Teranga Gold Offers Compelling Upside From A Buyout And/Or Continual Improvements On The Operational Front
Dec. 16, 2015 9:31 AM ET|24 comments | About: Teranga Gold Corp CDA (TGCDF), Includes: CLGRF, EDVMF, GOLD
Nicholas Bodnar Nicholas Bodnar? Following(1,569 followers)
Nano-cap, micro-cap, deep value, contrarian
Send Message|Nicholas Bodnar
Summary
Teranga is one of the lowest priced junior gold miners in the industry.
Despite the deep valuation, the balance sheet is strong and the company has one of the lowest AISC in the industry.
There are a number of reasons why Teranga makes for a compelling M&A target in today's depressed industry.
A very well respected and the richest man in Senegal just took at 9.99% private placement in Teranga.
With an EV/EBITDA of 1.01x, the deep undervaluation is not an understatement.
Investors can purchase shares of Teranga on the Venture Exchange via TGZ.TO or on the Grey Market boards under TGCDF.
When an industry is in an upswing or a downswing the fundamentals from overvalued to undervalued, can diverge greatly. Currently, junior gold miners are in a downswing. In most cases the divergence from intrinsic value is not great enough to take the added risk of buying common stock. However, there are rare cases where the downswing was so powerful that the margin of safety from intrinsic value is too great to ignore. That is the case with Teranga Gold Corp (OTC:TGCDF).
In TGCDF's case, the company is facing headwinds due to the industry downturn, which in turn has punished the stock price. However, in our opinion, the market overreacted to the industry headwinds and over punished the stock. Currently, TGCDF is trading for a very deep undervaluation, they have a strong balance sheet and are EPS and FCF positive. In fact, if TGCDF was bought out wholly, in ~18 months the investment would pay for itself on a TTM EBITDA basis.
Summary
TGCDF is a Canadian based gold mining company. However, all of their tangible assets are located in Senegal, West Africa in the Sabodala Gold Mine (actually the only gold mine in Senegal). Sabodala has been in operations since 2009 and currently with the proven reserves, the mine still has a strong 11 years left.
Management's strategy is to increase FCF on a long-term basis by; reserve growth, production growth, and margin expansion. All in all, management believes that they can, in time, continue to expand their operations beyond Senegal and further into West Africa. In fact, the vision of the company is to become a pre-eminent mid-tier gold producer, in the greater West African region.
Market Cap
140.00 M
Enterprise Value
98.11 M
Shares Outstanding
392.00 M
Cash
55.1 M
TTM Revenues
242.94 M
Debt
13.21 M
TTM EBITDA
97.26 M
Book Value Per Share
1.48
TTM EV/EBITDA
1.01
TTM EV/Revenue
0.40
Why Does this Opportunity Exist?
When I see a company selling for 1.01x EV/EBITDA, I think to myself that there has to be a reason for the steep undervaluation. In our opinion, one of the main reasons for the steep undervaluation is due to an industry downturn. Check out the negative returns from the junior gold miner index showcased below.
