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Edited Transcript of TGZ.TO earnings conference call or presentation 21-Feb-20 1:30pm GMT

Q4 2019 Teranga Gold Corp Earnings Call

TORONTO Mar 4, 2020 (Thomson StreetEvents) -- Edited Transcript of Teranga Gold Corp earnings conference call or presentation Friday, February 21, 2020 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David W. Mallo

Teranga Gold Corporation - VP of Exploration

* Navindra Dyal

Teranga Gold Corporation - Senior VP & CFO

* Richard S. Young

Teranga Gold Corporation - President, CEO & Director

* Trish Moran

Teranga Gold Corporation - VP of IR & Corporate Communications

* William Paul Chawrun

Teranga Gold Corporation - COO

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Conference Call Participants

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* Carey MacRury

Canaccord Genuity Corp., Research Division - Analyst of Metals and Mining

* Craig Philip Stanley

Eight Capital, Research Division - Principal for Metals and Mining Research

* Howard Flinker;Flinker & Co.;Analyst

* Wayne Lam

RBC Capital Markets, Research Division - 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, 2019. As a reminder, this call is being recorded.

Your host for today is Trish Moran, Vice President, Investor Relations and Corporate Communications. Ms. Moran, please go ahead.

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Trish Moran, Teranga Gold Corporation - VP of IR & Corporate Communications [2]

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Thank you, and good morning, everyone. Before we get started, I ask that you view Slide 2 of our presentation for our cautionary language regarding forward-looking statements and the risk factors pertaining to these statements.

Our slide deck is available on our website, terangagold.com.

With us on today's conference call is Richard Young, Teranga's President and CEO; Paul Chawrun, our Chief Operating Officer; and Navin Dyal, our CFO.

Following management's formal remarks, we will open the call to your questions.

And now over to Richard.

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Richard S. Young, Teranga Gold Corporation - President, CEO & Director [3]

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Well, thank you, Trish. Welcome to our year-end conference call, and we'll be discussing the Massawa transaction as well as our outlook for 2000 -- for 2020.

Turning to Slide 4. 2019 was a year of significant achievements for Teranga. Our second mine,

Wahgnion is now in commercial production, and we're in the final stages of completing the transformational acquisition of Massawa from Barrick Gold, a high-grade top-tier asset that neighbors our Sabodala mine in Senegal. The completion of Wahgnion and the acquisition of Massawa put us on track to achieve our vision of becoming a low-cost, mid-tier gold producer by the end of this year.

Beyond Wahgnion and Massawa, we have assembled a very solid asset pipeline, including Golden Hill, our most advanced exploration project, which is moving into the feasibility stage of development with a number of earlier-stage but very prospective properties in Cote d'Ivoire. We are a much stronger company today than we were just 12 months ago. And we offer shareholders an improved value proposition.

The market has begun to take notice. Our share price rose 74% in 2019, which is our best since our IPO in 2010, and we've outperformed the GDXJ. There's more in-store for 2020.

But now over to Paul for a review of our operating and development results.

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William Paul Chawrun, Teranga Gold Corporation - COO [4]

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Thank you, Richard. So turning to Slide 6. With 2 mines now in operation, Teranga delivered record fourth quarter and full year gold production of just over 91,000 ounces and just under 289,000 ounces, respectively. 2019 was the fourth consecutive year in which Teranga reached a new high for annual production and exceeded the top end of production guidance for the year. On a consolidated basis, both operations performed well.

Starting with Sabodala on Slide 7. It was another year of solid performance at Sabodala, producing just over 54,500 ounces in the quarter and over 241,000 ounces for the year, surpassing the high end of guidance. Overall, Sabodala performed in line or better than our targets for the year. Waste movement was reduced to concentrate on the higher grade lower strip ratio pits to mitigate the impact of lower drill fleet performance experienced in the second quarter. This resulted in lower total mining for both the quarter and the year, and an increase in ounces mined. Reconciliation to reserves remained positive for the quarter due to ongoing focus on dilution control or recovery methods and conservative resource modeling.

At the processing plant, ore milled was slightly lower for the quarter, but higher year-over-year with close to 4.2 million tonnes milled.

