19,000 metre RAB drill program also commenced at Cinnamon on the northern portion of the Diegoun target area. At the end of the quarter 11,000 metres of this program have been completed.
• A 10,000 metre first pass RC drilling program commenced on the Diegoun target with 17 RC holes completed for 2,300 metres. Geological core-logging has identified structures with extensive pyrite-silica-carbonate-albite alteration which has returned several intervals of anomalous gold over widths of up to 40 metres. Most gold assays are pending.

• An initial 24 hole, 2,700 metre RC program commenced at Dembala Hill during the December quarter and was completed during the March quarter. The drill program identified a gold bearing structure, which will require follow-up drilling over the coming months.

• Initial exploration results from the Gora Project, located 22km from the Company's Sabodala gold mine confirm a high-grade gold deposit. As a result of the exploration success to date, the Company is increasing its exploration budget for the Gora Project for 2011 to complete exploration drilling at depth as well as along strike as the deposit remains open in all directions. In addition, the Company is beginning a feasibility study and permitting. A resource estimate is expected by the end of summer 2011 once the current phase of drilling is complete with a goal of processing the high-grade ore through the Sabodala mill as soon as late 2012.

• While the Gora Project has not been fully delineated, exploration results to date confirm the potential for high-grade deposits on the Regional Land Package that will allow us to leverage our existing processing facilities by putting higher grade material through the mill, increasing production and potentially lowering our cost profile at the same time.

• Drilling of the Gora Project began in early February. Three drill rigs are active on the Project (two diamond and one dual purpose reverse circulation/diamond drill rig). Inferred resources at Gora now stand at 543,000 tonnes at an average grade of 6.08 grams per tonne ("gpt") containing 106,000 ounces of gold. To date, the following has been completed under the current drill program:

  • 26 reverse circulation ("RC") holes for a total of 2,802 metres
  • Three diamond drill ("DD") holes for a total of 662 metres
  • 46 combination RC pre-collars with DD tails totalling 4,186 metres of RC drilling and a total of 1,829 metres of DD tails

  • In total 6,989 metres of RC drilling and 2,491 metres of DD has been completed

• An additional 6,000 metres of RC and 5,500 metres of DD are planned to complete the current phase of drilling. The current drill program is designed to evaluate the size of the deposit to a vertical depth of 120 metres and along strike, where it is open in all directions. In addition, several holes will be used to test the mineralized structure at depth where it is projected to intersect an intrusive unit. The current phase of the drill program is expected to be completed by the end of June 2011.

• Due to the large volume of drilling underway on both the Mine License and on the Regional Land Package, the Company is encountering a back log of confirmatory fire assay results from a third party SGS laboratory in Kayes, Mali. For this reason, the Company has chosen to provide a further twenty-two significant intersections obtained by aqua regia analysis at the SGS managed laboratory at Sabodala, which are currently awaiting confirmation by fire assay. A large number of samples are currently at the laboratory awaiting assay. Experience has shown that the aqua regia and fire assay results are generally comparable, although some variation can occur between assay pairs, which are considered to be due to the presence of coarse gold particles. Fire assay and screen fire assay checks will be routinely carried out on mineralized sample intervals to ensure optimal data quality for resource estimation.

• The 2011 exploration program is a follow up to a phase 1 RC drill program completed in 2010 that identified two sub parallel auriferous veins between 10 and 40 metres apart. Vein 1 averaged 8.8gpt while Vein 2 averaged 3.0gpt. The program in 2010 resulted in an inferred resource of 387,000 tonnes containing 70,000 ounces of gold at an average grade of 5.6gpt, about four times higher than the average reserve grade of the Sabodala deposit.

• The 2011 drill program has resulted in a significant increase in the mineralized envelopes relative to the 2010 RC drill program. What was first thought to be a single-vein system is now understood to be a stacked vein system with excellent potential for additional veins and bulk-style mineralization at vein intersections and intersections with intrusive units. In addition to having extended the size of Vein 1 particularly down dip, Vein 2 is now more continuous. New veins, including Vein 3, had not previously been recognized as significant from the 2010 drilling, but now forms an important mineralized body and Vein 5 has been discovered just below Vein 1. This indicates that the mineralization consists of a stacked zone of shear veins, leaving opportunity to find additional mineralized bodies.

• During the December quarter a total of 35 RC holes for 4,200 metres were completed. Data compilation during this quarter outlined a number of gold bearing structures that warrant follow-up drilling.

• A 7,000 metre first phase RC drill program commenced at Diadiako during the quarter with a total of 18 holes for 2,600 metres completed. Drilling results to date have identified a 1km, shallow dipping gold bearing structure with Sabodala type quartz-albite-carbonate alteration. This program is being executed over two phases to allow for the evaluation of results and drilling of other prospects prior to the on-set of the wet season.

• A RAB drill program totalling 23,000 metres was completed over several prospects on the Bransan and Sabodala North West permits during the quarter. A large number of assays for these programs are pending.

Net cash provided by operating activities during the three months ended March 31, 2011 of $20 million represents $47 million received from gold sales partially offset by production costs of $21 million, $2.6 million of administration expenses and $3 million of inventory purchases including advances to suppliers. Net cash provided by operating activities during the six months ended March 31, 2011 of $19 million represents $64 million received from gold sales partially offset by production costs of $28 million, $3.6 million of administration expense, $6.4 million of inventory purchases and $7 million in advances provided to suppliers.

Net cash used in investing activities for the three month period ended March 31, 2011 of $40 million resulted from $31 million invested in government bonds and $9 million on capital expenditures, mine development and exploration. Net cash used in investing activities for the six month period ended March 31, 2011 was $82 million which was primarily due to repayment of a promissory note to MDL of C$50 million and $31 million invested in short term government bonds.

Net cash used in financing activities for the three months ended March 31, 2011 was $2 million primarily from a payment under Mining Fleet Lease facility. Net cash provided by financing activities for the six months ended March 31, 2011 was $115 million resulting from the issuance of 45.6 million shares for gross proceeds of $135 million through the Initial Public Offering ("IPO") of the Company completed on December 7, 2010 partially offset by payments under Mining Fleet Lease facility and share issuance costs related to the public offerings of $16 million.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2011, the Company had cash, cash equivalents and short term investment including restricted cash of $93.8 million. In the opinion of management, the cash and cash equivalents at March 31, 2011, together with future cash flows from operations is sufficient to support the Company's growth strategy. The Company's total planned capital expenditures for the balance of calendar 2011, with a focus on the plant expansion at the Sabodala mine site, are expected to total at least $26.2 million.

The Company does not have any significant credit risk exposure as cash and cash equivalents are invested in short-term Term Deposits issued by Canadian banks and in sovereign debt. The Company has adopted a strategy to minimize its credit risk by substantially investing in sovereign debt issued by Canadian Agencies, Provinces and the Federal Governments of Canada, and Australian Government. The minimal cash amount is held with the Senegal banks.

The Company strengthened its balance sheet during the six months ended March 31, 2011 with the IPO in Canada and Australia completed on December 7, 2010. In Canada, after the exercise of the over-allotment option, a total of 36,617,900 common shares were issued for gross proceeds of C$109.9 million. In Australia, 9,000,000 common shares were issued for gross proceeds of A$26.7 million. The Company then used C$50 million from the net proceeds of the IPO to repay a loan to MDL, which was part of the consideration for the transfer of the Sabodala Gold Assets to Teranga from MDL.

During the December quarter, gold hedge contracts that were due for delivery by November 17, 2010 at a forward price of $846 per ounce were deferred to 2013, allowing Sabodala Gold Operations ("SGO") to sell all of its gold production into the higher spot market. The deferral of hedge contracts was necessary to ensure that SGO had sufficient resources to fund its operations, mill expansion and the exploration program. The proceeds received on the completion of the IPO were at the top end of the offering range, therefore providing sufficient liquidity to fund these activities and therefore no longer requiring any further gold hedge contract deferrals. As a result, the Company delivered into the gold hedge contract 14,000 ounces during the three months ended March 31, 2011 and 25,000 ounces during the six month period ended March 31, 2011. The Company does not currently anticipate any further deferrals of hedge contracts in 2011.

