Franco-Nevada (FNV-T) and Teranga Gold (TGZ-T) have agreed to enter into a $135-million (U.S.) stream transaction that has allowed Teranga to enter into definitive share purchase agreements with Bendon International Ltd. and Badr Investment & Finance Company to acquire the balance of the Oromin Joint Venture Group Ltd. that it does not already own and to retire $30-million (U.S.) of its $60-million (U.S.) debt facility with Macquarie Bank Ltd. On completion of these transactions, the combination of Sabodala and the OJVG satellite deposits is expected to allow Teranga to reach its phase 1 growth objective of 250,000 to 350,000 ounces of gold production leveraging off of its existing mill and infrastructure. The combination also provides operating flexibility to sequence pits and phases of pit development to maximize free cash flows. Over all, with the proximity of the OJVG pits to the Sabodala mill and the company's ability to optimize the ounces that are processed through the mill, the transaction is expected to provide for near-, medium- and long-term growth in production and free cash flows.Highlights of transactions for Teranga:
- Enters into a stream transaction with Franco-Nevada to finance the acquisition and debt retirement;
- Acquires the balance of Oromin Joint Venture Group;
- Retires $30-million (U.S.) of $60-million (U.S.) bank debt facility;
- Positions the company to reach phase 1 growth objective of 250,000 to 350,000 ounces of annual gold production in Senegal(1);
- Provides for significant operating flexibility to maximize free cash flows;
- Develops a pipeline of near-, medium- and long-term production growth on an emerging gold belt;
- Retains focus on protecting the balance sheet and best positions shareholders to benefit from a rise in gold prices.
Highlights of transaction for Franco-Nevada:
- Attractive stream asset that is expected to be one of Franco-Nevada's top contributors;
- Delivers stable and immediate cash flows and increases gold contribution within its portfolio;
- Investment in a well-run operation with an established record and favourable cost structure;
- Excellent exploration potential on land covering a 70-kilometre strike extent on an emerging mineral belt.
"The acquisition of the OJVG is the most accretive and synergistic transaction that I have ever seen in all my years of developing and acquiring mining projects. The addition of the OJVG's 1.45 million ounces of open-pit mineral reserves to Teranga's existing mineral reserves, will double our open-pit reserve base, before we have even commenced any optimization work, and we expect to see significant value creation as we leverage off of our existing mill and infrastructure," said Alan R. Hill, executive chairman, Teranga Gold.
Streaming transaction with Franco-Nevada worth $135-million (U.S.):
- The stream transaction allows Teranga to acquire the balance of the OJVG and repay half of the Macquarie bank loan with minimal dilution to shareholders.
- Franco-Nevada will provide a $135-million (U.S.) deposit of which $105-million (U.S.) will be used to acquire Bendon's stake in the OJVG and $30-million (U.S.) to retire half of the currently outstanding Macquarie bank loan.
- The stream agreement requires Teranga to deliver 22,500 ounces annually over the first six years followed by 6 per cent of production thereafter. Franco-Nevada's purchase price per ounce is set at 20 per cent of the spot gold price.
- The stream agreement will have an initial 40-year term.
"We are pleased to support the Teranga management team in structuring a transaction that is a win-win for all parties," said David Harquail, president and chief executive officer, Franco-Nevada. "We believe Senegal will be a growing mining investment destination with attractive geology and secure mineral tenure."
Acquisition of balance of OJVG interests not already owned:
- Acquisition of Bendon's 43.5-per-cent participating interest for $105-million (U.S.);
- Acquisition of Badr's 13-per-cent carried interest for $7.5-million (U.S.) and further contingent consideration based on higher realized gold prices and increases to OJVG property reserves through 2020;
- The acquisition of Bendon's and Badr's interests in the OJVG increases Teranga's ownership to 100 per cent and consolidates the Sabodala region which is anticipated to provide Teranga with the flexibility to integrate OJVG satellite deposits into Teranga's existing operations, thereby increasing earnings and free cash flow.
Retires $30-million (U.S.) of $60-million (U.S.) bank debt:
- Retirement of half of the Macquarie's loan facility and retirement of the balance owing by the end of 2014 protects Teranga shareholders by the removal and reduction of potential financial covenant violations in a lower and more volatile gold price environment.
- Increases Teranga's financial flexibility going forward and reduces balance sheet risk.
