Teranga Gold Corporation: December Quarterly Report
15.02.2011 | Marketwired
TORONTO, ONTARIO -- (Marketwire) -- 02/14/11 -- Teranga Gold Corporation (TSX: TGZ)(ASX: TGZ) -
Highlights
-- On November 23, 2010, Teranga Gold Corporation ('Teranga' or the
'Company') completed the acquisition of the Sabodala gold mine and a
regional land package that together total 1,488 km(2)by way of a
demerger (the 'Demerger') from Mineral Deposits Limited ('MDL') and also
acquired 18,699,500 common shares of Oromin Explorations Ltd. held by
MDL (the 'Sabodala Gold Assets').
-- On December 7, 2010 Teranga completed an initial public offering in
Canada and Australia issuing 45.6 million common shares for total gross
proceeds of C$136.5 million.
-- A C$50 million loan, part of the consideration for the transfer of the
Sabodala Gold Assets to Teranga from MDL, was repaid as of December 31,
2010.
-- Cash and cash equivalents including restricted cash totalled $82.8
million at quarter end.
-- Gold production for the three months ended December 31, 2010 was 33,648
ounces at total cash costs of $775 per ounce.
-- Gold production for the period from November 23, 2010, the date of
demerger from MDL, to December 31, 2010 was 16,920 ounces at total cash
costs of $632 per ounce.
-- During the period ended December 31, 2010, 11,000 ounces were delivered
into gold hedge contracts leaving 235,500 ounces outstanding.
-- Revenue of $17.1 million represents a shipment of 16,592 ounces of gold
in the period from November 23, 2010 to December 31, 2010, out of which
11,000 were delivered into forward sales contracts at $846 per ounce and
5,992 ounces were sold into the spot market at an average price of
$1,388 per ounce.
-- Sabodala gold mine is on track to produce 130,000 ounces for the fiscal
year 2011 at expected total cash costs of between $800 to $825 per
ounce.
-- For calendar 2011, the Sabodala gold mine is expected to produce 130,000
ounces of gold at expected total cash costs of between $800 to $825 per
ounce.
-- Capital expenditures for the balance of fiscal 2011 are expected to
total approximately $35 million, while capital expenditures for calendar
2011 are expected to total approximately $60 million, primarily for the
mill expansion and capitalized mine site exploration costs.
-- Eight of the expected 12 drill rigs are now operating on the mine
license and regional land package, up from five during the December
quarter, with the balance expected before the end of March 2011.
-- The plant expansion from 2.0 Mtpa to approximately 4.0 Mtpa is underway.
'After just returning from site, I am very pleased that the mill expansion is underway and that the operation is running well,' said Alan R. Hill, Executive Chairman and Chief Executive Officer. 'I am excited with the exceptional opportunities we see on our extensive land package,' added Mr. Hill.
Demerger from Mineral Deposits Limited
On November 23, 2010, Teranga completed the indirect acquisition of the Sabodala gold mine and a regional exploration package by way of a demerger from MDL. As part of the Demerger, certain assets consisting of:
-- all of the issued and outstanding shares of Sabodala Gold (Mauritius)
Limited, which holds a 90% interest in the Sabodala Gold Operations SA
('SGO'), the holder of the Sabodala gold mine and a 100% interest in the
Sabodala Mining Company SARL, an exploration entity which holds the
regional land package;
-- all of the issued and outstanding shares of SGML (Capital) Limited; and
-- 18,699,500 common shares of Oromin Explorations Ltd., originally held by
MDL;
were transferred to Teranga in consideration for the issuance of 200,000,000 common shares of Teranga to MDL (approximately 160,000,000 of such common shares were then in specie distributed to MDL's shareholders) and the assumption of a C$50 million promissory note owing to MDL. Following the completion of the Demerger, the C$50 million promissory note owing to MDL was repaid by Teranga from the IPO proceeds.
Financial Performance
-- For the three months ended December 31, 2010, the consolidated net loss
of the Company was $4.4 million. The net loss for the quarter was
largely due to unrealized losses on gold hedge contracts of $6.3
million, stock based compensation expense of $1.7 million, expensed
exploration expenditures of $1.3 million and administration expenses of
$1.0 million, partially offset by oil hedge unrealized gains of $1.3
million and gross profit of $4.7 million.
-- During the quarter 11,000 ounces were delivered into gold hedge
contracts at $846 per ounce and 5,592 ounces of gold were sold into the
spot market at an average price of $1,388 per ounce resulting in an
average realized price for the quarter of $1,028 per ounce.
-- From the date of the demerger to December 31, 2010 the unrealised loss
on the gold hedge contracts totalled $6.3 million resulting from the
non-cash impact of the mark-to-market of 235,500 ounces of gold at a
quarter end spot price of $1,408 per ounce. The total mark-to-market
loss increased to $138 million as the average forward price of the
remaining contracts is $834 per ounce.
-- Exploration and evaluation expenditures totalled $1.3 million for the
quarter ended December 31, 2010 reflecting regional exploration costs
incurred during the quarter related to three drill programs as well as
target identification work underway.
Liquidity and Capital Resources
-- During the quarter ended December 31, 2010, the Company invested $2.1
million in capital expenditures, mine development and mine site
exploration. The majority of the projected capital expenditures in
calendar 2011 and 2012 are in respect of the mill expansion and mine
site exploration.
-- At December 31, 2010, the Company had cash and cash equivalents
including restricted cash of $82.8 million.
-- The Company's total planned capital expenditures for fiscal 2011, with a
focus on the plant expansion at the Sabodala mine site and mine site
exploration, is expected to total $35 million.
-- During the quarter, before the date of the demerger, SGO deferred gold
hedge contracts that were due for delivery by November 2010 at a forward
price of $846 per ounce to 2013, to sell all gold production at the
higher spot price of gold.
-- As of the end of the quarter December 31, 2010, the Company delivered
11,000 ounces into forward sales contracts. A further 7,000 ounces are
due by February 17th, 2011, as per the forward sales contract schedule.
The Company does not anticipate any further deferrals of hedge contracts
in 2011.
-- Looking beyond 2011, Teranga's cash flows from operations are expected
to increase with the expansion of the Sabodala mill and are expected to
be sufficient to support currently planned expansion and growth.
Review of Operations
-- Gold production for the quarter ended December 31, 2010 was 33,648
ounces at total cash costs of $775 per ounce. Gold production for the
period from November 23, 2010, the date of demerger from MDL to quarter
end, was 16,920 ounces at total cash costs of $632 per ounce.
Plant Expansion
-- The Sabodala gold plant expansion is underway to increase capacity from
2 million tonnes per annum to approximately 4 million tonnes per annum.
Once expanded, the mine is expected to produce approximately 200,000
ounces of gold per annum up from the expected 130,000 ounces of gold in
fiscal 2011.
-- The plant expansion is expected to be completed early in the first
quarter of calendar 2012. The completion was pushed back from December
31, 2011 due to a 4 week delay in the delivery of the new ball mill from
the manufacturer. The estimated capital costs for the plant expansion
totals approximately $55.9 million.
Mine Lease Exploration
-- A total of ten target areas have been selected for drill testing on the
Sabodala mining concession. These need to be systematically drilled to
sufficient depth and density to evaluate the extent of mineralization
available.
-- During the quarter, the focus was on the Sambaya Hill prospect, located
between the Masato deposit of Oromin and the Sabodala deposit, and 'the
Corridor', the northerly extension of the structural system that defines
the limits of the Sabodala gold deposit.
-- There were two drill rigs operating, one RC and one diamond on the
mining lease during the quarter and the plan calls for two more drill
rigs, one RC and one diamond, to be added in which the quarter ending
March 31, 2011. A third rig is now on site and the fourth rig is
expected before the end of the quarter ending March 31, 2011. A $5.5
million program is budgeted for the mine lease, with a total of 41,000m
of drilling expected to be completed by the end of June 2011.
Regional Exploration
-- During the quarter, the Company received approval for its 3 exploration
permits which were under application.
-- The Company will need to spend approximately $3.5 million over the next
three years to increase its joint venture position to 80% on three of
its exploration concessions with Axmin Inc. after Axmin gave notice in
the quarter that it would not participate.
-- The Company has committed to significantly increase its exploration
program by spending approximately $13.5 million on its regional
concessions. The program will include over 100,000m of RAB, 60,000m of
RC and over 10,000m of diamond drilling. Five drill rigs are now active
on the regional concessions up from three at quarter end. Three
additional drill rigs are scheduled to arrive before the end of the
March quarter to complete this program by the end of September 2011.
About TERANGA
Teranga Gold Corporation is a Canadian-based gold company listed on the Toronto Stock Exchange (TSX: TGZ) and Australian Securities Exchange (ASX: TGZ). Teranga is principally engaged in the production and sale of gold, as well as related activities such as exploration and mine development.
Teranga was created to acquire indirectly the Sabodala gold mine and a large regional exploration land package, located in Senegal, West Africa, from Mineral Deposits Limited. Management believes the mine operation, together with the Company's prospective 1,488 km2 land package, provides the basis for growth in reserves, production, earnings and cash flow as new discoveries are made and processed through the Company's existing mill.
The Sabodala Gold Operation, which came into operation in 2009, is located 650 kilometres east of the capital Dakar within the West African Birimian geological belt in Senegal, and about 90 kilometres from major gold mines and discoveries in Mali.
The Company's mission is to create value for all of its stakeholders through responsible mining. Its vision is to explore, discover and develop gold mines in West Africa, in accordance with the highest international standards, and to be a catalyst for sustainable economic, environmental and community development. All of its actions from exploration, through development, operations and closure will be based on the best available techniques.
Forward Looking Statements
Certain information included in this press release, including any information as to the Company's strategy, projects, exploration programs, joint venture ownership positions, plans, future financial or operating performance and other statements that express management's expectations or estimates of future performance, constitute 'forward-looking statements'. The words 'believe', 'expect', 'will', 'intend', 'anticipate', 'project', 'plan', 'estimate', 'on track' and similar expressions identify forward looking statements. Such forward-looking statements are necessarily based upon a number of estimates, assumptions, opinions and analysis made by management in light of its experience that, while considered reasonable, may turn out to be incorrect and involve known and unknown risks, uncertainties and other factors, in each case that may cause the actual financial results, performance or achievements of the Company to be materially different from the Company's estimated future results, performance or achievements expressed or implied by those forward-looking statements. Such forward-looking statements are not guarantees of future performance.
These assumptions, risks, uncertainties and other factors include, but are not limited to: assumptions regarding general business and economic conditions; conditions in financial markets and the future financial performance of the company; the impact of global liquidity and credit availability on the timing of cash flows and the values of assets and liabilities based on projected future cash flows; the supply and demand for, deliveries of, and the level and volatility of the worldwide price of gold or certain other commodities (such as silver, fuel and electricity); fluctuations in currency markets, including changes in U.S. dollar and CFA Franc interest rates; risks arising from holding derivative instruments; adverse changes in our credit rating; level of indebtedness and liquidity; ability to successfully complete announced transactions and integrate acquired assets; legislative, political or economic developments in the jurisdictions in which the Company carries on business; operating or technical difficulties in connection with mining or development activities; employee relations; availability and costs associated with mining inputs and labor; the speculative nature of exploration and development, including the risks of obtaining necessary licenses and permits and diminishing quantities or grades of reserves; changes in costs and estimates associated with our projects; the accuracy of our reserve estimates (including with respect to size, grade and recoverability) and the geological, operational and price assumptions on which these are based; contests over title to properties, particularly title to undeveloped properties; the risks involved in the exploration, development and mining business, as well as other risks and uncertainties which are more fully described in the Company's prospectus dated November 11, 2010 and in other Company filings with securities and regulatory authorities which are available at www.sedar.com. Accordingly, readers should not place undue reliance on such forward looking statements. Teranga expressly disclaims any intention or obligation to update or revise any forward looking statements, whether as a result of new information, future events or otherwise, except in accordance with applicable securities laws.
MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE THREE MONTHS ENDED DECEMBER 31, 2010
This Management's Discussion and Analysis ('MD&A') provides a discussion and analysis of the financial condition and results of operations to enable a reader to assess material changes in the financial condition and results of operations as at and for the three months ended December 31, 2010. The MD&A should be read in conjunction with the unaudited consolidated financial statements and notes thereto ('Statements') of Teranga Gold Corporation ('Teranga' or the 'Company') as at and for the three months ended December 31, 2010. The Company's Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards ('IFRS').
All amounts included in this MD&A are in United States dollars, unless otherwise specified. This report is dated as of February 9, 2011, and the Company's public filings can be reviewed on the SEDAR website (www.sedar.com).
The MD&A contains references to Teranga using the words 'we', 'us', 'our' and similar words and the reader is referred to using the words 'you', 'your' and similar words.
OVERVIEW OF THE BUSINESS
Teranga is a Canadian-based gold company which was created to indirectly acquire the Sabodala gold mine and a large regional exploration land package, located in Senegal, West Africa, and the shares held in Oromin Explorations Ltd. ('Oromin') from Mineral Deposits Limited ('MDL'), collectively referred to as the Sabodala Gold Assets. Management believes the mine operation, together with the Company's prospective 1,488 km(2)land package, provides the basis for growth in reserves, production, earnings and cash flow as new discoveries are made and processed through the Company's existing mill.
The Sabodala gold mine, which came into operation in 2009, is located 650 kilometres east of the capital of Senegal, Dakar within the West African Birimian geological belt in Senegal, and about 90 kilometres from major gold mines in Mali. As of June 30, 2010, the Sabodala gold mine had mineral reserves of 1.46 million ounces of gold included in measured and indicated resources of 2.25 million ounces of gold and inferred mineral resources of 0.77 million ounces of gold. In addition, the Company holds one of the largest exploration land positions in south eastern Senegal consisting of ten exploration permits comprising 1,455 km(2).
The Company's mission is to create value for all of its stakeholders through responsible mining. Its vision is to explore, discover and develop gold mines in West Africa, in accordance with the highest international standards, and to be a catalyst for sustainable economic, environmental and community development. All of its actions from exploration, through development, operations and closure will be based on the best available techniques.
GROWTH STRATEGY
The Company's goal is to grow both through internal exploration and strategic acquisitions. The Company's first priority is to devote significant resources to explore its land package with a view to leveraging the existing infrastructure and processing plant which is in the process of being expanded from a nominal capacity of 2.0 Mtpa to approximately 4.0 Mtpa. Once expanded, the mine is expected to produce approximately 200,000 ounces of gold per annum.
In addition to the exploration program on the Company's 33km(2)Sabodala mining concession, the Company has active drill programs underway on targets located on the Company's exploration permits that management believes have strong potential. There are 27 targets that have been identified on the Company's 1,455 km(2)regional land package that are expected to be drill tested by September 2011.
Management believes that the regional land package has significant prospective potential and therefore intends to pursue an extensive multi-year exploration program designed to test a number of targets that have already been identified as requiring additional analysis, as well as identify new targets for testing.
Beyond the current regional land package, the Company expects to focus on acquiring additional exploration licenses in Senegal. The Company also expects to augment its internal growth by strategic acquisitions of companies or assets including operating assets that have growth potential or attractive exploration packages in West Africa.
Management believes the operating team at Sabodala has created the template for developing and operating modern mines in Africa by focusing on creating value for all stakeholders through: job creation; the advancement and integration of the local workforce into the management and operations of the Company; and, working with all levels of government to assist in community development initiatives that are driven by a bottom up approach to both community and sustainable development initiatives.
QUARTER HIGHLIGHTS
-- On November 23, 2010, Teranga completed the acquisition of the 33km2
Sabodala gold mine and a 1,455 km2 land package by a way of demerger
from MDL and acquired 18,699,500 common shares of Oromin Explorations
Ltd. from MDL.
