October 2013

Project Profile: Ahead of the pack

Teranga Gold's Sabodala plans to cash in on expansion

By Chris Windeyer

Like many others, Toronto’s Teranga Gold is keeping a prudent eye on its production costs in today’s unpredictable market. The company operates the Sabodala gold mine in Senegal’s southeast corner, near the border with Mali, and 650 kilometres east of the capital Dakar. Thanks to a nimble business plan and some fortuitous timing, Teranga is positioning itself for years of low-cost production.

Teranga Gold slashed exploration and discretionary spending from $35 million per year in 2012 to $8 million this year. “It’s quite a significant reduction in exploration spending we’ve made,” says Richard Young, Teranga’s CEO.

That, combined with the 2012 completion of a major mill expansion, is allowing Teranga to proceed at full speed towards generating cash flow from increasing production. The company produced nearly 50,000 ounces of gold during the second quarter of 2013, a nine per cent jump over the same period last year. The mine appears likely to hit its goal of between 190,000 and 210,000 ounces produced this year, at cash costs of $650 to $700 per ounce. Despite the recent period of soft gold prices, Teranga generated profits of $52 million in the first six months of 2013, more than four times what it made in the same period last year.

Well understood geology

Teranga’s holdings at Sabodala include 2.9 million ounces of Measured and Indicated Resources and 1.6 million ounces of Proven and Probable Reserves. The deposit is mostly basalt with some sedimentary rock, explains Martin Lanctot, Sabodala’s mine manager. “There are three gold bearing structures holding the bulk of the mineralization, one of them is called the Main Flat, the second one being the Northwest Shear, and finally there’s Ayoub’s Thrust,” he says. “There are some substructures, but that’s it in a nutshell. With the way that the geology is set up there, on top of the deposit, especially doing a pushback, you always have the good old Northwest Shear which is bringing in ounces as you go down. Then you enter into the richest part of the deposit, which is the Main Flat.”

The operation is “textbook 101 mining” Lanctot says, and the ore “comes to the processing plant really clean.” In total, 5.9 million tonnes of ore were mined in 2012 at an average grade of 1.98 grams of gold per tonne, made up almost exclusively of disseminated gold.

Teranga has had to learn how to schedule production to accommodate Senegal’s rainy season, which lasts roughly from June to September. On the day in late August that I spoke to Lanctot and Mark English, Teranga’s vice-­president of Sabodala gold operations, a six-hour storm had just dropped 86 millimetres of rain on the mine. “Typically we’re doing the bulk of our stripping during the wet season and we’re sinking our pits during the dry season,” Lanctot says. “So far, it’s been pretty successful.”

Lonely but rich

Sabodala’s mill is the only one in Senegal. Built in 2008 by the site’s previous owners, MDL of Australia, the process plant uses a primary jaw and secondary cone crushing system that feeds a SAG mill and a pair of ball mills, followed by a return pebble crusher. The gold is extracted through carbon-in-leach.

It is a simple design for a process plant, says English, necessitated largely by the fact that MDL was under enormous pressure from the Senegalese government to get the mine up and running. “They didn’t want someone sitting and speculating on the property. There was a real push to make a producer. So [MDL] took a very simple design approach for the process plant,” English says, adding that MDL ensured their design could easily be expanded.

And that is precisely what Teranga did, with an expansion that was completed in 2012, pouring $73 million into doubling the processing plant’s capacity from a nominal two million tonnes per year to nearly four. With that major piece of capital spending complete, Young says Teranga now enjoys free cash flow: “It allowed us to match the size of our mine with our mill and provide economies of scale. There’s a certain amount of oversight and infrastructure, whether you’re producing 100,000 or 200,000 ounces.

“It’s a big company mill. It’s not a mill that was put together by a junior developer on a shoestring. Luckily for us, it sits in the middle of this [greenstone] belt.”

Increased mill capacity will be especially important as Teranga works through stockpiles from the first two phases of the main pit at Sabodala. Currently, the company is stripping waste rock in Phase 3 of the four-phase pit, a process that will last until the end of 2014, Lanctot says. Then sights will be set on adjacent satellite deposits at Gora and Niakafiri.

