Teranga Gold Corp.
Jennings Capital Inc.
01 May 2014
Available for Immediate Download
Q1 RESULTS: SLIGHT MISS, NOTHING TO WORRY ABOUT Event: Yesterday, TGZ released Q1 financial and operating results, reporting EPS of $0.02 and CFPS of $0.03, before changes in non-cash working capital. We were looking for EPS of $0.06 and CFPS of $0.06, with the miss largely reflecting lower-than-expected head grades and greater stripping rates. We have adjusted our model for these features against management’s reiteration of 2014 guidance. Production: TGZ produced 52,090 oz at the Sabodala mine in Senegal, or 12% less than anticipated. The mine processed a record volume of ore, but head grades were 13% less than anticipated, accounting for the production shortfall. Higher sales volumes and realized prices partly offset the lower production. Management still anticipates full-year production of 220,000-240,000 oz gold, with Q4 expected to be the strongest quarter. Operating Costs: Total cash costs averaged $696/oz sold, or 5% higher than expected ($665/oz). That said, unit costs were actually slightly less than anticipated, so the difference reflects the production miss and hence, does not give us much concern. Balance Sheet: On March 31, TGZ had cash and restricted cash of $16.7 million, a working capital deficit of $14.3 million and total debt of $36 million. The Company has since raised C$30 million of gross proceeds by issuing 36 million shares at C$0.83/share. Jennings Capital acted as an agent in the financing. Exploration and Development: TGZ has increased its 2014 sustaining and development capital budget by $5 million, to $33-$38 million. Management also noted the likelihood for higher mine site exploration costs, in order to accelerate resource conversion and facilitate an ongoing heap leach study, for which completion is anticipated by year-end. Drilling results are not anticipated until Q3/14, possibly in late August or early September. Valuation: We have not changed our valuation methodology, applying the average of 1.0x adj. NAV and 8.0x 2014ECFPS. However, updating for the quarter, revised 2014 capital budget and the recent equity financing had decreased both. Net-net, our adj. NAV is now $1.42/fd share, down from $1.66/fd share, and our estimated 2014 CFPS is now $0.25, down from $0.27. Target and Recommendation: As a result of our updated valuation, our 12-month target has decreased slightly, to C$1.75/share, but we are maintaining our BUY recommendation. In short, we consider TGZ a highly undervalued mid-tier gold producer, with above-average blue-sky exploration upside.