Teranga Gold Corporation: September Quarter Report
(firmenpresse) - TORONTO, ONTARIO -- (Marketwire) -- 11/09/11 -- - Teranga Gold Corporation (TSX: TGZ)(ASX: TGZ) -
For a full explanation of Operating, Financial and Exploration results please see the Financial Statements and Management's Discussion & Analysis at .
Operating Highlights - Production on plan, costs higher than budget - going forward, production increases and costs decline
"As expected, we've have just completed our toughest quarter, we look forward to higher production and lower cash costs as we finish the year and enter 2012. On the exploration front, we are very encouraged by both the high grades and significant widths of mineralization seen in our recent drill results on the Mine License. These results make us confident that we will be able to double our reserves on the Mine License in 2012 and this is before we take into account the encouraging results we are seeing from our regional exploration program" said Alan R. Hill, Chairman and CEO.
Exploration Highlights - Mine License drilling returned 131 metres at 3.45 gpt and 87 metres at 3.11gpt gold
Financial highlights - Accelerating hedge deliveries
Review of Operations
Gold production for the Sabodala gold mine for the three-and-twelve months ended September 30, 2011 was 27,082 ounces and 130,640 ounces, respectively, which was 1 and 2 percent higher than plan, respectively. Gold sold for the three months ended September 30, 2011 totalled 27,574 ounces, while gold sold for the twelve months ended September 30, 2011 was 135,928 ounces. Total cash costs per ounce of gold sold totalled $1,156 per ounce for the quarter and $841 per ounce for the 12 months ended September 30, 2011. The higher cash costs for the three and twelve month periods are primarily a result of higher fuel, labour and maintenance costs. The increase in fuel costs is due to higher than budgeted prices, higher in country fuel transportation costs and lower realized oil hedge gains. Labour costs increased as a result of a new comprehensive compensation package introduced to employees in the September quarter.
Mining
Total tonnes mined for the September quarter were in line with budget as changes made to mine plan sequencing and changes to the pit ramps allowed the Company to operate without incident through the rainy season.
Total tonnes mined for the twelve months ended September 30, 2011 were 2 percent lower than budget due to a 3 percent decrease in waste tonnes mined partially offset by an increase in ore tonnes mined as compared to budget. The increase in ore tonnes mined reflects a change to the mine plan during the March quarter to provide earlier access to higher grade ore, which lead to higher production guidance for 2011 and 2012.
Unit mining costs for the quarter were higher than budget. The increase in unit mining costs for the quarter compared to budget reflects the impact of higher fuel costs and labour costs and lower tonnes mined than budgeted during the quarter. While the Company budgeted $110 per barrel fuel oil, a combination of higher in country transportation charges, higher Brent crude oil spot prices than budgeted and lower West Texas Intermediate crude oil prices, which reduce the amount of hedge benefit of the higher oil price, were primarily responsible for the higher mining costs.
Milling
Mill throughput for the three months ended September 30, 2011 was in line with budget. Gold production for the September quarter was 1 percent higher than budget due to a 2 percent improvement in gold grades processed partially offset by a 1 percent lower recovery rate than planned.
Mill throughput for the twelve months ended September 30, 2011 was 2 percent higher than budget due the implementation of an automated control system which helps to optimize blending of ore. Gold production for the twelve months ended September 30, 2011 was 2 percent higher than budget due to higher throughput than planned.
Unit processing costs for the quarter as well as for twelve months ended September 30, 2011 were higher than budget. The increase in unit processing costs for the quarter compared to budget is primarily a result of higher labour, consumables and reagent costs. The increase in unit processing costs for the twelve months ended September 30, 2011 compared to budget reflects the impact of higher fuel costs than budgeted, as well as higher labour and maintenance costs.
Plant Expansion
The Sabodala gold plant expansion is underway to increase capacity from 2 Mtpa to approximately 4 Mtpa. Once expanded, the mine is expected to produce a base of 200,000 ounces of gold per annum up from the expected 140,000 ounces in calendar 2011.
The plant expansion is expected to be completed early in the first quarter of calendar 2012. The estimated capital cost for the plant expansion is expected to total approximately $60 million, which is $4.0 million higher than budget mainly due to project scope changes, an increase in price for structural steel fabrication and higher foreign currency costs.
The plant expansion expenditures for the three-and-twelve months ended September 30, 2011 were $15.7 and $30.4 million respectively. The capital expenditures for the balance of calendar 2011 are expected to total $21.9 million, with the remaining $10.4 million to be spent in the first quarter of 2012.
