"Teranga Gold Corp (TSE:TGZ) had its target price increased by Mackie from C$1.50 to C$1.80"
June 16th, 2014
www.mideasttime.com/...-cnr-dvn-fang-gbx-nfx-se-ses-sn/159159/
Mackie Research:
– BUY
TGZ - TSX $0.66
PROJ. RETURN: 176%
VALUATION: 1.0 x NAVPS
Share Data
Basic Shares O/S (mm) 352.8
Fully Diluted 369.8
Market Cap ($mm) $232.8
NAVPS $1.78
Dividend $0.00
Yield 0.0%
Next Reporting Date September-2014
TARGET: $1.80 (FROM $1.50)
"Understated And Overlooked"
DETAILS – Mine Plan Is Understated
Current mine plan excludes heap-leach material
After TGZ consolidated the gold assets of the Oromin Joint Venture Group (OJVG), we had the opinion TGZ’s revised integration plan did not fully consider exploitation of all ounces reportedly defined by OJVG (and included
in their feasibility study).
In rough terms, of ~3.2 Moz of reserves defined by OJVG, ~1.2–1.5 Moz have been captured in TGZ revised mine plan—suggesting ~1.7–2.0 Moz remain to be assessed and/or incorporated in an economic plan of development. Of these ounces that remain, a good portion (~0.9 Moz) seem to lie in underground reserves which TGZ had previously stated were, in their opinion, not valid.
However, the balance of the remaining material is either open-pit mill ore, or ore that can be processed using heap-leach technology.
TGZ have stated they are working toward having a better handle on heap-leach reserves by year-end.
IMPACT – Additional Underlying Value To Develop
35Koz of additional annual production at a moderate high cost from heap-leach still adds value.
Based on OJVG feasibility work, the heap-leach component identified was
~35Koz of incremental annual production, which would lift total annual production from ~250 Koz to 285 Koz starting potentially in early 2016.
The operating cost to process this material is $700–$800/oz, and incremental capital is ~$120mm. However, given the sizeable amount of low-grade stockpiles already built by TGZ ($75 mm worth at yearend), there is the prospect TGZ’s heap-leach operation could also draw down a portion of
this long-term inventory and convert it into cash sooner than originally planned (is currently to be processed at end of mine life).
We believe there is ~$0.30 to $0.50/sh of incremental NPV in developing a heap-leach operation. Including a heap-leach component in our valuation of TGZ increases the NAV/sh to $1.78 from $1.48.
Exploration has value too
The exploration potential of the region is excellent. Typical of deposits in this geological terrain of West Africa, mineralization occurs along a structural NE-SW corridor within favourable geological units.
In 2014, TGZ will dedicate $5mm toward exploring this potential.
ACTION – Buy. True Value Not Evident
Hidden value
We believe TGZ has been overly conservative in their assessment of newly acquired asset from OJVG. As an initial start, we should see further detail by year-end.
Corporate Profile
Teranga Gold Corp. is a gold mining company with a focus in West Africa. The company’s flagship asset is the Sabodala mine in Senegal.
Upcoming Events
OJVG Heap-Leach Assessment
FYE Dec 31 Q1/13A Q2/13A Q3/13A Q4/13A 2013A Q1/14A Q2/14E Q3/14E Q4/14E 2014E 2015E
Production Koz 68.3 49.7 36.9 52.4 207.3 52.1 56.0 59.6 62.0 229.7 231.4
Cash Costs US$/oz 535 705 748 632 655 635 614 542 501 573 588
Earnings & Cash Flow Q1/13A Q2/13A Q3/13A Q4/13A 2013A Q1/14A Q2/14E Q3/14E Q4/14E 2014E 2015E
EPS $/share 0.06 0.05 0.09 (0.01) 0.19 0.01 0.01 0.02 0.03 0.08 0.02
P/EPS multiple n/a n/a n/a n/a 3.5x n/a n/a n/a n/a 8.6x 33.0x
CFPS $/share 0.11 0.11 0.15 0.08 0.45 0.05 0.06 0.07 0.09 0.26 0.25
P/CFPS multiple n/a n/a n/a n/a 1.5x n/a n/a n/a n/a 2.5x 2.6x
This report has been created by analysts who are employed by Mackie Research Capital Corporation, a Canadian Investment Dealer. For further disclosures, please see last page of this report.
www.mackieresearch.com The MORNING CALL – TERANGA GOLD CORP. Page 2
RISKS TO TARGET
We see exploration risk as the highest risk to Teranga at this time, as it is heavily dependent on exploration success to discover new gold resources in what we would classify as a wide range of exploration-stage targets on both its mining and exploration concessions.
Furthermore, there are many inherent risks associated with extraction and processing of mineralized material that would have significant impact on the ability of Teranga to produce gold in a cost-effective manner, such as but not exhaustive of the following: execution, commodity prices, capital costs overruns and financing risks.
RELEVANT DISCLOSURES APPLICABLE TO: TERANGA GOLD CORP.
1. Within the last 3 years, Mackie Research Capital Corporation has managed or co-managed an offering of securities by the subject issuer.
2. Within the last 3 years, Mackie Research Capital Corporation has received compensation for investment banking and related services from the subject issuer.
3. In November 2010 an analyst from MRCC visited the Sabodala mine site. In May 2009 Barry Allan also visited the property.
All travel and accommodation for both visits were at the expense of Mackie Research Capital Corporation.
ANALYST CERTIFICATION
Each analyst of Mackie Research Capital Corporation whose name appears in this report hereby certifies that (i) the recommendations and opinions expressed in this research report accurately reflect the analyst’s personal views and (ii) no part of the research analyst’s compensation was or will be directly or indirectly related to the specific conclusions or recommendations expressed in this research report.
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