-- On December 7, 2010 Teranga completed an initial public offering in
Canada and Australia issuing 45.6 million common shares for total gross
proceeds of C$136.5 million.
-- A C$50 million loan, part of the consideration for the transfer of the
Sabodala Gold Assets to Teranga from MDL, was repaid as of December 31,
2010.
-- Cash and cash equivalents including restricted cash totalled $82.8
million at quarter end.
-- Gold production for the three months ended December 31, 2010 was 33,648
ounces at total cash costs of $775 per ounce.
-- Gold production for the period from November 23, 2010, the date of
demerger from MDL, to December 31, 2010 was 16,920 ounces at total cash
costs of $632 per ounce.
-- During the period ended December 31, 2010, 11,000 ounces were delivered
into gold hedge contracts leaving 235,500 ounces outstanding.
-- Revenue of $17.1 million represents a shipment of 16,592 ounces of gold
in the period from November 23, 2010 to December 31, 2010, out of which
11,000 were delivered into forward sales contracts at $846 per ounce and
5,992 ounces were sold into the spot market at an average price of
$1,388 per ounce.
-- Sabodala gold mine is on track to produce 130,000 ounces for the fiscal
2011 year at total cash costs of $800 to $825 per ounce.
-- For calendar 2011, the Sabodala gold mine is expected to produce 130,000
ounces of gold at total cash costs of $800 to $825 per ounce.
-- Capital expenditures for the balance of fiscal 2011 are expected to
total $35 million, while capital expenditures for calendar 2011 are
expected to total $60 million, primarily for the mill expansion and
capitalized mine site exploration costs.
-- Five of the expected 12 drill rigs were operating on the mine license
and regional land package during the quarter with the balance expected
before the end of March 2011, to complete the mine site and regional
exploration programs, which are expected to total $25 million for
calendar 2011.
-- The plant expansion from 2.0 Mtpa to approximately 4.0 Mtpa is underway.
DEMERGER FROM MINERAL DEPOSITS LIMITED ('Demerger')
On November 23, 2010, Teranga completed the indirect acquisition of the Sabodala gold mine and a regional exploration package by a way of demerger from MDL. As part of the demerger, all of the issued and outstanding shares of Sabodala Gold (Mauritius) Limited, which holds a 90% interest in the Sabodala Gold Operations SA ('SGO'), the holder of the Sabodala gold mine, and a 100% interest in the Sabodala Mining Company SARL, an exploration entity, all of the issued and outstanding shares of SGML (Capital) Limited and 18,699,500 common shares of Oromin, originally held by MDL, were transferred to Teranga in consideration for the issuance of 200,000,000 common shares to MDL and C$50 million in satisfaction of a promissory note owing to MDL.
Basis of presentation
The transfer of the Sabodala Gold Assets into the Company is considered a transaction between entities under common control. As such, the Company has presented its financial results on a continuity-of-interests basis whereby the carrying amounts of the Sabodala Gold Assets reflect those previously reported in the financial statements of MDL. Accordingly, the consolidated statement of comprehensive income reflects the corporate activities since incorporation of Teranga on October 1, 2010 and the operations of the Company from November 23, 2010. The comparable period for 2009 is not presented. The production statistics in this MD&A reflect operations results for the full three-month period ended December 31, 2010 as well as operations results from November 23, 2010, the date the demerger was completed, to the end of the reporting period.
CONSOLIDATED RESULTS
Management's Discussion and Analysis Three months ended December 31, 2010
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For the three months ended December 31: 2010
U.S.$'000
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Revenue 17,139
Cost of sales (12,388)
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Gross profit 4,751
Other income 31
Administration expenses (1,017)
Stock-based compensation (1,707)
Finance costs (148)
Exploration and evaluation expenditures (1,266)
Net foreign exchange losses (305)
Gold hedge unrealized losess (6,297)
Oil hedge unrealized gains 1,313
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Loss before tax (4,645)
Income tax benefit 231
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Loss for the period (4,414)
Loss atributable to non-controlling interest (259)
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Loss attributable to owners to the parent (4,155)
Review of Financial Results
Net Loss for the Period
For the three months ended December 31, 2010, the consolidated net loss of the Company was $4.4 million. The net loss for quarter was largely due to unrealized losses on gold hedge contracts of $6.3 million, stock based compensation expense of $1.7 million, expensed exploration expenditures of $1.3 million and administration expense of $1.0 million, partially offset by oil hedge unrealized gains of $1.3 million and gross profit of $4.7 million.
Revenue
During the quarter 11,000 ounces were delivered into gold hedge contracts at $846 per ounce and 5,592 ounces of gold was sold into the spot market at an average price of $1,388 per ounce resulting in an average realized price for the quarter of $1,028 per ounce.
Cost of Sales
Cost of sales for the period ended December 31, 2010 totalled $12.4 million, consisting of mine production costs, realized gains on energy swap contracts, depreciation and amortization, royalties, rehabilitation costs and inventory costs.
Mine production costs totalled $10.2 million for the period ended December 31, 2010.
Depreciation and amortization totalled $3.6 million.
The realized gain on energy swap contracts totalled $0.3 million for the period as oil prices increased to $85 per barrel at the date of delivery, which was $15 above our oil hedge contract price of $70 per barrel. The Company has hedged 20,000 barrels per quarter through June 30, 2012 representing approximately half of quarterly consumption.
Royalties totalled $0.7 million, which was 0.4 million higher than budget due to higher gold sales and higher spot gold price than planned for the period as gold prices averaged $1,388 per ounce.
Administrative Expense
Administration expenses of $1.0 million comprise $0.1 million for corporate employee costs and $0.9 million for overheads. Administration expenses represent costs from the beginning of quarter. Corporate administration expenses are expected to average about $2 million per quarter as the Company fills out its management team and opens an office in Dakar, Senegal.
Stock Based Compensation
During the quarter ended December 31, 2010 a total of 13,805,000 common share stock options were granted and held by directors, officers, employees and consultants. No stock options were exercised, forfeited or cancelled during the three-month period ended December 31, 2010.
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For the three months ended December 31, 2010
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U.S.$'000
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Stock option compensation - expensed 1,707
The estimated fair value of stock options is amortized over the period in which the options vest which is normally three years.
All of the options granted during the quarter ended December 31, 2010 vest over a three-year period.
Net Foreign Exchange Loss
Foreign exchange losses for the quarter ended December 31, 2010 totalled $0.3 million related mostly to realized losses from Sabodala gold mine operating costs recorded in the local currency and translated into a US dollar functional currency.
Gold Hedging Unrealized Loss
From the date of the demerger to December 31, 2010 the unrealized loss on the gold hedge contracts totalled $6.3 million resulting from the non-cash impact of the mark-to-market of 235,500 ounces of gold to a spot price of $1,408 per ounce. As a result, the total mark-to-market loss increased to $138 million as the average forward price of the remaining contracts of $834 per ounce is marked to the period end spot price of $1,408.
Oil Hedging Unrealized Gain
Unrealized oil hedge gains totalled $1.3 million for the December quarter from the non-cash impact of the mark-to- market of 180,000 barrels of fuel oil outstanding at a hedge price of $70 per barrel compared to a $91 per barrel spot price at quarter end.
Finance costs
Finance costs for the three months ended December 31, 2010 of $0.1 million reflect interest costs related to the equipment loan outstanding, amortization of capitalized borrowing costs and bank charges.
Exploration and Evaluation Expenditures
Exploration and evaluation expenditures totalled $1.3 million for the quarter ended December 31, 2010 reflecting regional exploration costs incurred during the quarter related to three drill programs as well as target identification work underway.
Outlook
The Sabodala mine is on track to meet its production target of 130,000 ounces of gold for fiscal 2011 at an estimated total cash cost of $800 to $825 per ounce. Gold production for the 2011 calendar year is expected to also total 130,000 ounces of gold at total cash cost of $800 to $825 per ounce. Capital expenditures for the balance of fiscal 2011 are expected to total approximately $35 million, including $5.5 million of capitalized mine site exploration costs. For calendar 2011, capital expenditures are expected to total approximately $60 million, primarily for the plant expansion and capitalized mine site exploration costs of $8.5 million. The regional exploration budget through the end of fiscal 2011 is expected to total approximately $9 million, while the budget for calendar 2011 is expected to total $16.5 million. In total, between capitalized mine site exploration and regional exploration expenditures, the Company expects to spend approximately $25 million in calendar 2011.The mine site and regional exploration budgets could be increased if results warrant additional activities. The corporate budget for the Toronto head office is expected to total approximately $5.0 million for fiscal 2011. For calendar 2011, corporate overheads, including setting up a Dakar, Senegal office are expected to total $8 million.
Review of Operations
Gold production for the quarter ended December 31, 2010 was 33,648 ounces at total cash costs of $775 per ounce. Gold production for the period from November 23, 2010, the date of demerger from MDL, was 16,920 ounces at total cash costs of $632 per ounce.
2010 Production Statistics
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For the three months
ended
Period from November
Quarter ended 23, 2010 to December
December 31, 2010 31, 2010
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Ore mined ('000t) 966 547
Waste mined ('000t) 4,158 2,058
Total mined ('000t) 5,124 2,605
Strip ratio waste/ore 4.30 3.76
Ore processed ('000t) 587 222
Head grade (g/t) 2.09 2.47
Gold recovery (%) 91 92
Gold produced (1) (oz) 33,648 16,920
Gold sold (oz) 33,456 16,592
Average price received $/oz 1,184 1,028
Total cash cost (incl.
royalties) $/oz 775 632
Notes:
(1) Gold produced is gold poured and does not include gold-in-circuit at
period end.
Mining
Total tonnes mined was 9 % lower than budget for the quarter due to a 16 % decrease in waste tonnes mined as compared to budget. The lower mining rate was partially offset by a 53 % increase in ore tonnes mined, as mining in a higher grade ore zone of phase 2 deferred from the September 2010 quarter was mined during the December quarter. The mining rate increased through the quarter as the rainy season came to an end, two new drills were put in place to overcome previous drilling issues and additional mobile equipment was commissioned as part of the overall mine/mill expansion. As a result of the high ore mining rate and low waste tonnes mined, the strip ratio was 4.3:1 (62%) lower than budgeted for the quarter.
Milling
Mill throughput for the quarter contained a higher portion of harder ore than was planned resulting in marginally below budget (3%) throughput but above name plate capacity. The grade of the hard ore mined from the high grade area of the pit increased the mill feed grade above budget (11%). The recovery rate was marginally ahead of plan.
Gold Production
Gold production for the three months ended December 31, 2010 was 4 %t higher than plan due to higher ore grades processed during the quarter, but was partially offset by lower than planned throughput. Gold production for the period from November 23, 2010, the date of demerger from MDL, was 16,920 ounces of gold.
Realized Gold Price
During the quarter 11,000 ounces were delivered into hedge contracts at $846 per ounce while 5,592 ounces of gold were sold into the spot market at an average price of $1,388 per ounce resulting in an average realized price for the quarter of $1,028 per ounce.
Total Cash Costs
Total cash costs (including royalties) of $775 per ounce were (5 %) lower than budget due to lower mining costs as fewer waste tonnes were mined than planned. Total cash costs (including royalties) for the period from November 23, 2010, the date of demerger from MDL, was $632 per ounce. The lower total cash costs for the period after the demerger reflect a 33% increase in grade processed during the period, as mining was focused in a higher grade area of the pit.
Plant Expansion
The Sabodala gold plant expansion is underway to increase capacity from 2 Mtpa approximately 4 Mtpa. Once expanded, the mine is expected to produce approximately 200,000 ounces of gold per annum up from the expected 130,000 ounces in fiscal 2011.
Additions to the processing plant will include a partial secondary crushing facility and new stockpile/reclaim facilities to debottleneck the semi-autogenous mill, a second ball mill and additional carbon-in-leach capacity. The Sabodala power station will be expanded to 36 Mw capacity with the addition of one new 6 Mw unit. The requirements include cooling and exhaust pipe work, fuel delivery pipe work and a step-down transformer.
The plant expansion is expected to be completed early in the first quarter of calendar 2012. The completion was pushed back from December 31, 2011 due to a four week delay in the delivery of the ball mill from the manufacturer. The estimated capital costs for the plant expansion total $55.9 million.
During the quarter ended December 31, 2010, the Company increased its mining capacity ahead of the proposed expansion of the Sabodala gold plant. The additional mining equipment arrived at site early in the quarter and most of the equipment was operational by the end of November 2010. This equipment, costing approximately $15 million, was financed by an increase in the fleet lease facility with Societe Generale.
Mine Lease Exploration
A total of ten target areas have been selected for drill testing on the 33km(2)Sabodala mining concession. These need to be systematically drilled to sufficient depth and density to evaluate the extent of mineralization available.
During the quarter, the focus was on the Sambaya Hill prospect, located between the Masato deposit of Oromin and the Sabodala deposit, and 'the Corridor', the northerly extension of the structural system that defines the limits of the Sabodala gold deposit.
Sambaya Hill
A portion of the drill program to define the structural framework of the Sambaya target was completed. This target is defined by a 1km long geochemical anomaly that coincides with an interpreted structural complexity along the Niakafiri structure.
'The Corridor'
Drilling continued in the structural corridor north of the Sabodala open pit. It produced positive near surface results along Ayoub's Thrust, a feature that defines the western limit of the Corridor.
There were two drill rigs operating, one RC and one diamond on the mining lease during the quarter and the plan calls for two more drill rigs, one RC and one diamond, to be added in this quarter. A $5.5 million program is budgeted for the mine lease, with a total of 41,000m of drilling expected to be completed by the end of June 2011.
Regional Exploration Interests
The Company has interests (ranging from 70% joint venture interests to 100% interests) in ten exploration permits that together equate to a regional land package in south eastern Senegal around Sabodala of 1,455 km(2).
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Teranga Anniversary
Exploration permit interest Area (km2) date
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Dembala Berola (1) 100% 244 Jan 2012
Massakounda (1) 100% 186 Jan 2012
Bransan 70% 261 Oct 2012
Makana 80% 125 Nov 2010
Sabodala NW earning 80% 120 May 2012
Heremakono earning 80% 215 Oct 2011
Sounkounkou earning 80% 213 Sep 2012
Bransan Sud 100% 7 Nov 2013
Sabodala Ouest 100% 3 Nov 2013
Saiansoutou 100% 81 Nov 2013
Note (1) 2% royalty is payable to Rokamco SA.
Historically, only routine early stage exploration work has been undertaken across the exploration land package. Work done has included geochemical soil sampling, termite mound sampling, rock chip surveys, airborne magnetic and radiometric surveys, geological mapping, trenching, RAB drilling, and some RC and diamond drilling.
From 2007 until late 2009, no significant drilling was undertaken on the permits as the Company focused its resources on the delination of the Sabodala ore body and development of the mine and mill facility. Exploration programs on certain permits generally ramped up during the second half of the 2010 financial year.
Many geochemical anomalies have been identified within the laterites and work programs are intended to evaluate if these various targets are reflective of actual mineralization within the bedrock or are just transported gold in the laterites or similar. A detailed aeromagnetic survey has also identified many structurally controlled areas to be followed up with geochemistry and drilling.
Gold anomalies in laterites are not considered material until they have been confirmed by drilling into the underlying bedrock. Accordingly, a significant proportion of the current work focuses on extensive RAB drilling programs and trenching to identify bedrock targets which will then be followed up by RC drilling where appropriate.
Initial assaying of drill samples is undertaken at the on-site SGS facility using atomic absorption spectroscopy and acid leach extraction methods. Waste bounded mineralized interval pulps are then sent to Kayes in Mali for fire assay as a cross-check. To date the results are comparable.
Regional Exploration
During the quarter, the Company received approval for its 3 exploration permits which were under application. As such, the regional land package consists of 10 exploration permits comprising 1,455km(2).