Turning to Slide 8. We are well positioned for the integration of Massawa later this year. The team is excited and preliminary integration work is in motion. The pre-feasibility study for the combined mine plan is well underway. Confirmatory metallurgical test work to optimize the blending of Massawa ore at the plant has begun, and an initial detailed drilling program is scheduled to begin in March. The operating team is focused on executing the integration. The near-term target is to initiate mining at Sofia in the third quarter and be able to process oxide ore from the north and central zones of the main Massawa pits by mid-2021.

Turning to Slide 9 for a look at costs. Unit mining costs were higher for the quarter and year compared to 2018, but within the higher end of guidance. Lower total mining costs were largely offset by lower material movement. If you recall, Sabodala changed to an owner-operated maintenance model midyear, and we are now seeing the benefits. The new production drill rigs recently arrived on-site, which removes the need for drill rentals by the second quarter.

The lower material movement was due to the performance of the older production drill fleet in 2019, particularly during the first half of the year before we brought in the rental units.

Total processing costs significantly decreased, largely due to lower fuel prices, resulting in unit costs below the lower end of guidance. While all-in sustaining costs were higher for the quarter -- for the year, our all-in sustaining cost came in below the low end of our guidance range at $807 per ounce.

Turning to Slide 10 for a look at our new mine, Wahgnion. We are very pleased with the successful development of this operation. Construction was completed ahead of schedule and below budget. We have yet to incur a lost time incident, achieving over 500 days of construction and then into production. The mill was commissioned to nameplate capacity earlier than anticipated. The ramp-up to commercial production saw no significant issues, and the mine exceeded the majority of its guidance metrics.

Wahgnion produced close to 37,000 ounces for the quarter and close to 47,500 for the year, significantly surpassing the high end of guidance of 30,000 to 40,000 ounces. Two contractor fleets were demobilized by the end of 2019 as equipment arrived on-site with 1 contractor fleet remaining until the first part of the year, at which point, we plan to transition to a fully owner-operated fleet and expected lower unit mining costs as a result. As mining activities progress below artisanal workings in the upper oxide zones, we are seeing improvements with the overall reserves reconciliation. Overall, reconciliation to reserves from the now-completed Nangolo pit was slightly positive. While still early in Nogbele, at present, we show slightly negative to reserves, but we expect to improve as we mine further at depth and continued advancement. On November 1, commercial production was declared, and the plant has performed consistently above the design nameplate capacity. Throughput for the quarter was above plan at 700,000 tonnes and close to 1 million tonnes for the year, significantly exceeding the high end of guidance. Recovery rates were excellent at close to 95% for the year. With the current blend of oxide and fresh ore, the plant has been performing at approximately 15% above nameplate capacity since commercial production was achieved.

Turning to Slide 11 to discuss the operating costs at Wahgnion. On a unit cost basis, mining costs were largely in line with the 43-101 technical report. However, mining cost will be marginally higher life of mine due to the use of articulated dump trucks in wet oxide accounted in the upper zones. At the mill, unit costs were lower than the technical report, benefiting primarily from the higher throughput rates.

Moving now to an exploration update on Slide 12. In 2019, we invested $11 million towards exploration, largely focused on Golden Hill, where we made considerable progress. In Q1 2019, we announced an early stage initial resource estimate that provides a good base to build on. During the second half of 2019, we commenced a 27,000-meter drill campaign further expand resources, which is nearly complete. One of the main highlights of this campaign was the expansion of the Ma complex, which has an extensive set of interconnected structures, all of which host mineralization. The 2020 plan for Golden Hill is to complete an updated resource estimate, continue the technical studies in support of a preliminary economic study and apply for a mining license later this year. Drilling will continue throughout the course of the year with the objective to continue to expand resources.

Turning to Slide 13. With Wahgnion complete, we are expanding our exploration program in 2020 across all properties. The exploration budget is $20 million to $25 million. Including Massawa, the budget is planned to rise by a further $10 million. In Burkina Faso, at Golden Hill, we expect to continue with the drill program throughout the year to add to the resource base, and at Wahgnion, we will reinitiate exploration activities with the goal of resource growth. In Cote d'Ivoire, drilling is planned for March at a number of targets on the Afema property. In addition, we have trenching and drilling programs planned for all 3 of our Miminvest properties during the year. In Senegal, once the deal closes, the Massawa property will be the principal focus where considerable exploration upside remains. We expect to start drilling in March.

The team is very excited to initiate these expansive programs and unlock the considerable potential at our projects.

I will now ask Navin to discuss Teranga's financial performance.