Looking beyond 2011, Teranga's cash flows from operations are expected to increase with the expansion of the Sabodala mill and are expected to be sufficient to support the currently planned expansion and growth.

Off-Balance Sheet Arrangement

The Company has no off balance sheet arrangements.

FINANCIAL INSTRUMENTS

The Company manages its exposure to financial risks — including liquidity risk, credit risk, currency risk, market risk, interest rate risk and price risk — through a risk mitigation strategy. The Company has entered into financial instruments including gold sales and oil hedge contracts. All of the transactions undertaken are to support the Company's ongoing business. Teranga does not acquire or issue derivative financial instruments for trading or speculation.

A condition of the Project Finance Facility provided by Macquarie Bank Limited was the establishment of gold forward sales contracts and oil energy swaps to manage exposure to commodity price risk.

Following a restructure late in 2008, a total of 399,000 ounces of gold was committed forward for delivery between May 2009 and August 2013 at an average delivery price of $834 per ounce. Deliveries into the hedge position to date of 177,500 ounces have reduced the hedge balance to 221,500 ounces at March 31, 2011. The mark-to-market at the reporting date spot price of $1,439 was negative $132.8 million.

The Company has a hedge agreement with respect to the oil price in order to manage its exposure to commodity risk. The Company hedged 80,000 barrels per annum for four years commencing April 1, 2009 at a flat forward price of $70 per barrel. At March 31, 2011, the remaining 160,000 barrels were hedged with a mark-to-market gain of $5.8 million at the reporting date spot price of $106.7 per barrel.

Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. The Company prepares detailed budgets and forecasts to determine the funding requirements for operations, capital expenditure programs and expansion programs. The Company believes that its expected cash flow from operations, along with its cash holdings is sufficient to meet its 2011 obligations including the mill expansion.

As at March 31, 2011, the Company had $93.8 million in cash, cash equivalents, short term investments and restricted cash.

Working capital requirements

The Company's working capital requirements primarily relate to the mining costs of extracting ore from the Sabodala gold mine and then the costs involved in processing the ore to remove the gold, before the gold itself is sold.

As at March 31, 2011, the Company had the following payments due on contractual obligations and commitments:

Sabodala Operating Commitments

The Company faces the following operating commitments in respect of the Sabodala gold operation:

• Pursuant to the Company's Mining Concession, a royalty of 3 percent is payable to the Government of Senegal based on the value of gold shipments, evaluated at the spot price on the shipment date.

• $425,000 per annum is payable for social development of local authorities in the surrounding Tambacounda region during the term of the Mining Convention.

• $30,000 per year is payable for logistical support of the territorial administration of the region from date of notification of the Mining Concession.

• $200,000 per year of production is payable for training of Directorate of Mines and Geology officers and Mines Ministry.

• $4.1 million is payable to the Government of Senegal. The Company anticipates paying this amount along with the accrued interest within the next 3-6 months.

Credit risk

Credit risk is the risk that the counterparty to a financial instrument will cause a financial loss for the Company by failing to discharge its obligations. Credit risk is primarily associated with its forward gold sales, trade receivables, and oil hedge contracts; however, it also arises on cash and cash equivalents. To mitigate exposure to credit risk on financial assets, the Company ensures that counterparties demonstrate minimum acceptable creditworthiness and to ensure liquidity of available funds.

Teranga monitors its financial assets. Gold sales are made to large international financial institutions including those deliveries into the Company's forward sales contracts to Macquarie Bank Limited. Payment is received normally within approximately ten days of shipment. The historical level of defaults is negligible, and as a result, the credit risk associated with trade receivables at March 31, 2011 is considered minimal. The oil hedge contracts are also with large institutions. The Company invests its cash and cash equivalents with major financial institutions, and the credit risk associated with its investments is considered low.

As a result of the global financial crisis, many financial institutions have gone into bankruptcy or have been rescued by government agencies. As such, the Company is subject to the risk of loss on its deposits with financial institutions that hold the Company's cash. As at March 31, 2011, the Company's cash and cash equivalents were held by three major financial institutions as well as invested in Canadian government bonds.

Market risk

Market risk represents the potential loss that can be caused by a change in the market value of financial instruments. The Company's exposure to market risk is determined by a number of factors, including foreign exchange rates and commodity prices. The Company is exposed to movements in the gold price. As part of the risk management policy the Company has entered into gold forward sales contracts, and oil energy swaps to reduce exposure to unpredictable market fluctuations. The hedging program undertaken is structured with the objective of retaining as much upside to the gold and oil price as possible pursuant to the terms under the Company's Project Finance Facility. The Company has elected not to hedge account these instruments.

Currency risk

Currency risk is the risk that the fair values or future cash flows of the Company's financial instruments will fluctuate because of changes in foreign exchange rates. Exchange rate fluctuations may affect the costs that Teranga incurs in its operations. Gold is sold in U.S. dollars and the Company's costs are incurred principally in U.S. dollars and the CFA Franc, the national currency of Senegal. The Company also incurs Canadian dollar and Euro costs. The appreciation of non-U.S. dollar currencies against the U.S. dollar can increase the cost of gold production and capital expenditures in U.S. dollar terms. The Company also holds cash and cash equivalents that are denominated in non-U.S. dollar currencies that are subject to currency risk. Accounts receivable and other current and long-term assets are denominated in non-U.S. dollars.

The Company is exposed to currency risk through financial assets and liabilities denominated in currencies other than U.S. dollars at March 31, 2011. See Note 32(d) to the Unaudited Interim Consolidated Financial Statements of Teranga.

Teranga currently does not hedge to reduce risks associated with currency fluctuation.

Interest rate risk

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate due to changes in market interest rates. The Company has interest rate risk relating to its bank balances and external borrowings. See Note 32(e) to the Unaudited Interim Consolidated Financial Statements of Teranga.

The Company has elected not to actively manage its exposure to interest rate risk at this time.

Macquarie Bank Limited Hedge Commitment

The Company maintains an ongoing relationship with Macquarie Bank Limited resulting from its outstanding forward sales contracts with the bank. The financing is secured by, among other things, a fixed and floating charge over substantially all of SGO's assets, with the facility and security remaining in place until the hedge position is extinguished.

Société Générale Mining Equipment Lease Facility

On July 9, 2010, SGML (Capital) Limited entered into an amended agreement with Societe Generale London to expand the facility to allow for the purchase of additional mining equipment. An amended facility was concluded with a new limit of $27.8 million. This facility contains a quarterly repayment schedule concluding with the final repayment on June 30, 2013. Interest is calculated using LIBOR plus a margin. The lease facility is secured by, among other things, the assets financed and currently has a balance of $21.5 million.

Price risk

Price risk is the risk that the fair value or future cash flows of the Company's financial instruments will fluctuate because of changes in market prices. Teranga's profitability depends on the price of gold, which is affected by numerous factors, such as the sale or purchase of gold by various central banks and financial institutions, interest rates, exchange rates, inflation or deflations in the value of the U.S. dollar and foreign currencies, global and regional supply and demand, and the political and economic conditions of the world's major gold-producing countries. A 10 percent increase or decrease in the price of gold would result in approximately a $9.7 million increase or decrease in revenue based on the expectations and assumptions it used in the 2011 outlook.

At present, the Company has 221,500 ounces of gold forward sales deliverable through August 2013 at an average price of $833 per ounce. The mark-to-market at the reporting date spot price of $1,439 was negative $132.8 million. A 10 percent increase or decrease in the price of gold would result in approximately a $31.5 million increase or decrease in gold hedge unrealized gains or losses.

The costs in relation to Teranga's production, development and exploration activities vary depending on the market prices of certain mining consumables, including heavy fuel oil. The Company's oil hedging program mitigates the increase or decrease to heavy fuel oil price fluctuations. Electricity is supplied by way of a power station on site, which increases the Company's reliance and dependence on heavy fuel oil.

CONTINGENT LIABILITIES

The directors are not aware of any other contingent liabilities at March 31, 2011.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The following are critical judgments that management has made in the process of applying accounting policies that have the most significant effect on the amounts recognized in the financial statements:

Fair value of derivative financial instruments

Management assesses the fair value of the Company's financial derivatives in accordance with the accounting policy stated in Note 3 to the Unaudited Interim Consolidated Financial Statements. Fair values have been determined based on well-established valuation models and market conditions existing at the reporting date. These calculations require the use of estimates and assumptions. Changes in assumptions concerning interest rates, gold prices and volatilities could have significant impact on comprehensive income due to the change in the fair value attributed to the Company's financial derivatives. When these assumptions change or become known in the future, such differences will impact asset and liability carrying values in the period in which they change or become known.

