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Edited Transcript of TGZ.TO earnings conference call or presentation 30-Jan-17 1:30pm GMT
Thomson Reuters StreetEvents•January 30, 2017Comment
Q4 2016 Teranga Gold Corp Earnings Call
TORONTO Jan 30, 2017 (Thomson StreetEvents) -- Edited Transcript of Teranga Gold Corp earnings conference call or presentation Monday, January 30, 2017 at 1:30:00pm GMT
TEXT version of Transcript
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Corporate Participants
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* Trish Moran
Teranga Gold Corporation - Head of IR
* Paul Chawrun
Teranga Gold Corporation - COO
* Richard Young
Teranga Gold Corporation - President and CEO
* Navin Dyal
Teranga Gold Corporation - CFO
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Conference Call Participants
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* Andrew Breichmanas
BMO Capital Markets - Analyst
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Presentation
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Operator [1]
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Good morning and welcome to Teranga Gold's conference call for the fourth quarter and year ended December 31, 2016. As a reminder, this conference call is being recorded.
Your host for today is Trish Moran, Head of Investor Relations. Ms. Moran, please go ahead.
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Trish Moran, Teranga Gold Corporation - Head of IR [2]
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Thank you and good, morning, everyone. Before we get started I would like to highlight that under ASX rules, we are obligated to provide a summary of all mining and exploration activities, including expenditures, to the market within one month of each quarter-end. Therefore, all references to annual financial results should be considered anticipated annual results, given they are based on unaudited financial information. We expect to issue our full-year audited financial statements and MD&A during the week of February 20.
I'd also like to remind everyone to please view page 2 of our operating highlights presentation, which is posted on our website, to view our cautionary language regarding forward-looking statements and the risk factors pertaining to these statements.
Slide 3 outlines the agenda for today's discussion. Paul Chawrun, our Chief Operating Officer, will review the highlights of Sabodala's 2016 performance and discuss how we reduced our operational risk at Sabodala. Richard Young, Teranga's President and CEO, will then discuss our newest assets and outline our guidance and roadmap for 2017. Following management's presentation, we will open up the call to questions.
And now over to you, Paul.
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Paul Chawrun, Teranga Gold Corporation - COO [3]
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Thank you, Trish. Let's turn to slide 5. 2016 was a very rewarding year for Teranga. In Senegal, our Sabodala operation performed well, achieving record production, coming in at just above the higher end of our guidance range; record plant throughput; and lower unit costs.
As importantly, we made strides to reduce Sabodala's operating risk as outlined on slide 6. To achieve this, first we installed a second primary pressure and screening station for the plant. This mill optimization project, completed under budget and ahead of schedule, not only increases throughput and lowers costs, but also creates operating flexibility and reduces throughput risk. After being in commission for only a few months, we are already seeing the added benefits of increased throughput and reliability of feed for the grinding circuit.
The second initiative, to mitigate operating risk, relates to the new grade control procedures. These controls are proving to be highly effective in reducing dilution, increasing ore recovery, particularly as we have transitioned out of the Sabodala deposit and moved into higher-grade load vein structurally controlled ore bodies. Last year we recovered more than 30,000 ounces than was estimated in the reserves models.
And, finally, we built up an inventory of high-grade ore to assist with natural fluctuations in the quarterly production and to mitigate the impact of any operating issues on our annual production targets.
Another standout in 2016 that requires mention is our ongoing health and safety performance. As you can see on slide 7, we are now well past three years. That's 1,241 days and more than 12 million man-hours worked without a lost time incident. This ongoing achievement is a credit to the operating team at site and demonstrates Teranga's commitment to health and safety as a core value. On behalf of the Board and management team, I want to congratulate our employees for a tremendous and safe year.
So, turning now to slide 8, during the first quarter of 2016 we updated the 43-101 technical report for Sabodala. Since then we've made some changes to the pit sequencing to better optimize the operation. But overall total material mined and ore processed remain largely in sync with the technical report.