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Navindra Dyal, Teranga Gold Corporation - Senior VP & CFO [5]

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Thanks, Paul. Before I begin, please note that the results being discussed this morning are unaudited. We expect to file our audited financial statements and management's discussion and analysis shortly on both SEDAR and our website.

The strong operating results from both mines, as discussed by Paul, led to higher gross profit. However, year-over-year financial performance for both the quarter and full year period were negatively impacted by 2 items, which reduced earnings. The first item, similar to last quarter, is the cash and noncash items that relate in part to the financing of Wahgnion. To reiterate, these include losses from gold sales derivative instruments, changes in fair value of warrants and gold offtake payment liabilities and higher share-based compensation and income tax expense.

The second item that impacted financial performance is the timing of gold sales. Just over 20,000 ounces of gold volume remained in inventory at year-end due to an earlier-than-normal cutoff for shipping. At the year-end spot gold price of $1,515 per ounce, the gold volume inventory had a total market value of $31 million. Revenue, gross profit, earnings, cash flow, EBITDA and per-ounce costs were all impacted by the large volume of unsold ounces. Had these ounces been sold, these metrics would have been favorable compared to the prior year periods.

Now with this in mind, let's review the financials starting with Slide 15. Revenue increased by 40% for the quarter and 30 -- 13% for the year to a record total of $353 million due to higher average realized gold prices and an increase in total ounces sold, including post commercial production from Wahgnion. With respect to remaining gold hedges, we have 51,000 ounces of outstanding gold forward sales contracts, which are expected to settle between February and July 2020 at an average price of $1,330 per ounce.

Moving to Slide 16. For the year, per-ounce cost metrics -- per-ounce sold cost metrics on a consolidated basis were in line or well below the low end of guidance. However, the timing of gold sales resulted in increases year-over-year. At year-end, 9,000 ounces of inventory remained at Sabodala mainly due to an earlier-than-normal cutoff for shipping, combined with a strong December, resulting in the buildup of bullion over normal levels and 11,000 ounces remained at Wahgnion. Now being the newest gold producer in Burkina Faso, the last shipping date that we could secure was in mid-December, which meant that a large portion of December's production was not shipped. Had these ounces been sold before year-end, consolidated per-ounce sold cost metrics would have been lower and more comparable year-over-year for both the quarter and full year period and below the low end of cost guidance for the year.

Turning to Slide 17 and 18. As mentioned earlier, in addition to the timing and cutoff for gold sales, there were several noncash and noncash items, which impacted earnings this quarter. We recognized a net loss of $0.12 and $0.31 per share for the quarter and full year, respectively, despite higher gross profit. This compares to a prior period net loss of $0.10 and net profit of $0.11 per share for the quarter and year, respectively.

Earnings for the current year were negatively impacted by 3 items: firstly, net losses on gold derivative instruments, whereas in the prior year, gains on gold derivative instruments contributed to higher net profit; secondly, noncash losses on changes in fair values of the warrants and gold offtake payment liabilities; and thirdly, higher noncash share-based compensation expense due to an increase in our share price. Cumulatively, these items impacted net profit by $4 million or $0.04 per share and $39 million or $0.36 share for the quarter and year, respectively, compared to the same prior year period. As well, the full year results include a $10 million tax settlement in Senegal that was recorded earlier this year. Adjusted net loss decreased to a net loss of $0.06 per share and a net profit of $0.01 per share for the quarter and full year period of 2019, respectively. The adjusted net loss for the current quarter and year was mainly driven by higher income tax expense excluding the impact of foreign exchange on deferred taxes, finance costs and share-based compensation expense.

Moving to Slide 19. EBITDA increased by 66% for the quarter, due to higher revenues, partly offset by higher mine operation expenses, net foreign exchange losses and higher share-based compensation expense and decreased by 14% for the year due to several noncash items that impacted earnings during the year with the largest being noncash losses associated with gold derivative instruments.

Adjusted EBITDA, which removes items not reflective of underlying performance, improved year-over-year by 49% for the quarter and 15% for the year.

Moving to Slide 20 for a look at cash flow. Operating cash flows before changes in working capital decreased by 43% for the year to $54.8 million, mainly due to a buildup of gold bullion and supplies inventory and payments under our Senegal lease tax assessment.

