Teranga keeps costs down, stock rises

Teranga Gold (TSX: TGZ; US-OTC: TGCDF) is showing that when it comes to the gold sector, operational strength is being rewarded.

The company announced fourth-quarter and year-end results from its sole producing asset, the Sabodala gold mine in Senegal, which were highlighted by 52,368 oz. gold produced in the final quarter and 207,204 oz. gold for the year.

These numbers are close to the company’s guidance, but the cost to produce all of the ounces impressed even more.

Teranga had issued a cash-cost guidance of between US$650 and US$700 per oz., but the actual number came in at just US$641 per oz. for 2013.

With investors hunting for low-cost producers, the stock was a favourite on Jan. 29 — the day the results were released — as it shot up 12%, or 9¢, to 84¢ on 6.8 million shares traded.

For the quarter, total cash costs came in at US$711 per oz. and all-in sustaining costs were US$850 per oz.

Teranga’s annual production guidance had been between 190,000 and 210,000 oz., and it says that this year it expects to produce between 220,000 and 240,000 oz. at total cash costs of US$650 to US$700 per oz.

The quarterly results and guidance grabbed the attention of BMO Capital Markets analyst Andrew Breichmanas, as he had forecasted 45,729 oz. gold produced at a US$821 per oz. cash cost.

This year, Breichmanas forecasts 220,337 oz. production at cash costs of US$794 per oz. BMO Research has the stock rated as a “market perform,” with a 75¢ price target.

Teranga expects to spend between US$28 million and US$33 million on capex this year, including US$13 million in government-waiver payments, US$8 million in sustaining costs and US$2.5 million in capitalized stripping.

Immediately adjacent to Sabodala, the company is figuring out how to put  the Oromin Joint Venture Group (OJVG) deposits into an integrated mine plan, after having acquiring a full interest in the project late last year. OJVG controls a 1.45 million oz. gold deposit near the Sabodala mill.

In connection with the OJVG deal, the company has received US$135 million from Franco Nevada (TSX: FNV; NYSE: FNV) under a streaming transaction announced in December to finance the acquisition.

Teranga will update the life-of-mine plan in February, after putting out its year-end financial results. It ended the year with proven and probable reserves of 59.9 million tonnes grading 1.46 grams gold for 2.81 million oz. gold.

And while those reserve totals were down 1% from the previously published stand-alone estimates, the company expects that integrating the two projects will yield a larger reserve base and more production.

The Sabodala mine is 650 km east of the capital of Dakar, and lies within the westernmost reaches of the gold-rich Birimian greenstone belt.