The company will need to spend approximately $3.5 million over the next three years to increase its joint venture position to 80% on three of its exploration concessions with Axmin Inc. after Axmin gave notice in the quarter that it would not participate.
Exploration drilling on the regional land holding commenced during the December quarter. Three drill rigs were utilized in the start up phase of this program:
-- A RAB program commenced with one rig over the extensive Tourokhoto
surface gold geochemical anomaly. This program will define the bedrock
gold bearing zones responsible for the wide geochemical gold anomalies
and provide targets for additional follow up diamond and RC drilling.
-- A diamond rig commenced with a program of holes over the key structural
positions on the Tourokhoto prospect area.
-- An RC program is underway at Goundamekho and Dembala Hill.
The Company has committed to significantly increase its exploration program by spending $13.5 million on its regional concessions. The program will include over 100,000m of RAB, 60,000m of RC and over 10,000m of diamond drilling. Five additional drill rigs are scheduled to arrive during the next quarter to complete this program by the end of September 2011.
CASH FLOW
----------------------------------------------------------------------------
For the three months ended December 31, 2010
---------------------
U.S.$'000
----------------------------------------------------------------------------
Cash flow
Operating activities (224)
Investing activities (41,765)
Financing activities 117,488
---------------------
Change in cash and cash equivalents during period 75,499
Cash and cash equivalents - beginning of period -
Effect of exchange rates on holdings 334
Cash and cash equivalents - end of period 75,833
Net cash used in operating activities during the three months ended December 31, 2010 of $0.2 million represents $13 million received from gold sales which was offset by production costs of $10 million, $1 million of administration expenses and $1 million of inventory purchases.
Net cash used in investing activities for the three month period ended December 31, 2010 was $41.8 which is mostly due to repayment of a promissory note to MDL of C$50 million, partially offset by cash acquired.
Net cash provided by financing activities for the three months ended December 31, 2010 was $118 million resulting from the issuance of 45.6 million shares for gross proceeds of $136.5 million through IPO completed on December 7, 2010 partially offset by $1.7 million repayment of the Mining Fleet Lease facility. The share issuance costs related to the public offerings were $15.8 million.
LIQUIDITY AND CAPITAL RESOURCES
During the period ended December 31, 2010, the Company invested $2.1 million in capital expenditures, mine development and exploration. The majority of the projected capital expenditures in 2011 and 2012 are in respect of the mill expansion and exploration.
At December 31, 2010, the Company had cash and cash equivalents including restricted cash of $82.8 million. In the opinion of management, the cash and cash equivalents at December 31, 2010, together with future cash flows from operations is sufficient to support the Company's commitments. The Company's total planned capital expenditures for fiscal 2011, with a focus on the plant expansion at the Sabodala mine site, is expected to total at least $35 million.
The Company strengthened its balance sheet during the quarter with the IPO in Canada and Australia completed on December 7, 2010. In Canada, after the exercise of the over-allotment option, a total of 36,617,900 common shares were issued for gross proceeds of C$109.9 million. In Australia, 9,000,000 common shares were issued for gross proceeds of A$26.7 million. The Company then used C$50 million from the net proceeds of the IPO to repay a loan to MDL, which was part of the consideration for the transfer of the Sabodala Gold Assets to Teranga from MDL.
During the quarter, gold hedge contracts that were due for delivery by November 17, 2010 at a forward price of $846 per ounce were deferred to 2013, allowing Sabodala Gold Operations ('SGO') to sell all of its gold production into the higher spot market. The deferral of hedge contracts was necessary to ensure that SGO had sufficient resources to fund its operations, mill expansion and the exploration program. The proceeds received on the completion of the IPO were at the top end of the offering range previously announced by the Company in its prospectus, therefore providing sufficient liquidity to fund these activities and therefore no longer requiring any further gold hedge contract deferrals. As a result, as of the end of the quarter ended December 31, 2010, the Company delivered 11,000 ounces into the gold hedge contract dated February 17th, 2011. The Company does not anticipate any further deferrals of hedge contracts in 2011.
Looking beyond 2011, Teranga's cash flows from operations are expected to increase with the expansion of the Saboldala mill and are expected to be sufficient to support the currently planned expansion and growth.
Off-Balance Sheet Arrangement
The Company has no off balance sheet arrangements.
FINANCIAL INSTRUMENTS
The Company manages its exposure to financial risks - including liquidity risk, credit risk, currency risk, market risk, interest rate risk and price risk - through a risk mitigation strategy. The Company has entered into financial instruments including gold sales and oil hedge contracts. All of the transactions undertaken are to support the Company's ongoing business. Teranga does not acquire or issue derivative financial instruments for trading or speculation.
A condition of the Project Finance Facility provided by Macquarie Bank Limited was the establishment of gold forward sales contracts and oil energy swaps to manage exposure to commodity price risk.
Following a restructure late in 2008, a total of 399,000 ounces of gold was committed forward for delivery between May 2009 and August 2013 at an average delivery price of $834 per ounce. Deliveries into the hedge position to date of 163,500 ounces have reduced the hedge balance to 235,500 ounces at December 31, 2010. The mark-to-market at the reporting date spot price of $1,408 was negative $138 million.
The Company has a hedge agreement with respect to the oil price in order to manage its exposure to commodity risk. The Company hedged 80,000 barrels per annum for four years commencing April 1, 2009 at a flat forward price of $70 per barrel. At December 31, 2010, the remaining 180,000 barrels were hedged with a mark-to-market gain of $4.2 million at the reporting date spot price of $91 per barrel.
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. The Company prepares detailed budgets and forecasts to determine the funding requirements for operations, capital expenditure programs and expansion programs. The Company believes that its expected cash flow from operations, along with its cash holdings are sufficient to meet its 2011 obligations including the mill expansion.
As at December 31, 2010, the Company had $82.8 million in cash and cash equivalents including restricted cash.
Working capital requirements
The Company's working capital requirements primarily relate to the mining costs of extracting ore from the Sabodala gold mine and then the costs involved in processing the ore to remove the gold, before the gold itself is sold.
As at December 31, 2010, the Company had the following payments due on contractual obligations and commitments:
----------------------------------------------------------------------------
Payments Due By Period (U.S.$Millions)
--------------------------------------------------
greater
Contractual Obligation and less than than 5
Commitments Total 1 year 1-3 years 4-5 years years
Mining Fleet Lease
Facility(1) 23.6 9.1 14.5 - -
----------------------------------------------------------------------------
Exploration commitments 8.1 2.0 6.1 - -
--------------------------------------------------
Government of Senegal
payments(2) 4.6 2.6 2.0 - -
--------------------------------------------------
Other long term
obligations(3) 55.9 45.1 10.8 - -
----------------------------------------------------------------------------
Total 92.2 58.8 33.4 - -
----------------------------------------------------------------------------
Notes:
(1) In July 2010, an amended facility was concluded with a new limit of
$27.8 million to provide for the acquisition of additional mining
equipment associated with the Sabodala expansion ($15.1 million) and
the re-gearing of existing equipment ($2.2 million). The facility
contains a quarterly repayment schedule concluding with the final
payment on June 30, 2013. The facility is currently drawn down to $23.6
million.
(2) Comprises $4.1 million in four equal instalments over the first four
years of production to which an annual interest rate of 6.0% applies on
a reducing balance basis. The interest totals $0.5 million.
(3) Primarily includes the cost of expanding the Sabodala processing plant
from a nominal capacity of 2.0 Mtpa to approximately 4.0 Mtpa.
Sabodala Operating Commitments
The Company faces the following operating commitments in respect of the Sabodala gold operation:
-- Pursuant to the Company's Mining Concession, a royalty of 3% is payable
to the Government of Senegal based on the value of gold shipments,
evaluated at the spot price on the shipment date.
-- $425,000 per annum on social development of local authorities in the
surrounding Tambacounda region during the term of the Mining Convention.
-- $30,000 per year for logistical support of the territorial
administration of the region from date of notification of the Mining
Concession.
-- $200,000 per year of production on training of Directorate of Mines and
Geology officers and Mines Ministry.
-- $4.1 million payable to Government of Senegal over the first four years
of production.
Credit risk
Credit risk is the risk that the counterparty to a financial instrument will cause a financial loss for the Company by failing to discharge its obligations. Credit risk is primarily associated with its forward gold sales, trade receivables, and oil hedge contracts; however, it also arises on cash and cash equivalents. To mitigate exposure to credit risk on financial assets, the Company ensures that counterparties demonstrate minimum acceptable creditworthiness and to ensure liquidity of available funds.
Teranga monitors its financial assets. Gold sales are to made to large international financial institutions including those deliveries into the Company's forward sales contracts to Macquarie Bank Limited. Payment is received normally within approximately ten days of shipment. The historical level of defaults is negligible, and as a result, the credit risk associated with trade receivables at December 31, 2010 is considered minimal. The oil hedge contracts are also with large institutions. The Company invests its cash and cash equivalents with major financial institutions, and the credit risk associated with its investments is considered low.
As a result of the global financial crisis, many financial institutions have gone into bankruptcy or have been rescued by government agencies. As such, the Company is subject to the risk of loss on its deposits with financial institutions that hold the Company's cash. As at December 31, 2010, the Company's cash and cash equivalents were held by three major financial institutions as well as invested in Canadian government bonds.
Market risk
Market risk represents the potential loss that can be caused by a change in the market value of financial instruments. The Company's exposure to market risk is determined by a number of factors, including foreign exchange rates and commodity prices. The Company is exposed to movements in the gold price. As part of the risk management policy the Company has entered into gold forward sales contracts, and oil energy swaps to reduce exposure to unpredictable market fluctuations. The hedging program undertaken is structured with the objective of retaining as much upside to the gold and oil price as possible pursuant to the terms under the Company's Project Finance Facility. The Company has elected not to hedge account these instruments.
Currency risk
Currency risk is the risk that the fair values or future cash flows of the Company's financial instruments will fluctuate because of changes in foreign exchange rates. Exchange rate fluctuations may affect the costs that Teranga incurs in its operations. Gold is sold in U.S. dollars and the Company's costs are incurred principally in U.S. dollars and the CFA Franc, the national currency of Senegal. The Company also incurs Canadian dollar and Euro costs. The appreciation of non-U.S. dollar currencies against the U.S. dollar can increase the cost of gold production and capital expenditures in U.S. dollar terms. The Company also holds cash and cash equivalents that are denominated in non-U.S. dollar currencies that are subject to currency risk. Accounts receivable and other current and long-term assets are denominated in non-U.S. dollars.
The Company is exposed to currency risk through financial assets and liabilities denominated in currencies other than U.S. dollars at December 31, 2010. See Note 32(d) to the Unaudited Interim Consolidated Financial Statements of Teranga.
Teranga currently does not hedge to reduce risks associated with currency fluctuation.
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate due to changes in market interest rates. The Company has interest rate risk relating to its bank balances and external borrowings. See Note 32(e) to the Unaudited Interim Consolidated Financial Statements of Teranga.
The Company has elected not to actively manage its exposure to interest rate risk at this time.
Macquarie Bank Limited debt
The Company maintains an ongoing relationship with Macquarie Bank Limited resulting from its outstanding forward sales contracts with the bank. The financing is secured by, among other things, a fixed and floating charge over substantially all of SGO's assets, with the facility and security remaining in place until the hedge position is extinguished.
Societe Generale Mining Equipment Lease Facility
On July 9, 2010, SGML (Capital) Limited entered into an amended agreement with Societe Generale London to expand the facility to allow for the purchase of additional mining equipment. An amended facility was concluded with a new limit of $27.8 million. This facility contains a quarterly repayment schedule concluding with the final repayment on June 30, 2013. Interest is calculated using LIBOR plus a margin. The lease facility is secured by, among other things, the assets financed and currently has a balance of $23.6 million.
Price risk
Price risk is the risk that the fair value or future cash flows of the Company's financial instruments will fluctuate because of changes in market prices. Teranga's profitability depends on the price of gold, which is affected by numerous factors, such as the sale or purchase of gold by various central banks and financial institutions, interest rates, exchange rates, inflation or deflations in the value of the U.S. dollar and foreign currencies, global and regional supply and demand, and the political and economic conditions of the world's major gold-producing countries. A 10% increase or decrease in the price of gold would result in approximately a $9.6 million increase or decrease in revenue based on the expectations and assumptions it used in the 2011 outlook.
At present, the Company has 235,500 ounces of gold forward sales deliverable through August 2013 at an average price of $834 per ounce. The mark-to-market at the reporting date spot price of $1,408 was negative $138 million. A 10% increase or decrease in the price of gold would result in approximately a $33.7 million increase or decrease in gold hedge unrealized gains or losses.
The costs in relation to Teranga's production, development and exploration activities vary depending on the market prices of certain mining consumables, including heavy fuel oil. The Company's oil hedging program mitigates the increase or decrease to heavy fuel oil price fluctuations. Electricity is supplied by way of a power station on site, which increases the Company's reliance and dependence on heavy fuel oil.
CONTINGENT LIABILITIES
(a) The Company confirmed directly or via its holding subsidiaries that it
will continue to provide financial support to its subsidiaries to
enable them to meet their obligations as they fall due for a period of
not less than 12 months.
(b) There are no outstanding native title claims against the company which
could or would have a financial impact.
The directors are not aware of any other contingent liabilities at December 31, 2010.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The following are critical judgments that management has made in the process of applying accounting policies that have the most significant effect on the amounts recognized in the financial statements:
Fair value of derivative financial instruments
Management assesses the fair value of the Company's financial derivatives in accordance with the accounting policy stated in Note 3 to the Unaudited Interim Consolidated Financial Statements. Fair values have been determined based on well-established valuation models and market conditions existing at the reporting date. These calculations require the use of estimates and assumptions. Changes in assumptions concerning interest rates, gold prices and volatilities could have significant impact on comprehensive income due to the change in the fair value attributed to the Company's financial derivatives. When these assumptions change or become known in the future, such differences will impact asset and liability carrying values in the period in which they change or become known.
Ore reserves
Management estimates the Company's ore reserves based upon information compiled by Competent Persons as defined in accordance with the Australasian Code for Reporting Mineral Resources and Ore Reserves and Qualified Persons as defined in Canadian Securities Administrators National Instrument 43-101('NI 43-101'). The estimated quantities of economically recoverable reserves are based upon interpretations of geological models and require assumptions to be made regarding factors such as estimates of short and long-term exchange rates, estimates of short and long-term commodity prices, future capital requirements and future operating performance. Changes in reported reserve estimates can impact the carrying value of property, plant and equipment, provision for rehabilitation obligations, the recognition of deferred tax assets, as well as the amount of depreciation and amortization charged to the income statement.
Units of production
Management estimates recoverable reserves in determining the depreciation and amortization of mine assets. This results in a depreciation/amortization charge proportional to the depletion of the anticipated remaining life of mine production. Each item's life, which is assessed annually, has regard to both its physical life limitations and to present assessments of economically recoverable reserves of the mine property at which the asset is located. The calculations require the use of estimates and assumption, including the amount of recoverable reserve and estimates of future capital expenditure. The Company's units of production calculation is based on life of mine gold production.
Mine rehabilitation provision
Management assesses the Company's mine rehabilitation provision annually. Significant estimates and assumptions are made in determining the provisions for mine rehabilitation as there are numerous factors that will affect the ultimate liability payable. These factors include estimates of the extent and cost of rehabilitation activities, technological changes, regulatory change, cost increases, and changes in discount rates. Those uncertainties may result in future actual expenditures differing from the amounts currently provided. The provision at the balance date represents management's best estimate of the present value of the future rehabilitation costs required. Changes to estimated future costs are recognized in the statement of financial position by adjusting the rehabilitation asset and liability.