That said, I would like to point out that the total mine production costs in 2017 are expected to be slightly higher due to higher fuel prices and some additional unanticipated taxes. Instead of $148 million in the technical report, our outlook for total mine site production cost is in the range of $155 million to $165 million. On sustaining capital, we expect to spend between $15 million and $21 million compared to $9 million in the technical report. But all of the additional expenditures were in the 43-101 but scheduled for later in mine life, other than reserve development expenses of $3 million to $4 million which is not included in the 43-101 because those do not relate to the existing reserves.
The expenditures brought forward in the mine life include $3 million for the purchase of three new production drill rigs, which will be on site in May, and help reduce maintenance costs associated with the current fleet; $1.5 million to optimize the TSF embankment, and this potentially defers the contraction of TSF2; and a further $0.5 million for relocation discussions with the village of Niakafiri as we drill there.
The sequencing changes in the mine plan that I mentioned a moment ago will have a minor impact on costs. However, it should also result in about a 10% to 20% increase in ounces mined, which furthered de-risks our operation.
Moving now to slide 9, while we have historically replaced reserves at Sabodala, we have not had a major discovery with a regional exploration program other than the high-grade Gora discovery. However, based on the extensive work completed on our large land package, we remain optimistic. So during 2016, we implemented a number of changes to improve our probability of success.
We hired a new VP Exploration who has a solid track record of discoveries to lead the charge and refine our approach. We adopted some new exploration techniques. And we further strengthened our exploration team with the addition of several more seasoned professionals as a result of the Gryphon acquisition.
It's noteworthy to mention that in December, we began a drill program at Niakafiri. For those of you who have been following the Company, you know this is an area we've been looking to access for some time. We've already approximately 0.25 million ounces in 2P reserves for Niakafiri included in our technical report and believe there is more yet to be discovered in this area. Depending on the quantum, this may also provide the catalyst to reinitiate the potential for a heap leach facility.
In summary, it was a great year at Sabodala. The ingredients are there for another strong performance in 2017.
Over to you, Richard.
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Richard Young, Teranga Gold Corporation - President and CEO [4]
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Thank you, Paul. Turning to slide 11. We believe that when we look back, 2016 will mark a watershed in the history of Teranga. We increased our opportunities for growth. We enhanced our optionality, and we diversified our asset base with the acquisition of Gryphon Minerals and a large prospective land package in Cote d'Ivoire.
Turning to slide 12. With the Gryphon acquisition, we acquired three prospective assets in Burkina Faso. The first is the fully permitted Banfora gold project. The 43-101 technical report for Banfora remains on track for completion by the end of the second quarter, the time frame provided at the time of acquisition last June. Assuming attractive project economics, we anticipate seeking Board approval of construction and financing by midyear. Our goal is to be in production in 2019.
As part of the technical report, a resource-focused drill program commenced last summer at three of the four deposits included in Gryphon's initial feasibility study for the project in January of 2013. The results we released in late October were in line with what we were looking for when we designed that program. Since October, drilling at Banfora has continued on the fourth deposit, Stinger, as well as 11 other targets which have undergone exploration work. These results are expected to be included in our technical report.
I'd like to highlight that without a current technical report for Banfora, we are not permitted to provide either a resource or reserve estimate. However, we expect to provide such estimate by the end of the second quarter with the release of our technical report.
While we are still working through the feasibility study, our current plan anticipates replicating the Sabodala plant. First, this lowers our development risk because we know that it works. Second, it reduces capital and operating costs. A second producing Gold-Mine would be a game changer for us, and we will ensure all necessary resources are in place to facilitate that objective.
In addition to Banfora, the Gryphon acquisition brought us two prospective exploration properties in Burkina Faso: Golden Hill and Gourma. On slide 13, you can see where they are each located relative to Banfora. The first is Golden Hill, which has a great address on the eastern side of the prolific Hounde Belt and is situated along strike of Roxgold's recently commissioned high-grade Yaramoko mine, along trend of the Siou deposit of SEMAFO's Mana mine, and close to the recently commenced construction of Endeavor's Hounde project.
We are very excited about Golden Hill. Previous exploration work has defined a number of robust, high-quality prospects. We have prioritized 10 for more advanced work, and that work is underway. Gourma is also an attractive property, [albeit] at an earlier stage.