Operating cash flows for the year after changes in working capital increased by 8% for the year to $100 million due to higher revenues, gold advances received and the timing of supplier payments, partially offset by higher Senegal lease tax payments, a buildup of inventories and payments on the settlement of derivative instruments.

Lastly, let's look at liquidity on Slide 21. As of December 31st, we had cash and cash equivalents of $30 million compared to $28 million at the end of September. Exclusive of hedges, Sabodala generated approximately $13 million in net cash flow during the quarter and $82 million in net cash flows during the year, while Wahgnion generated just over $5 million in operating cash flow during the quarter.

In total, we have spent $241 million on the construction of Wahgnion, out of a total construction budget of $256 million.

In 2019, we drew down $81 million on of the Taurus facility, of which $63 million was related to the Wahgnion tranche, and $19 million was related to the Golden Hill tranche. In total, we have drawn down $194 million on the Taurus debt facility. In addition, we have drawn down $9 million from the CAT equipment facility, of which $1 million was repaid, and $3 million remains undrawn. We anticipate making the first installment repayment on the Wahgnion project facility in July 2020 and then quarterly thereafter.

To help fund Teranga's cash portion of the upfront consideration for the Massawa acquisition, we entered into a new acquisition facility with Taurus and Barrick for $225 million. Additional acquisition-related financing was completed during and subsequent to the fourth quarter. This included a public equity offering for 27 million subscription receipts issued for gross proceeds of $106 million, of which approximately $76 million of the gross proceeds will be retained by the company and used for exploration drilling across our properties, transaction-related costs and working capital purposes. Further, in January 2020, we completed a private placement with David Mimran, a Director of Teranga and its largest shareholder, for gross proceeds of approximately $46 million. Proceeds from the offering and private placement are currently held in escrow until the acquisition closes. This concludes the financial summary.

Back to you, Richard.

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Richard S. Young, Teranga Gold Corporation - President, CEO & Director [6]

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Well, thank you, Navin. On to Slide 22, which outlines our guidance for 2020. We anticipate another record year for production. Initial guidance for consolidated production is about 350,000 ounces of gold, and that excludes Massawa. Last week, we announced the receipt of the key approval required to close the Massawa transaction from the government of Senegal. The final outstanding government approvals are expected in the coming days, putting us on track to close the transaction in March. We'll provide an update for Massawa mid-year once the preliminary tech report is complete. As Paul mentioned, we do expect Massawa to make a contribution to production in the second half of this year. Even without Massawa, we expect production to increase by about 20%.

In regard to costs. At SGO, costs are in line with the technical report with all-in sustaining costs of $900 and $975 per ounce, which compares to $910 in the tech report. While at Wahgnion, with the earlier mill commissioning and the higher throughput rates in 2019, we're between 6 and 9 months ahead of the tech report. As a result, we have largely moved in the 2021 year, where we see higher material movement and higher capital costs related to additional mobile equipment required for the increased material movement, our TSF raised and village location costs. As a result, costs are largely in line with the tech report for the 2021 year save the additional security costs at $850 to $950 per ounce, which compares to $813 in the tech report.

Overall, our consolidated all-in sustaining costs are expected to be in the range of $950 to $1,075, up marginally over the $917 per ounce we recorded in 2019.

And the cost of sales are -- we're guiding higher this year due to an additional $75 in deferred stripping at Sabodala over and above what we saw in 2019.

Slide 23 outlines upcoming goals and milestones for 2020. We expect by the end of this year, with the successful execution of our upcoming goals and milestones, we will transition into a low-cost, mid-tier gold producer by year-end. 2020 is setting up to be our best year ever.

That concludes our review. Operator, we'll now open the line for questions. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from the line of Carey MacRury from Canaccord Genuity.

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Carey MacRury, Canaccord Genuity Corp., Research Division - Analyst of Metals and Mining [2]

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Congrats on a good quarter. Just had a question on Massawa. Once you do get the permit, I'm just wondering if you can walk through sort of the time line and sort of the key items that you need to get done to bring it into production.

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William Paul Chawrun, Teranga Gold Corporation - COO [3]

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Yes. So it's Paul here. So we're very, very close to completing the transaction, and Richard can fill you in on that. Then we have some minor permits for access with the road, which we expect to do in the first half of this year. And then by midyear, we expect to actually have access on the Sofia pits. That, if you've read some of the technical work, is very similar mineralogy as what we have expanding into the Sabodala and so we expect to be able to process that ore fairly quickly.