Impairment of assets
Management assesses each cash generating unit annually to determine whether any indication of impairment exists. Where an indicator of impairment exists, a formal estimate of the recoverable amount is made which is considered to be the higher of the fair value less costs to sell and value in use. These assessments require the use of estimates and assumptions such as long-term commodity prices, discount rates, future capital requirements, exploration potential and operating performance. Fair value is determined as the amount that would be obtained from the sale of the asset in an arm's length transaction between knowledgeable and willing parties. Fair value for mineral assets is generally determined as the present value of estimated future cash flows arising from the continued use of the asset, which includes estimates such as the cost of future expansion plans and eventual disposal, using assumptions that an independent market participant may take into account. Cash flows are discounted by an appropriate discount rate to determine the net present value. Management has assessed its cash generating units as being all sources of mill feed through a central mill, which is the lowest level for which cash flows are largely independent of other assets.
Production start date
Management assesses the stage of each mine development project to determine when a mine moves into the production stage. The criteria used to assess the start date of a mine are determined based on the unique nature of each mine development project. The Company considers various relevant criteria to assess when the mine is substantially complete, ready for its intended use and moves into the production phase. Some of the criteria include, but are not limited to, the following:
-- the level of capital expenditure compared to construction cost
estimates;
-- completion of a reasonable period of testing of the mine plant and
equipment;
-- ability to produce metal in saleable form; and
-- ability to sustain ongoing production of metal.
When a mine development project moves into the production stage, the capitalisation of certain mine construction costs ceases and costs are either regarded as inventory or expensed, except for capitalizable costs related to mining asset additions or improvements, underground mine development or mineable reserve development. It is also at this point that depreciation/amortization commences.
Fair value of stock options
Management assesses the fair value of stock options granted in accordance with the accounting policy stated in Note 3(f) to the interim consolidated financial statements. The fair value of the options granted is measured using Black- Scholes model, taking into account the terms and conditions upon which the options are granted. The calculation requires the use of estimates and assumptions. As there were no historical data available for determination of the fair value of the stock options granted, the Company developed its assumptions based on information available in the mining industry using comparable companies operating in the gold sector.
Functional currency
The functional currency of each of Company's entities is measured using the currency of the primary economic environment in which that entity operates. The functional currency of the corporate office is Canadian Dollar and the functional currency of all other entities within the group is United States Dollar. Functional currency of each entity was determined based on the currency that mainly influences sales prices for goods and services, labour, material and other costs.
CHANGE IN ACCOUNTING POLICIES
With effect from October 1, 2010, exploration and evaluation expenditures in relation to each separate area of interest are expensed as exploration costs in the consolidated statement of comprehensive income until the determination of the technical feasibility and the commercial viability of the project is completed. Under the Company's previous policy, exploration and evaluation expenditures were recognized as an exploration and evaluation asset in the year in which they incurred and assessed for impairment.
As a result of the change in the accounting policy, all exploration costs, including convention and concession costs, in the total amount of $27.3 million existing before October 1, 2010 and capitalized to exploration assets, were de- recognized and expensed through retained earnings. Management believes that the change in accounting policy results in reliable and more relevant information.
OUTSTANDING SHARE DATA
The Company's fully diluted share capital as at the report date was:
----------------------------------------------------------------------------
Outstanding
----------------------------------------------------------------------------
Ordinary shares 245,618,000
Stock options 13,805,000
----------------------------------------------------------------------------
Fully diluted share capital 259,423,000
----------------------------------------------------------------------------
Non-IFRS Financial Measures
The Company provides some non-IFRS measures as supplementary information that management believes may be useful to investors to explain Teranga's financial results.
----------------------------------------------------------------------------
Quarter ended
December 31, 2010
----------------------------------------------------------------------------
Gold produced oz 16,920
Gold sold oz 16,592
Cost of sales (U.S.$'000) 12,388
Less: depreciation and amortization (U.S.$'000) (3,557)
Less: rehabilitation (U.S.$'000) (57)
Other adjustments (U.S.$'000) 1,705
---------------------
Total cash cost of sales (U.S.$'000) 10,479
Total cash cost of sales per ounce sold U.S.$/oz 632
Note: The total cash cost per ounce produced totals $619.
TRANSACTION WITH RELATED PARTIES
During the three months ended December 31, 2010 Teranga entered into the following related party transactions:
Transactions between the group and its related parties
(a) Equity interests in related parties
Details of percentages of ordinary shares held in subsidiaries are disclosed in Note 31 to the financial statements.
(b) Transactions with key management personnel
Details of key management personnel compensation are disclosed in the Note 36 to the financial statements.
No loans were made to directors or director-related entities during this period.
Shareholdings
Teranga's 90% shareholding in SGO, the company operating the Sabodala gold mine, is held 89.5% through Mauritius holding company, SGML, and the remaining 0.5% by individuals nominated by SGML to be at the board of directors in order to meet the minimum shareholding requirements under Senegalese law for the members of the SGO board. On death or resignation, a share individually held would be transferred to another representative of SGML or added to its current 89.5% shareholding according to the circumstances at the time.
CEO/CFO certification
On December 7, 2010 the Company completed an IPO in Canada and Australia.
National Instrument 52-109F provides that for the first interim financial period following the completion of an IPO by Teranga Gold Corporation, the Company's Chief Executive Officer and Chief Financial Officer are not required to make a representation relating to the establishment and maintenance of controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer's GAAP.
RISKS AND UNCERTAINTIES
The Company is subject to various financial and operational risks and uncertainties that could have a significant impact on profitability and levels of operating cash flow. These risks and uncertainties include, but are not limited to: fluctuations in metal prices (principally the price of gold), capital and operating cost estimates, borrowing risks, production estimates, need for additional financing, uncertainty in the estimation of mineral reserves and mineral resources, the inherent danger of mining, infrastructure risk, hedging activities, insured and uninsured risks, environmental risks and regulations, government regulation, ability to obtain and renew licenses and permits, foreign operations risks, title to properties, competition, dependence on key personnel, currency, repatriation of earnings and stock exchange price fluctuations.
PROVEN AND PROBABLE MINERAL RESERVES
The proven and probable mineral reserves for the Sabodala and Niakafiri deposits were based on the measured and indicated resources that fall within the designed pits. The total proven and probable mineral reserves for the project at June 30, 2010 are set forth in the table below.
Mineral
reserves Proven Probable Proven and Probable
---------------------------------------------------------------
M Grade M oz M Grade M oz M Grade M oz
tonnes g/t Au Au tonnes g/t Au Au tonnes g/t Au Au
---------------------------------------------------------------
Sabodala 18.657 1.6 0.959 4.014 1.75 0.225 22.671 1.62 1.184
Niakafiri 0.231 1.76 0.013 6.98 1.17 0.262 7.212 1.19 0.275
Total 18.888 1.6 0.972 10.994 1.38 0.488 29.882 1.52 1.46
Dr. A. Ebrahimi, P.Eng. of AnoMine Tech, and a subconsultant to AMC Mining, who is independent of Teranga and MDL, and is a 'qualified person' (within the meaning of NI 43-101) has reviewed and accepts responsibility for the reserve estimate.
Corporate Directory
Directors
Alan Hill, Chairman and CEO
Richard Young, President and CFO
Christopher Lattanzi, Non-Executive Director
Oliver Lennox-King, Non-Executive Director
Alan Thomas, Non-Executive Director
Frank Wheatley, Non-Executive Director
Senior Management
Alan Hill, Chairman and CEO
Richard Young, President and CFO
Yani Roditis, Vice President Operations
Kathy Sipos, Vice President Investor Relations
David Savarie, Vice President, Legal and Corporate Secretary
Mark English, General Manager SGO
Martin Pawlitschek, Manager Regional Exploration SGO
Bruce Van Brunt, Manager Business Development SGO
Registered Office
121 King Street West, Suite 2600
Toronto, Ontario, M5H 3T9, Canada
T: +1 416-594-0000
F: +1 416-594-0088
E: generalmailbox@terangagold.com
W: www.terangagold.com
Senegal Office
Rue 26, N'Gor
Dakar, Senegal
T: +221 338 693 181
F: +221 338 603 683
Auditor
Deloitte & Touche LLP
Share Registries
Canada: Computershare Trust Company of Canada
T: +1 800 564 6253
Australia: Computershare Investor Services Pty Ltd
T: 1 300 850 505
Stock Exchange Listings
Toronto Stock Exchange, TSX code: TGZ
Australian Securities Exchange, ASX code: TGZ
About TERANGA
Teranga Gold Corporation is a Canadian-based gold company listed on the Toronto Stock Exchange (TSX: TGZ) and Australian Securities Exchange (ASX: TGZ). Teranga is principally engaged in the production and sale of gold, as well as related activities such as exploration and mine development.
Teranga was created to acquire indirectly the Sabodala gold mine and a large regional exploration land package, located in Senegal, West Africa, from Mineral Deposits Limited. Management believes the mine operation, together with the Company's prospective 1,488 km2 land package, provides the basis for growth in reserves, production, earnings and cash flow as new discoveries are made and processed through the Company's existing mill.
The Sabodala Gold Operation, which came into operation in 2009, is located 650 kilometres east of the capital Dakar within the West African Birimian geological belt in Senegal, and about 90 kilometres from major gold mines and discoveries in Mali.
The Company's mission is to create value for all of its stakeholders through responsible mining. Its vision is to explore, discover and develop gold mines in West Africa, in accordance with the highest international standards, and to be a catalyst for sustainable economic, environmental and community development. All of its actions from exploration, through development, operations and closure will be based on the best available techniques.
FORWARD LOOKING STATEMENTS
Certain information included in this management discussion and analysis, including any information as to the Company's strategy, projects, exploration programs, joint venture ownership positions, plans, future financial or operating performance and other statements that express management's expectations or estimates of future performance, constitute 'forward-looking statements'. The words 'believe', 'expect', 'will', 'intend', 'anticipate', 'project', 'plan', 'estimate', 'on track' and similar expressions identify forward looking statements. Such forward-looking statements are necessarily based upon a number of estimates, assumptions, opinions and analysis made by management in light of its experience that, while considered reasonable, may turn out to be incorrect and involve known and unknown risks, uncertainties and other factors, in each case that may cause the actual financial results, performance or achievements of the Company to be materially different from the Company's estimated future results, performance or achievements expressed or implied by those forward-looking statements. Such forward-looking statements are not guarantees of future performance.
These assumptions, risks, uncertainties and other factors include, but are not limited to: assumptions regarding general business and economic conditions; conditions in financial markets and the future financial performance of the company; the impact of global liquidity and credit availability on the timing of cash flows and the values of assets and liabilities based on projected future cash flows; the supply and demand for, deliveries of, and the level and volatility of the worldwide price of gold or certain other commodities (such as silver, fuel and electricity); fluctuations in currency markets, including changes in U.S. dollar and CFA Franc interest rates; risks arising from holding derivative instruments;
adverse changes in our credit rating; level of indebtedness and liquidity; ability to successfully complete announced transactions and integrate acquired assets; legislative, political or economic developments in the jurisdictions in which the Company carries on business; operating or technical difficulties in connection with mining or development activities; employee relations; availability and costs associated with mining inputs and labor; the speculative nature of exploration and development, including the risks of obtaining necessary licenses and permits and diminishing quantities or grades of reserves; changes in costs and estimates associated with our projects; the accuracy of our reserve estimates (including with respect to size, grade and recoverability) and the geological, operational and price assumptions on which these are based; contests over title to properties, particularly title to undeveloped properties; the risks involved in the exploration, development and mining business, as well as other risks and uncertainties which are more fully described in the Company's prospectus dated November 11, 2010 and in other Company filings with securities and regulatory authorities which are available at www.sedar.com. Accordingly, readers should not place undue reliance on such forward looking statements. Teranga expressly disclaims any intention or obligation to update or revise any forward looking statements, whether as a result of new information, future events or otherwise, except in accordance with applicable securities laws.
Interim Consolidated Financial Statements of
TERANGA GOLD CORPORATION
As at and for the three months ended December 31, 2010
(Unaudited)
INTERIM CONSOLIDATED FINANCIAL STATEMENTS OF
TERANGA GOLD CORPORATION
STATEMENT OF COMPREHENSIVE INCOME (LOSS)
For the three months ended December 31, 2010
(Unaudited and in US$'000)
For the three months ended 31 December Note 2010
----------------------------------------------------------------------------
Revenue 6 17,139
Cost of sales 8 (12,388)
-------------
Gross profit 4,751
Other income 6 31
Administration expenses (1,017)
Stock-based compensation (1,707)
Finance costs 7 (148)
Exploration and evaluation expenditures (1,266)
Net foreign exchange losses (305)
Gold hedge unrealized losess (6,297)
Oil hedge unrealized gains 1,313
-------------
Loss before tax (4,645)
Income tax benefit 9 231
-------------
Loss for the period (4,414)
-------------
Other comprehensive income/(loss):
Exchange differences arising on translation of foreign
operations 23 1,011
Loss on valuation of available for sale financial asset,
net of $nil tax 22 (940)
-------------
Other comprehensive loss for the period 71
-------------
Total comprehensive loss for the period (4,343)
-------------
Loss attributable to:
- owners of the parent (4,155)
- non-controlling interests (259)
-------------
Loss for the period (4,414)
Total comprehensive loss attributable to:
- owners of the parent (4,084)
- non-controlling interests (259)
Loss per share from operations attributable to the
equityholders of the Company during the period
- basic loss per share 24 (0.04)
- diluted loss per share 24 (0.04)
The accompanying notes are an integral part of these interim consolidated
financial statements
Approved by the Board of Directors
Alan Hill Alan Thomas
Director Director
INTERIM CONSOLIDATED FINANCIAL STATEMENTS OF
TERANGA GOLD CORPORATION
STATEMENT OF FINANCIAL POSITION
As at December 31, 2010
(Unaudited and in US$'000)
As at Note December 31, 2010
----------------------------------------------------------------------------
Current assets
Cash and cash equivalents 31 75,833
Restricted cash 31 7,000
Trade and other receivables 10 4,378
Inventories 11 84,109
Financial derivative assets 12 1,914
Other assets 13 8,034
Available for sale financial asset 22 20,565
--------------------
Total current assets 201,833
--------------------
Non-current assets
Inventories 11 6,178
Mine development expenditure 15 94,456
Financial derivative assets 12 2,332
Intangible assets 16 356
Property, plant and equipment 14 207,184
--------------------
Total non-current assets 310,506
--------------------
Total assets 512,339
--------------------
Current liabilities
Trade and other payables 17 24,030
Borrowings 18 8,819
Financial derivative liabilities 19 34,433
Current tax liabilities 251
Provisions 20 1,441
--------------------
Total current liabilities 68,974
--------------------
Non-current liabilities
Trade and other payables 17 1,607
Financial derivative liabilities 19 103,213
Provisions 20 2,335
Borrowings 18 14,347
--------------------
Total non-current liabilities 121,502
--------------------
Total liabilities 190,476
--------------------
Net assets 321,863
--------------------
Equity
Issued capital 21 353,372
Foreign currency translation reserve 23 1,011
Contributed surplus 1,733
Investment revaluation reserve 22 (940)
Accumulated losses (31,491)
--------------------
Equity attributable to equity holders of the
parent 323,685
Non-controlling interests (1,822)
--------------------
Total equity 321,863
--------------------
The accompanying notes are an integral part of these interim consolidated
financial statements
INTERIM CONSOLIDATED FINANCIAL STATEMENTS OF
TERANGA GOLD CORPORATION
STATEMENT OF CHANGES IN EQUITY
For the three months ended December 31, 2010
(Unaudited and in US$'000)
For the three months ended 31 December Note 2010
----------------------------------------------------------------------------
Common shares
At October 1 -
Shares issued on incorporation of the Company -
Shares issued from public and private offerings 21 135,005
Less: Share issue costs 21 (15,767)
Shares issued on the acquisition of the Sabodala gold
mine and a regional exploration package 21 234,134
----------------------------------------------------------------------------
At December 31 353,372
----------------------------------------------------------------------------
Foreign currency translation reserve
At October 1 -
Exchange difference arising on translation of foreign
operations 1,011
----------------------------------------------------------------------------
At December 31 1,011
----------------------------------------------------------------------------
Contributed surplus
At October 1 -
Stock-based compensation 1,733
----------------------------------------------------------------------------
At December 31 1,733
----------------------------------------------------------------------------
Investment revaluation reserve
At October 1 -
Change in fair value 22 (940)
----------------------------------------------------------------------------
At December 31 (940)
----------------------------------------------------------------------------
Accumulated losses
At October 1 -
Net loss (4,155)
Impact of change in accounting policy 4 (27,336)
----------------------------------------------------------------------------
At December 31 (31,491)
----------------------------------------------------------------------------
Non-controlling interest
At October 1 -
Non-controlling interest arising from demerger -
November 23, 2010 (1,563)
Non-controlling interest - portion of loss (259)
----------------------------------------------------------------------------
At December 31 (1,822)
----------------------------------------------------------------------------
Total shareholders' equity at December 31 321,863
----------------------------------------------------------------------------
The accompanying notes are an integral part of these interim consolidated
financial statements
INTERIM CONSOLIDATED FINANCIAL STATEMENTS OF
TERANGA GOLD CORPORATION
STATEMENT OF CASH FLOWS
For the three months ended December 31, 2010
(Unaudited and in US$'000)
For the three months ended 31 December Note 2010
----------------------------------------------------------------------------
Cash flows related to operating activities
Loss for the period (4,414)
Depreciation 2,297
Amortization 11
Finance costs 30
Stock-based compensation 1,707
Amortization of capitalized mine development costs 977
Unrealized loss on gold hedge 6,297
Unrealized gain on oil hedge (1,313)
Foreign exchange losses 305
Income tax benefit (231)
Changes in working capital(i) 31(b) (5,890)
-------------
Net cash used in operating activities (224)
-------------
Cash flows related to investing activities
Increase in restricted cash (7,000)
Payments for purchase of property, plant and equipment (458)
Payment for acquisition of Sabodala gold mine and
regional land package net of cash acquired(ii) (34,307)
-------------
Net cash used in investing activities (41,765)
-------------
Cash flows related to financing activities
Proceeds from issuance of capital stock, net of issue
costs 119,238
Payment of borrowings (1,750)
-------------
Net cash provided by financing activities 117,488
-------------
Net increase in cash and cash equivalents held 75,499
-------------
Cash and cash equivalents at beginning of financial
period -
Effect of exchange rates on cash holdings in foreign
currencies 334
Cash and cash equivalent at the end of financial period 75,833
Note(i): Change in working capital includes interest paid of $115 and taxes
paid of $267.