Moving to slide 14, beyond Burkina Faso, the other West African country we wanted most to gain access to was Cote d'Ivoire. That opportunity arose last year through David Mimran, our cornerstone investor. While we call it a joint venture, the large prospective land package we acquired is wholly owned by Teranga. In exchange, David Mimran's company, Miminvest, receives a royalty. While our land package is earlier stage than what we have been Burkina Faso, we've already identified a very promising gold anomaly. As a result, we have consolidated our land position around this property and we expect to begin a drill program this year.
With this in mind, let's take a look at our outlook for 2017 which is outlined on slide 15. In terms of production guidance, our range is 205,000 to 225,000 ounces. Mining activities will continue to focus on higher-grade and higher strip ratio deposits including Gora, Kerekounda, Golouma South, and Golouma West. The production profile through the first three quarters should average about 50,000 ounces per quarter, with an expected stronger fourth quarter largely due to nearing the bottom of Gora Phase III. We are guiding to grades from the mill in the range of 1.7 to 1.9 grams per ton, as most of the ore milled is expected to be drawn from our low-grade stockpiles, with the balance from the high-grade material mined during the year.
Moving on to cost, please note that the cost guidance for Banfora includes only the capital cost required to complete the feasibility study, maintain our social license, upgrade the camp, and essentially keep the lights on until we have the approval to move forward. Assuming we received the go-ahead to commence construction, we'll issue an update on 2017 project capital expenditures with the issuance of the technical report.
I'd like to highlight two important points related to cost. First, while our focus on reducing costs will continue in 2017, any savings are likely to be offset, at least in part, by higher anticipated fuel prices. Therefore, we are guiding to marginally higher unit costs and an increase in gross cost as we mine and process more material relative to 2016.
Second, as I mentioned earlier, the majority of the mill feed, likely in excess of 2.5 million tons, of which 2 million tons will come from low-grade stockpiles -- this will result in a large non-cash charge related to the amortization of historic mining costs. This non-cash charge has the effect of increasing two cash metrics: total cash cost, and all-in sustaining cost per ounce. Therefore, the four non-cash inventory movement and amortization of advanced royalties are all-in sustaining costs on a cash basis are expected to be between $9 and $9.75 per ounce. The comparable number for 2016 is anticipated to be less than $275 per ounce. With the inclusion of these non-cash items, we're looking at a range of $1,000 to $1,075.
On slide 16, we outline our 2017 exploration budget of $12 million to $15 million, which is similar to last year. The majority of our exploration dollars in 2017 will be directed to Burkina Faso, with $3 million to $4 million for the Banfora exploration program, more than $3 million allocated to drilling the prospective Golden Hill target, as well as $0.5 million to explore Gourma.
Additionally, we have earmarked $3 million to $4 million to exploration on the Sabodala mine license, focused primarily on converting resources to reserves at Niakafiri and continuing delineation of the recently discovered Goumbati West resource; a further $2 million on our regional land package in Senegal; and $500,000 for Cote d'Ivoire. However, we may increase or decrease our exploration budget for one or more of these programs based on the results. Based on where we stand today, I cannot help but appreciate how different Teranga's prospects look since last year, at this time.
As shown on slide 17, we have strengthened our balance sheet, with $95 million in cash at the end of the year. This is up from $44 million at the end of 2015.
Turning to slide 18, we have demonstrated that we understand the importance of having a strong social license. Similar to our health and safety, our commitments to CSR and mining responsibly are inherent core values to our business. And it is for this reason that we are extremely gratified, with last year, the work that has earned recognition of several highly respected international organizations, including the UN Global Compact, Corporate Knights, and Capital Finance International. More recently, Teranga received the 2017 environmental and social responsibility award from the Prospectors and Developers Association of Canada.
These awards validate our efforts in community relations and provide us with the confidence that we are on the right path. And we'll be taking our programs and lessons learned in Senegal to Burkina Faso, and, ultimately, we hope, to Cote d'Ivoire.