In addition to that, just the sheer amount that we expect in next year with the additional grades, we do need to upgrade the elution circuit. And why I mentioned 2021 for the oxide ore on the central zone and north zone is there is -- because it's refractory below, it does have some deleterious elements. So we need a little bit of a water treatment facility. And secondly, it has shown to have some coarse gold, so we may need and likely will need a gravity circuit so that takes some time to implement.

So we'll be ramping up third and fourth quarter and into 2021 we'll be all systems go. And the pre-feasibility study that will outline all this, we should have by midyear. But to optimize the whole thing, there's a lot of potential with both exploration, the ore characterization work to optimize with the size of the BIOX facility. That's all going to be done in a definitive feasibility study that will be put together over the course of the next 12 to 18 months approximately. That will include drilling as well.

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Carey MacRury, Canaccord Genuity Corp., Research Division - Analyst of Metals and Mining [4]

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So once you have all the permits, like just the time line, I guess, in terms of months in terms of building the road, getting the pre-strip done, is that 3 to 4 months? Or how do we think about that?

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William Paul Chawrun, Teranga Gold Corporation - COO [5]

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Yes, in that range. The road really isn't that difficult, and secondly, there isn't much pre-strip at all. In fact, it outcrops at surface, the ore body.

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Carey MacRury, Canaccord Genuity Corp., Research Division - Analyst of Metals and Mining [6]

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And then in terms of like the Sofia pit itself in terms of early grade profile, is it similar to the reserve grade at Sofia? Or is it lower grade, higher grade, the first ore you've been looking into?

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William Paul Chawrun, Teranga Gold Corporation - COO [7]

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Yes. The ore body is fairly consistent grade. Now that being said, we're going to be doing right away grade control drilling, so we can optimize the dilution. And secondly, at depth and a long strike, there's still potential. So we'll be working on that. But that won't affect Phase 1 pit, and that is approximately similar grades to what's in the reserve.

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Carey MacRury, Canaccord Genuity Corp., Research Division - Analyst of Metals and Mining [8]

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Okay. Great. And then maybe any guidance you can provide on capitalized stripping for 2020?

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Navindra Dyal, Teranga Gold Corporation - Senior VP & CFO [9]

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Carey, it's Navin. No, it's still early days on that in terms of the capitalized stripping. As Richard mentioned, from a depreciation standpoint, we will be having more depreciation of capitalized stripping. But from a -- in terms of what will be capitalized from operating costs, we typically don't provide that because we provide the total production cost for you. But as we progress throughout the course of the year, and especially as Massawa becomes more clear, we'll be able to provide a little bit more guidance on that during the production period for Massawa.

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Richard S. Young, Teranga Gold Corporation - President, CEO & Director [10]

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Yes. Carey, the capitalized deferred stripping that will be amortized in the year, it's about $50 million, which is like $25 million higher...

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Carey MacRury, Canaccord Genuity Corp., Research Division - Analyst of Metals and Mining [11]

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5-0?

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Richard S. Young, Teranga Gold Corporation - President, CEO & Director [12]

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Yes. 5-0, which is about $25 million higher at Sabodala, than it was in [2019], which is roughly about $75 an ounce.

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Carey MacRury, Canaccord Genuity Corp., Research Division - Analyst of Metals and Mining [13]

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And then maybe one last one for me just on the unsold gold inventory. Do you expect to catch up on that? Or is there still going to be a lag hitting into 2020?

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Navindra Dyal, Teranga Gold Corporation - Senior VP & CFO [14]

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Yes, yes, yes. We do. It's -- absolutely. It's -- the Sabodala unsold inventory was essentially just due to holiday schedules, which meant that we could only ship on basically the 23rd and we had a very strong quarter in December. So all those ounces are sold. And on Wahgnion as well, being the newest producer in Burkina Faso, that earlier -- that last shipping date that we could get was that earlier date in mid-December. But we expect that to work its way through as we work through the quarter.

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Operator [15]

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(Operator Instructions) And our next question comes from the line of Wayne Lam with RBC.