Note(ii): On November 23, 2010, Teranga acquired indirectly Sabodala gold
mine and a regional exploration land package together with 15% (December
31:13.85%) of Oromin Exploration Ltd. ('Oromin') for consideration of the
issuance of 200 million shares and C$50 million in satisfaction of a
promissory note owing to MDL. Transaction has been recorded as a non-cash
transaction, except of C$50million repayment of the promissory note. See
Note 2.
The accompanying notes are an integral part of these interim consolidated
financial statements
TERANGA GOLD CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at and for the three months ended December 31, 2010
(Unaudited and in US$'000)
1. GENERAL INFORMATION
Teranga Gold Corporation ('Teranga' or the 'Company') is a Canadian-based gold company listed on the Toronto Stock Exchange (TSX: TGZ) and the Australian Stock Exchange (ASX: TGZ). Teranga is principally engaged in the production and sale of gold, as well as related activities such as exploration and mine development.
Teranga was created to acquire indirectly the Sabodala gold mine and a large regional exploration land package, located in Senegal, West Africa, from Mineral Deposits Limited ('MDL'). The Sabodala gold operation, which came into operation in 2009, is located 650 kilometres east of the capital Dakar within the West African Birimian geological belt in Senegal, and about 90 kilometres from major gold mines in Mali.
The address of its principal office is 121 King street West, Suite 2600, Toronto, Ontario, Canada M5H 3T9.
2. DE-MERGER FROM MINERAL DEPOSITS LIMITED ('Demerger')
On November 23, 2010, Teranga completed the indirect acquisition of the Sabodala gold mine and a regional exploration package by a way of Demerger from MDL. As part of the Demerger, all of the issued and outstanding shares of Sabodala Gold (Mauritius) Limited, which holds a 90% interest in the Sabodala Gold Operations SA ('SGO'), which owns the Sabodala gold mine, and a 100% interest in the Sabodala Mining Company SARL, an exploration entity, all of the issued and outstanding shares of SGML (Capital) Limited and 18,699,500 common shares of Oromin, originally held by MDL (collectively 'Sabodala gold mine and a regional exploration package'), were transferred to Teranga in consideration for the issuance of 200,000,000 common shares to MDL and C$50 million in satisfaction of a promissory note owing to MDL. As the transaction was a common control transaction, the Company has elected to apply the 'pooling of interest' method to account for the demerger (see Note 3).
The table below represent the cost of asset and liabilities acquired by Teranga from MDL by way of Demerger:
As at November 23, 2010
----------------------------------------------------------------------------
Current assets
Cash and cash equivalents 14,924
Trade and other receivables 238,089
Inventories 82,842
Financial derivative assets 1,074
Other assets 2,688
Available for sale financial asset 21,109
--------------------
Total current assets 360,726
Non-current assets
Inventories 6,514
Mine development expenditure 112,710
Financial derivative assets 1,859
Intangible assets 367
Capitalized mine convention costs 10,133
Property, plant and equipment 209,023
--------------------
Total non-current assets 340,606
--------------------
Total assets 701,332
--------------------
Current liabilities
Trade and other payables 256,910
Borrow ings 8,630
Financial derivative liabilities 37,078
Current tax liabilities 518
Provisions 1,696
--------------------
Total current liabilities 304,832
Non-current liabilities
Trade and other payables 1,657
Financial derivative liabilities 94,270
Deferred tax liabilities 231
Provisions 2,284
Borrow ings 16,256
--------------------
Total non-current liabilities 114,698
--------------------
Total liabilities 419,530
--------------------
Non-controlling interest 1,563
--------------------
Net assets 283,365
--------------------
Reconciliation of the value of shares issued on the acquisition of the Sabodala gold mine and a regional exploration package:
As at November 23, 2010
----------------------------------------------------------------------------
Net assets acquired 283,365
Less deferred consideration (C$50 million) (49,231)
---------------------
Value of shares issued on acquisition 234,134
---------------------
3. SIGNIFICANT ACCOUNTING POLICIES
Statement of compliance
These financial statements have been prepared in accordance with IAS 34, 'Interim Financial Reporting' ('IAS 34') as issued by the International Accounting Standards Board ('IASB').
The consolidated financial statements comprise the financial statements of the Company and its subsidiaries.
Basis of presentation
The consolidated financial statements have been presented in United States dollars unless otherwise stated. The consolidated financial statements have been prepared on the basis of historical cost, except for share based payments that are fair valued at the date of grant and other financial assets and liabilities that are measured at fair value.
The transfer of the Sabodala gold mine and a regional land package into the Company is considered a transaction between entities under common control. As such, the Company has presented its financial results on a pooling of interests basis whereby the carrying amounts of the transferred assets and liabilities reflects those previously reported in the financial statements of MDL. Accordingly, the consolidated statements of comprehensive income (loss), equity and cash flows reflect the operations of the Company from November 23, 2010 and of the corporate activities since incorporation of Teranga on October 1, 2010. The accounting policies set out below have been applied consistently.
Critical accounting judgments and key sources of estimation uncertainty
The preparation of consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of expenses and other income during the period. These judgments, estimates and assumptions are based on management's best knowledge of the relevant facts and circumstances, having regard to prior experience. While management believes that these judgments, estimates and assumptions are reasonable, actual results may differ from the amounts included in the financial statements.
Judgments made by management in the application of IFRS that have significant effects on the consolidated financial statements and estimates with a significant risk of material adjustments, where applicable, are contained in the relevant notes to the financial statements. Refer to Note 5 for critical judgements in applying the entity's accounting policies, and key sources of estimation uncertainty.
The following is a summary of the accounting policies adopted by the Company in preparation of the financial statements.
(a) Basis of Consolidation
The consolidated financial statements are prepared by consolidating the financial statements of all entities being Teranga Gold (B.V.I) Corporation, Sabodala Gold (Mauritius) Limited, and SGML (Capital) Limited and its subsidiaries as defined in IAS 27 'Consolidated and Separate Financial Statements'. A list of subsidiaries is contained in Note 30 to the financial statements. Consistent accounting policies are employed in the preparation and presentation of the consolidated financial statements.
The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of acquisition, of assets and liabilities incurred or assumed, and equity instruments issued by the Company in exchange for control of the acquiree. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The goodwill arising in a business combination is recognized as an asset at the date that control is acquired (the acquisition date). Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the net identifiable assets acquired and the liabilities assumed. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized in the statement of comprehensive income.
The consolidated financial statements include the information and results of each subsidiary from the date on which the Company obtains control and until such time as the Company ceases to control such entity.
In preparing the consolidated financial statements, all inter-company balances and transactions between entities in the Company, including any unrealized profits or losses, have been eliminated.
Non-controlling interests in the net assets (excluding goodwill) of consolidated subsidiaries are identified separately from the Company's equity therein. Non controlling interests consist of the amount of those interests at the date of the original business combination and the non-controlling interests' share of changes in equity since the date of the combination. Losses applicable to the non-controlling interests in excess of the non-controlling interest in the subsidiary's equity are allocated against the interests of the Company.
Total comprehensive income (loss) is attributed to non-controlling interests even if this results in the non-controlling interests having a deficit balance.
(b) Borrowing Costs
Borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantial period of time to prepare for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.
All other borrowing costs are recognized in profit or loss in the period in which they are incurred.
(c) Cash and Cash Equivalents
Cash comprises cash on hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash, which are subject to an insignificant risk of changes in value and have a maturity of three months or less at the date of acquisition.
Restricted cash is cash held in the Company's Proceed Account operated by with Macquarie Bank Limited that is restricted in use.
When applicable, bank overdrafts are shown within borrowings in current liabilities in the statement of financial position.
(d) Short-term investments
Short-term investments represent investments in guaranteed investment certificates with maturity dates of more than 90 days. Short-term investments are carried at amortized cost.
(e) Employee Benefits
A liability is recognized for benefits accruing to employees in respect of wages and salaries, annual leave and long service leave when it is probable that settlement will be required and they are capable of being measured reliably.
Liabilities recognized in respect of employee benefits expected to be settled within twelve months, are measured at their nominal values using the remuneration rate expected to apply at the time of settlement.
Liabilities recognized in respect of employee benefits which are not expected to be settled within twelve months are measured as the present value of the estimated future cash outflows to be made by the Company in respect of services provided by employees up to reporting date.
(f) Share-based payment
The Company operates an equity-settled, share-based compensation plan for remuneration of its management, directors, employees and consultants. See Note 33.
The fair value of the options granted is measured using Black-Scholes model, taking into account the terms and conditions upon which the options are granted. The fair value of the options is adjusted by the estimate of the number of options that are expected to vest as a result of non-market conditions and is expensed over the vesting period using an accelerated method of amortization. At each balance sheet date, the Company revises its estimates of the number of options that are expected to vest based on the non-marketing vesting conditions. It recognizes the impact of the revision to original estimates, if any, in the statement of comprehensive Income, with a corresponding adjustment to equity.
Stock-based compensation relating to stock options is charged to the statement of comprehensive income.
(g) Exploration and Evaluation
Exploration and evaluation expenditures in relation to each separate area of interest are expensed as exploration costs in the consolidated statement of comprehensive income until the determination of the technical feasibility and the commercial viability of the project.
The technical feasibility and commercial viability of extracting a mineral resource is considered to be determinable when proven reserves are determined to exist, the rights of tenure are current and it is considered probable that the costs will be recouped through successful development and exploitation of the area, or alternatively by sale of the property.
Once the technical feasibility study is completed, subsequent exploration and development expenses are capitalized as mine development expenditures.
Upon reaching commercial production, these capitalized costs will be transferred from development properties to producing properties on the consolidated balance sheet and will be amortized using the unit-of-production method over the estimated ore reserves.
Exploration and evaluation assets comprise of costs incurred to secure the mining convention, acquisition of rights to explore, studies, exploratory drilling, trenching and sampling and associated activities and an allocation of depreciation and amortization of assets used in exploration and evaluation activities. General and administrative costs are only included in exploration and evaluation costs where they are related directly to the operational activities in a particular area of interest.
(h) Mine Development
Development expenditure is recognized at cost less accumulated amortization and any impairment losses. Where commercial production in an area of interest has commenced, the associated costs are amortized over the estimated economic life of the mine on a units-of-production basis.
(i) Provisions
Provisions are recognized when the Company has a present obligation, legal or constructive, as a result of past events for which it is probable that the Company will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying value is the present value of those cash flows.
(j) Restoration and Rehabilitation
A provision for restoration and rehabilitation is recognized when there is a present obligation as a result of exploration, development and production activities undertaken, and that it is probable that an outflow of economic benefits will be required to settle the obligation, and the amount of the provision can be measured reliably. The estimated future obligations include the costs of removing facilities, abandoning sites and restoring the affected areas.
The provision for future restoration costs is the best estimate of the present value of the expenditure required to settle the restoration obligation at the reporting date, based on current legal or constructive obligation. Future restoration costs are reviewed annually and any changes in the estimate are reflected in the present value of the restoration provision at each reporting date.
(k) Financial Assets
The Company classifies its financial assets in the following three categories: at fair value through profit and loss, loans and receivables, and available for sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification on its financial assets at initial recognition.
Fair value through profit and loss
Investments are recognized and derecognized on trade date where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, net of transaction costs except for those financial assets classified carried at fair value through profit or loss.
On disposal of an investment, the difference in the net disposal proceeds and the carrying amount is charged or credited to the statement of comprehensive income.
Loans and receivables
Trade receivables, loans, short term investments and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as 'loans and receivables'. Loans and receivables are measured at amortized cost using the effective interest method less impairment.
Interest income is recognized by applying the effective interest rate.
Available-for-sale financial assets
Certain shares held by the Company are classified as being available-for-sale and are stated at fair value. Gains and losses arising from changes in fair value are recognized directly in the investments revaluation reserve with the exception of impairment losses, interest calculated using the effective interest method and foreign exchange gains and losses on monetary assets which are recognized directly in profit or loss. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously recognized in the investments revaluation reserve is included in profit or loss for the period.
Effective interest method
The effective interest method is a method of calculating the amortized cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset or, where appropriate, a shorter period.
Impairment of financial assets
Financial assets are assessed for indicators of impairment at each reporting date. Financial assets are impaired where there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the financial asset and that event has an impact on the estimated future cash flows of the financial asset that can be reliably estimated.
For financial assets carried at amortized cost, the amount of the impairment is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate.
The carrying amount of financial assets including uncollectible trade receivables is reduced by the impairment loss through the use of an allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss.
With the exception of available-for-sale equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.
In respect of available-for-sale equity instruments, any subsequent increase in fair value after an impairment loss is recognized directly in equity.
De-recognition of financial assets
The Company derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.
(l) Foreign Currency Transactions and Balances
Functional and presentation currency
The functional currency of each of the Company's entities is measured using the currency of the primary economic environment in which that entity operates. The functional currency of the corporate office is Canadian Dollar and the functional currency of all other entities within the group is United States Dollar. The consolidated financial statements are presented in US dollars, which is Company's presentation currency.
Transactions and balances
Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of transaction. Foreign currency monetary items are translated at the year-end exchange rate. Non- monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined.