Mine License Exploration
Exploration results in 2011 support management's belief of the potential to expand proven and probable reserves from 1.5 million ounces of gold to 3 million ounces of gold, at similar or better grade to the current reserve (1.5gpt) from the Sabodala Mining License ("ML") over the next 12 to 18 months The larger reserve base is expected to result from the success of deepening the Sabodala pit to the north along the Main Flat Extension, extension of the Masato deposit onto the ML, conversion of Niakafiri resources to reserves as well as adding reserves below the three areas. On the ML alone, this would increase the mine life to approximately 15 years at a run rate of about 200,000 ounces of gold produced annually and provide a solid production base to build on through the Regional Exploration Program.
In order to increase reserves on the ML a minimum of 5 drill rigs will be testing new targets as well as seeking to convert existing resources to reserves at an estimated cost of $10 million in 2011 and at least an additional $10 million in 2012. While management has confidence in its projections based on exploration work done to date, the potential quantity and grade disclosed herein is conceptual in nature, and there has been insufficient exploration in most areas to define a mineral resource, therefore it is uncertain if further exploration will result in the targets being delineated as a mineral resource.
Highlights of drilling during the September quarter on the ML include the intersection of significant widths of high grade mineralization outside the Sabodala ultimate pit limit as part of the Main Flat Extension drill program which is expected to lead to an expansion of the final pit design and increased reserves, as well as the successful intersection and extension of the Masato deposit down dip 200 metres onto the ML.
During the September quarter Reverse Circulation ("RC") and Diamond drilling ("DD") on the ML totalled 13,000 metres from 5 drills. There are 7 drills operating on the ML at the present time (6 DD and 1 RC) and pending rig availability this number may increase to expedite resource expansion and reserve definition drilling through the December quarter and into 2012.
For a detailed exploration update please see the Company's website at
.
For full drill results from our regional exploration program please see the Company's website at .
Regional Exploration
In addition to the exploration program on the Company's 33km2 ML, Management believes that the Regional Land Package has significant prospective potential for satellite high-grade deposits similar to Gora as we know it today, as well as the potential for world-class (+ 5 million ounces) discoveries similar to those found on the same gold belt in Mali, approximately 90km from the Sabodala mine. Therefore, Management is pursuing an extensive multi-year exploration program designed to test a number of targets that have already been identified as requiring additional analysis, as well as identify new targets for testing.
There are currently 27 targets that have been identified on the Company's 1,455km2 Regional Land Package, all within trucking distance of the mill. In total, nine of the 27 targets have been drilled, and the balance are expected to be drill tested through the end of 2011 and 2012.
By the end of the September quarter the Company completed approximately 140,000 metres of Rotary Air Blast (RAB) drilling, 56,000 metres of RC and 22,000 metres of DD drilling. There are currently 11 drill rigs on the Regional Land Package. The 11 drill rigs are expected to remain throughout the December quarter at a total estimated drilling cost of approximately $25 million for the year.
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 and evaluation of these structures requires RC and DD. During 2011 first pass RC and DD testing has commenced on nine of the 27 target areas identified on the Regional Land Package. Strategic road upgrades and repair of river and creek crossings was undertaken so that the exploration field work and drilling could continue during the wet season. During the December quarter the Company is also aiming to continue its resource and exploration drilling program on the Gora deposit.
For a detailed exploration update please see the Company's website at
.
For full drill results from our regional exploration program please see the Company's website at .
Review of Financial Results
Loss for the Period
For the three months ended September 30, 2011, the consolidated loss of the Company was $25.0 million or $0.10 per share, while for the twelve months ended September 30, 2011 the consolidated loss totalled $28.4 million or $0.14 per share largely due to the impact of the Company's gold hedge book. Accelerated deliveries under gold hedge agreements reduced revenue by $14.2 million and $43.2 million for the quarter and twelve month periods, respectively. Including the impact of realized and unrealized gold hedge losses earnings were reduced by $25.8 million and $56.9 million for the quarter and twelve month periods, respectively. The loss for the three and twelve month periods was also impacted by high exploration costs and stock based compensation expense.