Teranga is also in the process of finalizing its takeover of Vancouver-based Oromin Explorations Ltd. Oromin owns the OJVG project, which is comprised of two deposits, Golouma and Masato, located to the south and east of the Sabodala site, respectively. Together, the deposits have Indicated and Inferred Resources of more than 4.5 million ounces. “We’re going to integrate those deposits into our mine plan and that may result in a resequencing of pit development,” Young says. “And we’ll focus on blending the highest grade and the softest material to get the highest production profile.”

Infrastructure in place

Sabodala is located on the northwestern end of a massive greenstone belt that stretches through Mali, Guinea, Burkina Faso, and Ghana. It also benefits from being connected to the Senegalese capital and main port of Dakar, via the fully paved Trans-African Highway route that stretches all the way from Dakar to Ndjamena, Chad. That road comes to within 100 kilometres of the Sabodala site, and local paved roads are under 60 kilometres away, Young says, adding, “The transportation is excellent.”

The mine also has access to fresh water courtesy of two catchment dams designed between them to hold 11 million cubic metres of water, more than enough for Sabodala to function. Teranga, however, has also secured access rights to use water from the nearby Faleme River in case of shortages.

The one infrastructural shortcoming is electricity. Sabodala is not connected to the grid and must produce its own power with a 36-megawatt heavy fuel oil power station on site, upgraded from the original 30-megawatt capacity at the same time the company expanded the mill. At 25 cents per kilowatt hour, that represents a significant cost “compared to six cents in Quebec,” Young points out. “It does put us at a disadvantage in that perspective, but otherwise the infrastructure is pretty good, especially for a remote place like Senegal.”

There are accommodations for 940 of the mine’s 1,200 employees on site. Ninety per cent of Sabodala’s employees are Senegalese (with some 22 nationalities represented in the 10 per cent of the workforce that is expatriate), and Young says the company aims to hire locally as much as possible. Lower-skilled labourers are bussed in from surrounding communities.

English says the company does ship in more highly trained expertise from Dakar, but in the process is trying to build a local corps of skilled workers in the eastern part of the country. There are 76 women employed on site, including 13 driving heavy equipment at Sabodala, “which is something not considered normal in this society, so we’re very proud of that,” he adds.

One of the main early challenges was finding trained heavy equipment operators, according to Lanctot. When construction began in 2007, hundred-tonne dump trucks were an uncommon site in western Senegal. “For a lot of our operators, the biggest piece of equipment they’d seen before was a bicycle,” he recalls. “We had to train them and make sure to mentor them, and most of all make sure they’re safe operators.”

That heavy equipment is provided by Bia Overseas, one of Teranga’s main contractors and a mainstay at African mining sites (see project specs). There are presently 109 Bia staff on site: eight expats and 101 Senegalese. “[Sabodala Gold Operations] only has to drive the machines,” says Bia Overseas spokesman Cedric Leturcq. “We take care of everything else: daily checking, preventive maintenance, wear analysis, repairs and overhauls.”

Building a national industry

Senegal has been aggressive in courting foreign mining investment over the last decade and it is generally regarded as one of Africa’s most open and stable democracies. And if that were not enough, the country’s current president, Macky Sall, is a geological engineer by profession.

Senegal’s industry-friendly mining code provides for tax holidays and low royalty rates. Those sweeteners have helped Teranga get through periods of lower gold prices and high capital expenditures like the mill expansion, and allowed it to invest in adding satellite deposits.

But Young says it is time for Sabodala to start pitching in more to Senegal’s coffers: the company voluntarily moved from a three per cent royalty to five per cent, and it will not seek an extension of its current tax holiday that ends in May 2015. Teranga is also trying to facilitate economic development in the eastern Kedougou region where it operates, by building access roads and water facilities that nearby communities can also use.

“You’ve got to go where the geology is, but ideally you look at jurisdictions where there’s a track record of democracy and stability, that are open to mining and are safe jurisdictions with a trained workforce,” Young says. “While Senegal doesn’t necessarily have that trained workforce, it’s got everything else.”

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