Exchange differences are recognized in profit or loss in the period in which they arise except for exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur in the foreseeable future which form part of the net investment in a foreign operation and which are recognized in a foreign currency translation reserve within equity and recognized in profit or loss on disposal of the net investment.
Teranga corporate entity
The financial results and position of the Company's corporate entity whose functional currency is different from the Company's presentation currency are translated as follows:
-- Assets and liabilities are translated at year-end exchange rates
prevailing at the reporting date
-- Income and expenses are translated at average exchange rates for the
period
-- Accumulated profits/(losses) are translated at the exchange rates
prevailing at the date of the transaction
-- Exchange differences arising on translation of foreign operations are
transferred directly to the Company's foreign currency translation
reserve in the statement of financial position. These differences are
recognized in the statement of changes in equity in the period.
(m) Impairment of Assets
At each reporting date the Company reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. Where the asset does not generate cash flows that are independent from other assets, the Company estimates the recoverable amount of the cash generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.
If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss.
Where an impairment loss subsequently reverses, the carrying amount of the asset or cash generating unit is increased to the revised estimate of its recoverable amount but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognized immediately in profit or loss.
(n) Income Tax
Current tax
Current tax is calculated by reference to the amount of income taxes payable or recoverable in respect of the taxable profit or tax loss for the period. Current tax is calculated on the basis of the law enacted or substantively enacted at reporting date in the countries where the Company's subsidiaries operate and generate taxable income.
Deferred tax
Deferred tax is recognized, in accordance with the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. The tax base of an asset or liability is the amount attributed to that asset or liability for tax purposes.
In principle, deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither the accounting nor the taxable profit or loss.
Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates and interests in joint ventures except where the timing of the reversal of the temporary difference is controlled by the Company and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred tax assets arising from deductible temporary differences associated with these investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.
Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the reporting date and expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.
Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.
(o) Inventories
Gold bullions, gold in circuit and ore stockpile are physically measured or estimated and valued at the lower of cost and net realizable value. Cost represents the weighted average cost and includes direct costs and an appropriate portion of fixed and variable production overhead expenditure, including depreciation and amortization, incurred in converting materials into finished goods.
By-product metals inventory on hand obtained as a result of the production process to extract gold are valued at the lower of cost and net realizable value.
Materials and supplies are valued at the lower of cost and net realizable value. Any provision for obsolescence is determined by reference to specific inventory items identified. A regular and ongoing review is undertaken to establish the extent of surplus items and a provision is made for any potential loss on their disposal.
Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and estimated costs necessary to make the sale.
(p) Leased assets
Leases are classified as finance leases when the terms of the lease transfer substantially all the risks and rewards incidental to ownership of the leased asset to the lessee. All other leases are classified as operating leases.
Finance leases are capitalized at the lease's commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments. The corresponding liability to the lessor is included in the statement of financial position as a finance lease obligation.
Lease payments are allocated between the liability and finance charges so as to achieve a constant rate of interest on the finance balance outstanding. Finance charges are charged directly against income, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the Company's general policy on borrowing costs. Refer to Note 3(b).
Operating lease payments are recognized as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognized as an expense in the period in which they are incurred.
Lease incentives
In the event that lease incentives are received to enter into operating leases, such incentives are recognized as a liability. The aggregate benefits of incentives are recognized as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
(q) Property, Plant and Equipment
Property is measured on the cost basis. Plant and equipment are measured on the cost basis less depreciation and impairment losses.
The cost of fixed assets constructed within the Company includes the cost of materials, direct labour and borrowing costs where appropriate.
Subsequent costs are included in the asset's carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of comprehensive income during the financial period in which they are incurred.
Depreciation
The depreciable amount of all fixed assets, excluding freehold land, is depreciated on a straight line basis over their useful lives of the asset commencing from the time the asset is held ready for use. The Company uses the units-of-production method when depreciating mining assets which results in a depreciation charge proportional to the depletion of the anticipated remaining life of mine.
The depreciation is calculated using the following useful lives:
Class of Fixed Assets Years
Buildings and property improvements 6.7 - 8.0 years
Plant and equipment 5.0 - 8.0 years
Office furniture and equipment 6.7 years
Computer equipment 3.0 years
Other assets 6.7 years
Fixtures and fittings 5.0 - 7.7 years
Motor vehicles 5.0 years
Camp construction 7.7 - 8.0 years
The assets' residual values, depreciation method and useful lives are reviewed and adjusted, if appropriate, at each reporting date.
Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the statement of comprehensive income.
Assets under finance lease
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease. The gain or loss arising on disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.
(r) Financial Instruments
Debt and equity instruments
Debt and equity instruments are classified as either liabilities or as equity in accordance with the substance of the contractual arrangement. An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
Financial guarantee contract liabilities
Financial guarantee contract liabilities are measured initially at their fair values and subsequently at the higher of:
-- the amount of the obligation under the contract, as determined under IAS
37 'Provisions, Contingent Liabilities and Contingent Assets'; and
-- the amount initially recognized less, where appropriate, cumulative
amortization in accordance with the revenue recognition policies
described in Note 3(t).
Financial liabilities
Financial liabilities are classified as either financial liabilities 'at fair value through profit or loss' or other financial liabilities.
Other financial liabilities
Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs.
Other financial liabilities are subsequently measured at amortized cost using the effective interest method, with interest expense recognized on an effective yield basis.
The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability or, where appropriate, a shorter period.
(s) Derivative Financial Instruments
The Company enters into a variety of derivative financial instruments to manage its exposure to gold and oil price risk, including gold forward contracts and oil energy swaps. Further details of derivative financial instruments are disclosed in Note 32(c) to the financial statements.
Derivatives are initially recognized at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. The resulting gain or loss is recognized in profit or loss immediately as the Company does not apply hedge accounting.
The fair value of derivatives is presented as a non-current asset or a non-current liability, if the remaining maturity of the instrument is more than twelve months and it is not expected to be realized or settled within twelve months and as a current asset or liability when the remaining maturity of the hedged item is less than twelve months.
(t) Revenue Recognition
Gold and silver bullion sales
Revenue from gold and silver bullion sales is recognized when the Company has transferred the significant risk and rewards of ownership to the buyer and selling prices are known or can be reasonably estimated. Revenue is reported net of discounts and pricing adjustments. Royalties paid and payable are separately reported as expenses.
Interest revenue
Interest revenue is recognized on a time proportionate basis taking into account the effective yield on the financial assets.
(u) Earnings (Loss) per Share
Basic earnings (loss) per share are determined by dividing the profit (loss) attributable to equity holders of the Company by the weighted average number of ordinary shares outstanding during the financial period.
Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares.
(v) Joint Venture Arrangements
Interests in jointly controlled assets in which the Company is a venturer and has joint control are included in the financial statements by recognizing the Company's share of jointly controlled assets (classified according to their nature), the share of liabilities incurred (including those incurred jointly with other venturers) and the Company's share of expenses incurred by or in respect of each joint venture.
The Company's interests in assets where the Company does not have joint control are accounted for in accordance with the substance of the Company's interest. Where such arrangements give rise to an undivided interest in the individual assets and liabilities of the joint venture, the Company recognizes its undivided interest in each asset and liability and classifies and presents those items according to their nature.
(w) Intangible assets
Intangible assets are recorded at cost less accumulated amortization and impairment. Amortization is charged on a straight-line basis over their estimated useful lives. The estimated useful life and amortization method is reviewed at the end of each annual reporting period with any changes in these accounting estimates being accounted for on a prospective basis.
(x) Government Royalties
Royalties are accrued and charged against earnings when the liability from production or sale of the gold crystallizes.
4. CHANGE IN ACCOUNTING POLICIES
With effect from October 1, 2010, exploration and evaluation expenditures in relation to each separate area of interest are expensed as exploration costs in the consolidated statement of comprehensive income until the determination of the technical feasibility and the commercial viability of the project. Under the Company's previous policy, exploration and evaluation expenditures were recognized as an exploration and evaluation asset in the year in which they incurred and assessed for impairment.
As a result of the change in the accounting policy, all exploration costs, including convention and concession costs, in the total amount of $27.3 million existing before October 1, 2010 and capitalized to exploration assets, were de- recognized and expensed through retained earnings. Management believes that the change in the accounting policy results in reliable and more relevant information.
5. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
Critical judgments in applying the entity's accounting policies
The following are critical judgements that management has made in the process of applying the Company's accounting policies and that have the most significant effect on the amounts recognized in the financial statements:
Ore reserves
Management estimates its ore Reserves based upon information compiled by Competent Persons as defined in accordance with the Australasian code for Reporting Mineral Resources and Ore Reserves and Qualified Persons as defined in Canadian Securities Administrators National Instrument 43-101 (NI '43-101'). The estimated quantities of economically recoverable reserves are based upon interpretations of geological models and require assumptions to be made regarding factors such as estimates of short and long-term exchange rates, estimates of short and long-term commodity prices, future capital requirements and future operating performance. Changes in reported reserve estimates can impact the carrying value of property, plant and equipment, provision for rehabilitation obligations, the recognition of deferred tax assets, as well as the amount of depreciation and amortization charged to the statement of comprehensive income.
Key sources of estimation uncertainty
The following are the key assumptions concerning the future and other key sources of estimation uncertainty at the balance date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year:
Units of production
Management estimates recoverable reserves in determining the depreciation and amortization of mine assets. This results in a depreciation/amortization charge proportional to the depletion of the anticipated remaining life of mine production. Each item's life, which is assessed annually, has regard to both its physical life limitations and to present assessments of economically recoverable reserves of the mine property at which the asset is located. The calculations require the use of estimates and assumption, including the amount of recoverable reserve. The Company's units or production calculation is based on life of mine gold production.
Mine restoration and rehabilitation provision
Management assesses its mine rehabilitation provision annually. Significant estimates and assumptions are made in determining the provisions for mine rehabilitation as there are numerous factors that will affect the ultimate liability payable. These factors include estimates of the extent and cost of rehabilitation activities, technological changes, regulatory change, cost increases, and changes in discount rates. Those uncertainties may result in future actual expenditure differing from the amounts currently provided. The provision at the reporting date represents management's best estimate of the present value of the future rehabilitation costs required. Changes to estimated future costs are recognized in the statement of financial position by adjusting the rehabilitation asset and liability.
Impairment of assets
Management assesses each cash-generating unit annually to determine whether any indication of impairment exists. Where an indicator of impairment exists, a formal estimate of the recoverable amount is made which is considered to be the higher of the fair value less costs to sell and value in use. These assessments require the use of estimates and assumptions such as long-term commodity prices, discount rates, future capital requirements, and operating performance. Fair value is determined as the amount that would be obtained from the sale of the asset in an arm's-length transaction between knowledgeable and willing parties. Fair value for mineral assets is generally determined as the present value of estimated future cash flows arising from the continued use of the asset. Cash flows are discounted by an appropriate discount rate to determine the net present value. Management has assessed its cash generating units as being all sources of mill feed through a central mill, which is the lowest level for which cash flows are largely independent of other assets.
Production start date
Management assesses the stage of each mine development project to determine when a mine moves into the production stage. The criteria used to assess the start date of a mine are determined based on the unique nature of each mine development project. The Company considers various relevant criteria to assess when the mine is substantially complete, ready for its intended use and moves into the production phase. Some of the criteria include, but are not limited to, the following:
-- completion of a reasonable period of testing of the mine plant and
equipment;
-- ability to produce metal in saleable form; and
-- ability to sustain ongoing production of metal.
When a mine development project moves into the production stage, the capitalization of certain mine construction costs ceases and costs are either regarded as inventory or expensed, except for capitalizable costs related to mining asset additions or improvements, underground mine development or mineable reserve development. It is also at this point that depreciation/amortization commences.
Fair value of derivative financial instruments
Management assesses the fair value of Teranga's financial derivatives in accordance with the accounting policy stated in Note 3(r) to the consolidated financial statements. Fair values have been determined based on well- established valuation models and market conditions existing at the reporting date. These calculations require the use of estimates and assumptions. Changes in assumptions concerning interest rates, gold prices and volatilities could have significant impact on the fair valuation attributed to the Company's financial derivatives. When these assumptions change or become known in the future, such differences will impact asset and liability carrying values in the period in which they change or become known.
Fair value of stock options
Management assesses the fair value of stock options granted in accordance with the accounting policy stated in Note 3(f) to the interim consolidated financial statements. The fair value of the options granted is measured using Black- Scholes model, taking into account the terms and conditions upon which the options are granted. The calculation requires the use of estimates and assumptions. As there were no historical data available for determination of the fair value of the stock options granted, the Company developed its assumptions based on information available in the mining industry using comparable companies operating in the gold sector.
Functional currency
The functional currency of each of the Company's entities is measured using the currency of the primary economic environment in which that entity operates. The functional currency of the corporate office is Canadian Dollar and the functional currency of all other entities within the group is United States Dollar. Functional currency of each of the entity was determined based on the currency that mainly influences sales prices for goods and services, labour, material and other costs and the currency in which funds from financing activities are generated.
6. REVENUE
For the three months ended December 31, 2010
---------------------
Gold sales at spot price 22,955
Silver sales 81
Realized loss on gold forward contracts (5,897)
---------------------
Sales revenue (i) 17,139
---------------------
Interest revenue from:
- bank deposits 31
---------------------
Total other income 31
---------------------
(i) Revenue of $17.1 million represents a shipment of 16,952 ounces of gold in the period from November 23, 2010 to December 31, 2010, out of which 11,000 ounces were delivered into forward sales contracts at $846 per ounce and 5,592 ounces were sold into the spot market at an average price of $1,388 per ounce.
7. FINANCE COSTS
For the three months ended December 31, 2010
--------------------
Interest on borrowings 115
Amortization of capitalized borrowing costs 30
Bank charges 3
--------------------
148
--------------------
8. COST OF SALES
For the three months ended December 31, 2010
---------------------
Cost of sales:
- mine production costs 10,197
- realized gain on oil price swap (305)
- depreciation and amortization 3,557
- royalty 667
- rehabilitation 57
- inventory movements (1,785)
---------------------
12,388
---------------------
9. INCOME TAXES
For the three months ended December 31, 2010
---------------------
Current tax benefit -
Deferred tax benefit of reversal of temporary
differences (231)
---------------------
Total tax benefit (231)
---------------------
10. TRADE AND OTHER RECEIVABLES
As at December 31, 2010
--------------------
Current
Trade receivable 4,117
Other receivables (i) 261
--------------------
4,378
--------------------
(i) Other receivables include primarily tax receivables.
11. INVENTORIES
As at December 31, 2010
--------------------
Current
Gold bullion 6,253
Gold in circuit 3,208
Ore stockpile - work in progress 52,617
--------------------
Total gold inventories 62,078
Diesel fuel 1,280
Materials and supplies 17,328
Goods in transit 3,423
--------------------
Total other inventories 22,031
--------------------
Total current inventories 84,109
--------------------
Non-Current
Ore stockpiles - work in progress 6,178
--------------------
Total inventories 90,287
--------------------
12. FINANCIAL DERIVATIVE ASSETS
As at December 31, 2010
--------------------
Current
Oil energy swap 1,914
--------------------
Non-Current
Oil energy swap 2,332
--------------------
4,246
--------------------
The Company has a hedge agreement with respect to the oil price in order to manage its exposure to commodity risk. The Company hedged 80,000 barrels per annum for four years commencing April 1, 2009 at a flat forward price of $70 per barrel. At December 31, 2010, the remaining 180,000 barrels were hedged with a market value of $4,246 at the reporting date spot price of $91.38 per barrel.
13. OTHER ASSETS
As at December 31, 2010
--------------------
Current
Prepayments (i) 6,516
Security deposit (ii) 1,518
--------------------
8,034
--------------------
(i) Prepayments include primarily advances to contractors.