Ore reserves

Management estimates the Company's ore reserves based upon information compiled by Competent Persons as defined in accordance with the Australasian Code for Reporting Mineral Resources and Ore Reserves and Qualified Persons as defined in Canadian Securities Administrators National Instrument 43-101("NI 43-101"). The estimated quantities of economically recoverable reserves are based upon interpretations of geological models and require assumptions to be made regarding factors such as estimates of short and long-term exchange rates, estimates of short and long-term commodity prices, future capital requirements and future operating performance. Changes in reported reserve estimates can impact the carrying value of property, plant and equipment, provision for rehabilitation obligations, the recognition of deferred tax assets, as well as the amount of depreciation and amortization charged to the income statement.

Units of production

Management estimates recoverable reserves in determining the depreciation and amortization of mine assets. This results in a depreciation/amortization charge proportional to the depletion of the anticipated remaining life of mine production. Each item's life, which is assessed annually, has regard to both its physical life limitations and to present assessments of economically recoverable reserves of the mine property at which the asset is located. The calculations require the use of estimates and assumption, including the amount of recoverable reserve and estimates of future capital expenditure. The Company's units of production calculation is based on life of mine gold production.

Mine rehabilitation provision

Management assesses the Company's mine rehabilitation provision annually. Significant estimates and assumptions are made in determining the provisions for mine rehabilitation as there are numerous factors that will affect the ultimate liability payable. These factors include estimates of the extent and cost of rehabilitation activities, technological changes, regulatory change, cost increases, and changes in discount rates. Those uncertainties may result in future actual expenditures differing from the amounts currently provided. The provision at the balance date represents management's best estimate of the present value of the future rehabilitation costs required. Changes to estimated future costs are recognized in the statement of financial position by adjusting the rehabilitation asset and liability.

Impairment of assets

Management assesses each cash generating unit annually to determine whether any indication of impairment exists. Where an indicator of impairment exists, a formal estimate of the recoverable amount is made which is considered to be the higher of the fair value less costs to sell and value in use. These assessments require the use of estimates and assumptions such as long-term commodity prices, discount rates, future capital requirements, exploration potential and operating performance. Fair value is determined as the amount that would be obtained from the sale of the asset in an arm's length transaction between knowledgeable and willing parties. Fair value for mineral assets is generally determined as the present value of estimated future cash flows arising from the continued use of the asset, which includes estimates such as the cost of future expansion plans and eventual disposal, using assumptions that an independent market participant may take into account. Cash flows are discounted by an appropriate discount rate to determine the net present value. Management has assessed its cash generating units as being all sources of mill feed through a central mill, which is the lowest level for which cash flows are largely independent of other assets.

Production start date

Management assesses the stage of each mine development project to determine when a mine moves into the production stage. The criteria used to assess the start date of a mine are determined based on the unique nature of each mine development project. The Company considers various relevant criteria to assess when the mine is substantially complete, ready for its intended use and moves into the production phase. Some of the criteria include, but are not limited to, the following:

• the level of capital expenditure compared to construction cost estimates;

• completion of a reasonable period of testing of the mine plant and equipment;

• ability to produce metal in saleable form; and

• ability to sustain ongoing production of metal.

When a mine development project moves into the production stage, the capitalisation of certain mine construction costs ceases and costs are either regarded as inventory or expensed, except for capitalizable costs related to mining asset additions or improvements, underground mine development or mineable reserve development. It is also at this point that depreciation/amortization commences.

Fair value of stock options

Management assesses the fair value of stock options granted in accordance with the accounting policy stated in Note 3(f) to the interim consolidated financial statements. The fair value of the options granted is measured using Black-Scholes model, taking into account the terms and conditions upon which the options are granted. The calculation requires the use of estimates and assumptions. As there were no historical data available for determination of the fair value of the stock options granted, the Company developed its assumptions based on information available in the mining industry using comparable companies operating in the gold sector.

Functional currency

The functional currency of each of Company's entities is measured using the currency of the primary economic environment in which that entity operates. The functional currency of the corporate office is Canadian Dollar and the functional currency of all other entities within the group is United States Dollar. Functional currency of each entity was determined based on the currency that mainly influences sales prices for goods and services, labour, material and other costs.

CHANGE IN ACCOUNTING POLICIES

With effect from October 1, 2010, exploration and evaluation expenditures in relation to each separate area of interest are expensed as exploration costs in the consolidated statement of comprehensive income until the determination of the technical feasibility and the commercial viability of the project is completed. Under the Company's previous policy, exploration and evaluation expenditures were recognized as an exploration and evaluation asset in the year in which they incurred and assessed for impairment.

As a result of the change in the accounting policy, all exploration costs, including convention and concession costs, in the total amount of $27.3 million existing before October 1, 2010 and capitalized to exploration assets, were de-recognized and expensed through retained earnings. Management believes that the change in accounting policy results in reliable and more relevant information.

OUTSTANDING SHARE DATA

The Company's fully diluted share capital as at the report date was:

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.

Shareholdings

Teranga's 90% shareholding in SGO, the company operating the Sabodala gold mine, is held 89.5% through Mauritius holding company, SGML, and the remaining 0.5% by individuals nominated by SGML to be at the board of directors in order to meet the minimum shareholding requirements under Senegalese law for the members of the SGO board. On death or resignation, a share individually held would be transferred to another representative of SGML or added to its current 89.5% shareholding according to the circumstances at the time.

CEO/CFO certification

The Company's Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings, for the Company.

The Company's CEO and CFO certify that, as March 31, 2011, the Company's DC&P have been designed to provide reasonable assurance that material information relating to the Company is made known to them by others, particularly during the period in which the interim filings are being prepared; and information required to be disclosed by the Company in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation. They also certify that the Company's ICFR have been designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer's GAAP.

The control framework the Company's CEO and CFO used to design the Company's ICFR is COSO. There is no material weakness relating to the design of ICFR. There is no limitation on scope of design as described in paragraph 5.3 of NI 52-109. There has been no change in the Company's ICFR that occurred during the quarter ended March 31, 2011 which has materially affected, or is reasonably likely to materially affect, the Company's ICFR.

RISKS AND UNCERTAINTIES

The Company is subject to various financial and operational risks and uncertainties that could have a significant impact on profitability and levels of operating cash flow. These risks and uncertainties include, but are not limited to: fluctuations in metal prices (principally the price of gold), capital and operating cost estimates, borrowing risks, production estimates, need for additional financing, uncertainty in the estimation of mineral reserves and mineral resources, the inherent danger of mining, infrastructure risk, hedging activities, insured and uninsured risks, environmental risks and regulations, government regulation, ability to obtain and renew licenses and permits, foreign operations risks, title to properties, competition, dependence on key personnel, currency, repatriation of earnings and stock exchange price fluctuations.

About TERANGA

Teranga Gold Corporation is a Canadian-based gold company listed on the Toronto Stock Exchange (TSX:TGZ) and Australian Securities Exchange (ASX:TGZ). Teranga is principally engaged in the production and sale of gold, as well as related activities such as exploration and mine development.

Teranga was created to acquire indirectly the Sabodala gold mine and a large regional exploration land package, located in Senegal, West Africa, from Mineral Deposits Limited. Management believes the mine operation, together with the Company's prospective 1,488 km2 land package, provides the basis for growth in reserves, production, earnings and cash flow as new discoveries are made and processed through the Company's existing mill.

The Sabodala Gold Operation, which came into operation in 2009, is located 650 kilometres east of the capital Dakar within the West African Birimian geological belt in Senegal, and about 90 kilometres from major gold mines and discoveries in Mali.

The Company's mission is to create value for all of its stakeholders through responsible mining. Its vision is to explore, discover and develop gold mines in West Africa, in accordance with the highest international standards, and to be a catalyst for sustainable economic, environmental and community development. All of its actions from exploration, through development, operations and closure will be based on the best available techniques.