Revenue
During the quarter ended September 30, 2011, 16,615 ounces were delivered into gold hedge contracts at $846 per ounce, representing 60 percent of gold sales for the quarter, and 10,959 ounces of gold were sold into the spot market at an average price of $1,673 per ounce resulting in an average realized price for the quarter of $1,174 per ounce. During the twelve months ended September 30, 2011, 64,615 ounces were delivered into gold hedge contracts at $846 per ounce, representing 54 percent of gold sales for the period, and 54,449 ounces of gold were sold into the spot market at an average price of $1,478 per ounce resulting in an average realized price for the twelve months of $1,135 per ounce.
Cost of Sales
Cost of sales for the three-and-twelve months ended September 30, 2011 totalled $31.8 million and $110.2(1) million respectively, consisting of mine production costs, realized gains on oil hedge contracts, depreciation and amortization, royalties, rehabilitation costs and inventory movement costs.
Mine production costs totalled $30.9 million for the three months ended September 30, 2011 while for the twelve months ended September 30, 2011 mine production costs totalled $96.7(1) million.
Depreciation and amortization for the three-and-twelve months ended September 30, 2011 totalled $9.8 million and $35.1 million respectively or $356 per ounce sold for the quarter and $258 per ounce sold for the twelve months ended September 30, 2011. The higher per ounce depreciation costs for the three month period reflect lower gold production during the September 2011 quarter.
The realized gain on oil hedge contracts totalled $0.4 million for the three months ended September 30, 2011 and $1.8 million for the twelve months ended September 30, 2011 as oil prices increased to $79 per barrel at the delivery date of September 30, 2011 which was $9 above our oil hedge contract price of $70 per barrel. The Company's oil hedge contracts are based on West Texas Intermediate spot oil price, however site fuel costs are based on Brent. During 2011 a historic gap in spot prices has developed between the two exchanges, resulting in our oil hedges being less effective because of the $17 difference in spot prices. 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-twelve months ended September 30, 2011 totalled $1.3 million and $5.2 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. Royalties are higher than budgeted due to higher spot gold prices.
Administrative Expenses
Administration expenses of $2.8 million for the three months ended September 30, 2011 comprise $1 million for corporate employee costs, $0.3 million for audit and legal fees and $1.5 million for other administration costs. For the twelve months ended September 30, 2011 corporate administration costs of $9.1 million represent mainly $2.9 million for corporate employee costs, $1.5 million for audit and legal fees, and $4.7 million for other administration costs. Corporate administration expenses are expected to average about $3.0 million per quarter.
Stock Based Compensation
The estimated fair value of stock options is amortized over the period in which the options vest which is normally three years, however under IFRS the accelerated method of amortization is applied to stock based compensation which results in about 75 percent of the cost of the stock options being expensed in the first year of grant. For those options which vest on single or multiple dates, either on issuance or on meeting milestones (the "measurement date"), the entire fair value of the vesting options is recognized immediately on the measurement date.
Net Foreign Exchange Gains
The Company generated foreign exchange gains of $2.9 million for the quarter ended September 30, 2011 and $3.9 million for the twelve months ended September 30, 2011 primarily related to realized gains from the Sabodala gold mine operating costs recorded in the local currency and translated into the US dollar functional currency.
Gold Hedging Unrealized Loss
The unrealized non-cash loss on gold hedge contracts of $11.5 million for the quarter ended September 30, 2011 resulted from an increase in the spot price of gold by $125 per ounce from the previous quarter end partially offset by 16,615 ounces delivered into gold hedge contracts during the quarter. As a result, the total mark-to-market loss of the remaining 181,885 ounces of gold under gold hedge contracts increased to $144.9 million as the average forward price of the remaining contracts of $830 per ounce is marked to the period end spot price of $1,625 per ounce. The unrealized non-cash loss of $13.6 million for the twelve months ended September 30, 2011 resulted from an increase in the spot price of gold from the previous period end by $266 per ounce which was partially offset by 64,615 ounces delivered under gold hedge contracts.
Oil Hedging Unrealized Loss
Unrealized oil hedge losses totalled $2.8 million for the three months ended September 30, 2011 resulted from a decrease in the West Texas Intermediate spot price of oil by $16.2 per barrel from the previous quarter end over the remaining 120,000 barrels of fuel oil outstanding. The unrealized oil hedge losses of $1.6 million for the twelve months ended September 30, 2011 resulted from a decrease of $2 per barrel over the previous period end spot price of oil. The overall non-cash mark-to-market gain of the remaining 120,000 barrels of fuel oil outstanding at a hedge price of $70 per barrel compared to a $79.2 per barrel spot price at quarter end totalled $1.3 million at the end of the September quarter.