Expected benefits of the OJVG transaction:
- Increased open-pit reserves (Teranga 1.4 million ounces(2) and OJVG 1.45 million ounces(3) proven and probable reserve);
- Increased production -- positions company to reach phase 1 growth objective of between 250,000 to 350,000 ounces of annual gold production in Senegal(4);
- Increased mine life;
- Increased resources and potential resource growth (Teranga measured and indicated 2.89 million ounces, inferred 1.87 million ounces(5); OJVG indicated 3.78 million ounces, inferred 960,000 ounces(6)) on significant land package;
- Increased operational flexibility with the ability to sequence pit and phase development by prioritizing ore from different deposits based on grade, strip ratio, ore hardness and development costs;
- Increased free cash flows -- operating flexibility is key to generating higher free cash flows in 2014 as the company defers phase 4 waste stripping at Sabodala increasing its 2014 cash flows at lower gold prices. And this is before incorporating additional production from the OJVG;
- Most importantly, the combination will benefit from leveraging off the existing built mill and infrastructure resulting in modest sustaining capital going forward.
"We are pleased to have completed this long-awaited transaction with minimal dilution to our shareholders while strengthening our balance sheet by reducing our debt facility. Franco-Nevada's support for the management team's vision and the promise of the project itself has come after significant due diligence and is a meaningful endorsement from a leader in our industry. Our shareholders are very well served by this transaction," said Richard Young, president and chief executive officer, Teranga Gold. Mr. Young continued: "We would like to thank President Macky Sall and Aly Ngouille Ndiaye, the Minister of Mines, and all the ministries that have worked with us to develop a real partnership and trust between the Senegalese government and our Canadian management team. The President has stated the importance of the mining industry in Senegal and his government's commitment to work towards growing domestic gold production as quickly as possible. This has been demonstrated with the signing of the definitive global agreement earlier this year which provided a formula to acquire the waiver option held by the government that has paved the way for the consolidation of the OJVG and the ability to process these ounces through our central milling facility."
The acquisition by Teranga of the remaining OJVG interests and the completion of the stream transaction are interconditional. In addition, the completion of the proposed transactions is, among other things, conditional upon:
- Any required Australian Stock Exchange approvals;
- An amendment to the project finance facility with Macquarie and the signing of an intercreditor agreement among the Macquarie, Teranga and Franco-Nevada parties;
- The proposed transaction to be completed by Jan. 17, 2014;
- Other customary closing conditions.
There can be no assurance that any of the above noted conditions will be satisfied, or that the proposed transactions will be completed.
Teranga's and Franco-Nevada's senior management team will host a conference call and webcast on Dec. 12, 2013, to discuss the details of the transactions. The call will also be available on replay for those who are not able to participate.
Conference call and webcast details
Toronto: Dec. 12, 2013, at 8 a.m. (EST)London: Dec. 12, 2013, at 1 p.m. (GMT)
Perth: Dec. 12, 2013, at 9 p.m. (AWST)
Sydney: Dec. 13, 2013, at 12 a.m. (AEDT)
To participate on the conference call, please see the dial-in details below.
Toronto: 416-340-8527North America toll-free: 1-800-766-6630
International: 1-416-340-8527
Via webcast: A live audio webcast of the conference call will be available on the company's website
Replay archive: Please dial 905-694-9451 or toll-free 1-800-408-3053, passcode: 6418574
The conference call replay will expire two weeks after the call.
Notes:
- This forecasted annual production target is based on the following assumptions:
- Disclosed mineral reserves (proven 12.87 million tonnes at 1.28 grams per tonne for 530,000 ounces and probable 16.34 million tonnes at 1.64 grams per tonne for 860,000 ounces) as per the Teranga's National Instrument 43-101 technical report entitled, "Technical Report for the Sabodala Gold Project Republic of Senegal, West Africa" (with an effective date of June 30, 2013);
- The addition of OJVG probable open-pit mineral reserves of 21.89 million tonnes at 2.05 grams per tonne for 1.45 million ounces as per the technical report entitled OJVG Golouma gold project -- updated feasibility report, January, 2013. Requires amendment to OJVG Gouloma project's existing permits reflecting a reduced project footprint as ore is processed through Sabodala mill.
- See Note 1 above relating to Sabodala mineral reserves.
- See Note 1 above relating to OJVG mineral reserves.
- See Note 1 above for the assumptions for this forecasted annual production target which is based on proven and probable reserves only.
- The figures above are total mineral resources and include mineral reserves for measured and indicated resources. Measured resources are 25.15 million tonnes at 1.44 grams per tonne and indicated resources are 37.23 million tonnes at 1.44 grams per tonne as per the Sabodala technical report. Inferred resources do not include mineral as reserves and are 57.84 million tonnes at 1.87 grams per tonne as outlined in the Sabodala technical report.
- The figures above are total mineral resources and include mineral reserves only for indicated resources. Indicated resources are 75.2 million tonnes at 1.56 grams per tonne as per the OJVG technical report. Inferred resources do not include reserves and are 17.3 million tonnes at 1.73 grams per tonne as outlined in the OJVG technical report.
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