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.

(1) The amount of cost of sales reflectsoperating results from November 23, 2010, the date the demerger was completed.

1. GENERAL INFORMATION

Teranga Gold Corporation ("Teranga" or the "Company") is a Canadian-based gold company listed on the Toronto Stock Exchange (TSX:TGZ) and the Australian Stock Exchange (ASX:TGZ). Teranga is principally engaged in the production and sale of gold, as well as related activities such as exploration and mine development.

Teranga was created to acquire the Sabodala gold mine and a large regional exploration land package, located in Senegal, West Africa, along with shares held in Oromin Explorations Ltd. ("Oromin") from Mineral Deposits Limited ("MDL"), collectively referred to as the Sabodala Gold Assets. The Sabodala gold mine, which came into operation in 2009, is located 650 kilometres east of the capital Dakar within the West African Birimian geological belt in Senegal, and about 90 kilometres from major gold mines in Mali.

The address of its principal office is 121 King street West, Suite 2600, Toronto, Ontario, Canada M5H 3T9.

2. DE-MERGER FROM MINERAL DEPOSITS LIMITED ("Demerger")

On November 23, 2010, Teranga completed the acquisition of the Sabodala Gold Assets by a way of Demerger from MDL. As part of the Demerger certain assets consisting of all of the issued and outstanding shares of Sabodala Gold (Mauritius) Limited, which holds a 90% interest in the Sabodala Gold Operations SA ("SGO"), the holder of the Sabodala gold mine, and a 100% interest in the Sabodala Mining Company SARL, an exploration entity which holds the regional land package; all of the issued and outstanding shares of SGML (Capital) Limited; and 18,699,500 common shares of Oromin Exploration Ltd., originally held by MDL; were transferred to Teranga in consideration for the issuance of 200,000,000 common shares of Teranga to MDL (approximately 160,000,000 of such common shares were then in specie distributed to MDL's shareholders) and the assumption of a C$50 million promissory note owing to MDL.As the transaction was a common control transaction, the Company has elected to apply the 'pooling of interest' method to account for the demerger (see Note 3).

The table below represent the cost of asset and liabilities acquired by Teranga from MDL by way of Demerger:

3. SIGNIFICANT ACCOUNTING POLICIES

Statement of compliance

These financial statements have been prepared in accordance with IAS 34, "Interim Financial Reporting" ("IAS 34") as issued by the International Accounting Standards Board ("IASB").

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries.

Basis of presentation

The condensed consolidated financial statements have been presented in United States dollars unless otherwise stated. The consolidated financial statements have been prepared on the basis of historical cost, except for share based payments that are fair valued at the date of grant and other financial assets and liabilities that are measured at fair value.

The transfer of the Sabodala gold mine and a regional land package into the Company is considered a transaction between entities under common control. As such, the Company has presented its financial results on a pooling of interests basis whereby the carrying amounts of the transferred assets and liabilities reflects those previously reported in the financial statements of MDL. Accordingly, the consolidated statements of comprehensive income (loss), equity and cash flows reflect the operations of the Company from November 23, 2010 and of the corporate activities since incorporation of Teranga on October 1, 2010. The accounting policies set out below have been applied consistently.

Change of fiscal year

On May 10, 2011 the Board of Directors passed a resolution setting the financial year end of the Company at December 31st. The Board felt this change would better synchronize its financial reporting with that of comparable companies within the mining sector as well as better align its financial reporting with its business planning cycle. As a result, the Company's next fiscal reporting period ending June 30th 2011 will now constitute an interim reporting period as opposed to a fiscal year end, subject to approval of the regulators which we expect in the near term. For further information on the details of this change, and how it will impact subsequent reporting and comparative periods, please refer to the Notice of Change of Year End report to be filed by the Company on SEDAR pursuant to Section 4.8 of National Instrument 51-102.

Critical accounting judgments and key sources of estimation uncertainty

The preparation of consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of expenses and other income during the period. These judgments, estimates and assumptions are based on management's best knowledge of the relevant facts and circumstances, having regard to prior experience. While management believes that these judgments, estimates and assumptions are reasonable, actual results may differ from the amounts included in the financial statements.

Judgments made by management in the application of IFRS that have significant effects on the consolidated financial statements and estimates with a significant risk of material adjustments, where applicable, are contained in the relevant notes to the financial statements. Refer to Note 5 for critical judgements in applying the entity's accounting policies, and key sources of estimation uncertainty.

The following is a summary of the accounting policies adopted by the Company in preparation of the financial statements.

(a)Basis of Consolidation

The consolidated financial statements are prepared by consolidating the financial statements of all entities being Teranga Gold (B.V.I) Corporation, Sabodala Gold (Mauritius) Limited, and SGML (Capital) Limited and its subsidiaries as defined in IAS 27 "Consolidated and Separate Financial Statements". A list of subsidiaries is contained in Note 30 to the financial statements. Consistent accounting policies are employed in the preparation and presentation of the consolidated financial statements.

The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of acquisition, of assets and liabilities incurred or assumed, and equity instruments issued by the Company in exchange for control of the acquiree. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The goodwill arising in a business combination is recognized as an asset at the date that control is acquired (the acquisition date). Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the net identifiable assets acquired and the liabilities assumed. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized in the statement of comprehensive income.

The consolidated financial statements include the information and results of each subsidiary from the date on which the Company obtains control and until such time as the Company ceases to control such entity.

In preparing the consolidated financial statements, all inter-company balances and transactions between entities in the Company, including any unrealized profits or losses, have been eliminated.

Non-controlling interests in the net assets (excluding goodwill) of consolidated subsidiaries are identified separately from the Company's equity therein. Non controlling interests consist of the amount of those interests at the date of the original business combination and the non-controlling interests' share of changes in equity since the date of the combination. Losses applicable to the non-controlling interests in excess of the non- controlling interest in the subsidiary's equity are allocated against the interests of the Company.

Total comprehensive income (loss) is attributed to non-controlling interests even if this results in the non- controlling interests having a deficit balance.

(b)Borrowing Costs

Borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantial period of time to prepare for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

All other borrowing costs are recognized in profit or loss in the period in which they are incurred.

(c) Cash and Cash Equivalents

Cash comprises cash on hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash, which are subject to an insignificant risk of changes in value and have a maturity of three months or less at the date of acquisition.

Restricted cash is cash held in the Company's Proceed Account operated by Macquarie Bank Limited that is restricted in use.

When applicable, bank overdrafts are shown within borrowings in current liabilities in the statement of financial position.

(d)Short-term Investments

Short-term investments represent investments in guaranteed investment certificates with maturity dates of more than 90 days. Short-term investments are carried at amortized cost.

(e)Employee Benefits

A liability is recognized for benefits accruing to employees in respect of wages and salaries, annual leave and long service leave when it is probable that settlement will be required and they are capable of being measured reliably.

Liabilities recognized in respect of employee benefits expected to be settled within twelve months, are measured at their nominal values using the remuneration rate expected to apply at the time of settlement.

Liabilities recognized in respect of employee benefits which are not expected to be settled within twelve months are measured as the present value of the estimated future cash outflows to be made by the Company in respect of services provided by employees up to reporting date.

(f)Share-based Payment

The Company operates an equity-settled, share-based compensation plan for remuneration of its management, directors, employees and consultants. See Note 33.

The fair value of the options granted is measured using Black-Scholes model, taking into account the terms and conditions upon which the options are granted. The fair value of the options is adjusted by the estimate of the number of options that are expected to vest as a result of non-market conditions and is expensed over the vesting period using an accelerated method of amortization. At each balance sheet date, the Company revises its estimates of the number of options that are expected to vest based on the non-marketing vesting conditions. It recognizes the impact of the revision to original estimates, if any, in the statement of comprehensive income, with a corresponding adjustment to equity.

Stock-based compensation relating to stock options is charged to the statement of comprehensive income.

(g) Exploration and Evaluation

Exploration and evaluation expenditures in relation to each separate area of interest are expensed as exploration costs in the consolidated statement of comprehensive income until the determination of the technical feasibility and the commercial viability of the project.

