With Teranga Gold hitting an all time low of 67.5c on the ASX...

With Teranga Gold hitting an all time low of 67.5c on the ASX yesterday, and an all time Canadian low of 69c in Toronto on Wednesday, there may be a few people looking at the stock and wondering if it’s worth buying. It is trading at less than a quarter of its IPO price from late 2010, and less than a third of the price it was trading at the end of January 2013.

TGZ is a stock that requires a potential buyer to do thorough research. In order to assist with that, I have listed below a series of research resources, along the lines of….. the document the company appended to its announcement of x/x/x, or page 13 of this announcement, or page xx of the 2012 annual report, etc, etc.

I have tried to ensure these references are straight facts without opinion. I am hopeful that other TGZ followers (eg cdchi, thirol, burner, speculator, and others) may be able to add further helpful references – I would appreciate the chance to learn more from others. Perhaps if they number their new references 12,13,14 etc, this thread could then contain easy to follow cross-references (eg in a later post someone could say "regarding item no.12…".).


1. The obvious place to start is the quarterly report that was released by TGZ on 15th May, as well as the accompanying management discussion and analysis. Its 26 pages all up. Take care when considering the comparisons the report makes with the corresponding quarter in the prior year (March quarter 2012). At that time TGZ had not opened its mill expansion. That is, production comparisons are not like for like.

2. The 15 May report does not include C3 cash costs. Refer to the below linked presentation if you would like to know more about the different ways mining cos report costs (TGZ is mentioned on slide 7). I found this presentation by googling “C3 cash costs”. http://miningassociates.com/uploads/pdfs/MinesAndMoneyHK_2013_Keynote_Vigar.pdf

3. A phone call to the company reveals that C3 costs for TGZ in recent times have been between $900 and $1000 per ounce. The company told me they are planning to publish C3 costs once the Gold Institute finalises its new standard (expected next month). They implied that mining cos who are currently publishing a form of C3 costs may be somewhat inconsistent due to differing interpretations of what the new standard will be. This information can be verified by phoning Teranga. The number is on the following link, but you need to phone between 11pm and 6am Sydney time (set an alarm clock!). http://www.terangagold.com/English/Investors/Contact-Us/default.aspx

4. It goes without saying that the annual report (a 93 page document released on 2nd April 2013) is a must read. Pages 62 to 74 provide a comprehensive review of the potential risks faced by TGZ.

5. Due diligence of TGZ would not be complete without an examination of MDL. Mineral Deposits Ltd are the company who developed the Sabodala mine, negotiated the original taxation agreements with the Senegal government, and floated TGZ in late 2010 via an in specie distribution to MDL shareholders and an IPO to raise additional equity capital. The process of demerger and IPO is explained on page 32 of the “Preliminary Final Report” released by TGZ on 21/2/13. MDL ended up with 200m shares in TGZ. You would need to do research into MDL to form an opinion as to whether these shares are a “stock overhang” depressing the TGZ share price.

6. The company had a gold hedge book which was a condition of its financing with Macquarie Bank around the time of the IPO. Unfortunately it was at just over $800 per ounce and generated losses. The company chose to eliminate the remainder of the hedge on Monday 15th April (the day the gold price hit its recent low) – read the TGZ release of 17 April 2013, and page 6 of the Management Discussion released on 15 May.

7. The company holds conference calls every few months that shareholders and potential shareholders can dial in to, with the accompanying slides available on the TGZ website. The last was on 29 April. You can see the slides at the attached link http://www.terangagold.com/English/Investors/Presentations-and-Webcasts/default.aspx and if you want to listen to the whole thing, go right to the bottom of the link and click on ”View The Live Webcast”. You have to login, but anyone can do so. The conference call contains a “roadmap to free cash flow in 2013 at a gold price of USD1400”.

8. The company’s debt is quite expensive – refer Note 14 of the Interim Consolidated Financial Statements released on 15 May, and page 10 of the accompanying Management Discussion. TGZ expects to generate sufficient free cash flow in the remainder of 2013 to extinguish a portion of that debt (as mentioned on the April 29 conference call).

9. The Company has a single mine, in Senegal, and until recently they were protected from tax and royalty changes by a fiscal agreement negotiated by MDL before they built the mine and mill. It was supposed to provide fiscal certainty. Senegal subsequently had a change of govt – refer following link http://en.wikipedia.org/wiki/Senegalese_parliamentary_election,_2012
The unfortunate thing about this MDL agreement with Senegal was that MDL/TGZ handed over a lot up front in return for sureties about taxation and royalties into the future. Senegal took those benefits, then reneged on their side of the contract (following the change of govt). Sovereign risk! TGZ has now negotiated a new agreement. It involves handing over even more to Senegal, but at least this time they appear to have tied their handovers to milestones and deliverables – ie, when you deliver on this, we’ll give you that. A 2 page summary of this new agreement was released by TGZ on 2nd April. There was a lot more information on the most recent company conference call – refer slides 6 to 9 of the April 29 presentation in the link at item 7 above.

10. The company has stated it does not expect to need to raise equity, and explained why – refer page 10 of the 15 May Management Discussion document.

11. The only big line of stock to change hands in recent times was approx 5m shares in mid April. Shortly after this, a new substantial shareholder was revealed - Ellerston Capital. You can find out more about them at the following link. They are associated with James Packer. https://www.ellerstoncapital.com/Pages/Home.aspx

The TGZ forum on HC is one of the better ones – the posts are generally intelligent and well-informed. This contrasts with one or two other forums on HC which are frequented by unpleasant people whose main aim seems to be to land cheap shots on those whose views they don’t agree with. These people are a small minority. The best way to avoid them is to simply not look at those forums at all.
Good luck.