Outlook
Gold production for the 2011 calendar year is on track to total 140,000 ounces of gold, including 45,000 ounces of gold in the December quarter, as mining moves into a higher grade area of the pit. Total cash costs for the calendar year are expected to be about 13 percent higher than budget at $850 to $875 per ounce mainly due to higher than budgeted fuel, labour, maintenance and royalty costs.
The December quarter is expected to result in significantly higher production and lower cash costs per ounce than the September quarter estimated at approximately 45,000 ounces of gold at a total cash cost of approximately $775 per ounce as mining moves into a higher grade area of the pit. Gold production for 2012 is expected to total 220,000 ounces of gold at a total cash cost of $625 to $675 per ounce benefiting from the completion of the mill expansion. The $50 per ounce increase in total cash cost per ounce guidance for 2012 year reflects high fuel, labour and royalty costs.
For 2011, capital expenditures are expected to total approximately $83 million, primarily for the mill expansion, mining equipment and capitalized ML exploration costs, with $34.4 million to be spent for the balance of calendar 2011. The regional exploration budget for calendar 2011 is expected to total approximately $25 million. In total, between capitalized mine site exploration and regional exploration expenditures, the Company expects to spend approximately $35 million in calendar 2011. For calendar 2011, corporate overheads, including setting up a Dakar, Senegal office are expected to total $12 million.
KEY STATISTICS
PRODUCTION AND COST SUMMARY
Note 1: Out of the total revenue, $135.1 million represents shipments of 119,064 ounces of gold in the period from November 23, 2010 to September 30, 2011, out of which 64,615 ounces were delivered into forward sales contracts at $846 per ounce and 54,449 ounces were sold into the spot market at an average price of $1,478 per ounce. The remaining revenue relates to silver sale.
Note 1: Change in working capital includes interest paid of $229,000 and $762,000 and taxes paid of $0 and $405,000 during the 3-and-12 month periods ended September 30, 2011, respectively.
Note 2: On November 23, 2010, Teranga acquired the Sabodala gold mine and a regional exploration land package together with 15% (September 30, 2011: 13.8%) of Oromin Exploration Ltd. ("Oromin") for consideration of the issuance of 200 million shares and C$50 million in satisfaction of a promissory note owing to Mineral Deposits Limited. Transaction has been recorded as a non-cash transaction, except of C$50 million repayment of the promissory note.
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.
Quality Control/Assurance Program
Please refer to Teranga's Prospectus for specific details on the Corporation's Quality Control/assurance program as well as data verification procedures.
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 . 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.
Competent Persons Statement
The scientific and technical information contained in this release relating to exploration activities within the mining license is based on information compiled by Mr. Bruce Van Brunt, who is a Fellow with The Australasian Institute of Mining and Metallurgy and is also a registered professional geologist in the State of Washington, USA. He is qualified as a Competent Person as defined in the 2004 Edition of the "Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves" and as defined in NI43- 101. Mr. Van Brunt has consented to the inclusion of this information in the form and context in which it appears in this release. Mr. Van Brunt is a full-time employee of Teranga and not independent of Teranga within the meaning of NI43-101.
The scientific and technical information contained in this release relating to the regional exploration is based on information compiled by Mr. Martin Pawlitschek, who is a member of the Australian Institute of Geoscientists. Mr. Pawlitschek is qualified as a Competent Person as defined in the 2004 Edition of the "Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves" and as a Qualified Person as defined in NI43-101. Mr. Pawlitschek has consented to the inclusion of this information in the form and context in which it appears in this release. Mr. Pawlitschek is a full-time employee of Teranga and not independent of Teranga within the meaning of NI43-101.
The latest grade estimates as presented have been classified as a combination of Measured, Indicated and Inferred Mineral Resources in accordance with CIM Definitions (2005) resource reporting classification guidelines and reconciled to the JORC Code (2004).
Mssrs. Van Brunt and Pawlitschek have reviewed and verified the data contained in this press release, including sampling, analytical and test data underlying the estimates provided. Verification of the data included numerous site visits, database validation of historical drill results and review of sampling and assaying protocols.
Contacts:
Teranga Gold Corporation
Kathy Sipos
Vice-President of Investor Relations
+1 416-594-0000
416-594-0088 (FAX)
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Datum: 10.11.2011 - 00:00 Uhr
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