Teranga Gold Corp. [TGZ-TSX, ASX; TGCDF-OTCQX] said Tuesday December 10 it has agreed to acquire a 90% interest in the Massawa Gold Project in Senegal from Barrick Gold Corp. [ABX-TSX, GOLD-NYSE] and Barrick’s Senegalese partner for an upfront payment of US$380 million.
The deal also includes a gold price-linked contingent payment of up to US$50 million.
Teranga said Massawa is one of the highest-grade undeveloped open pit reserves in Africa, hosting 2.6 million ounces of gold or 20.9 million tonnes at 3.94 g/t gold. Those “historical” reserves are located within trucking distance of Teranga’s flagship Sabodala Gold Mine in Senegal, a scenario that creates the opportunity for significant capital and operating synergies, Teranga said in a news release on Tuesday.
The Government of Senegal holds the remaining 10% stake in the project, which was previously part of the assets of Randgold Resources Ltd., a company that was recently swallowed by Barrick.
Teranga shares were unchanged at $5.63 on Tuesday on volume of 1.8 million. The shares are currently trading in a 52-week range of $2.98 and $6.14.
“The Massawa acquisition is transformational for Teranga” and by creating a top tier gold complex – the first in the country – an important milestone for the gold mining industry in Senegal,” said Teranga President and CEO Richard Young.
“We anticipate that production from the Sabodala-Massawa Complex, together with our Wahgnion Gold Mine in Burkino Faso, will increase Teranga’s targeted consolidated annual gold production and reposition Teranga as the next multi-asset, low-cost, mid-tier gold producer in West Africa, one of the world’s premier gold mining regions,” Young said.
Under the deal, Teranga will make an up-front payment of US$380 million, consisting of approximately US$300 million in cash and an aggregate of US$80 million in Teranga shares to be issued to Barrick and its Senegalese partner.
In total, US$225 million of the upfront payment will be funded under an acquisition facility agreement by Teranga’s existing lender, Taurus Funds Management Pty Ltd. Taurus has agreed to provide a US$200 million loan. Another US$25 million will be provided by Barrick in its role as part of the lending syndicate.
The balance of the upfront consideration will be funded by Teranga through an equity offering and private placement to Tablo Corp. (a company controlled by Teranga director David Mimran. Tablo is investing a further US$45 million with this transaction to retain a 21% stake in Teranga.
The share component of the upfront payment will consist of the issuance of 19.2 million Teranga shares to Barrick, and an additional 1.6 million shares issued to Barrick’s Senegalese partner at $5.10 per share (Canadian). That will leave Barrick with 11.45% of Teranga’s issued and outstanding shares on closing.
The agreement includes a gold-linked contingent consideration, which is based upon the average gold price for the three-year period immediately following closing. The contingent payment, which is payable three years after closing, is US$25 million if the three-year average gold price is greater than US$1,450 and less than US$1,500 per ounce; $35 million if the three-year average gold price exceeds US$1,600 an ounce and nil if the three-year gold price is equal to or less than US$1,450.
Under the terms of an investor agreement to be entered into on closing of the transaction, Barrick will have to the right to nominate one Teranga director for as long as it retains at least a 10% equity interest in Teranga, and will also be entitled to customary anti-dilution and piggyback registration rights.
Barrick has also agreed to a 24-month standstill under which Barrick will not increase its share position in Teranga for 18 months, and thereafter may increase its position by an additional 5% over the ensuing six-month period. The standstill expires after 24 months.
Meanwhile, Teranga is raising $140 million (Canadian) from the sale of subscription receipts at $5.10 each in a bought deal arrangement with a syndicate of underwriters led by Cormark Securities Inc. and Canaccord Genuity Corp.
A portion of the net proceeds will be used to fund the upfront consideration with the balance being used for exploration drilling across Teranga’s portfolio as well as for transaction-related costs, and for working capital purposes.
With a clear focus on West Africa Teranga Gold has positioned itself as a rare growth story.
Teranga is taking a long-term approach with the aim of building the company into a mid-tier gold producer with annual production in the 500,000 ounces range.
The foundation for that growth is the Sabodalo gold mine in Senegal, which is expected to produce between 215,000 and 230,000 ounces of gold this year.
With Sabodala on track to produce a minimum of 200,000 ounces through at least 2022, Teranga has been working to develop the Wahgnion gold mine in Burkina Faso.
Teranga owns 90% of the project. The other 10% is held by the Burkina Faso government.
The Wahgnion mine is expected to produce 30,000 to 40,000 ounces of gold in 2019, contributing the Teranga total consolidated production of 245,000-270,000 ounces in 2020.