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Wayne Lam, RBC Capital Markets, Research Division - Analyst [16]

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Just want to go back to the cost guidance at Wahgnion in 2020. I know Paul had outlined that was attributed a bit to higher mining unit costs, but looks like higher G&A as well. Just wondering if you could go over again what was driving the higher unit costs this year. I think it was related to the material movement in capital on the tailings facility, but just want to confirm if we can expect those to kind of come down towards the, call it, low to mid $800 range all-in as more steady-state run rate going forward?

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Richard S. Young, Teranga Gold Corporation - President, CEO & Director [17]

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Wayne, great question. So when you compare with tech report, there is additional security in our cost per ounce, and that's roughly about $25 an ounce. So like-for-like, we're looking at about $25 higher all-in sustaining costs than we did in the tech report, number one. Number two, both LFO and HFO prices are higher than what we had in the tech report while the cost per barrel is in line with what we had in the tech report, whereas in Senegal, we see prices adjusted monthly. We've only seen 2 price adjustments in Burkina. So as we've outlined in our guidance, we see 22% higher HFO cost and about 10% higher LFO cost compared to the tech report.

But -- and then in terms of the whole capital, if you look at the latest tech report, we had $10 million this year, $22 million next year. A lot of the cost in 2021 were relocation and a TSF lift as well as additional mobile equipment as we increase the mining rate from 16 million to 20 million tonnes. That's now been brought forward because we're actually -- we're 6 to 9 months ahead in our mine plan, and we are seeing, as Paul mentioned, significantly higher throughput so we've got to adjust for that. So when you look at the tech report, for 2021, it was $813 an ounce and we're coming in at $850 million to $950 million. We've given wider guidance range because it is the first year of operation. The team is still working on their productivity and efficiencies. But we are very pleased, and we think longer term, our unit costs in the mine will be marginally higher than what was in the tech report just because of the different mix of equipment.

Processing costs will likely be in line even with higher HFO prices because of higher throughput. As Paul mentioned, we are matching the grade.

We don't see on the capital side anything that was not anticipated in the tech report. It's just been brought forward because of the earlier-than-anticipated start and the higher throughput ramps. So in short, the answer is yes.

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Wayne Lam, RBC Capital Markets, Research Division - Analyst [18]

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Okay. Great. And I just want to clarify on the throughput. It's pretty good to see that you guys are already able to run the mill above the design capacity. Just wondering if that's kind of sustainable longer term? Or as you guys get into greater fresh rock, if that's anticipated to come back down?

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William Paul Chawrun, Teranga Gold Corporation - COO [19]

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Yes. So that's a great question. So fundamentally, right now, we're about 15% to 20% higher with a 3:1 blend, 3 oxide to 1 fresh. But we have not had a period where we've had all fresh and so that's why we're conservative on the estimate. We -- so we'll update at the end of the quarters accordingly, but we're using the design capacity right now as our estimate.

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Wayne Lam, RBC Capital Markets, Research Division - Analyst [20]

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Okay. And then just, lastly, it was good to see you guys get a couple of approvals related to the Massawa transaction. Just aside from the exploitation license, could you remind us of the other key permits that are conditional with the closing of this transaction? And just wondering how those are progressing and if you're still on track to receive those permits to close before the end of the quarter?

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Richard S. Young, Teranga Gold Corporation - President, CEO & Director [21]

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Wayne, great question. So there were essentially 6 CPs. With that press release were the 2 key consensus approvals that we needed. In addition to that, the next one up is the first amendment to the Massawa mining convention. And again, this is all largely perfunctory. It's all coming along very well and we expect to sign -- we have signed the convention today that will allow the president to issue the mining decree. The exploration license is with the minister and we would expect that to be signed today. So it's all coming along, and so we would anticipate closing in early March. The gating item actually is the drawdown of the Taurus facility. So they require 15 business days, and we have provided the request on the 10th of February. Again, with the time change, they got it at the 11th. So we are on track to close largely in the first week of March is what we would expect.

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Operator [22]

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And our next question comes from the line of Howard Flinker with Flinker & Co.

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Howard Flinker;Flinker & Co.;Analyst, [23]

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Do you have any CapEx that you need to spend in Massawa this year or is already prepared and built? I can't remember.

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William Paul Chawrun, Teranga Gold Corporation - COO [24]

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There is some CapEx -- it's Paul here. There is some CapEx. So we do need to do an access road and some infrastructure work to get started at Sofia. And then during the course...

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Howard Flinker;Flinker & Co.;Analyst, [25]

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You meant next year. Okay. Okay, go ahead.