The technical feasibility and commercial viability of extracting a mineral resource is considered to be determinable when proven reserves are determined to exist, the rights of tenure are current and it is considered probable that the costs will be recouped through successful development and exploitation of the area, or alternatively by sale of the property.

Once the technical feasibility study is completed, subsequent exploration and development expenses are capitalized as mine development expenditures.

Upon reaching commercial production, these capitalized costs will be transferred from development properties to producing properties on the consolidated balance sheet and will be amortized using the unit-of-production method over the estimated ore reserves.

Exploration and evaluation assets comprise of costs incurred to secure the mining convention, acquisition of rights to explore, studies, exploratory drilling, trenching and sampling and associated activities and an allocation of depreciation and amortization of assets used in exploration and evaluation activities. General and administrative costs are only included in exploration and evaluation costs where they are related directly to the operational activities in a particular area of interest.

(h) Mine Development

Development expenditure is recognized at cost less accumulated amortization and any impairment losses. Where commercial production in an area of interest has commenced, the associated costs are amortized over the estimated economic life of the mine on a units-of-production basis.

(i) Provisions

Provisions are recognized when the Company has a present obligation, legal or constructive, as a result of past events for which it is probable that the Company will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying value is the present value of those cash flows.

(j) Restoration and Rehabilitation

A provision for restoration and rehabilitation is recognized when there is a present obligation as a result of exploration, development and production activities undertaken, and that it is probable that an outflow of economic benefits will be required to settle the obligation, and the amount of the provision can be measured reliably. The estimated future obligations include the costs of removing facilities, abandoning sites and restoring the affected areas.

The provision for future restoration costs is the best estimate of the present value of the expenditure required to settle the restoration obligation at the reporting date, based on current legal or constructive obligation. Future restoration costs are reviewed annually and any changes in the estimate are reflected in the present value of the restoration provision at each reporting date.

(k) Financial Assets

The Company classifies its financial assets in the following three categories: at fair value through profit and loss, loans and receivables, and available for sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification on its financial assets at initial recognition.

Fair value through profit and loss

Investments are recognized and derecognized on trade date where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, net of transaction costs except for those financial assets classified as fair value through profit or loss.

On disposal of an investment, the difference in the net disposal proceeds and the carrying amount is charged or credited to the statement of comprehensive income.

Loans and receivables

Trade receivables, loans, cash and cash equivalents, short term investments and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as 'loans and receivables'. Loans and receivables are measured at amortized cost using the effective interest method less impairment.

Interest income is recognized by applying the effective interest rate.

Available-for-sale financial assets

Certain shares held by the Company are classified as being available-for-sale and are stated at fair value. Gains and losses arising from changes in fair value are recognized directly in the investments revaluation reserve with the exception of impairment losses, interest calculated using the effective interest method and foreign exchange gains and losses on monetary assets which are recognized directly in profit or loss. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously recognized in the investments revaluation reserve is included in profit or loss for the period.

Effective interest method

The effective interest method is a method of calculating the amortized cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset or, where appropriate, a shorter period.

Impairment of financial assets

Financial assets are assessed for indicators of impairment at each reporting date. Financial assets are impaired where there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the financial asset and that event has an impact on the estimated future cash flows of the financial asset that can be reliably estimated.

For financial assets carried at amortized cost, the amount of the impairment is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate.

The carrying amount of financial assets including uncollectible trade receivables is reduced by the impairment loss through the use of an allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss.

With the exception of available-for-sale equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.

In respect of available-for-sale equity instruments, any subsequent increase in fair value after an impairment loss is recognized directly in equity.

De-recognition of financial assets

The Company derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.

(l) Foreign Currency Transactions and Balances

Functional and presentation currency

The functional currency of each of the Company's entities is measured using the currency of the primary economic environment in which that entity operates. The functional currency of the corporate office is Canadian Dollar and the functional currency of all other entities within the group is United States Dollar. The consolidated financial statements are presented in US dollars, which is Company's presentation currency.

Transactions and balances

Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of transaction. Foreign currency monetary items are translated at the year-end exchange rate. Non- monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined.

Exchange differences are recognized in profit or loss in the period in which they arise except for exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur in the foreseeable future which form part of the net investment in a foreign operation and which are recognized in a foreign currency translation reserve within equity and recognized in profit or loss on disposal of the net investment.

Teranga corporate entity

The financial results and position of the Company's corporate entity whose functional currency is different from the Company's presentation currency are translated as follows:

• Assets and liabilities are translated at year-end exchange rates prevailing at the reporting date

• Income and expenses are translated at average exchange rates for the period

• Accumulated profits/(losses) are translated at the exchange rates prevailing at the date of the transaction

• Exchange differences arising on translation of foreign operations are transferred directly to the Company's foreign currency translation reserve in the statement of financial position. These differences are recognized in the statement of changes in equity in the period.

(m) Impairment of Long-lived Assets

At each reporting date the Company reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. Where the asset does not generate cash flows that are independent from other assets, the Company estimates the recoverable amount of the cash generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss.

Where an impairment loss subsequently reverses, the carrying amount of the asset or cash generating unit is increased to the revised estimate of its recoverable amount but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognized immediately in profit or loss.

(n) Income Tax

Current tax

Current tax is calculated by reference to the amount of income taxes payable or recoverable in respect of the taxable profit or tax loss for the period. Current tax is calculated on the basis of the law enacted or substantively enacted at reporting date in the countries where the Company's subsidiaries operate and generate taxable income.

Deferred tax

Deferred tax is recognized, in accordance with the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. The tax base of an asset or liability is the amount attributed to that asset or liability for tax purposes.

In principle, deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither the accounting nor the taxable profit or loss.

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates and interests in joint ventures except where the timing of the reversal of the temporary difference is controlled by the Company and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets arising from deductible temporary differences associated with these investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the reporting date and expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.

Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.

(o) Inventories

Gold bullions, gold in circuit and ore stockpile are physically measured or estimated and valued at the lower of cost and net realizable value. Cost represents the weighted average cost and includes direct costs and an appropriate portion of fixed and variable production overhead expenditure, including depreciation and amortization, incurred in converting materials into finished goods.

By-product metals inventory on hand obtained as a result of the production process to extract gold are valued at the lower of cost and net realizable value.

Materials and supplies are valued at the lower of cost and net realizable value. Any provision for obsolescence is determined by reference to specific inventory items identified. A regular and ongoing review is undertaken to establish the extent of surplus items and a provision is made for any potential loss on their disposal.

Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and estimated costs necessary to make the sale.

(p) Leased Assets

Leases are classified as finance leases when the terms of the lease transfer substantially all the risks and rewards incidental to ownership of the leased asset to the lessee. All other leases are classified as operating leases.

Finance leases are capitalized at the lease's commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments. The corresponding liability to the lessor is included in the statement of financial position as a finance lease obligation.

Lease payments are allocated between the liability and finance charges so as to achieve a constant rate of interest on the finance balance outstanding. Finance charges are charged directly against income, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the Company's general policy on borrowing costs. Refer to Note 3(b).

Operating lease payments are recognized as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognized as an expense in the period in which they are incurred.

Lease incentives

In the event that lease incentives are received to enter into operating leases, such incentives are recognized as a liability. The aggregate benefits of incentives are recognized as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

(q) Property, Plant and Equipment

Property is measured on the cost basis. Plant and equipment are measured on the cost basis less depreciation and impairment losses.

The cost of fixed assets constructed within the Company includes the cost of materials, direct labour and borrowing costs where appropriate.

Subsequent costs are included in the asset's carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of comprehensive income during the financial period in which they are incurred.

Depreciation

The depreciable amount of all fixed assets, excluding freehold land, is depreciated on a straight line basis over their useful lives of the asset commencing from the time the asset is held ready for use. The Company uses the units-of-production method when depreciating mining assets which results in a depreciation charge proportional to the depletion of the anticipated remaining life of mine.

The assets' residual values, depreciation method and useful lives are reviewed and adjusted, if appropriate, at each reporting date.

Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the statement of comprehensive income.

Assets under finance lease

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease. The gain or loss arising on disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.