(ii) The security deposit represents a guarantee in respect of the finance
lease facility for the mining fleet.
14. PROPERTY, PLANT AND EQUIPMENT
Plant and
equipment
Buildings & under
property Plant and Office Motor finance
improvement equipment equipment vehicles lease Total
-----------------------------------------------------------
Cost
Balance at
October 1, 2010 - - - - - -
Additions - 325 99 34 - 458
Property, plant
and equipment
arising from
demerger - Nov
23, 2010 30,838 187,248 575 1,774 37,307 257,742
-----------------------------------------------------------
Balance at
December 31,
2010 30,838 187,573 674 1,808 37,307 258,200
Accumulated
depreciation
Balance at 1
October, 2010 - - - - - -
Depreciation
expense 230 1,397 16 29 625 2,297
Accumulated
depreciation
arising from
demerger - Nov
23, 2010 4,107 25,849 399 912 17,452 48,719
-----------------------------------------------------------
Balance at
December 31,
2010 4,337 27,246 415 941 18,077 51,016
Net book value
-----------------------------------------------------------
Balance at
December 31,
2010 26,501 160,327 259 867 19,230 207,184
-----------------------------------------------------------
15. MINE DEVELOPMENT EXPENDITURE
As at December 31, 2010
---------------------
Cost
Balance at October 1, 2010 -
Expenditures incurred during the period -
Mine development expenditure arising from demerger -
Nov 23, 2010 127,336
Change of accounting policy(i) (see Note 4) (17,277)
---------------------
Balance at December 31, 2010 110,059
Accumulated depreciation
Balance at October 1, 2010 -
Depreciation expense 977
Accumulated depreciation arising from demerger - Nov
23, 2010 14,626
---------------------
Balance at December 31, 2010 15,603
Carying amount
---------------------
As at December 31, 2010 94,456
---------------------
Note(i): Total impact of the change in accounting policy was $27.3 million,
out of which $17.3 million relates to mine exploration expenditures and $10
million relates to mining concession and convention costs.
Mine development expenditures represent development costs in relation to Sabodala gold mine including costs for the expansion project.
16. INTANGIBLE ASSETS
As at December 31, 2010
--------------------
Cost
Balance at October 1, 2010 -
Additions -
Intangible assets arising from demerger - Nov 23, 2010 707
Net foreign currency exchange differences -
--------------------
Balance at December 31, 2010 707
Accumulated amortization
Balance at October 1, 2010 -
Amortization expense 11
Accumulated amortization arising from demerger - Nov 23,
2010 340
--------------------
Balance at December 31, 2010 351
Carying amount
--------------------
As at December 31, 2010 356
--------------------
Intangible assets represent intangible computer software. Amortization expense is included in the statement of
comprehensive income as 'amortization of intangible assets'.
The following useful life is used in the calculation of amortization: Software - 2.5 years
17. TRADE AND OTHER PAYABLES
As at December 31, 2010
--------------------
Current
Unsecured liabilities:
- trade payables (i) 4,754
- sundry creditors and accrued expenses 10,667
- government royalties (ii) 5,595
- amounts payable to Government of Senegal (iii) 3,014
--------------------
24,030
Non-Current
Unsecured liabilities:
- amounts payable to Government of Senegal (iii) 1,607
--------------------
25,637
--------------------
(i) Trade payables comprise obligations by the Company to suppliers of
goods and services to the Company. Terms are generally 30 days.
(ii) Government royalties are payable annually based on the mine head
value of the gold and related substances produced.
(iii) The following amounts are payable to the Government of Senegal:
- $4.1 million in four equal instalments over the first four years of
production to which an annual interest rate of 6% applies on a
reducing balance basis.
18. BORROWINGS
As at December 31, 2010
---------------------
Current
Finance lease liabilities (ii)
- finance lease liabilities 9,100
- borrowing costs (281)
---------------------
8,819
Non-Current
Secured at amortized cost:
Finance lease liabilities (ii)
- finance lease liabilities 14,506
- borrowing costs (159)
---------------------
14,347
---------------------
23,166
---------------------
(i) There are currently no draw-downs under the Project Finance Facility
provided by Macquarie Bank Limited for the Sabodala Gold Mine.
The facility and relationship with Macquarie Bank Limited continues
due to the oil energy swap and the gold hedging program, conditions of
the facility.
(ii) SGML (Capital) Limited has entered into an agreement with Societe
Generale London to allow for the purchase of additional mining
equipment. The facility has a limit of $27.8 million. This facility
contains a quarterly repayment schedule concluding with the final
repayment on June 30, 2013.
19. FINANCIAL DERIVATIVE LIABILITIES
As at December 31, 2010
--------------------
Financial derivative liabilities:
Gold forward contracts 137,646
--------------------
Disclosed as:
Current 34,433
Non-current 103,213
At December 31, 2010, the hedge position comprised 182,500 ounces of flat forward sales at $846 per ounce and 53,000 ounces of flat forward sales at $791 per ounce. At December 31, 2010, the mark to market gold hedge position at reporting date spot price of $1,408.7 was in a liability position of $137.6 million.
20. PROVISIONS
As at December 31, 2010
--------------------
Current
Employee benefits (i) 1,441
--------------------
Non-Current
Employee benefits (i) -
Mine restoration and rehabilitation (ii) 2,335
--------------------
2,335
--------------------
3,776
--------------------
(i) The current provisions for employee benefits include $1.1 million
accrued vacation for the quarter and $0.3 million long service leave
entitlements respectively.
(ii) Mine restoration and rehabilitation provision represents a
constructive obligation to rehabilitate the Sabodala gold mine based
on the mining convention agreement.
Balance at October 1, 2010 -
Transfer of provision from demerger - November 23, 2010 2,284
Additional provisions recognized 51
Unwinding of discount -
--------------------
--------------------
Balance at December 31, 2010 2,335
--------------------
21. ISSUED CAPITAL
Number of
Common shares issued and outstanding shares Amount
-------------------------------
Balance at October 1, 2010 - -
Shares issued on incorporation of the Company 100 -
Shares issued on demerger 200,000,000 234,134
Shares issued from initial public offering 45,617,900 135,005
Less: Share issue costs - (15,767)
-------------------------------
Balance at December 31, 2010 245,618,000 353,372
-------------------------------
On November 23, 2010, Teranga completed the indirect acquisition of the Sabodala gold mine and a regional exploration package by way of Demerger from MDL. As part of the Demerger, all of the issued and outstanding shares of Sabodala Gold (Mauritius) Limited, which holds a 90% interest in the Sabodala Gold Operations SA ('SGO'), which owns the Sabodala gold mine, and a 100% interest in the Sabodala Mining Company SARL, an exploration entity, all of the issued and outstanding shares of SGML (Capital) Limited and 18,699,500 common shares of Oromin, originally held by MDL, were transferred to Teranga in consideration for the issuance of 200,000,000 common shares to MDL and C$50 million in satisfaction of a promissory note owing to MDL.
On December 7, 2010 the Company completed initial public offerings in Canada and Australia. In Canada, after the exercise of the over-allotment option, a total of 36,617,900 common shares were issued for gross proceeds of C$109.9 million. In Australia, 9,000,000 common shares were issued for gross proceeds of A$26.7 million. The share issuance costs related to the public offerings were $15.8 million.
22. AVAILABLE FOR SALE FINANCIAL ASSETS
As part of the acquisition of the Sabodala gold mine and regional land package by way of Demerger from MDL, Teranga acquired 18,699,500 common shares of Oromin Exploration Limited, classified as available for sale in accordance with IAS 39 'Financial Instruments: Recognition and Measurement'.
The following table outlines the change in fair value of the investment in Oromin which is recognized in the investment revaluation reserve:
As at December 31, 2010
---------------------
Balance at October 1, 2010 -
Acquisition of Oromin arising from demerger - Nov 23,
2010 21,109
Change in fair value during the period (940)
Foreign exchange gain 396
---------------------
As at December 31, 2010 20,565
23. RESERVES
The foreign currency translation reserve records historical exchange differences arising on translation from the functional currency of the Company's corporate entity into United States dollars which are recorded directly to the foreign currency translation reserve within the consolidated statement of equity.
24. EARNINGS PER SHARE (EPS)
For the three months ended December 31, 2010
---------------------
Basic EPS (US$) (0.04)
Diluted EPS (US$) (0.04)
Basic EPS:
Net loss used in the calculation of basic EPS (4,155)
---------------------
Weighted average number of ordinary shares for the
purposes of basic EPS ('000) 95,548
---------------------
Weighted average number of ordinary shares for the
purpose of diluted EPS ('000) 95,548
---------------------
25. DIVIDENDS
During the period ended December 31, 2010, no dividends were paid.
26. COMMITMENTS FOR EXPENDITURE
(a) Capital Expenditure Commitments
As at December 31, 2010
--------------------
Capital expenditure commitments outstanding comprised:
Sabodala Gold Mine - expansion - engineering services 4,806
Ball mill 4,866
--------------------
Payments due within one year 9,672
--------------------
(b) Exploration Commitments
The Company has committed to spend a total of $8.1 million over the next three years in respect of the Sabodala regional exploration programme.
(c) Sabodala Operating Commitments
The Company has the following operating commitments in respect of the Sabodala gold operation:
-- Pursuant to the Company's Mining Concession, a royalty of 3% is payable
to the Government of Senegal based on the value of gold shipments,
evaluated at the spot price on the shipment date.
-- $425,000 per annum on social development of local authorities in the
surrounding Tambacounda region during the term of the Mining Convention.
-- $30,000 per year for logistical support of the territorial
administration of the region from date of notification of the Mining
Concession.
-- $200,000 per year of production on training of Directorate of Mines and
Geology officers and Mines Ministry
-- $4.1 million payable to Government of Senegal over the first four years
of production
27. LEASES
(a) Operating Lease Commitments
The Company has entered into an agreement to lease premises for the period until February 27, 2013. The annual rent of premises consists of minimum rent plus realty taxes, maintenance and utilities. In accordance with the lease agreement the amount of $306 is payable within a year and a remaining $357 is payable by February 27, 2013.
(b) Finance Lease Liabilities
Present value of
Minimum future lease minimum future lease
payments payments
------------------------------------------
December 31, 2010 December 31, 2010
------------------------------------------
No later than one year 9,100 8,819
Later than one year and not later
than five years 14,506 14,347
------------------------------------------
23,606 23,166
Included in the financial
statements as:
- current 9,100 8,819
- non-current 14,506 14,347
The finance lease relates to the Mining Fleet Sublease of $26.8 million with a remaining lease term of thirty months expiring June 30, 2013. Minimum future lease payments consist of ten payments over the term of the loan. Interest is calculated at LIBOR plus a margin paid quarterly in arrears. Due to the variable nature of the interest repayments the table above excludes all future interest amounts.
28. CONTINGENT LIABILITIES
The directors and the management of the Company are not aware of any contingent liabilities at December 31, 2010.
29. EXPLORATION LICENCES AND JOINTLY CONTROLLED OPERATIONS AND ASSETS
The Company has exploration licences and is a venturer in the following jointly controlled operations and assets:
Interest
--------------
Name of venture Principal activity 2010
--------------
%
Dembala Berola Gold exploration 100
Massakounda Gold exploration 100
Senegal Nominees JV - Bransan Gold exploration 70
NAFPEC JV - Makana Gold exploration 80
AXMIN JV - Sabodala NW Gold exploration earning 80
AXMIN JV - Heremakono Gold exploration earning 80
AXMIN JV - Sounkounkou Gold exploration earning 80
Bransan Sud Gold exploration 100
Sabodala Ouest Gold exploration 100
Saiansoutou Gold exploration 100
Exploration commitments and contingent liabilities
Exploration commitments and contingent liabilities arising from the Company's interests in joint ventures are disclosed in Notes 26 and 30.
30. CONTROLLED ENTITIES
Country of
Incorporation Percentage owned
--------------------
2010
--------------------
Controlled entities consolidated
Teranga Gold B.V.I. (i) B.V.I. 100
Sabodala Gold (Mauritius)
Limited(iii) Mauritius 100
SGML (Capital) Limited Mauritius 100
Subsidiaries of Sabodala Gold
(Mauritius) Limited:
Sabodala Mining Company SARL (ii) Senegal 100
Sabodala Gold Operations SA (ii)
(iii) Senegal 90
(i) Teranga Gold (B.V.I.) Corporation, a wholly owned subsidiary of
Teranga Gold Corporation, was incorporated under the BVI Business
Companies Act, 2004 on November 10, 2010. In connection with the
Demerger Arrangement and pursuant to a deed of assignment of debt
among Teranga Gold Corporation, Teranga Gold (B.V.I) Corporation, MDL
Gold Limited, Sabodala Gold (Mauritius) Limited and Sabodala Gold
Operations SA dated November 23, 2010, Teranga Gold (B.V.I.)
Corporation took assignment of an inter-corporate receivable of
$234,300,000 owed by Sabodala Gold Operations SA to Sabodala Gold
(Mauritius) Limited as assigned to MDL Gold Limited in consideration
for 1,000,000 ordinary shares of Teranga Gold (B.V.I.) Corporation
registered in the name of Teranga Gold Corporation.
(ii) Pursuant to the Uniform Act (OHADA) governing the company's 'SA'
Senegalese subsidiaries, the board of directors must have at least
three and no more than 12 directors (other than in particular
circumstances). Members of the board do not have to be shareholders;
however, no more than one-third of the members of the board may be
non-shareholders.
Teranga is the majority (90%) shareholder of SGO through its wholly-
owned subsidiary Sabodala Gold (Mauritius) Limited (SGML). A
sufficient number of directors representing SGML (the Mauritius
holding company) were elected to the board of directors of Sabodala
Gold Operations SA (SGO), in addition to the two resident directors
with executive responsibility, to ensure adequate representation at
all board meetings, the minority shareholder (Republic of Senegal)
being entitled to two board seats, one representing the State and the
other being held by a non-shareholder Senegalese public servant. To
meet the requisite shareholder requirement for the board of directors
of SGO, five of the current board members (4 of which are also
directors of SGML) were issued one share each for a total of 0.5% in
SGO with the other 89.5% issued to and held by the Mauritian parent
SGML. On death or resignation, a share individually held would be
transferred to another representative of SGML or added to its current
89.5% shareholding according to the circumstances at the time.
(iii) Under the terms of the SGO project finance facility, SGML and SGO
have pledged their shares in favour of Macquarie Bank Limited as
security.
31. CASH FLOW INFORMATION
(a) Reconciliation of cash and cash equivalents
Cash at the end of the reporting period as shown in the statement of cash flows is reconciled to items in the statement of financial position as follows:
As at December 31, 2010
--------------------
Cash on hand and at bank 12,490
Short term deposits 63,343
--------------------
Cash and cash equivalents 75,833
Restricted cash 7,000
--------------------
Total cash, cash equivalents and restricted cash at end
of period 82,833
--------------------
(b) Reconciliation of change in working capital
For the three months ended December 31, 2010
----------------------------------------------------------------------------
Changes in working capital
Increase in trade and term debtors (589)
Decrease in prepayments and other assets (5,346)
Increase in inventories (931)
Increase in trade creditors and accruals 1,447
Decrease in rehabilitation provision (204)
Decrease in income tax (267)
---------------------
Net change in working capital (5,890)
(c) Non-cash financing and investing activities
On November 23, 2010, Teranga acquired indirectly Sabodala gold mine and a regional exploration land package together with 15% (December 31:13.85%) of Oromin Exploration Ltd. ('Oromin') in consideration of the issuance of 200 million shares and C$50 million in satisfaction of a promissory note owing to MDL. The transaction has been recorded as a non-cash transaction, except of C$50million repayment of the promissory note. See Note 2.