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William Paul Chawrun, Teranga Gold Corporation - COO [26]

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Yes. But that's because we'll be accessing there actually mining this year. So it's really just about setting up the surface mining facilities and access road. And then as we carry on through this year and into next, we do need to do some plant upgrades, primarily to be able to produce more gold in the elution circuit on the back end of the plant. And as well, some of the higher grade areas, the oxide zones into late this year and into next year, we'll be spending to be able to be prepared for the oxide, a little bit of water treatment and gravity. So that...

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Howard Flinker;Flinker & Co.;Analyst, [27]

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You're talking about $40 million, $50 million altogether?

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William Paul Chawrun, Teranga Gold Corporation - COO [28]

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Altogether, but that wouldn't be all just to this year, that would be carrying into about the first half of next year as well.

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Howard Flinker;Flinker & Co.;Analyst, [29]

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Right. Right. Okay. And once you're producing in Massawa at full capacity, could you extract 200,000 ounces a year from there?

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Richard S. Young, Teranga Gold Corporation - President, CEO & Director [30]

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Yes.

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William Paul Chawrun, Teranga Gold Corporation - COO [31]

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Absolutely.

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Howard Flinker;Flinker & Co.;Analyst, [32]

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More?

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Richard S. Young, Teranga Gold Corporation - President, CEO & Director [33]

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Yes. Howard, so as we disclosed in the press release, Massawa, because of higher grade, will take priority. So if you look at their tech report, they were roughly 2.4 million tonnes per year and we would certainly look to meet that or exceed that. So it will contribute at least 200,000 ounces a year. And then we will supplement that with the Sabodala material through the mill. But the Massawa material will take priority over the Sabodala material because of grade.

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Howard Flinker;Flinker & Co.;Analyst, [34]

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This is actually a true case or there will be economies of scale? Usually, that's a concept found only in textbooks.

And finally, refresh me. At what price did you do the stock offering and did David -- is it Mimran? Did he pay the same price?

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Richard S. Young, Teranga Gold Corporation - President, CEO & Director [35]

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Yes. That was one thing that everybody paid the same price. So the stock was trading at $5.64, we did the offering at $5.10 and it was a little bit lower than we would have liked. But what we found was it got the right accounts into the stock. There were a number of new accounts that came in. Names, Howard, that you would know well that you'd want to see back old companies. And so...

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Howard Flinker;Flinker & Co.;Analyst, [36]

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The environment was different then from today when gold is at $1,635.

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Richard S. Young, Teranga Gold Corporation - President, CEO & Director [37]

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Yes, that's correct.

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Howard Flinker;Flinker & Co.;Analyst, [38]

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It will be still better in 1 or 2 months from now. What was the -- the price was $5.10?

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Richard S. Young, Teranga Gold Corporation - President, CEO & Director [39]

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$5.10. And that's what the stock issued to Barrick.

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Howard Flinker;Flinker & Co.;Analyst, [40]

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Canadian?

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Richard S. Young, Teranga Gold Corporation - President, CEO & Director [41]

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Canadian. David Mimran paid $5.10. Barrick will get their stock at $5.10 and the private placement -- the public offering was done at $5.10.

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Howard Flinker;Flinker & Co.;Analyst, [42]

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And Barrick gets, what, $25 million worth of stock, do I recollect correctly?

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Richard S. Young, Teranga Gold Corporation - President, CEO & Director [43]

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Yes. On a pro forma basis, they'll own about 11.5% of our company. So a little bit less than that.

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Operator [44]

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Our next question comes from the line of Craig Stanley with Eight Capital.

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Craig Philip Stanley, Eight Capital, Research Division - Principal for Metals and Mining Research [45]

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Just a couple of quick questions for me. First off, on that unsold inventory. I just want to confirm, it should all be caught up by the end of this quarter, Q1?

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Navindra Dyal, Teranga Gold Corporation - Senior VP & CFO [46]

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Yes, Sabodala -- Craig, it's Navin. Yes, Sabodala will definitely be caught up, Wahgnion as well. Again, because we're still the newest producer and there's limited logistics from a -- in terms of transportation via helicopter. We were able to probably get 1 to 2 shipments out per month based on the availability of that logistical support. We are looking at alternatives to increase the capacity and being able to ship more often. But yes, we're trying to reduce that as much as we can. But yes, definitely the 20,000 that we had at the end of the year is gone or sold. It's just a matter of how can we keep that level of bullion at Wahgnion at a reasonable level, and that's what we're working hard to do.