(r) Financial Instruments

Debt and equity instruments

Debt and equity instruments are classified as either liabilities or as equity in accordance with the substance of the contractual arrangement. An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

Financial guarantee contract liabilities

Financial guarantee contract liabilities are measured initially at their fair values and subsequently at the higher of:

• the amount of the obligation under the contract, as determined under IAS 37 "Provisions, Contingent Liabilities and Contingent Assets"; and

• the amount initially recognized less, where appropriate, cumulative amortization in accordance with the revenue recognition policies described in Note 3(t).

Financial liabilities

Financial liabilities are classified as either financial liabilities 'at fair value through profit or loss' or other financial liabilities.

Other financial liabilities

Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs.

Other financial liabilities are subsequently measured at amortized cost using the effective interest method, with interest expense recognized on an effective yield basis.

The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability or, where appropriate, a shorter period.

(s) Derivative Financial Instruments

The Company enters into a variety of derivative financial instruments to manage its exposure to gold and oil price risk, including gold forward contracts and oil hedge contracts. Further details of derivative financial instruments are disclosed in Note 32(c) to the financial statements.

Derivatives are initially recognized at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. The resulting gain or loss is recognized in profit or loss immediately as the Company does not apply hedge accounting.

The fair value of derivatives is presented as a non-current asset or a non-current liability, if the remaining maturity of the instrument is more than twelve months and it is not expected to be realized or settled within twelve months and as a current asset or liability when the remaining maturity of the hedged item is less than twelve months.

(t) Revenue Recognition

Gold and silver bullion sales

Revenue from gold and silver bullion sales is recognized when the Company has transferred the significant risk and rewards of ownership to the buyer and selling prices are known or can be reasonably estimated. Revenue is reported net of discounts and pricing adjustments. Royalties paid and payable are separately reported as expenses.

Interest revenue

Interest revenue is recognized on a time proportionate basis taking into account the effective yield on the financial assets.

(u) Earnings per Share

Basic earnings per share are determined by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares outstanding during the financial period.

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares.

(v) Joint Venture Arrangements

Interests in jointly controlled assets in which the Company is a venturer and has joint control are included in the financial statements by recognizing the Company's share of jointly controlled assets (classified according to their nature), the share of liabilities incurred (including those incurred jointly with other venturers) and the Company's share of expenses incurred by or in respect of each joint venture.

The Company's interests in assets where the Company does not have joint control are accounted for in accordance with the substance of the Company's interest. Where such arrangements give rise to an undivided interest in the individual assets and liabilities of the joint venture, the Company recognizes its undivided interest in each asset and liability and classifies and presents those items according to their nature.

(w) Intangible Assets

Intangible assets are recorded at cost less accumulated amortization and impairment. Amortization is charged on a straight-line basis over their estimated useful lives. The estimated useful life and amortization method is reviewed at the end of each annual reporting period with any changes in these accounting estimates being accounted for on a prospective basis.

(x) Government Royalties

Royalties are accrued and charged against earnings when the liability from production or sale of the gold crystallizes.

4. CHANGE IN ACCOUNTINGS POLICIES

With effect from October 1, 2010, exploration and evaluation expenditures in relation to each separate area of interest are expensed as exploration costs in the consolidated statement of comprehensive income until the determination of the technical feasibility and the commercial viability of the project. Under the Company's previous policy, exploration and evaluation expenditures were recognized as an exploration and evaluation asset in the year in which they were incurred and assessed for impairment.

As a result of the change in the accounting policy, all exploration costs, including convention and concession costs, in the total amount of $27.3 million existing before October 1, 2010 and capitalized to exploration assets, were de- recognized and expensed through retained earnings. Management believes that the change in the accounting policy results in reliable and more relevant information.

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

Critical judgments in applying the entity's accounting policies

The following are critical judgments that management has made in the process of applying the Company's accounting policies and that have the most significant effect on the amounts recognized in the financial statements:

Ore reserves

Management estimates its ore reserves based upon information compiled by Competent Persons as defined in accordance with the Australasian code for Reporting Mineral Resources and Ore Reserves and Qualified Persons as defined in Canadian Securities Administrators National Instrument 43-101("NI43-101"). The estimated quantities of economically recoverable reserves are based upon interpretations of geological models and require assumptions to be made regarding factors such as estimates of short and long-term exchange rates, estimates of short and long-term commodity prices, future capital requirements and future operating performance. Changes in reported reserve estimates can impact the carrying value of property, plant and equipment, provision for rehabilitation obligations, the recognition of deferred tax assets, as well as the amount of depreciation and amortization charged to the statement of comprehensive income.

Key sources of estimation uncertainty

The following are the key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year:

Units of production

Management estimates recoverable reserves in determining the depreciation and amortization of mine assets. This results in a depreciation/amortization charge proportional to the depletion of the anticipated remaining life of mine production. Each item's life, which is assessed annually, has regard to both its physical life limitations and to present assessments of economically recoverable reserves of the mine property at which the asset is located. The calculations require the use of estimates and assumption, including the amount of recoverable reserve. The Company's units or production calculation is based on life of mine gold production.

Mine restoration and rehabilitation provision

Management assesses its mine rehabilitation provision annually. Significant estimates and assumptions are made in determining the provisions for mine rehabilitation as there are numerous factors that will affect the ultimate liability payable. These factors include estimates of the extent and cost of rehabilitation activities, technological changes, regulatory change, cost increases, and changes in discount rates. Those uncertainties may result in future actual expenditure differing from the amounts currently provided. The provision at the reporting date represents management's best estimate of the present value of the future rehabilitation costs required. Changes to estimated future costs are recognized in the statement of financial position by adjusting the rehabilitation asset and liability.

Impairment of assets

Management assesses each cash-generating unit annually to determine whether any indication of impairment exists. Where an indicator of impairment exists, a formal estimate of the recoverable amount is made which is considered to be the higher of the fair value less costs to sell and value in use. These assessments require the use of estimates and assumptions such as long-term commodity prices, discount rates, future capital requirements, and operating performance. Fair value is determined as the amount that would be obtained from the sale of the asset in an arm's-length transaction between knowledgeable and willing parties. Fair value for mineral assets is generally determined as the present value of estimated future cash flows arising from the continued use of the asset. Cash flows are discounted by an appropriate discount rate to determine the net present value. Management has assessed its cash generating units as being all sources of mill feed through a central mill, which is the lowest level for which cash flows are largely independent of other assets.

Production start date

Management assesses the stage of each mine development project to determine when a mine moves into the production stage. The criteria used to assess the start date of a mine are determined based on the unique nature of each mine development project. The Company considers various relevant criteria to assess when the mine is substantially complete, ready for its intended use and moves into the production phase. Some of the criteria include, but are not limited to, the following:

• completion of a reasonable period of testing of the mine plant and equipment;

• ability to produce metal in saleable form; and

• ability to sustain ongoing production of metal.

When a mine development project moves into the production stage, the capitalization of certain mine construction costs ceases and costs are either regarded as inventory or expensed, except for capitalizable costs related to mining asset additions or improvements, underground mine development or mineable reserve development. It is also at this point that depreciation/amortization commences.

Fair value of derivative financial instruments

Management assesses the fair value of Teranga's financial derivatives in accordance with the accounting policy stated in Note 3(r) to the consolidated financial statements. Fair values have been determined based on well- established valuation models and market conditions existing at the reporting date. These calculations require the use of estimates and assumptions. Changes in assumptions concerning interest rates, gold prices and volatilities could have significant impact on the fair valuation attributed to the Company's financial derivatives. When these assumptions change or become known in the future, such differences will impact asset and liability carrying values in the period in which they change or become known.

Fair value of stock options

Management assesses the fair value of stock options granted in accordance with the accounting policy stated in Note 3(f) to the interim consolidated financial statements. The fair value of the options granted is measured using Black- Scholes model, taking into account the terms and conditions upon which the options are granted. The calculation requires the use of estimates and assumptions. As there were no historical data available for determination of the fair value of the stock options granted, the Company developed its assumptions based on information available in the mining industry using comparable companies operating in the gold sector.

Functional currency

The functional currency of each of the Company's entities is measured using the currency of the primary economic environment in which that entity operates. The functional currency of the corporate office is Canadian Dollar and the functional currency of all other entities within the group is United States Dollar. Functional currency of each of the entity was determined based on the currency that mainly influences sales prices for goods and services, labour, material and other costs and the currency in which funds from financing activities are generated.