(d) Cash balances restricted for use
The balance of funds held in SGO's Proceeds Account of $8.5 million (per the Project Finance Facility provided by Macquarie Bank Limited) is only available for operating, project and financing (including loan repayments) costs of that entity. Funds are not available for other entities within the Company unless strict criteria are passed. These criteria include technical and financial completion tests, loan ratio tests and sufficient funds remaining in the Proceeds Account to maintain an agreed reserve amount. Funds in the amount of $7 million are restricted and must always remain in the Proceeds Account, while the Facility Agreement remains in place.
32. FINANCIAL INSTRUMENTS
The Company's risk exposures and the impact on the Company's financial instruments are summarized below:
a) Capital risk management
The Company's objectives when managing its capital are to safeguard the Company's ability to continue as a going concern while maximizing the return to stakeholders through optimization of the debt and equity balance.
The capital structure of the Company consists of cash and cash equivalents, debt, and equity attributable to equity holders of the parent, comprising issued capital, reserves and accumulated losses. The Company is not subject to any externally imposed capital requirements.
The leverage ratio at year end was as follows:
As at December 31, 2010
---------------------
Long and short term debt (23,166)
Cash and cash equivalents 75,833
---------------------
Net cash 52,667
Equity attributable to equity holders of the parent 326,363
Net cash to equity ratio 16%
b) Categories of financial instruments
As at December 31, 2010, the Company's financial instruments consisted of cash and cash equivalents, other receivables, accounts payable and accrued liabilities, borrowings and derivative financial assets and liabilities.
The following table illustrates the classification of the Company's financial instruments within the fair value hierarchy as at December 31, 2010:
As at December 31, 2010
--------------------
Financial assets:
Cash and receivables
Cash and cash equivalents 75,833
Restricted cash 7,000
Trade and other receivable 9,784
Assets at fair value through profit and loss
Financial derivative assets 4,246
Available-for-sale
Available-for-sale financial assets 20,565
Financial liabilities:
Other financial liabilities at amortized cost
Borrowings 23,166
Trade and other payables 25,637
Liabilities at fair value through profit and loss
Financial derivative liabilities 137,646
c) Commodity Market risk
Market risk represents the potential loss that can be caused by a change in the market value of financial instruments. The Company's exposure to market risk is determined by a number of factors, including foreign exchange rates and commodity prices. The Company is exposed to movements in the gold price. As part of the risk management policy the Company has entered into gold forward sales contracts and oil energy swaps to reduce exposure to unpredictable market fluctuations. The Company has elected not to apply hedge accounting for these instruments.
Derivative financial instruments
As at December 31, 2010
--------------------
Financial derivative assets:
Oil energy swap 4,246
--------------------
Disclosed as:
Current 1,914
Non-current 2,332
Financial derivative liabilities:
Gold flat forward contracts 137,646
--------------------
Disclosed as:
Current 34,433
Non-current 103,213
Gold forward contracts and oil energy swaps
Gold Forward Contracts Energy Swaps - Oil
--------------------------------------------------------------
Ounces US$/ounce Fair Value BBL US$/BBL Fair Value
--------------------------------------------------------------
Within 1 year 61,000 846 34,433 60,000 70 1,914
Between 1 and
2 years 108,500 843 62,222 80,000 70 1,880
Between 2 and
3 years 66,000 807 40,991 40,000 70 452
--------------------------------------------------------------
Total 235,500 834 137,646 180,000 70 4,246
--------------------------------------------------------------
At December 31, 2010, the gold spot price was $1,408.7/oz and the oil price was $91.38/bbl.
As the Company has elected not to adopt hedge accounting, movements in the fair value of these contracts are accounted for through the statement of comprehensive income.
Sensitivity analysis
The following table summarizes the sensitivity of financial assets and financial liabilities held at reporting date to movement in gold and oil commodity rates, with all other variables held constant. A 10% movement for gold and oil rates represents management's assessment of the reasonably possible change.
Financial
Financial Assets Liabilities
----------------------------------------
For the three months ended December 31, 2010 December 31, 2010
----------------------------------------
Gold forward contracts
Profit or loss - 33,739
Other equity - -
Oil energy swaps
Profit or loss 1,644 -
Other equity - -
d) Foreign currency risk management
The Company has certain financial instruments denominated in CFA Franc, AUD, CAD and other currencies. Consequently, the Company is exposed to the risk that the exchange rate of the USD relative to the CFA Franc, AUD, CAD and other currencies may change in a manner which has a material effect on the reported values of the Company's assets and liabilities which are denominated in the CFA Franc, AUD, CAD and other currencies.
The carrying amounts of the Company's foreign currency denominated monetary assets and monetary liabilities that are denominated in a currency other than the functional currency is as follows:
Financial
Financial Assets Liabilities
----------------------------------------
As at December 31, 2010 December 31, 2010
----------------------------------------
CAD 52,133 1,089
CFA Franc (XOF) 3,759 19,137
AUD 20,675 324
Other 30 1,382
Foreign currency sensitivity analysis
The Company is mainly exposed to CFA Franc, CAD and AUD. Ten percent represents management's assessment of the reasonably possible change in foreign exchange rates. Sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at period end for a 10% change in the functional currency rates. A negative number indicates a decrease in profit or equity where the functional currency strengthens 10% against the relevant currency for financial assets and where the functional currency weakens against the relevant currency for financial liabilities. For a 10% weakening of USD against the relevant currency for financial assets and a 10% strengthening for financial liabilities, there would be an equal and opposite impact on net assets and the balances would be positive.
Financial
Financial Assets Liabilities
----------------------------------------
2010 2010
----------------------------------------
CAD Impact
Profit or loss 5,213 109
Other equity
----------------------------------------
XOF Impact
Profit or loss
Other equity 376 1,914
----------------------------------------
AUD Impact
Profit or loss 2,068 32
Other equity
----------------------------------------
Foreign currency exchange contracts
The Company has not entered into forward exchange contracts to buy or sell specified amounts of foreign currencies in the future at stipulated exchange rates.
e) Interest rate risk management
Interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in the market interest rates. The Company has exposure to interest rate risk relating to its bank balances and external borrowings. See below:
The following table illustrates the classification of the Company's financial instruments which are exposed to interest rate risk as at December 31, 2010.
As at December 31, 2010
--------------------
Financial assets
Cash at bank 75,833
Restricted cash 7,000
--------------------
82,833
Financial liabilities
Finance lease liabilities 23,166
--------------------
59,667
--------------------
The Company's interest rate on its finance lease is calculated at LIBOR plus a margin.
If interest rates had been higher or lower by 50 basis points and all other variables were held constant, the profit and net assets would increase or decrease by:
Financial
Financial Assets Liabilities
For the three months ended December 31, 2010 December 31, 2010
----------------------------------------
Profit or loss 414 116
Other equity
f) Credit risk management
The Company's credit risk is primarily attributable to cash, cash equivalents and derivative financial instruments. The Company does not have any significant credit risk exposure as cash and cash equivalents are invested in short-term Term Deposits issued by Canadian banks and in sovereign debt. The Company has adopted a strategy to minimize its credit risk by substantially investing in sovereign debt issued by Canadian Agencies, Provinces and the Federal Governments of Canada, and the United States.
The Company does not have significant credit risk exposure on accounts receivable as all gold sales are executed through Macquarie Bank, a AAA rated bank. Gold production is either delivered into forward sales contracts with Macquarie or sold into the spot market and deposited into the Company's bank account.
The Company is exposed to the credit risk of Senegal banks that hold and disburse cash on behalf of its Senegal subsidiaries. The Company manages its Senegal bank credit risk by centralizing custody, control and management of its surplus cash resources in Canada at the corporate office and only transferring money to its subsidiary based on immediate cash requirements, thereby mitigating exposure to Senegal banks. The amount of $0.9 million was held at Senegal banks as at December 31, 2010.
g) Liquidity risk management
The Company has sufficient funds as at December 31, 2010 to settle current and long-term liabilities.
Cash flow forecasting is performed in the operating entity of the group and combined by the Company's finance group. The Company's finance group monitors the liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom in its proceeds account so that the Company does not breach any of its covenants. Surplus cash held by the Corporate office is invested in short term investments issued by Canadian bank and in sovereign debt issued by Canadian Agencies, Provinces and the Federal Governments of Canada, and the United States.
Liquidity and interest risk tables
The following tables detail the Company's remaining contractual maturity for its non-derivative financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Company can be required to pay. The table includes both interest and principal cash flows.
Weighted Due
average between
effective Due one to three
interest Due on three months to Due one to
rate demand months one year five years
%
2010
Financial
Liabilities
Non-interest
bearing - 14,863 5,595 - -
Variable interest
rate instruments 3.42% - 4,764 7,350 16,113
Derivatives (i) - - 3,939 19,976 101,101
----------------------------------------------
14,863 14,298 27,326 117,214
----------------------------------------------
(i) Expected to be settled through delivery of gold.
Weighted Due
average between
effective Due one to three
interest Due on three months to Due one to
rate demand months one year five years
%
2010
Financial Assets
Non-interest
bearing - 9,098 252 434 -
Derivatives (i) - - 428 855 2,138
----------------------------------------------
9,098 680 1,289 2,138
----------------------------------------------
(i) Expected to be settled in cash on a net basis.
h) Fair value of financial instruments
The fair values of financial assets and financial liabilities are determined as follows:
-- the fair value of financial assets and financial liabilities with
standard terms and conditions and traded on active liquid markets are
determined with reference to quoted market prices; and
-- the fair value of derivative instruments are calculated using quoted
prices and option pricing models.
Management consider that the carrying amounts of financial assets and financial liabilities recorded at amortized cost in the financial statements approximate their fair value for the Company, as they represent short-term trade amounts.
Fair value hierarchy
The Company values instruments carried at fair value using quoted market prices, where available. Quoted market prices represent a Level 1 valuation. When quoted market prices are not available, the Company maximizes the use of observable inputs within valuation models. When all significant inputs are observable, the valuation is classified as Level 2. Valuations that require the significant use of unobservable inputs are considered Level 3.
The following table outlines financial assets and liabilities measured at fair value in the consolidated financial statements and the level of the inputs used to determine those fair values in the context of the hierarchy as defined above:
Financial assets and liabilities as at December 31,
2010
----------------------------------------------------
Level 1 Level 2 Level 3 Total
Financial assets $ -
Cash and Cash
Equivalents 75,833 - - 75,833
Restricted cash 7,000 - 7,000
Available-for-sale
financial assets 20,565 - - 20,565
Derivative financial
assets 4,246 - - 4,246
----------------------------------------------------------------------------
$ 107,644 $ - $ - $ 107,644
----------------------------------------------------------------------------
Financial liabilities $ -
Derivative financial
liabilities 137,646 - - 137,646
-
----------------------------------------------------------------------------
$ 137,646 $ - $ - $ 137,646
----------------------------------------------------------------------------
33. STOCK OPTIONS
The Incentive Stock Option Plan (the 'Plan') authorizes the Directors to grant options to purchase shares of the Company to directors, officers, employees and consultants of the Company and its subsidiaries. The exercise price of the options is determined by the board of directors at the date of grant but in no event shall be less than the five-day weighted average closing price of the common shares as reported on TSX on the business day immediately preceding the day on which the option was granted.
The vesting of options is determined by the board at the date of grant. The term of options granted under the Plan is at the discretion of the board, provided that such term cannot exceed ten years from the date of the option is granted.
Each employee share option converts into one ordinary share of Teranga on exercise. No amounts are paid or payable by the recipient on receipt of the option. The options carry neither rights to dividends nor voting rights. Options may be exercised at any time from the date of vesting to the date of their expiry.
As at December 31, 2010, 13,805,000 common share stock options were granted and held by directors, officers, employees and consultants. No stock options were exercised, forfeited or cancelled during the three-month period ended December 31, 2010. The following stock options were in existence as at December 31, 2010:
Exercise FV at grant
Option series Number Grant date Expiry date price date
------------------------------------------------------------
C$ C$
Issued on
November 26,
2010 10,580,000 26-Nov-10 26-Nov-20 3.00 1.19
Issued on
December 3,
2010 3,225,000 03-Dec-10 03-Dec-20 3.00 1.19
As at December 31, 2010, approximately 10.7 million options are currently available for issuance under the Plan.
The estimated fair value of stock options is amortized over the period in which the options vest which is normally three years.
As at December 31, 2010 all outstanding stock options have a remaining contractual life of ten years.
Fair value of stock options granted
The current period's valuation was calculated using Black-Scholes option pricing model with the following assumptions:
For the three months ended December 31, 2010
---------------------
Grant date share price C$3.00
Exercise price C$3.00
Weighted average risk-free interest rate 1.97%
Volatility of the expected market price of share 53%
Weighted average expected life of options 3.44
Dividend yield 0%
Forfeiture rate 6.39%
Movements in shares options during the period
The following reconciled the share options outstanding at the beginning and end of the period:
For the three months ended December
31, 2010
----------------------------------------
Weighted average
Number of options exercise price
Balance at beginning of the period -
October 1, 2010 - -
Granted during the period 13,805,000 C$3.00
Forfeited during the period - -
Exercised during the period - -
Expired during the period - -
Balance at end of the period 13,805,000 C$3.00
Share options exercised during the period
There were no options exercised during the period ended December 31, 2010.
34. SEGMENT REPORTING
The Company has one reportable operating segment under IFRS 8 relating to the gold activity.
Information regarding geographical and customer segments is presented below.
Geographical information
The Company operates in two geographical areas, predominantly in Senegal (West Africa) and Mauritius.
The following table discloses the Company's revenue by geographical location:
For the three months ended December 31, 2010
--------------------
Republic of Senegal - revenue from gold and silver sales 17,139
Republic of Senegal - Other revenue -
Mauritius -
Toronto 31
--------------------
Total 17,170
--------------------
The following is an analysis of the Company's non-current assets by geographical location:
As at December 31, 2010
--------------------
Republic of Senegal 309,951
Mauritius 853
Toronto 84
--------------------
Total 310,888
--------------------
Information about major customers
Gold sales revenue from one customer for the three months ended December 31, 2010 was $17.1 million.
35. KEY MANAGEMENT PERSONNEL COMPENSATION
The names and positions held by key management personnel in office as at December 31, 2010:
Alan R. Hill Chairman and CEO
Richard S. Young President and CFO
The remuneration of each director during the three months ended December 31, 2010 is as follows:
Equity settled
share based
payments -
value vested
during the
Short term benefits quarter
----------------------------------------------------------
Salary and Non-Cash
Fees Benefits Cash Bonus Options Total
----------------------------------------------------------
2010
Alan R. Hill 200 - - 360 560
Richard S. Young 160 - - 324 484
----------------------------------------------------------
360 - - 684 1,044
----------------------------------------------------------
Note: Salary and fees include consulting payments to senior management personal during the initial public offering, which were paid from proceeds of the IPO at the board approved salary rate.
36. RELATED PARTY TRANSACTIONS
(a) Equity interests in related parties
Details of percentages of ordinary shares held in subsidiaries are disclosed in Note 31 to the financial statements.
(b) Transactions with key management personnel
Details of key management personnel compensation are disclosed in the Note 35.
No loans were made to directors or director-related entities during this period.
Shareholdings
The directors representing the Mauritian parent entity were issued one share each for a total of 0.5% in Sabodala Gold Operations SA (SGO) with the other 89.5% issued to and held by the Mauritian parent Sabodala Gold (Mauritius) Limited. On death or resignation, a share individually held would be transferred to another representative of the relevant Mauritian parent entity or added to its current 89.5% shareholding according to the circumstances at the time.
37. APPROVAL OF THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
These unaudited interim consolidated financial statements have been approved by the Board of Directors on February 14, 2011.
Contacts:
Teranga Gold Corporation
Kathy Sipos
Vice-President of Investor Relations
+1 416-594-0000
ksipos@terangagold.com
www.terangagold.com