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Craig Philip Stanley, Eight Capital, Research Division - Principal for Metals and Mining Research [47]

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Okay. But I think Q1 makes it look pretty good then.

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Navindra Dyal, Teranga Gold Corporation - Senior VP & CFO [48]

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Yes. I mean Q1, as we've said as well in our remarks, is that from a guidance perspective is that Q1 for Wahgnion from a production standpoint is the strongest quarter for the year. So certainly, we would expect there to be strong production as well as sales.

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Craig Philip Stanley, Eight Capital, Research Division - Principal for Metals and Mining Research [49]

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Okay. Secondly, Massawa, I know you guys are working on the PFS. But it's fair to say, right, you guys already have a good idea for the tonnes stripping grade that you guys will be buying in the second half of this year?

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William Paul Chawrun, Teranga Gold Corporation - COO [50]

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Yes. We have a very good understanding. We went through about a year of diligence with the Barrick team and we're actually working with the Barrick team as we speak to put this all together. And the pre-feasibility study will reflect that when we put that out midyear.

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Craig Philip Stanley, Eight Capital, Research Division - Principal for Metals and Mining Research [51]

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Okay. Exploration potential on Massawa, where is the [boost] upside? Is it at depth or at long strike, both?

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David W. Mallo, Teranga Gold Corporation - VP of Exploration [52]

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It's Dave Mallo speaking. For exploration on that property, we see a lot of opportunity, both within the pit areas themselves, Sofia and Massawa, for extensions along trend and at depth. And also, there are a number of other fairly high-priority prospects that have been partially drilled or looked at by Barrick previously. There's a lot of upside both for oxide and fresh material at those targets as well. And the third item that we'll be exploring are other structures in the area that we know are prolific for mineralization elsewhere in the belt. And so we'll be doing a lot of excavator trenching and drilling on those prospects as well.

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Craig Philip Stanley, Eight Capital, Research Division - Principal for Metals and Mining Research [53]

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Okay. And I saw that you've increased the exploration budget for Cote d'Ivoire. What type of news should we expect in 2020 from Cote d'Ivoire? For example, should we be getting a resource by the end of the year?

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David W. Mallo, Teranga Gold Corporation - VP of Exploration [54]

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I don't think we'll have a resource by the end of the year. Many of the targets that we have at Afema are fairly early stage. We will be looking outside of the Afema shear. We have a couple of targets there one called Niamienlessa and another called Woulo Woulo, and these have not yet been drilled to any extent. Niamienlessa, for example, has a strike length in excess of 20 kilometers. So we see a lot of exploration upside but it will take a fair amount of drilling to get to the resource stage.

And then at the Miminvest properties, they're all very early stage and we hope to have additional drilling on both of the Dianra and Guitry properties by the end of the year as well. But again, it's too early for resource, but certainly indicative of what's to come.

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Craig Philip Stanley, Eight Capital, Research Division - Principal for Metals and Mining Research [55]

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Okay. So second half of the year, we should, at a minimum, get some drill results?

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David W. Mallo, Teranga Gold Corporation - VP of Exploration [56]

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Absolutely. Absolutely.

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Richard S. Young, Teranga Gold Corporation - President, CEO & Director [57]

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Yes, Craig, the drilling at Afema will start in March. So again, as those results come in. And then at Golden Hill, we will be drilling throughout the course of the year. And then we'll have that updated PEA for Golden Hill in the third quarter.

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Operator [58]

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And there are no further questions at this time. I'd like to turn the call back over to Richard Young, President and CEO, for some closing remarks.

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Richard S. Young, Teranga Gold Corporation - President, CEO & Director [59]

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Well, I'd like to thank everyone for joining us today. And as you can tell, it's going to be an exciting year for us, and we look forward to completing the Massawa transaction and moving on the integration. Wahgnion is coming along very well. It, clearly, we would hope will exceed our expectations, and we're moving forward with Golden Hill and our work in Cote d'Ivoire. So there will be a lot of news flow. And with the gold prices where they are, it's going to be a very good year. So thank you for joining the call today and I look forward to talking to you in the future. Thanks.

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Operator [60]

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This concludes our conference call for today. Please disconnect your lines, and have a great day.