As you can see from the map on slide 19, Africa was the second-largest gold-producing region in the world in 2015. And what may come as a surprise to you is that West Africa accounted for 1/2 of Africa's total production. We have increased our growth prospects and optionality in one of the fastest-growing regions for gold in the world. Needless to say, we think we are in the right place at the right time.
In summary, we believe we tick each of the boxes shareholders look at when considering a gold investment. We have a lot to look forward to in 2017, which has the potential for one or more potential game-changing catalysts.
Operator, you may now open up the line for questions. And we are also joined by Navin Dyal, our Chief Financial Officer. Thank you.
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Questions and Answers
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Operator [1]
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Andrew Breichmanas, BMO Capital Markets.
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Andrew Breichmanas, BMO Capital Markets - Analyst [2]
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A few questions here. First, following the plant expansion, I think there may have been an expectation that processing costs would decrease somewhat on a per-ton basis. But the guidance actually suggests higher costs than last year. I think I heard that the fuel price assumption may have impacted that. Is that correct? And is that the only factor affecting that?
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Navin Dyal, Teranga Gold Corporation - CFO [3]
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It's Navin. Yes, primarily it's related to fuel in terms of the price that we are using for 2017. There's a little bit on consumption, as well, in terms of power usage.
And maybe Paul perhaps can talk about that.
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Paul Chawrun, Teranga Gold Corporation - COO [4]
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Yes. Last year, we had a fairly high percentage of oxides. So a little bit is on reagent consumption of steel, but primarily it's HFO.
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Andrew Breichmanas, BMO Capital Markets - Analyst [5]
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Okay, thanks. The second question, the CapEx guidance excludes capitalized stripping. I just wanted to make sure; but I assume those costs are included in your all-in sustaining cost guidance, and it's just an accounting decision as to how much is capitalized versus expensed. Is that correct?
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Navin Dyal, Teranga Gold Corporation - CFO [6]
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That's correct, Andrew. We even put out deferred stripping costs. It's included in our total production costs that we have given guidance for: the $155 million to $165 million. And as you know, deferred stripping is really just an accounting adjustment that moves cost -- removes cost from operating cost and capitalized it. So we've not shown guidance for that.
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Andrew Breichmanas, BMO Capital Markets - Analyst [7]
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Sure, that makes sense. And the last question. Obviously a fairly large royalty payment to settle the amounts owing from previous periods in Q4. Going forward, can you just remind us how to think about those payments?
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Navin Dyal, Teranga Gold Corporation - CFO [8]
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Sure, Andrew. Yes. Moving forward, we are going to be moving to a quarterly in arrears payment. So what you saw in 2016 was basically payment for 2015 royalties, and three quarters of 2016. And that was so that we can move to a quarterly in arrears payment. And that's what you'll see going forward.
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Andrew Breichmanas, BMO Capital Markets - Analyst [9]
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Okay, great. Thanks.
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Operator [10]
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(Operator Instructions). We have no further questions in queue at this time.
I'll now hand the call back to Mr. Richard Young, President and CEO, for any closing remarks.
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Richard Young, Teranga Gold Corporation - President and CEO [11]
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Thank you, Carol. I just want to remind people, in terms of the guidance we've given on our all-in sustaining costs, it does include $100 of non-cash costs. And really what that represents is the drawdown of roughly about 2 million of the 13 million tons that we've got in stockpile. That's material that was mined historically over the mine life. Those costs have already been incurred and paid for. And now as we draw those out just out of stockpile, we've got to amortize those costs under accounting under GAAP to the income statement, so they are non-cash in nature. We do expect to have a strong year from a cash flow perspective. And that's going to help fund the growth capital that we've got allocated to Banfora.
So when I reflect back over the last five years, I think that we've demonstrated that we can build mines. We can operate mines with multiple deposits, and narrow vein ore bodies. We can make and integrate acquisitions, and we can pursue organic growth initiatives and grow our business profitably. We believe that we've accumulated the skills along the way, and we are in a strong position; and we are moving towards a diversified, mid-tier gold producer in West Africa.
So I ask that you stay tuned, because I think we're going to have a pretty exciting year this year. So thank you very much for joining us on the call today. Thanks.
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