6. REVENUE

i) During the quarter ended March 31, 2011, 14,000 ounces were delivered into gold hedge contracts at $845 per ounce and 25,490 ounces of gold were sold into the spot market at an average price of $1,393 per ounce resulting in an average realized price for the quarter of $1,199 per ounce.

ii) During the six months ended March 31, 2011, 25,000 ounces were delivered into gold hedge contracts at $845 per ounce and 31,082 ounces of gold were sold into the spot market resulting in an average realized price of $1,392 per ounce resulting in an average realized price for the quarter of $1,148 per ounce.

On November 23, 2010, Teranga completed the acquisition of the Sabodala gold mine and a regional exploration package by way of Demerger from MDL. As part of the Demerger, all of the issued and outstanding shares of Sabodala Gold (Mauritius) Limited, which holds a 90% interest in the Sabodala Gold Operations SA ("SGO"), which owns the Sabodala gold mine, and a 100% interest in the Sabodala Mining Company SARL, an exploration entity, all of the issued and outstanding shares of SGML (Capital) Limited and 18,699,500 common shares of Oromin, originally held by MDL, were transferred to Teranga in consideration for the issuance of 200,000,000 common shares to MDL and C$50 million in satisfaction of a promissory note owing to MDL.

On December 7, 2010 the Company completed initial public offerings in Canada and Australia. In Canada, after the exercise of the over-allotment option, a total of 36,617,900 common shares were issued for gross proceeds of C$109.9 million. In Australia, 9,000,000 common shares were issued for gross proceeds of A$26.7 million. The share issuance costs related to the public offerings were $16.2 million.

22. AVAILABLE FOR SALE FINANCIAL ASSETS

As part of the acquisition of the Sabodala gold mine and regional land package by way of Demerger from MDL, Teranga acquired 18,699,500 common shares of Oromin Exploration Limited, classified as available for sale in accordance with IAS 39 "Financial Instruments: Recognition and Measurement".

The following table outlines the change in fair value of the investment in Oromin which is recognized in the investment revaluation reserve:

23. RESERVES

The foreign currency translation reserve records historical exchange differences arising on translation from the functional currency of the Company's corporate entity into United States dollars which are recorded directly to the foreign currency translation reserve within the consolidated statement of equity.

(b) Exploration Commitments

The Company has committed to spend a total of $6.3 million over the next three years in respect of the Sabodala regional exploration programme.

(c) Sabodala Operating Commitments

The Company has the following operating commitments in respect of the Sabodala gold operation:

• Pursuant to the Company's Mining Concession, a royalty of 3% is payable to the Government of Senegal based on the value of gold shipments, evaluated at the spot price on the shipment date.

• $425,000 per annum on social development of local authorities in the surrounding Tambacounda region during the term of the Mining Convention.

• $30,000 per year for logistical support of the territorial administration of the region from date of notification of the Mining Concession.

• $200,000 per year of production on training of Directorate of Mines and Geology officers and Mines Ministry

• $4.1 million plus 6% interest payable to Government of Senegal. The Company anticipates paying this amount along with the accrued interest payable within the next 3 to 6 months.

27. LEASES

(a) Operating Lease Commitments

The Company has entered into an agreement to lease premises for the period until February 27, 2013. The annual rent of premises consists of minimum rent plus realty taxes, maintenance and utilities. In accordance with the lease agreement the amount of $306,000 is payable within a year and a remaining $255,000 is payable by February 27, 2013.

(b) Finance Lease Liabilities

The finance lease relates to the Mining Fleet Sublease with a remaining lease term of 30 months expiring June 30, 2013. Minimum future lease payments consist of ten payments over the term of the loan. Interest is calculated at LIBOR plus a margin paid quarterly in arrears. Due to the variable nature of the interest repayments the table above excludes all future interest amounts.

28. CONTINGENT LIABILITIES

The directors and the management of the Company are not aware of any contingent liabilities at March 31, 2011.

29. EXPLORATION LICENCES AND JOINTLY CONTROLLED OPERATIONS AND ASSETS

The Company has exploration licences and is a venturer in the following jointly controlled operations and assets:

Exploration commitments and contingent liabilities

Exploration commitments and contingent liabilities arising from the Company's interests in joint ventures are disclosed in Notes 26.

(i) Teranga Gold (B.V.I.) Corporation, a wholly owned subsidiary of Teranga Gold Corporation, was incorporated under the BVI Business Companies Act, 2004 on November 10, 2010. In connection with the Demerger Arrangement and pursuant to a deed of assignment of debt among Teranga Gold Corporation, Teranga Gold (B.V.I) Corporation, MDL Gold Limited, Sabodala Gold (Mauritius) Limited and Sabodala Gold Operations SA dated November 23, 2010, Teranga Gold (B.V.I.) Corporation took assignment of an inter-corporate receivable of $234,300,000 owed by Sabodala Gold Operations SA to Sabodala Gold (Mauritius) Limited as assigned to MDL Gold Limited in consideration for 1,000,000 ordinary shares of Teranga Gold (B.V.I.) Corporation registered in the name of Teranga Gold Corporation.

(ii) Pursuant to the Uniform Act (OHADA) governing the company's "SA" Senegalese subsidiaries, the board of directors must have at least three and no more than 12 directors (other than in particular circumstances). Members of the board do not have to be shareholders; however, no more than one-third of the members of the board may be non-shareholders.

Teranga is the majority (90%) shareholder of SGO through its wholly-owned subsidiary Sabodala Gold (Mauritius) Limited (SGML). A sufficient number of directors representing SGML (the Mauritius holding company) were elected to the board of directors of Sabodala Gold Operations SA (SGO), in addition to the two resident directors with executive responsibility, to ensure adequate representation at all board meetings, the minority shareholder (Republic of Senegal) being entitled to two board seats, one representing the State and the other being held by a non-shareholder Senegalese public servant. To meet the requisite shareholder requirement for the board of directors of SGO, five of the current board members (4 of which are also directors of SGML) were issued one share each for a total of 0.5% in SGO with the other 89.5% issued to and held by the Mauritian parent SGML. On death or resignation, a share individually held would be transferred to another representative of SGML or added to its current 89.5% shareholding according to the circumstances at the time.

(iii) Under the terms of the SGO project finance facility, SGML and SGO have pledged their shares in favour of Macquarie Bank Limited as security.

31. CASH FLOW INFORMATION

(a) Reconciliation of cash and cash equivalents

Cash at the end of the reporting period as shown in the statement of cash flows is reconciled to items in the statement of financial position as follows:

(c)Non-cash financing and investing activities

On November 23, 2010, Teranga acquired the Sabodala gold mine and a regional exploration land package together with 15% (March 31, 2011:13.8%) of Oromin Exploration Ltd. ("Oromin") in consideration of the issuance of 200 million shares and C$50 million in satisfaction of a promissory note owing to MDL. The transaction has been recorded as a non-cash transaction, except of C$50 million repayment of the promissory note. See Note 2.

(d) Cash balances restricted for use

The balance of funds held in SGO's Proceeds Account of $16.4 million (per the Project Finance Facility provided by Macquarie Bank Limited) is only available for operating, project and financing (including loan repayments) costs of that entity. Funds are not available for other entities within the Company unless strict criteria are passed. These criteria include technical and financial completion tests, loan ratio tests and sufficient funds remaining in the Proceeds Account to maintain an agreed reserve amount. Funds in the amount of $7 million are restricted and must always remain in the Proceeds Account, while the Facility Agreement remains in place.

32. FINANCIAL INSTRUMENTS

The Company's risk exposures and the impact on the Company's financial instruments are summarized below:

a) Capital risk management

The Company's objectives when managing its capital are to safeguard the Company's ability to continue as a going concern while maximizing the return to stakeholders through optimization of the debt and equity balance.

The capital structure of the Company consists of cash and cash equivalents, debt, and equity attributable to equity holders of the parent, comprising issued capital, reserves and accumulated losses. The Company is not subject to any externally imposed capital requirements.

The leverage ratio at year end was as follows:

b)Categories of financial instruments

As at March 31, 2011, the Company's financial instruments consisted of cash and cash equivalents, other receivables, accounts payable and accrued liabilities, borrowings and derivative financial assets and liabilities.

The following table illustrates the classification of the Company's financial instruments within the fair value hierarchy as at March 31, 2011:

c) Commodity Market risk

Market risk represents the potential loss that can be caused by a change in the market value of financial instruments. The Company's exposure to market risk is determined by a number of factors, including foreign exchange rates and commodity prices. The Company is exposed to movements in the gold price. As part of the risk management policy the Company has entered into gold forward sales contracts and oil hedge contracts to reduce exposure to unpredictable market fluctuations. The Company has elected not to apply hedge accounting for these instruments.

Derivative financial instruments

At March 31, 2011, the gold spot price was $1,439/oz and the oil price was $106.7/bbl.

As the Company has elected not to adopt hedge accounting, movements in the fair value of these contracts are accounted for through the statement of comprehensive income.

Sensitivity analysis

The following table summarizes the sensitivity of financial assets and financial liabilities held at reporting date to movement in gold and oil commodity rates, with all other variables held constant. A 10% movement for gold and oil rates represents management's assessment of the reasonably possible change.

d) Foreign currency risk management

The Company has certain financial instruments denominated in CFA Franc, CAD, AUD and other currencies. Consequently, the Company is exposed to the risk that the exchange rate of the USD relative to the CFA Franc, AUD, CAD and other currencies may change in a manner which has a material effect on the reported values of the Company's assets and liabilities which are denominated in the CFA Franc, CAD, AUD and other currencies.

The carrying amounts of the Company's foreign currency denominated monetary assets and monetary liabilities that are denominated in a currency other than the functional currency is as follows:

Foreign currency sensitivity analysis

The Company is mainly exposed to CFA Franc, CAD and AUD. Ten percent represents management's assessment of the reasonably possible change in foreign exchange rates. Sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at period end for a 10% change in the functional currency rates. A negative number indicates a decrease in profit or equity where the functional currency strengthens 10% against the relevant currency for financial assets and where the functional currency weakens against the relevant currency for financial liabilities. For a 10% weakening of USD against the relevant currency for financial assets and a 10% strengthening for financial liabilities, there would be an equal and opposite impact on net assets and the balances would be positive.

Foreign currency exchange contracts

The Company has not entered into forward exchange contracts to buy or sell specified amounts of foreign currencies in the future at stipulated exchange rates.

e) Interest rate risk management

Interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in the market interest rates. The Company has exposure to interest rate risk relating to its bank balances and external borrowings. See below:

The following table illustrates the classification of the Company's financial instruments which are exposed to interest rate risk as at March 31, 2011.

f) Credit risk management

The Company's credit risk is primarily attributable to cash, cash equivalents and derivative financial instruments. The Company does not have any significant credit risk exposure as cash and cash equivalents are invested in short-term Term Deposits issued by Canadian banks and in sovereign debt. The Company has adopted a strategy to minimize its credit risk by substantially investing in sovereign debt issued by Canadian Agencies, Provinces and the Federal Governments of Canada, and the Australian Government.

The Company does not have significant credit risk exposure on accounts receivable as all gold sales are executed through Macquarie Bank, a AAA rated bank. Gold production is either delivered into forward sales contracts with Macquarie or sold into the spot market and deposited into the Company's bank account.

The Company is exposed to the credit risk of Senegal banks that hold and disburse cash on behalf of its Senegal subsidiaries. The Company manages its Senegal bank credit risk by centralizing custody, control and management of its surplus cash resources in Canada at the corporate office and only transferring money to its subsidiary based on immediate cash requirements, thereby mitigating exposure to Senegal banks. The amount of $3.4 million was held at Senegal banks as at March 31, 2011.

g)Liquidity risk management

The Company has sufficient funds as at March 31, 2011 to settle current and long-term liabilities.

Cash flow forecasting is performed in the operating entity of the group and combined by the Company's finance group. The Company's finance group monitors the liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom in its proceeds account so that the Company does not breach any of its covenants. Surplus cash held by the Corporate office is invested in short term investments issued by Canadian bank and in sovereign debt issued by Canadian Agencies, Provinces and the Federal Governments of Canada, and the Australian Government.

Liquidity and interest risk tables

The following tables detail the Company's remaining contractual maturity for its non-derivative financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Company can be required to pay. The table includes both interest and principal cash flows.

h) Fair value of financial instruments

The fair values of financial assets and financial liabilities are determined as follows:

• the fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices; and

• the fair value of derivative instruments are calculated using quoted prices and option pricing models.

Management consider that the carrying amounts of financial assets and financial liabilities recorded at amortized cost in the financial statements approximate their fair value for the Company, as they represent short-term trade amounts.

Fair value hierarchy

The Company values instruments carried at fair value using quoted market prices, where available. Quoted market prices represent a Level 1 valuation. When quoted market prices are not available, the Company maximizes the use of observable inputs within valuation models. When all significant inputs are observable, the valuation is classified as Level 2. Valuations that require the significant use of unobservable inputs are considered Level 3.

The following table outlines financial assets and liabilities measured at fair value in the consolidated financial statements and the level of the inputs used to determine those fair values in the context of the hierarchy as defined above:

33. STOCK OPTIONS

The Incentive Stock Option Plan (the "Plan") authorizes the Directors to grant options to purchase shares of the Company to directors, officers, employees and consultants of the Company and its subsidiaries. The exercise price of the options is determined by the board of directors at the date of grant but in no event shall be less than the five-day weighted average closing price of the common shares as reported on TSX for the period ended on the business day immediately preceding the day on which the option was granted.

The vesting of options is determined by the board at the date of grant. The term of options granted under the Plan is at the discretion of the board, provided that such term cannot exceed ten years from the date of the option is granted.

Each employee share option is convertible into one ordinary share of Teranga on exercise. No amounts are paid or payable by the recipient on receipt of the option. The options carry neither rights to dividends nor voting rights. Options may be exercised at any time from the date of vesting to the date of their expiry subject to the terms of the plan.

As at March 31, 2011, 14,530,000 common share stock options were granted and held by directors, officers, employees and consultants. 160,000 stock options were cancelled due to terminations during the three-and-six months period ended March 31, 2011. The following stock options were outstanding as at March 31, 2011:

As at March 31, 2011, approximately 10.5 million options are currently available for issuance under the Plan.

The estimated fair value of stock options is amortized over the period in which the options vest which is normally three years.

As at March 31, 2011 all outstanding stock options have a remaining contractual life of ten years.

Fair value of stock options granted

The current period's valuation was calculated using Black-Scholes option pricing model with the following assumptions:

Share options exercised during the period

There were no options exercised during the three-and-six month period ended March 31, 2011.

34. SEGMENT REPORTING

The Company has one reportable operating segment under IFRS 8 relating to the gold activity.

Information regarding geographical and customer segments is presented below.

Geographical information

The Company operates in two geographical areas, predominantly in Senegal (West Africa) and Mauritius.

The following table discloses the Company's revenue by geographical location:

Information about major customers

Gold sales revenue from one customer for the three-and-six months ended March 31, 2011 was $47.5 million and $64.7 million respectively.

35. KEY MANAGEMENT PERSONNEL COMPENSATION

The names and positions held by key management personnel in office as at March 31, 2011:

36. RELATED PARTY TRANSACTIONS

(a) Equity interests in related parties

Details of percentages of ordinary shares held in subsidiaries are disclosed in Note 31 to the financial statements.

(b) Transactions with key management personnel

Details of key management personnel compensation are disclosed in the Note 35.

No loans were made to directors or director-related entities during this period.

(c) Transactions with other related parties

The Company has a balance of $125,853 payable to Mineral Deposit Limited as at March 31, 2011.

Shareholdings

The directors representing the Mauritian parent entity were issued one share each for a total of 0.5% in Sabodala Gold Operations SA (SGO) with the other 89.5% issued to and held by the Mauritian parent Sabodala Gold (Mauritius) Limited. On death or resignation, a share individually held would be transferred to another representative of the relevant Mauritian parent entity or added to its current 89.5% shareholding according to the circumstances at the time.

37. APPROVAL OF THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

These unaudited interim consolidated financial statements were approved by the Board of Directors on May 10, 2011.